Jurisdiction - Challenge to jurisdiction

Merchant International Company Ltd v Natsionalna Aktsionerna Kompaniya 'Naftogaz Ukrayiny': Queen's Bench Division, Commercial Court (Mr Justice David Steel): 14 July 2011

The claimant company (MIC) asserted that it was the assignee under an assignment agreement of December 1998 of a substantial debt originally owed by the defendant’s legal predecessor (NAK), a state-owned entity. MIC obtained a judgment in the Ukraine in its favour in 2006 for a sum in excess of US$24m.

Attempts to enforce the judgment in the Ukraine were unsuccessful. In 2010, MIC commenced proceedings in the English courts with a view to enforcing its Ukrainian judgment in England by obtaining an English judgment against NAK at common law. Service of the proceedings was effected pursuant to the Hague Convention in the Ukraine in September 2010. NAK acknowledged service of the claim, however in the event no defence was served and accordingly MIC entered judgment in default on 28 February 2011.

NAK applied to have the judgment in default set aside on that basis that previously NAK had applied to the supreme commercial court of the Ukraine for an order setting aside MIC’s Ukrainian judgment because of alleged newly discovered circumstances. On 7 April 2011, the supreme commercial court granted NAK’s application to cancel the Ukrainian judgment on the basis that MIC apparently lacked standing or capacity to enter into the assignment. The claim was remitted to the lower court for a retrial.

The main issue was not so much the enforcement of the original judgment but the recognition of the judgment setting it aside. If the judgment setting aside the judgment of the lower court had lacked due process then the default judgment would stand. NAK submitted that since the Ukrainian judgment had been set aside and a new trial ordered, there was no foreign judgment, let alone one that was final and conclusive, which could be recognised or enforced in England and that accordingly the proceedings should be set aside.

MIC submitted that the setting aside of the judgment had been a breach of the principles of legal certainty commensurate with art 6 of the European Convention on Human Rights (the Convention) and/or s 6 of the Human Rights Act 1988 (the 1988 Act). MIC complained that the supreme commercial court had simply responded to NAK’s bare assertion that there had been newly discovered facts without more.

MIC submitted that it ought to have ruled, first on whether the evidence was credible and decisive and second, on whether it could have been discovered by due diligence at the time of the trial. If and insofar as it was outside the jurisdiction of the supreme commercial court to make that assessment, the issues should have been remitted to the lower court leaving the judgment untouched.

MIC further complained that the supreme commercial court had not made any reference whatsoever to the contention that the person who had purportedly signed the agreement had done so but NAK proposed to pursue that new point at the retrial. Thus, it was submitted, it was not arguable that the new trial was a conscientious effort to correct a miscarriage of justice, it was a bare faced appeal, in the form of a re-run of all the matters already considered by the lower court and more. NAK submitted in response that, in any event, it was only in cases of 'flagrant' breaches of art 6 that it was open to the court to refuse to recognise a judgment. MIC responded that the requirement for a 'flagrant' breach only arose in the case of a decision in the courts of a non-Convention country.

The application would be dismissed.

It was well established that a foreign judgment was impeachable on the ground that its recognition would be contrary to public policy. Accordingly, if the recognition of a foreign judgment would be contrary to the Convention, recognition would in principle be refused. That outcome was not so much driven by consideration of public policy as by the terms of s 6 of the 1988 Act. Where a foreign judgment was vulnerable to the allegation that the foreign proceedings had fallen short of the guarantees of a fair trial as required by the convention, the English court should approach the question with some considerable caution. Indeed the presumption had to be that the procedures were compliant (see [31] of the judgment).

In the instant case, the presumption had been displaced. The order of the supreme commercial court had involved a clear disregard of the principles of legal certainty. The court had allowed the entire case (and more) to be re-opened by reference solely to the issue of status. That had permitted NAK to raise the signature issue even though that 'new' point had not been mentioned in the judgment.

In regard to the ‘status’ issue, no finding had been made as to its evidential significance nor, more importantly, as to the extent to which the material could with reasonable diligence have been available at the earlier hearing nor had it invited the lower court to consider such issues. In relation to the 'flagrant breach' point, the outcome in Ukraine had indeed flowed from a glaring shortfall from compliance with principle. In any event the requirement for a flagrant breach only arose in the case of a decision in the courts of a non-Convention country. The overall conclusion that recognition should not be accorded to the judgment of the supreme commercial court was fortified by two further considerations: (a) the original (and final) judgment has been in existence for five years.

The proceedings to enforce it in England had begun over a year ago. It had only been shortly after the failure to set aside service that any challenge to the original judgment was first mooted. Such a challenge should accordingly be approached with some caution if not scepticism; (b) the requirements of art 6 were to be approached with particular sensitivity where, as here, the outcome of the proceedings favoured a state-owned entity (see [33]-[36] of the judgment).

The application to set aside the default judgment had to be dismissed (see [37] of the judgment).

Yukos Capital Sarl v OJSC Rosneft Oil Co [2010] All ER (D) 99 (Apr) applied; Maronier v Larmer [2002] All ER (D) 449 (May) considered.

Michael Beloff QC, Michael Lazarus and Robert Palmer (instructed by Hogan Lovells International LLP) for the claimant. Alexander Layton QC and Michael Fealy (instructed by Simmons & Simmons) for the defendant.