Close, but No Cigar for a Stay? ‘Related’ but ‘Separate’ Proceedings and the Risk of Irreconcilable Judgments

Part One of this article considered the decision of the Court of Appeal that the English court did have jurisdiction over Messrs Kolomoisky and Bogolyubov to the English Companies as foreign and anchor defendants respectively under Article 6 of the Lugano Convention.
Part Two considered the finding that, given the proceedings pending before the Ukrainian courts, there was jurisdiction to grant a stay by reflexive application of Article 28 of the Lugano Convention to Ukraine, a third State, as though it were a Convention State.
Part Three finally considers the threshold tests for the Lis Pendens Alibi Rules of the Lugano Convention and the Brussels Recast Regulation; and, if such threshold test is met, the correct approach to exercising the discretion to grant a stay.

The Procedural History in England and Ukraine

Both sets of proceedings arose from an alleged fraud perpetrated on the Bank by Messrs Kolomoisky and Bogolyubov, using the English and BVI Companies as conduits. In England, the Bank brought various claims against Messrs Kolomoisky and Bogolyubov, and the English and BVI Companies, quantifying its claim at US$1,911,877,385 plus interest.

The alleged fraud was reported in a Ukrainian magazine, in respect of which Mr Kolomoisky issued a defamation claim in Ukraine. Principal proceedings were formally opened by the Pechersky District Court on 4 December 2017, with Mr Bogolyubov, the English and BVI Companies joined as third parties. The English Companies issued their own defamation claims in Ukraine on 7 December 2017.

On 19 December 2017, Nugee J made various orders upon without notice applications by the Bank, including the grant of a worldwide freezing order to the value of US$2.6 billion. In early 2018, each of the Defendants made applications for declarations, inter alia, that the English courts had no jurisdiction to try the claims, and for the worldwide freezing order to be discharged and/or varied. These applications were heard before Fancourt J in late July 2018.

In October 2018, the Pechersky District Court dismissed Mr Kolomoisky’s defamation claim of its own motion, finding that Mr Kolomoisky had committed material procedural misconduct in multiple and abusive attempts to have the presiding judge recuse herself for bias. In addition, although there had not been a fully contested hearing on the merits, the District Court also considered the claim frivolous and fabricated, and that Mr Kolomoisky had no real interest in pursuing the proceedings to judgment. Mr Kolomoisky and the English Companies appealed, and the matter ultimately came before the Supreme Court of Ukraine.

Meanwhile, on 4 December 2018, Fancourt J handed down his judgment, which found that the Ukrainian and English proceedings were sufficiently ‘related’ so as to engage the jurisdiction to grant a stay on the proceedings against (i) the English Companies, under Article 34 of the Brussels Recast Regulation; and (ii) Messrs Kolomoisky and Bogolyubov through reflexive application of Article 28 of the Lugano Convention. Given these findings, he further found (iii) there was jurisdiction to stay proceedings under the doctrine of forum non conveniens against the BVI Companies, on the basis that they were necessary parties to the Bank’s claim. Stays were therefore granted whilst the proceedings in Ukraine remained pending and were subject to review.

On 7 August and 11 September 2019, Ukrainian Supreme Court granted the appeals of the English Defendants and of Mr Kolomoisky. The claims were remitted to the District Court for trial and remained pending in Ukraine on 15 October 2019 when the English Court of Appeal handed down judgment in the present appeal. 

In the Court of Appeal, the main issues were whether Fancourt J was right to hold that (i) the Ukrainian and English proceedings were ‘related’ within the meaning of the relevant lis alibi pendens rules, and, if he had been correct, whether (ii) he had erred in the exercise of discretion in granting stays. The Court of Appeal considered that the issue as to whether (iii) staying proceedings against the BVI Companies necessarily followed on from on issues (i) and (ii).

The Lis Alibi Pendens Rules: the Threshold Issue

Article 34 of the Brussels Recast Regulation and Article 28 of the Lugano Convention (together, the Lis Alibi Pendens Rules’) are in materially similar terms. These permit a court of a Convention/EU Member State to stay proceedings if it is:

“expedient to hear and determine the related actions together to avoid the risk of irreconcilable judgments resulting from separate proceedings.”

The Court of Appeal noted that there are conflicting decisions at first instance as to the threshold for ‘relatedness’ before the Lis Alibi Pendens Rules are engaged.

In Cardosa de Pina v MS “Birka” Beutler Sciffahrts KG [1994] ILPr 694, Barling J emphasised the concept of consolidation because the wording in the Article “envision actions as being related to each other which could, in the circumstances in which they are brought, be tried together.”  As the two actions before him could not be so tried, he held that they were not “related.”

In Centro Internationale Handelsbank AG v Morgan Grenfell Trade Finance Limited [1997] CLC 870, Rix J disagreed that actions were “related” only if they could be consolidated and tried in the same proceedings. Although Rix J acknowledged that the test “may perhaps be glossed” this way, he considered that “there is a real difference between asking whether the actions can be brought together and asking whether they should be brought together” (emphases original).

These and other earlier authorities were considered carefully in Nomura International Plc v Banca Monte Dei Paschi Di Siena SpA [2013] EWHC 3187 (Comm), where Eder J considered the point “ultimately” lay in the “focus” of the wording of the provisions. In his view, in principle, ‘expedient’ should be “read in the sense of genuinely desirable, not what is “capable” or “possible.” Eder J therefore concluded that the fact that actions cannot in practice be heard together does not mean it is not “expedient” to hear and determine them together.

The Court of Appeal considered that the analyses and approaches in Nomura and Centro were to be preferred, both having correctly focussed on the language of provisions. The word “expedient” was considered more akin to “desirable” than to “practical” or “possible.” The test was, therefore, concerned with whether the actions ‘should’ be heard together, not whether they ‘can’ be heard together. The Court of Appeal further found force in the submission that, if a test of consolidation were intended, there would be an express reference to such a requirement, as is the case in, for example, Article 30(2) of the Regulation.

Accordingly, the Court of Appeal considered that the Judge was right to conclude that the English and Ukrainian actions were related, even if they could not be consolidated.

Exercise of the Discretion to Grant a Stay

Having established, therefore, that there was jurisdiction to do so, the Court of Appeal considered whether the Judge had erred in the exercise of discretion in granting stays.

The Court of Appeal found the Judge had erred for the following reasons:

1. The stays were granted on the fundamentally erroneous basis that, because there had not been a fully contested hearing on the merits, the Pechersky District Court had dismissed the Ukrainian claims on solely procedural grounds. The Ukrainian judgment had been clear that it had also considered the claims to be unmeritorious.
2. The proceedings could not actually be consolidated in Ukraine: the District Court before which the defamation proceedings were pending did not have jurisdiction to hear the Bank’s claim, which would have to be brought before the Ukrainian Commercial Court. There remained, therefore, a considerable risk of irreconcilable findings on issues such as whether there was a fraudulent scheme, who had set it up and operated it, how it worked and its purpose, and the amount of money unlawfully removed through it.
3. Although not an ‘immutable rule of law,’ the fact that proceedings cannot be consolidated will, absent some strong countervailing factor, usually be a compelling reason for refusing a stay. In the present case, there were no such countervailing factors.
4. More generally, where there was an English claim alleging a good and arguable case for fraud “on an epic scale,” the decision to grant a stay was “plainly wrong on the facts.”

Conclusions

The Court of Appeal accordingly set aside the orders of the Judge granting stays against Messrs Kolomoisky and Bogolyubov, and the English Companies. It followed that, because the BVI Companies were necessary and proper parties to the claim, the orders granting a stay on proceedings against these defendants were also set aside.

The Bank’s claim having thus been allowed to continue in England, the Court of Appeal proceeded to consider further appeals in relation to the quantum of the worldwide freezing order, and whether there had been material non-disclosure in the initial application before Nugee J. These largely turned on the scope of the Bank’s pleaded case, tracing, and the roles of the English and BVI Companies in the fraud. Both issues were determined in the Bank’s favour, and the freezing order granted by Nugee J was not disturbed.

Commentary

The Court of Appeal has helpfully clarified the meaning of ‘related proceedings’ and stays on the basis of lis alibi pendens within the framework of EU private international law.

First, it should be noted that the correct test for ‘relatedness’ holds that claims may be ‘related’ even if they cannot be consolidated into a single set of proceedings. It is submitted that this is logically correct: were the test one of consolidation, it is difficult to see how the two sets of proceedings could ever give rise to any risk of irreconcilable judgments. Rather, it is only when actions do actually proceed in separate fora, perhaps because they cannot be consolidated, that such risk arises.

Second, the case clarifies the correct point at which the question of whether the separate proceedings can, in fact, be consolidated falls to be considered: not at the initial threshold stage of determining whether the Lis Alibi Pendens Rules of EU private international law are engaged; but as one of many factors to be considered at the second stage, i.e., in the exercise of discretion as to whether a stay should be granted on the particular facts of any given case. It is worth noting that, absent any strong countervailing factors, the fact that proceedings cannot be consolidated will usually be a reason in favour of granting a stay.