Jurisdiction - Challenge to jurisdiction - Civil and commercial matters

Merchant International Co Ltd v Natsionalna Aktsionerna Kompaniia 'Naftogaz Ukrayiny': Court of Appeal, Civil Division: 29 February 2012

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 $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. In September 2010, service of the proceedings was effected in the Ukraine pursuant to the Hague Convention in the Ukraine. NAK acknowledged service of the claim, however, in the event no defence was served. In February 2011, MIC entered judgment in default. NAK applied to have the judgment in default set aside on the basis that previously NAK had applied to the supreme commercial court (the SCCU) of the Ukraine for an order setting aside MIC's Ukrainian judgment because of alleged newly discovered circumstances.

In April 2011, the SCCU 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. NAK applied to the High Court to set aside the English judgment in default. The judge, in refusing to set aside the English judgment, held that the judgment of the SCCU that had set aside the earlier Ukrainian judgment had involved a clear disregard of the principle of legal certainty and there had, therefore, been a flagrant breach of article 6 of the European Convention on Human Rights. The defendant appealed.

The defendant submitted, first, that the judge had erred in asking himself whether the court should recognise the judgment of April 2011 delivered by the SCCU as though NAK was seeking to bring enforcement proceedings against MIC in the United Kingdom when he should have asked himself whether, at the time when the matter was before him, MIC had a Ukrainian judgment which it could call on the English court to enforce. At the date of the hearing, the SCCU had determined that the previous judgment in favour of MIC should be set aside and, accordingly, in the eyes of the Ukrainian courts MIC had had no enforceable judgment against NAK and there was, therefore, nothing for an English court to continue to enforce.

Secondly, the defendant submitted that the judge had erred in entertaining the question whether the judgment of the SCCU had involved a breach of the Convention and had further erred in holding that it had. Thirdly, it submitted that the English judgment was not an independent property right that attracted the protection of article 1 to the First Protocol of the Convention and, that by refusing to set it aside, the English court had given continuing effect to a judgment which had ceased to have effect under Ukrainian law. Consideration was given to Civil Procedure Rules Parts 12 and 13. The appeal would be dismissed.

An English judgment was a form of property which might have real value. To set aside a judgment properly obtained was to deprive the judgment creditor of an asset. Third parties might also be affected. There might be circumstances where there could be real injustice to a judgment creditor or a third party by depriving them of the fruits of a judgment properly entered (see [78] of the judgment).

In the instant proceedings, the judge's refusal to set aside the judgment had been correct. It was clear that, at the time when judgment was entered, NAK had not had any defence. Its failure to serve a defence had not been through oversight; it had had no defence to plead. MIC had had a judgment in its favour which had been conclusive within the meaning of that term under established English authorities. NAK had had knowledge for over 10 months that MIC had been trying to take steps to obtain judgment in England.

The basis of the application to set aside had been that NAK had subsequently obtained a judgment from the SCCU that set aside the previously final judgment. In those circumstances, it had been proper for the judge to consider whether the judgment of the SCCU had violated the principles of substantial or natural justice as understood by the English courts and with MIC's rights under the Convention.

That question had been one and the same because there was no difference in substance between the principle of legal certainty as it was understood by the English courts and the principle as expressed by the courts of Europe. On the evidence that had been before the judge, the factual basis for having concluded that there was a breach of the principle of legal certainty had been very strong.

Under CPR 13.3, the fact that NAK would have had an arguable defence to the claim if judgment were set aside was not a mandatory ground for setting aside the judgment; the court retained a discretion, albeit one which had to be judicially exercised. The judge had been asked to set aside a judgment which had been properly obtained on the basis of later proceedings which had involved a fundamental denial of legal certainty and fair process. In those circumstances, the judge's refusal to do so had been just (see [66]-[69], [72], [77], [79], [83], [84] of the judgment).

Carl Zeiss Stiftung v Rayner and Keeler Ltd (No 2), Rayner and Keeler Ltd v Courts [1966] 2 All ER 536 applied; Maronier v Larmer [2003] 3 All ER 848 considered; Lindberg v Sweden (15 January 2004, unreported) App No 48198/99 considered; Pravednaya v Russia (30 March 2005, unreported) App No 69529/01 considered; Agrokompleks v Ukraine (App No 23465/03) [2011] ECHR 23465/03 considered. Decision of David Steel J [2011] 2 All ER (Comm) 755 affirmed.

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