#5079 - Merchant International V. Naftogaz - Conflict of Laws BCL

Merchant International v. Naftogaz

Facts

The claimant, a company incorporated in Delaware, entered into an assignment agreement in 1998 with a Russian company which assigned to the claimant its contractual rights to a debt owed by the defendant, a Ukrainian state-owned energy company. Having received no payment, the claimant brought proceedings against the defendant in 2002 in the Kiev Commercial Court, which gave judgment for the claimant in 2006 for the debt. Later in 2006 the Supreme Court of Ukraine refused to permit a review of that judgment and ruled that its judgment was final and could not be appealed.

The claimant was unable to enforce its judgment in Ukraine because a law passed in 2005, suspending execution of judgments against energy companies, remained in force. In 2010 the claimant brought English proceedings to enforce the Ukrainian judgment and obtained a freezing order over the defendant's assets in the United Kingdom. A judgment in default of defence was entered in favour of the claimant in February 2011.

In the same month the defendant applied to the Supreme Commercial Court of Ukraine to review the decisions of the Kiev Commercial Court and its own decision of 2006 on the basis of evidence that the claimant had lacked legal capacity to enter into the assignment agreement in 1998, and applied for the enforcement of those judgments to be suspended until completion of the review.

In April 2011 the Supreme Commercial Court of Ukraine repealed the 2006 judgments on the basis of the evidence of the claimant's capacity produced by the defendant, and remitted the matter for a new trial at first instance. The defendant applied under CPR r 13.3 1 for the default judgment to enforce the 2006 Ukrainian judgments to be set aside on the basis that, since they had been set aside in Ukraine, the claimant had no enforceable judgment against the defendant there and consequently there was no foreign judgment for the English court to enforce.

Holding

Breach of the Convention in another contracting state

Argument: As to the first point, Mr Layton submitted that whereas the courts of a Convention state may be required to consider whether the proceedings in a non-Convention state involved what would have been a breach of the Convention in a Convention state ( Pellegrini v Italy (2001) 35 EHRR 44 ), it is not for the courts of a Convention state to judge whether there has been a breach of the Convention in another Convention state.

Rejected: The sentence on which Mr Layton particularly relied (about the risk of upsetting the coherence of the division of roles between national review bodies and the European court) came in an earlier part of the judgment in which the court was spelling out the limit of its own role, in that it was not prepared to allow Mr Lindberg's complaint to be effectively an out of time complaint against the original decision of the Norwegian court. He was not being allowed a second bite of the same cherry. In any case it would be no part of the role of the Strasbourg court to prohibit the English court from considering whether the setting aside of the English judgment would contravene the principle of legal certainty. I can see that the undesirability of having conflicting decisions of different Convention states, particularly if the matter is on its way to Strasbourg, may be a factor relevant to the exercise of the English court's exercise of its discretion on the facts of a particular case, but that is another matter.

I do not read Lindberg's case (Application No 48198/99) 5 January 2004 as establishing the wide principle for which Mr Layton contended, namely that the courts of a Convention state should never concern themselves with the question whether there has been a breach of a party's Convention rights in another Convention state but should regard that question as a matter exclusively for the other Convention state and the Strasbourg court.

In so far as Mr Layton sought to suggest that it is wrong as a matter of English law for an English court to consider whether a judgment of a court of a Convention state contravened the Convention, the decision of this court inMaronier v Larmer [2003] QB 620is to the opposite effect. In that case it was held that the courts of this country should apply a strong presumption that the procedures of other Convention states comply witharticle 6, but the court concluded that in that particular case there had been a breach of article 6.

Did the second order of the Ukraine Supreme Court violate Art. 6?

The factual basis for concluding that there was a breach of the principle of legal certainty was very strong. There was no credible basis for suggesting that Naftogaz could not have investigated the status of MIC at the time of the assignment during the original litigation and it does not appear that any was put forward. The assertion that MIC lacked legal capacity to enter into the assignment was based on a partial record obtained from the Delaware Corporation Registry, which was corrected by the fuller version produced by MIC prior to the order dated 7 April 2011. It could not on any threshold examination have been described as decisive evidence not previously available through the exercise of due diligence (applying the test in Pravednaya's case (Application No 69529/01) 18 November 2004). If, as it seems, the SCCU's rules prevented it from making that threshold assessment, an order setting aside the judgment and directing a retrial without such an assessment was a negation of the principle of legal certainty.

It is clear from the judgment of the Kiev Commercial Court dated 3 November 2011 (after the judgment of David Steel J) that it carried out no assessment whether there had been newly discovered circumstances of a decisive nature which could not have been ascertained with due diligence during the original proceedings, for it considered itself to be bound to conduct a new trial disregarding all findings made in the original proceedings.

The position so far reached is this: (1) the judgment obtained by MIC on 28 February 2011 was properly obtained and Naftogaz had at that stage no defence to MIC's claim; (2) the subsequent judgment of the SCCU relied upon by Naftogaz to deprive MIC of the English judgment offended against the principle of legal certainty regarded by the English courts as a...