Erste Group Bank AG London Branch v J 'VMZ Red October' & Ors

The key issue which arises under this head is whether the Bank had established that there was between the Bank and D1/D2 "a real issue which it is reasonable for the [English] court to try" (as required by paragraph 3.1(3)(a)). This issue in turn involves consideration of the following three sub-issues:

For present purposes the critical paragraphs of the judge's judgment in relation to Issue 1 are paragraphs 109 - 128. At paragraphs 104 - 105 he summarised the issues and the arguments of the parties. Having quoted from paragraphs 164 - 167 of Lord Collins' judgment in Rubin v Eurofinance SA and New Cap Reinsurance Corporation v Grant (in liquidation) [2012] UKSC 46, [2013] 1 AC 236, (“New Cap"), and summarised Mr Morgan's submissions that, by putting in a claim for proof in the insolvency of D1 in Russia, http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Comm/2013/2926.html&query=title+(+Erste+)+and+title+(+group+)+and+title+(+Bank+)&method=boolean - disp154 the Bank http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Comm/2013/2926.html&query=title+(+Erste+)+and+title+(+group+)+and+title+(+Bank+)&method=boolean - disp156 had submitted its claims against D1 to the exclusive jurisdiction of the Russian courts and that it was not open to http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Comm/2013/2926.html&query=title+(+Erste+)+and+title+(+group+)+and+title+(+Bank+)&method=boolean - disp155the Bankhttp://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Comm/2013/2926.html&query=title+(+Erste+)+and+title+(+group+)+and+title+(+Bank+)&method=boolean - disp157 to pursue its claims against D1 in England, the judge went on to conclude that on the evidence there were three critical aspects of the facts of this case which distinguished it from New Cap and which meant that http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Comm/2013/2926.html&query=title+(+Erste+)+and+title+(+group+)+and+title+(+Bank+)&method=boolean - disp156 the Bank http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Comm/2013/2926.html&query=title+(+Erste+)+and+title+(+group+)+and+title+(+Bank+)&method=boolean - disp158 had not submitted to the jurisdiction of the Russian courts in relation to its claims against D1 so as to preclude it from pursuing those claims in England. The three aspects are:

As to the Bank’s claims against D2, the judge relied upon the fact that, when defending the claim to set the Guarantee aside, the Bank had at all levels challenged the jurisdiction of the Russian court to determine the dispute as to the validity of the Guarantee, on the grounds that that dispute had to be determined by LCIA arbitrators pursuant to the London arbitration clause in the Guarantee. On the basis that http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Comm/2013/2926.html&query=title+(+Erste+)+and+title+(+group+)+and+title+(+Bank+)&method=boolean - disp171the Bankhttp://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Comm/2013/2926.html&query=title+(+Erste+)+and+title+(+group+)+and+title+(+Bank+)&method=boolean - disp173 had not submitted to the jurisdiction of the Russian courts in relation to the determination of the validity of the Guarantee, the decision of the ACVR and the Russian appellate courts that the Guarantee was invalid, which applied Russian law to the Guarantee, notwithstanding that it was expressly governed by English law, would not be recognised by the English Court. This, he held, was an application of the long-standing principle that discharge from liability under a foreign bankruptcy procedure would only be a discharge in England if it was a discharge under the law applicable to the contract. That principle was applied by the Court of Appeal in Antony Gibbs & Sons v La Societe Industrielle et Commerciale des Metaux (1890) 25 QBD 399 and had been applied many times since, most recently by Teare J in Global Distressed Alpha Fund v PT Bakrie Investindo [2011] EWHC 256 (Comm); [2011] 1 WLR 2038 (where he refused an invitation not to follow the Gibbs case).

The judge concluded by holding that, even if he had considered Mr Morgan was right that http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Comm/2013/2926.html&query=title+(+Erste+)+and+title+(+group+)+and+title+(+Bank+)&method=boolean - disp173the Bankhttp://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Comm/2013/2926.html&query=title+(+Erste+)+and+title+(+group+)+and+title+(+Bank+)&method=boolean - disp175 had submitted its claims against D1 and D2 to the jurisdiction of the Russian courts, in his view the only claims that would have been so submitted would have been claims under the Loan Agreement and Guarantee themselves and that there was no basis for the contention that it had submitted its wider claims in conspiracy and other torts to the jurisdiction of the Russian courts.

The submissions of Mr Richard Snowden QC, who appeared for D3 on the appeal, were adopted by Mr David Mumford on behalf of D5. The overall argument of both counsel was that the judge had failed to address the specific issue of whether, for the purposes of paragraph 3.1(3)(a) of PD6B, it is reasonable for the English court to try an issue between the Bank and D1/D2 on the facts of this case. In outline, Mr Snowden submitted that it was not reasonable for the English court to try issues between the Bank and D1/D2 because:

Mr Simon Salzedo QC for the Bank began by offering an undertaking to the court (which had not been given below) to the effect that, at the trial of English proceedings, the Bank would limit its case on “unlawful means conspiracy” so that it did not include any assertion that any of the final decisions of the Russian courts in relation to the insolvencies of D1 and D2 was wrong as a matter of Russian law. Thus, it would not be argued that the Russian courts had been used as some kind of instrument in the conspiracy alleged.

On the substance of the issue, Mr Salzedo’s principal arguments were:

Paragraph 3.1(3) of PD6B provides as follows:

“(3)

A claim is made against a person (‘the defendant’) on whom the claim form has been or will be served (otherwise than in reliance on this paragraph) and –

(a)

there is between the claimant and the defendant a real issue which it is reasonable for the court to try; and

(b)

the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim.” [Emphasis supplied.]

Thus a claimant has to demonstrate that both threshold requirements are met. At the first stage under paragraph 3.1(3)(a), the court has to examine the nature of the claim which arises against the anchor defendants in isolation; that is to say on the assumption that there will be no additional joinder of the foreign defendants. The court has to be satisfied that not only is there “a real issue” between the claimant and the anchor defendants, but also that it is an issue "which it is reasonable for the court to try". These requirements are underlined by CPR 6.37(2) which provides that the application must also state the grounds on which the claimant believes that there is between the claimant and the defendant a real issue which it is reasonable for the court to try. Only at the second stage does the court go on to consider whether the foreign party is "a necessary or proper party to that claim".

Mr Salzedo attempted to rely upon paragraphs 64 to 67 and 74 to 80 of the Board's judgment in Altimo, and the statements by Lord Collins as to the similarity between the Isle of Man provisions and paragraph 3.1(3) of PD6B, to support his submission that the only criterion which has to be satisfied at the first stage under paragraph 3.1(3)(a) is whether there is an arguable claim against the anchor defendants, D1 and D2.

In the first group of paragraphs Lord Collins analysed the Isle of Man provisions on service out of the jurisdiction and compared them to the English provisions under the old RSC, but he concluded that the changes did not affect the point of law that arose on that appeal. In the second group of paragraphs Lord Collins considered the old English law on when a claim was “properly brought” against the defendant who had been served within the jurisdiction, D1 in Lord Collins’ example. Lord Collins conducted a review of the cases on the old RSC Order 11 rule 1(1)(c) before it was amended in 1987. He concluded, in paragraph 79, that the better view of the case law was that the fact that D1 had been sued only for the purpose of bringing in the foreign defendants was a factor to be considered in the exercise of the court’s overall discretion and was not an element in the question of whether the action was ‘properly brought’ against D1, provided that there was a viable claim against D1. However, if the claim against D1 was “bound to fail” then that action against D1 was not ‘properly brought’.

We do not accept Mr Salzedo’s submissions that Lord Collins' statement in paragraph 79, together with his statement in paragraph 65 and 66 that, in effect, the changes in the wording of English rules made no difference to the old law relating to what was meant by "properly brought", lead to the conclusion that the only criterion which has to be satisfied at the first stage under paragraph 3.1(3)(a) of PD6B is whether there is an arguable claim against the anchor defendants. Such a construction would in our view unjustifiably restrict the wide ambit of the phrase "which it is reasonable for the court to try". Nor do we consider that Lord Collins was attempting any such exclusive or exhaustive definition of the phrase “which it is reasonable to try” as used in paragraph 3.1(3)(a) of PD6B of the English CPR, when he addressed the meaning of "Properly brought" and "proper party", or the issues of "The motive in suing the anchor defendants" and "Bound to fail" in the context of the Isle of Man provisions. If the Board had been attempting to do so, it clearly would have been obiter since the only issues that the Board were addressing in the context of the relevant Isle of Man "Properly brought" provision were (a) whether the relevant claims were bound to fail and (b) whether the motive for the defendants in bringing their counterclaim (viz. for the sole or predominant purpose of establishing jurisdiction against the other defendants to counterclaim, as opposed to suing the anchor defendants) was an issue that fell to be considered as part of the question whether the action had been "properly brought"; see paragraphs 127 and 128. There was no consideration of the separate question whether there were real issues which it was reasonable to try.

Accordingly in our view Altimo is not to be regarded as even persuasive authority for the proposition that the court is precluded from considering wider issues of reasonableness at stage one of the process under paragraph 3.1(3)(a) of PD6B.

It was obvious from the evidence that the commercial (and indeed only) driver behind the Bank’s issue of proceedings in England against D1 and D2 was to enable a claim to be brought against D3 and D5 and to attempt to execute against their assets, whether in Russia or elsewhere. However we do not consider that in the present case it is necessary or appropriate for this Court to revisit the question whether the fact that a claimant’s motive in bringing proceedings against the anchor defendants was only for the purposes of enabling a claim to be brought against the foreign defendants is a factor which is relevant to the question whether the threshold criteria under paragraph 3.1(3) of PD6B have been satisfied. To do so would involve reconsideration of this Court’s decision in Multinational Gas and Petrochemical Co v. Multinational Gas and Petrochemical Services Ltd [1983] Ch 258 and the various authorities there cited. That would be a task for the Supreme Court. Accordingly, even if we have reservations on this point, we must accept for the purposes of this case the Board's conclusion, as expressed in paragraph 79 in Altimo, that the fact that the anchor defendant is sued only for the purpose of bringing in the foreign defendants is not an element in deciding the question whether the gateway requirements of paragraph 3.1(3)(a) or (b) have been satisfied. That factor is only for consideration under the wider discretionary head of Issue 4.

The parties did not dispute the proposition that an application to set aside permission to serve out of the jurisdiction falls to be determined by reference to the position at the time permission is granted, not by reference to circumstances at the time that the application to set aside is heard: see per Hoffmann J (as he then was) in ICS Technologies Ltd and another v Guerin and others [1992] 2 Lloyds Rep 430 at 434-435.

That statement was approved by this Court in Mohammed v Bank of Kuwait [1996] 1 WLR 1483 (a stay application case) by Evans LJ at pages 1492−3 (with whom Saville LJ, as he then was, and Morritt LJ agreed); see also Credit Agricole Indosuez v Unicof Ltd [2003] EWHC 2676 (Comm), [2004] 1 Lloyd's Rep 196 per Cooke J at paragraph 22; and Vitol Bahrain EC v NASDAQ General Trading LLC [2014] EWHC 984 (Comm), per Popplewell J at paragraph 42. Thus permission which was rightly granted will not be discharged simply because circumstances have changed, although, as Hoffmann J observed in ICS Technologies, subsequent events may throw light upon considerations which were relevant at that time.

Thus, in our judgment, it was clearly incumbent upon the judge at the first stage of the process under paragraph 3.1(3)(a), to address as a separate question, distinct from the issue of the necessary or proper party arising under paragraph 3.1(3)(b), whether the Bank’s claims against D1 and D2, as at the date of the application before Cooke J, viewed in isolation, satisfied the requirements of paragraph 3.1(3)(a), namely whether there was between the Bank and D1 and D2, "a real issue which it is reasonable for the court to try". It was in that (paragraph 3.1(3)(a)) context that consideration of the stage reached in the Russian insolvency proceedings, and the Bank's participation in those proceedings, was relevant.

However, although the judge recited paragraph 3.1(3) in its entirety, he does not appear to have approached his consideration of D3 and D5’s arguments that the Bank had submitted to the jurisdiction of the Russian courts and the effect of such submission, in the proper and separate context of the gateway requirements of paragraph 3.1(3)(a), viz. whether there is a “real issue” as between the Bank and D1 and D2 which it is reasonable for the English court to try. That error may well have been caused, or contributed to, by Mr Morgan (who at that stage was appearing as sole leading counsel for D3), as his arguments in relation to the effect or consequences of the participation by the Bank in the Russian insolvency proceedings appear to have been addressed to the second stage - the paragraph 3.1(3)(b) elements of the gateway - namely that the Defendants, other than D1 and D2, were not necessary or proper parties to the claims against D1 and D2; see e.g. paragraph 105 of the judgment. Thus in our view the judge adopted the wrong approach to his consideration of the effect or consequences of the participation by the Bank in the Russian insolvency process. Perhaps understandably, given the way in which Mr Morgan had formulated his submissions (Footnote: ⁵), the judge appears to have regarded the issue as being the hard-edged question as to whether, by putting in a proof in the insolvency of D1 in Russia, the Bank had submitted its claims against D1 to the exclusive jurisdiction of the Russian courts and therefore it was not open to the Bank to pursue its claims against D1 in England; and likewise, in relation to the Bank’s claims against D2, whether by participating in the proceedings concerning the validity of the Guarantee, the Bank had submitted its claims against D2 to the exclusive jurisdiction of the Russian courts, so that the English court no longer had jurisdiction over the Bank's claims against D2.

In our judgment the issue for determination under paragraph 3.1(3)(a) in the present case, as we have identified in the first sentence of the previous paragraph, is a much more finely nuanced, soft-edged, question than the stark questions which the judge seems to have posed and decided. We emphasise in this context the use of the word "try". The question is directed not at whether it is reasonable or proper from the perspective of the particular claimant to issue or bring proceedings, but rather whether it is reasonable for the English court to “try the issue”, whether in summary judgment proceedings or otherwise. Indeed the wording of paragraph 3.1(3)(a) departs from the more subjective formulation of the principle articulated by Morton J in Ellinger v Guinness, Mahon & Co [1939] 4 All ER 16, 22 and referred to by Lord Collins in paragraph 65 of Altimo – namely "a real issue between the plaintiff and that party which the plaintiff may reasonably ask the court to try".

In addition to not adopting the correct approach to consideration of the gateway requirements, in our view the judge went wrong in other aspects of his determination that the Bank had brought itself within the gateway of paragraph 3.1(3). We set out our reasons for this conclusion below.

Logically the first question which the judge had to ask himself in the context of his enquiry as to whether the Bank had brought itself within paragraph 3.1(3) was whether the Bank had submitted all or some of its claims against D1 and/or D2 to the jurisdiction of the Russian courts and the Russian insolvency process. If the Bank had indeed submitted all of its claims to be determined in the Russian insolvency process, then it could not be the case that there was any "real issue" as between the Bank and D1 or D2 which it was "reasonable for the [English] court to try". If the Bank had submitted to the Russian courts or the Russian insolvency process in respect of some but not all of its claims (e.g. the debt, contractual and Guarantee claims, but not the conspiracy claims), then the further question arises whether, in the context of paragraph 3.1(3)(a), the conspiracy claim would, by itself, raise a "real issue" as between the Bank and D1 and/or D2 which it was "reasonable for the [English] court to try". The judge held that the Bank had not submitted to the jurisdiction of the Russian courts either in respect of its debt, contractual or Guarantee claims or its conspiracy claims against either D1, or D2. In the alternative he held that, even if there had been a submission in respect of the debt, contractual and Guarantee claims, there had been no submission in respect of the conspiracy claims. In our view the judge was wrong in both his primary and alternative conclusions.

The English law principle articulated in New Cap, and recently affirmed in Shell, is that a foreign creditor submits to the jurisdiction of the court supervising a company's insolvency by proving in that insolvency. That, by itself, is sufficient without more (and irrespective of whether the proof has been accepted or a dividend has been received (Footnote: ⁶)) to require the creditor to have all questions, of whatever kind, as against the debtor resolved within the insolvency as administered by the court of the jurisdiction of that insolvency. The rationale for the rule was first set out in Ex p. Robertson; In re Morton (1875) LR 20 Eq 733, at 737 -738. The latest summary of the law is to be found in paragraphs 29 et seq of Shell.

The facts of Shell were as follows. A Dutch pension fund (“Shell”) had invested US$45 million in shares in a BVI mutual fund company (“the BVI company”) set up by the now notorious fraudster, Mr Bernard Madoff. Immediately after Mr Madoff’s arrest in December 2008, Shell applied to redeem its shares on the basis of a redemption price calculated by reference to the net asset value per share published by the BVI company as at 31 October 2008, but was not paid out. Shell subsequently applied to the Dutch courts to obtain a conservatory arrest of sums owned by the BVI company that were held in a Dublin bank account. The BVI company was then wound up by the BVI court and Shell submitted a proof of debt in the liquidation for over US$63 million, which was said to represent the redemption price of Shell's shares due under its redemption notice submitted in December 2008. The Dutch court refused the application of the BVI company’s liquidators to discharge the attachment to the Dublin funds. Shell brought substantive proceedings in the Netherlands, alleging that the BVI company had made actionable misrepresentations and was in breach of warranties, both made in a side letter to Shell at the time that it had bought the shares. Shell claimed US$ 45 million in damages (representing the subscription price of its shares, as opposed to the redemption price). The liquidators then applied to the BVI court for an anti-suit injunction to prevent Shell from prosecuting proceedings in the Netherlands. The BVI High Court rejected the application but the Court of Appeal allowed the appeal. Thereafter, the BVI High Court made an order in the liquidation on the basis that no outstanding redemption monies were due to any existing or former member of the BVI company. The effect of this was that Shell’s proof of debt based upon its redemption notice was rejected by the liquidators and it was left to participate in the liquidation pari passu as a member, not as a creditor. Shell accepted that the real purpose of the Dutch proceedings was to obtain priority by means of its attachment, which it could not otherwise obtain in the liquidation.

Shell appealed to the Privy Council, arguing that it had not submitted to the jurisdiction of the BVI by submitting a proof of debt and, even if it had, it should not be subjected to an anti-suit injunction. The Privy Council rejected Shell’s arguments in a judgment given by Lords Sumption and Toulson. At paragraph 24 of their judgment, they noted the particular circumstances which arose when a company is being wound up in one jurisdiction but a creditor attempts to obtain prior access to assets that are the subject of that winding up procedure by instigating foreign proceedings. They said:

“Where a company is being wound up in the jurisdiction of its incorporation, other interests are engaged. The court acts not in interest of any particular creditor or member, but in that of the general body of creditors and members. Moreover, as the Board has recently observed in Singularis Holdings Ltd v PriceWaterhouseCoopers [2014] UKPC 36, 23, there is a broader public interest in the ability of a court exercising insolvency jurisdiction in the place of the company’s incorporation to conduct an orderly winding up of its affairs on a world-wide basis, notwithstanding the territorial limits of its jurisdiction. In protecting its insolvency jurisdiction, to adopt Lord Goff’s phrase, the court is not standing on its dignity. It intervenes because the proper distribution of the company’s assets depends upon its ability to get in those assets so that comparable claims to them may be dealt with fairly in accordance with a common set of rules applying equally to all of them. There is no jurisdiction other than that of the insolvent’s domicile in which that result can be achieved. The alternative is a free-for-all in which the distribution of assets depends on the adventitious location of assets and the race to grab them is to the swiftest, and the best informed, best resourced or best lawyered.”

Lords Sumption and Toulson then considered the question of whether Shell had submitted to the jurisdiction of the BVI courts by virtue of proving for the debt alleged to have arisen under the redemption notice and by participating unconditionally in the anti-suit injunction proceedings. They concluded (in agreement with the Court of Appeal) that Shell had submitted by virtue of both actions. They referred to ex parte Morton (1875) LR 20 Eq 733 and noted that the Full Court of the Federal Court of Australia had held in Saad Investments Company Limited (in official liquidation) v Deputy Commissioner of Taxation [2014] FCAFC 57 that in Morton the submission to the jurisdiction consisted in the lodging of the proof, not the receipt of a dividend in the liquidation. They further noted that the same view was taken by the Supreme Court in New Cap, where Lord Collins (with whom the rest of the court agreed on this point) stated that if a foreign creditor proves in an English liquidation, he submits to the jurisdiction of the English court so that the English court may then make orders against that foreign creditor.

Lords Sumption and Toulson then identified the question as being whether Shell had submitted to the jurisdiction of the BVI court. They continued, at paragraph 31:

“31…... A submission may consist in any procedural step consistent only with acceptance of the rules under which the court operates. These rules may expose the party submitting to consequences which extend well beyond the matters with which the relevant procedural step was concerned, as when the commencement of proceedings is followed by a counterclaim. In the present case the Defendant lodged a proof. It cannot make any difference to the character of that act whether the proof is subsequently admitted or a dividend paid, any more than it makes a difference to the submission implicit in beginning an ordinary action whether it ultimately succeeds. This result is neither unjust nor contrary to principle, for by submitting a proof the creditor obtains an immediate benefit consisting in the right to have his claim considered by the liquidator and ultimately by the court according to its merits and satisfied according to the rules of distribution if it is admitted. The Board would accept that the submission of a proof for claim A does not in itself preclude the creditor from taking proceedings outside the liquidation on claim B. But what he may not do is take any step outside the liquidation which will get him direct access to the insolvent’s assets in priority to other creditors. This is because by proving for claim A, he has submitted to a statutory scheme for the distribution of those assets pari passu in satisfaction of his claim and those of other claimants.”

The Privy Council rejected Shell’s argument that it had not submitted to the jurisdiction of the BVI courts for all purposes, but only for the purposes of claims under the Insolvency Act and Rules, rather than claims governed by “the general law”. Lords Sumption and Toulson stated, at paragraph 32:

“There is, in the present context, no relevant difference between the claim for which Shell proved (a debt arising from its redemption notice) and the claim for which it did not prove but which it has put forward in the Dutch proceedings (damages for misrepresentation and breach of warranty). They both arise under the general law. They are both capable of being proved in the liquidation.”

In relation to the issue of whether a creditor should be permitted to take part in proceedings in a foreign court, the Privy Council concluded, at paragraph 40 as follows:

“40.

The Board would accept that as a general rule, there can be no objection in principle to a creditor invoking the purely adjudicatory jurisdiction of a foreign court, provided that it is an appropriate jurisdiction and that litigation there is not vexatious or oppressive to the liquidators or other interested parties. But it is in principle inimical to the proper winding up process for a creditor to seek or enforce an order from a foreign court which will result in his enjoying prior access to any part of the insolvent estate. ……...”

It follows from this analysis of Shell that we reject Mr Salzedo’s argument (to the extent that it was ultimately advanced) based on the decision in Banque des Marchands de Moscou v Kindersley [1951] Ch 112 at 119 (Footnote: ⁷) that the fact that the Bank had not received any dividend in the liquidation of D1 prevented any submission to the jurisdiction having taken place. Secondly, we reject his related submission that because, after the date upon which Cooke J granted permission to serve out of the jurisdiction, the Liquidation Manager unsuccessfully applied on two occasions to remove the Bank from the register of D1's creditors, that likewise prevents any submission to the jurisdiction on the part of the Bank.

Thirdly, contrary to Mr Salzedo’s submissions, it is not a valid argument that the claims being brought in the foreign jurisdiction (i.e. here the conspiracy claims, in Shell the claims for misrepresentation and breach of warranty) could be said to be different in character from the claim in respect of which the proof of debt was submitted in the liquidation, or brought under the general law rather than the relevant insolvency rules, or even that such claims are subject to the exclusive jurisdiction of the foreign court, whether by virtue of an exclusive jurisdiction clause or otherwise. As in Shell, in the present case there is no relevant difference between the claims for which the Bank proved or attempted to prove (the debt under the Loan Agreement in the case of D1, and under the Guarantee in the case of D2), and the claims for which it did not prove but which it has put forward in the English proceedings (damages for the conspiracy and the other tort claims) against D1 and D2. We accept Mr Snowden’s submission, that, although they have different labels, they both arise under the general law and relate, and are limited, to the same amount. In other words, the claim for damages in the conspiracy claims duplicates the amount claimed under the debt and contractual claims against D1 and D2 in respect of the amounts advanced by, or owing to, the Bank under the Loan Agreement in respect of principal, interest and costs. Both claims are capable of being proved in the liquidations of D1 and D2, or, in the case of D2, would have been so capable, if the Guarantee had not been set aside by the Russian courts.

Thus in our view, in the light of Shell, the conclusion reached by the judge in paragraphs 121 and 128 of his judgment that, on any basis, even if the Bank had submitted its claims under the Loan Agreement and the Guarantee against D1 and D2 to the jurisdiction of the Russian courts, it would not have submitted its wider claims in conspiracy and other torts, is erroneous.

Fourthly, Mr Salzedo’s further submission that, because on proper analysis, the basis on which the Guarantee was set aside was not strictly part of the insolvency jurisdiction and had been done under the ordinary rules of Russian law, such fact led to the conclusion that there had been no submission in respect of the Bank's Guarantee claims must also be rejected. Shell demonstrates that any such distinction is specious. Even on the assumption that the Guarantee was set aside under the general law, that was done in the context of the insolvency of D2 on the grounds that, as a related party transaction, it was inimical to the interests of creditors.

Fifthly, Mr Salzedo’s reliance on the statement at paragraph 40 of the Board’s judgment that, as a general rule, there could be no objection in principle to a creditor invoking the purely adjudicatory jurisdiction of a foreign court, provided that it was an appropriate jurisdiction and that litigation there was not vexatious or oppressive to the liquidators or other interested parties, is misplaced. Mr Salzedo submitted that, by the English proceedings, the Bank was merely invoking the “adjudicatory jurisdiction” of the foreign court, both in relation to the debt and guarantee claims, and the conspiracy claims, so that, as against D1 and D2, it might take any judgment back to enforce in the Russian insolvencies as best it could, and, as against D3 and D5 and the other defendants, it might seek to enforce its judgment wherever it could. That proposed course, submitted Mr Salzedo, was not in any way inimical to the proper winding up process of D1 or D2 in Russia and would not involve the Bank enjoying prior access to any part of their insolvent estates. In our judgment this argument does not assist Mr Salzedo on the question of whether the Bank had in fact submitted its claims to the jurisdiction of the Russian courts. It is only relevant to the issue of whether, irrespective of whether or not there had been a submission, there is an issue between the Bank and D1 and D2 that it is reasonable for the court to try.

Against that background we return to consider the conclusions of the judge. As Lord Collins stated in New Cap at paragraph 161:

"The question whether there has been a submission is to be inferred from all the facts.”

We are in equally as good a position as the judge to reach a conclusion on the facts since there was no oral evidence in this case and all the evidential material was available before us. In our judgment the judge’s reliance upon what he referred to as the "three critical aspects of the facts of this case which distinguish it from New Cap" was misplaced.

The first aspect said by the judge to take the case outside the principles identified in New Cap was that the submission to the jurisdiction point was being taken by the very defendants (D3 and D5), whom he had held were arguably parties to a conspiracy to engineer the liquidation of D1 and D2 by alienation of their assets and deliberate manipulation of the insolvency process in Russia; see paragraph 115 of the judgment. He regarded it as significant that there had been no application by any of the court-appointed managers or administrators in the Russian insolvencies. We cannot regard this point as in any way significant. What the judge had to decide was whether, in all the circumstances, for the purposes of paragraph 3.1(3)(a) of PD6B, there was between the Bank and D1 and D2 "a real issue which it is reasonable for the court to try". The participation or non-participation of a Russian insolvency officer in the litigation was wholly irrelevant to the determination of that question. There was no reason whatsoever why any Russian insolvency court-appointed managers or administrators should consider it in the interests of the estates of D1 or D2 to be involved in applications by D3 and D5 in England to set aside orders for service out of the jurisdiction obtained by the Bank. There were no assets of the insolvent D1 and D2 in this jurisdiction; as at the date of the permission to serve out the Bank's proof of debt in D1’s liquidation had been accepted pursuant to a court order. Further, any English judgment (in so far as it went beyond the quantum of the proof of debt, e.g. in respect of interest, or currency conversion uplift) would necessarily have to be proved and accepted in the Russian liquidations in accordance with Russian insolvency rules. The issue of alleged submission by the Bank to the jurisdiction by reason of its claims in Russia was an issue that the court had to consider in this context, irrespective of who was raising the point. We conclude that the application (if any) of the principle of “modified universalism” cannot depend on whether the issue has been raised by an office holder in the insolvency or another party. The question is simply: is it reasonable for the English court to allow a creditor who has (arguably) submitted in foreign insolvencies to pursue private proceedings against insolvent companies D1 and D2 in this jurisdiction. The judge was required to consider this question irrespective of the absence of any application by Russian officeholders to be involved. He did not do so.

The judge's second point was that the insolvency procedures in Russia used a completely different procedure from that used in a common law jurisdiction. He appears to have concluded in paragraph 117 of his judgment that the process of admitting a creditor to be placed upon the list of creditors' claims was a provisional process, which did not involve any final decision and was not intended to replace ordinary civil proceedings; it was in such ordinary civil proceedings that the validity or otherwise of the underlying transaction would be determined. Thus the validity or otherwise of the underlying transaction might be determined in separate proceedings and, depending upon the decision in those proceedings, the decision to admit the claim might need to be reconsidered. Accordingly, what this demonstrated was that, by putting forward its claim against D1 to be placed on the list of creditors' claims, the Bank had not submitted the determination of the merits of that claim (let alone the conspiracy claims) to the jurisdiction of the Russian courts in separate proceedings. It remained the case that those claims could be and were to be determined in England pursuant to the exclusive jurisdiction clause.

We cannot agree with the judge’s analysis of the expert evidence on this issue. We accept Mr Snowden’s submission that such differences as the judge purported to identify were irrelevant and did not bear upon whether the steps actually taken by the Bank amounted to a submission, as to which the Russian evidence was silent. Lord Collins stated in paragraph 161 of New Cap:

“The characterisation of whether there has been a submission for the purpose of the enforcement of foreign judgments in England depends on English law. The court will not simply consider whether the steps taken abroad would have amounted to a submission in English proceedings. The international context requires a broader approach. Nor does it follow from the fact that the foreign court would have regarded steps taken in the foreign proceedings as a submission that the English court would so regard them. Conversely, it does not necessarily follow that because the foreign court would not regard the steps as a submission that they will not be so regarded by the English court as a submission for the purposes of the enforcement of the judgment of the foreign court. The question whether there has been a submission is to be inferred from all the facts."

The characterisation of whether there has been a submission for the purposes of deciding whether permission to serve out of the jurisdiction should be given must equally depend on English law and all the facts of the case.

We agree with Mr Snowden’s submission that the judge took a statement from the evidence of the Defendants' Russian law expert, Professor Karelina, out of context in coming to his conclusion that, notwithstanding that a creditor participated in the insolvency process, it was free to bring its own proceedings elsewhere and recover sums outside the liquidation process. A proper analysis of Professor Karelina’s evidence demonstrates: (i) that once the insolvency, supervision or external management process had begun, there was a moratorium on all claims; (ii) that in order to be able to prove in the liquidation it was necessary for a creditor to be admitted to the list of creditors; and (iii) that the adjudication of such claims might take place in other civil proceedings (as indeed is the position in England) or might be transferred to the insolvency court. In fact it is clear from Professor Karelina’s evidence more generally that creditors’ claims are subsumed within the insolvency process, within which their validity is examined – as indeed happened in respect of the Guarantee. There is nothing in her evidence to support what appears to be the judge's approach, namely that Russian law permits a creditor to submit a claim to get paid in the collective process, vote in the liquidation proceedings and benefit from the moratorium, and yet, at the same time pursue a separate claim to get paid outside the liquidation proceedings. Moreover, even if, at the initial stage, the inclusion of the Bank on D1's register of creditors was a provisional step, the subsequent active participation by the Bank in court proceedings and creditors’ meetings relating to D1's insolvency process (as to which see below), can in our view only be characterised as a submission.

The judge's third factor in reaching his conclusion that there had been no submission by the Bank to the jurisdiction of the Russian insolvency proceedings was that, in the Russian arbitrazh court system, the doctrine of res judicata only applied within the Russian Federation and then only to the facts found, not to the legal qualification of those facts or the application of the law to those facts; see paragraphs 120 and 121 of the judgment. With respect to the judge, the fact that a particular jurisdiction has, or has not, a fully formed concept of res judicata is not relevant to the issue of whether a creditor has sought to take an advantage from that system of law. We agree with Mr Snowden's submission that this point cannot be determinative of what is, ultimately, a question of English law, albeit viewed in the international context, namely whether a creditor has indeed submitted to the jurisdiction of the foreign court; see paragraph 161 of New Cap.

In our judgment, on the evidence before him, the judge should properly have concluded that the Bank’s participation in the Russian insolvencies of both D1 and D2 resulted in its submission to, and acceptance of, the jurisdiction of the Russian Courts in relation to all issues arising in the insolvencies. In a schedule attached to their skeleton argument on the appeal, counsel for D3 and D5 summarised 12 decisions of the Russian courts in relation to D1, and 28 decisions in relation to D2, which were all made on applications in which the Bank participated. That schedule clearly demonstrates the extent of the Bank’s active involvement in the Russian Court proceedings process. In addition to lodging proofs, the Bank thereafter participated in the insolvencies through the assertion of its status as a creditor, its participation in appeals seeking positive relief and its objection to applications by other parties. In addition, the evidence demonstrated that the Bank’s representative participated on the creditors’ committee of D1 and also in lobbying D2’s manager to start litigation to set aside transactions underlying the claims of other creditors. We agree with Mr Snowden's submission that those steps taken by the Bank in the insolvencies of D1 and D2 in Russia, and before the Russian courts, indicate, as a matter of fact, not only that the Bank had sought to take advantage of its claimed status as a creditor in the insolvencies of D1 and D2 but also that, by seeking positive determinations in its favour, the Bank had accepted the Russian courts' jurisdiction to determine all issues in the insolvencies of D1 and D2.

We should also deal with the conclusions of the judge that, in opposing the exclusion of its proof from the register of creditors of D2, the Bank had not submitted its claim under the Guarantee against D2 to the Russian courts and was not bound by the subsequent Russian court decision setting aside the Guarantee; see paragraphs 122 to 126 of the judgment. In our judgment he was wrong to reach these conclusions. As a matter of fact, the detailed chronological evidence shows that, on a date in 2010, the Bank lodged its proof in the insolvency of D2 on the basis of its claim under the Guarantee without any reservation as to its entitlement to insist on London arbitration or as to the exclusive jurisdiction of the English courts, and without any objection to the jurisdiction of the Russian courts. On 23 September 2010 the ACVR, in court proceedings in which the Bank participated, entered the Bank as a creditor in respect of its claims under the Guarantee on D2’s register of creditors, rejecting a challenge by D2 to the validity of the Guarantee on the grounds that it was governed by English law. On 27 December 2010 the 12th Arbitrazh (Commercial) Appellate Court ("the A(C)AC"), in court proceedings in which the Bank again participated, dismissed D7’s appeal against the ACVR's decision to include the Bank on the register of D2's creditors. Thereafter throughout 2011 the Bank and others participated in various contested court applications in relation to the external management of D2, including seeking the dismissal of the court appointed external manager. In addition the Bank participated at creditors' meetings of D2, and, together with other creditors, sought to challenge decisions taken by such meetings in court proceedings.

It was only after the external manager of D2 had issued an application dated 15 August 2011, challenging the validity of the Guarantee as being a related party transaction, that the Bank for the first time sought to assert, in its notices to D1 and D2 dated 18 August 2011, that it required a specific dispute to be heard by the English court. It was then, for the first time, in its defence to the external manager’s application that the Bank submitted that the Russian court had no jurisdiction to determine the validity of the Guarantee because that dispute had to be determined by the LCIA pursuant to the London arbitration agreement; see paragraphs 123 and 124 of the judgment.

Mr Salzedo placed great reliance on the fact that there was no finding by the Russian court that the Bank had submitted to the jurisdiction and that at every stage the Bank had reserved its position. In our view that is an unrealistic characterisation of what had actually happened. By August 2011 the Bank had on any basis waived its entitlement to arbitration by service of its notices dated 18 August 2011. In a judgment dated 5 December 2011 the ACVR allowed the application to set aside the Guarantee. The Bank and others subsequently appealed against the order setting aside the Guarantee, but the A(C)AC dismissed that appeal in a judgment dated 24 January 2012. Subsequently the Bank and others appealed that decision first to the Federal Cassational Court, which dismissed the appeal on 19 April 2012, and subsequently applied for permission to appeal that decision, and for a stay, to the Supreme Arbitrazh Court of the Russian Federation (“SAC(RF)”). The application for permission to appeal was dismissed by the SAC(RF) on 25 May 2012.

In our judgment, the Bank’s full-blooded participation in the Russian insolvency proceedings of D2, in the first instance successfully seeking, without any reservation of jurisdiction, to uphold its rights, which in turn gave rise to the external manager’s subsequent challenge to the Guarantee, and subsequently D2's defence to that challenge, can as a matter of English law only be characterised as a submission to the jurisdiction of the Russian courts. The Bank did blow “hot and cold”; at one point seeking to take the benefit of having a registered claim, and at another seeking to assert that the Russian court had no jurisdiction to rule upon the validity of that claim. But it is difficult to see how the Bank could (as it apparently attempted to do) maintain a valid arbitration challenge to the jurisdiction of the Russian Court in circumstances where it had already waived its entitlement to arbitration by service of the 18 August 2011 notices. Again, as we have already said above, we do not consider that the fact that Russian law might permit the determination of the claim in separate proceedings impacts on the question whether, as a matter of English law, there had been a submission to the jurisdiction.

It was common ground, and the judge so found that, after several appeals, including the application for permission and a stay to the Supreme Arbitrazh Court in Russia, the Bank could not now rely on the Guarantee in the Russian insolvency of D2. However the judge held in paragraph 126 of the judgment that this conclusion would not be recognised by the English courts. He relied on two points: first, http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Comm/2013/2926.html&query=title+(+Erste+)+and+title+(+group+)+and+title+(+Bank+)&method=boolean - disp171 the Bank http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Comm/2013/2926.html&query=title+(+Erste+)+and+title+(+group+)+and+title+(+Bank+)&method=boolean - disp173had not submitted to the jurisdiction of the Russian courts in relation to the determination of the validity of the Guarantee; and, secondly, the decisions of the ACVR and the appellate courts were invalid because they had applied Russian law to the Guarantee, notwithstanding that it was expressly governed by English law. The judge’s conclusion was based on the application of what the judge referred to as “the long standing principle that discharge from liability under a foreign bankruptcy procedure will only be a discharge in England if it is a discharge under the law applicable to the contract" as articulated in the cases upon which the Bank relied, namely: Gibbs (supra), Global Distressed Alpha Fund (supra), and (on appeal) Joint Administrators of Heritable Bank plc v Winding up Board of Landesbanki Islands HF [2013] (supra). He concluded that the application of that principle meant that the fact that D1 and D2 were in liquidation in Russia did not affect "the entitlement" of the Bank to bring the wider tort claims or the claim under section 423 against them in England pursuant to the contractual jurisdiction provisions.

In our judgment the judge was wrong to reach this conclusion for at least two reasons, neither of which require us to reconsider the correctness or otherwise of the Gibbs principle, which has been the subject of what many regard as justifiable criticism: see for example Dicey, Morris & Collins, The Conflict of Laws, 15^th Edition, (2012), vol 2, at paragraph 31-097; Fletcher’s Insolvency in Private International Law 2^nd ed (2005), at paragraphs 2.127 and following (Footnote: ⁸).

First, the judge's decision was clearly premised on the conclusion that there had been no submission to the jurisdiction of the Russian court. If, as we have held, the Bank had indeed submitted to the jurisdiction of the Russian courts in respect of its debt, Guarantee and contractual claims as against D1 and D2, then the so-called principle set out in the cases can, in the light of the decision in New Cap, have no application. The Gibbs line of cases did not address the New Cap principle, or the present situation, namely where a creditor has actively participated in the foreign insolvency and sought to uphold the validity of his contractual rights in that insolvency, and subsequently to resist avoidance proceedings brought by the foreign office holder in the foreign insolvency. As Lord Collins pointed out in New Cap at paragraphs 93-99, there is a substantial difference between avoidance proceedings in the context of an insolvency, and the issue whether a foreign insolvency discharged a debt subject to English law. As this court pointed out during the course of submissions, the fact that the court of the debtor's COMI, and/or country of incorporation, makes an order avoiding, or setting aside, a transaction in the interests of creditors under its relevant insolvency laws, is a very different thing from contractual discharge – i.e. performance. In our judgment, New Cap demonstrates that, if there has indeed been a submission by the foreign creditor to the court of the debtor's insolvency for whatever purpose, (and, in particular, where the creditor has sought to obtain a benefit by such participation), then the creditor cannot in subsequent proceedings challenge the avoidance order made against it by the foreign insolvency court simply on the grounds that its contract was subject to English law and an English exclusive jurisdiction clause.

Second, even if the judge had been correct to conclude that the Bank had not technically submitted to the Russian court, the question was not whether the Bank was "entitled" to bring its debt and contractual claims and/or its conspiracy claims in England, but rather whether, in all the circumstances, in the language of paragraph 3.1(3)(a) of PD6B, such claims gave rise, as between the Bank and D1 and D2, to "a real issue which is reasonable for the court to try". This was a question which the judge did not address. In our judgment, even if, contrary to our view, there had not technically been a submission to the Russian court, in all the circumstances it could not be said that the tests of "real issue" and "reasonable for the court to try" had been satisfied.

Our reasons for this conclusion are summarised as follows:

Thus in our judgment for the above reasons it would not, as at the date of the application for permission to serve out of the jurisdiction, have been reasonable for the English court to try the debt, contractual and Guarantee claims and the conspiracy claims against D1 and D2. In the alternative it would not have been reasonable for the English court to try the conspiracy claims against D1 and D2. Not least it would not have been consistent with the overriding objective or the principle that the court will not engage with pointless and wasteful litigation; see CPR Part 1.1(2) and the commentary at paragraph 3.4.3.4.

Accordingly, for the above reasons we conclude that the gateway requirements of paragraph 3.1(3)(a) of PD6B are not satisfied in this case, because the Bank could not demonstrate, as at the date of the application to serve out, that, viewed in isolation, it would have been reasonable for the English court to try the debt, contractual and Guarantee claims and the conspiracy claims against D1 and D2. In the alternative we conclude that it would not in any event have been reasonable for the English court to try the conspiracy claims against D1 and D2.

Finally, even if this court’s conclusion that the threshold requirements of paragraph 3.1(3)(a) are not satisfied were wrong, nonetheless all the factors which we have identified above support the conclusion that, when the court comes to consider the third stage of the test articulated in Altimo at paragraph 61 and has to decide whether:

The result is that permission to serve out should not in our judgment have been granted under the paragraph 3.1(3) gateway.

The various issues which arise under this head can be summarised as follows:

A number of issues, both before the judge and on this appeal, turned on the correct identification of the applicable law to the Bank’s claims in tort, or a correct appreciation of the relative strength of the competing arguments in favour of English or Russian law. The judge’s view that it was “strongly arguable” that the applicable law of the tort claims was English law was an important factor in his rejection of D3 and D5’s case that the Bank’s failure to plead Russian law was not fatal to its assertion that it had a real prospect of success on the merits. More importantly for the purposes of this appeal, his view that it was strongly arguable that English law was the applicable law was the foundation for the fourth and fifth of the five factors which, in his view, pointed to England as clearly the appropriate forum.

It was common ground, both before the judge, and on this appeal, that the answer to the question whether English or Russian law was the law applicable to the Bank’s tort claims depended on the application of the Rome II Regulation to the facts alleged in the Particulars of Claim. Article 4, headed “General rule”, provides as follows:

“Unless otherwise provided for in this Regulation, the law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur.

…

Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. A manifestly closer connection to another country might be based in particular on a pre-existing relationship between the parties, such as a contract, that is closely connected to the tort/delict in question.

The Bank’s case, which the judge accepted was “strongly arguable”, was as follows:

D3 and D5’s case, both before the judge and on appeal, may be summarised as follows:

The question for this court is whether the judge’s conclusion that the Bank’s case on applicable law was strongly arguable was right or wrong. It is not a question of discretion, although it may fairly be said that the exercise called for by Article 4.3 is a multi-factorial evaluation in respect of which a trial judge’s assessment ought to be given real respect by an appellate court. This was however an interim application rather than a trial, in which this court has all the materials which were available to the judge, and where the judge had no particular advantage, such as observing cross-examination of witnesses.

There is little authority which bears directly on the interpretation of Article 4 of Rome II. Nonetheless the following principles may be taken as being reasonably clearly established, and were not indeed in dispute before the judge or on this appeal. First, Article 4 is to be given an “autonomous” interpretation, independent of the law of any particular contracting state. This much is common ground, and is essential if the Regulation is to achieve its recited objectives of legal certainty and consistent application across all member states: see recitals (4), (6), (8) and (14).

Secondly, the Rome II Regulation ought to be interpreted in a manner which is broadly in harmony with the jurisprudence and interpretation of similar provisions in the Judgments Regulation. This is clearly laid down in recital (7) of Rome II. In that respect, the language of Article 4.1 clearly follows the jurisprudence, although not the language, of Article 5.3 of the Judgments Regulation. Although Article 5.3 enables the claimant to sue;

“in matters relating to tort, delict, or quasi-delict in the courts for the place where the harmful event occurred”

it is clear that this includes, as a further alternative, the courts of the place where the damage occurred: see Dumez France v Hessische Landesbank (Case C-220/88) [1990] IL Pr 299, at paragraph 10, following Bier B v Mines de Potasse d’Alsace SA [1976] ECR 1735.

But there is, we think, this important difference between Article 4 of Rome II and Article 5.3 of the Judgments Regulation. The latter contemplates that a claimant in tort may choose between the courts of the place where the harmful event occurred and the place where the damage was sustained. But the purpose of Rome II is to identify a single applicable law rather than a choice: see Recitals (6) and (14). It is for that reason that Article 4.1 excludes the place where “the event giving rise to the damage occurred”, if different from the place where the damage itself occurred, and also excludes the place where any indirect consequences of the event giving rise to the damage occur.

In fact, the jurisprudence on Article 5.3 of the Judgments Regulation also excludes the place where indirect consequences occur. This was the main issue resolved in the Dumez France case. The question referred to the Court of Justice by the French Cour de Cassation was as follows:

“Is the rule on jurisdiction which allows the plaintiff, under Article 5(3) of the Convention, to choose between the court for the place of the event giving rise to damage and the court for the place where that damage occurs to be extended to cases in which the damage alleged is merely the consequence of the harm suffered by persons who were the immediate victims of the damage occurring at a different place, thereby enabling the indirect victim to bring proceedings before the court of the State in which he is domiciled?”

The Court of Justice firmly answered that question in the negative. In that case, the immediate victims of the allegedly tortious conduct of the defendant banks were two subsidiaries of the French plaintiffs, incorporated in Germany, and the damage sustained by the plaintiffs was no more nor less than the destruction of the value of their shares in the subsidiaries, something which in this jurisdiction is called reflective loss.

The judge rejected the Defendants’ submission that there was a direct analogy between the Dumez France case and the present case, on the footing that the Bank’s loss was merely an indirect consequence of the direct damage inflicted on the first and second Defendants by the alleged asset-stripping. He said (at paragraph 173) that it was at least sufficiently arguable that the Bank’s direct loss consisted of the destruction of its rights to payment under the Loan Agreement and Guarantee, as the result of an alleged tort in which D1 and D2 were, unlike the subsidiaries in Dumez France, co-perpetrators rather than mere victims.

We do not think it necessary to resolve the question whether the jurisprudence based on Dumez France, cross-applied to Article 4.1 of Rome II, is such as to treat as “victims” the co-perpetrators of a conspiracy to strip themselves of their own assets. In our judgment there is a much simpler reason why the judge was wrong to accept that there was a seriously arguable case that Article 4.1 points to England. It is because, under the unambiguous provisions of the Loan Agreement (which, as is common ground, the Guarantee adopts) the place of re-payment of loan instalments to the Bank was New York rather than London. Under clause 28.1 of the Loan Agreement D1 was obliged to make loan repayments due to the syndicate to the Facility Agent in New York. Under clause 28.2 the Facility Agent was itself obliged to pass on the Bank’s share of the repayments to the Bank at its Facility Office (as defined) in London. In receiving payments from D1, the Facility Agent plainly acted as the agent for the syndicate banks, including the claimant Bank, such that a repayment to the Facility Agent was (vis à vis the Bank’s share of it) a payment to the Bank: see clause 25.1(a). Put shortly, D1 and D2 were contractually entitled to obtain a good discharge by paying the Facility Agent. The Facility Agent’s obligation to pay the Bank’s share to its Facility Office in London was merely an aspect of the agency relationship between the Bank and the Facility Agent, albeit contained within the same contractual documents.

Mr Salzedo QC submitted that receipt by the Facility Agent could not be regarded as receipt by the Bank, because of the declaration against the existence of any fiduciary duty owed by the Facility Agent to the bank, in clause 25.4(a) of the Loan Agreement. While we agree that the Facility Agent was thereby relieved of any duty to hold repayment instalments on trust for the Bank (or the other members of the lending syndicate) or to keep the Bank’s share in a separate account, so that the Bank obtained no proprietary interest of its own in its share of repayments in New York, it by no means follows that, as against D1 and D2, they did not get a good receipt by payment to the Facility Agent, or that the location of the Bank’s contractual right to repayment was not situated in New York. Where a trader stipulates for payment under a contract to be made to a stipulated bank account, then payment there is a good discharge of the payer’s obligation. Yet there is not normally a fiduciary relationship between the trader and its bank in respect of that bank account, but simply one of debtor and creditor.

It follows that, in our view, even if the judge was right to identify the loss suffered by the Bank as the result of the conspiracy as the damage to its right to repayment under the Loan Agreement and Guarantee, that loss was primarily, directly and immediately suffered in New York, as the place of payment under those two contracts. By contrast, the non-payment by the Facility Agent to the Bank in London was, in the words of Article 4.1, and the jurisprudence on Article 5.3 of the Judgments Regulation, merely an indirect consequence of the Defendants’ non-payment in New York. The result is that the application of Article 4.1 points neither to English nor Russian law as the applicable law, but rather to New York law on the assumption, which we regard as at least arguable, that the co-perpetrator of a tort is not to be regarded for these purposes as a victim of it.

Turning to Article 4.3, we have been wholly un-persuaded by the Bank’s argument that the pre-existing contractual relationship between the Bank and D1 and D2 under the English law Loan Agreement and Guarantee establishes a closer connection, let alone a manifestly closer connection, between the alleged tort and England, rather than with either Russia or New York, those being, in our view, the only places which would be identified by the application of Article 4.1. On the contrary, we think that it is clear from all the circumstances of the case that this alleged conspiracy is manifestly more closely connected with Russia than with any other place.

In our view, it is clear that all the participants in the alleged conspiracy were based in Russia, that the alleged conspiracy itself would have been hatched in Russia, and that all the acts done pursuant to it would have occurred in Russia. It was a conspiracy allegedly designed to take improper advantage of Russian insolvency procedures, by bringing about the insolvent liquidation of D1 and D2, and the benefit to the conspirators consisted of the extraction of supposedly valuable assets (consisting of, or connected with, the Red October steel works) from D1 and D2, and their being vested in persons in Russia owing no obligations to the lending syndicate of which the Bank formed part. Any impartial observer of the alleged facts, posed with the question: ‘by reference to which system of law should it be adjudged whether the conduct complained of was unlawful?’ would answer "Russian law of course". No aspect of the question whether that conduct was or was not unlawful could possibly turn upon any issue of interpretation of the Loan Agreement or Guarantee, to which the main perpetrators of the conspiracy (i.e. the puppet masters rather than the puppets) were not parties in any event.

Finally, although (as the judge said) in many cases it may be premature to reach a final decision on applicable law at the very early stage of an application for permission to serve proceedings out of the jurisdiction, we find it difficult to envisage what further developments during the litigation of a case based upon the existing Particulars of Claim could significantly detract from its manifestly close connection with Russia. It is, in short, as Russian a conspiracy as it is possible to imagine.

The result of this analysis is that, in our view, the judge was wrong to treat the Bank’s case that the applicable law was English law as strongly arguable, or indeed better than fanciful.

Gateway (9) in paragraph 3.1 of PD6B, headed “Claims in tort”, opens where:

“a claim is made in tort where –

1.

damage was sustained within the jurisdiction; or

2.

the damage sustained resulted from an act committed within the jurisdiction.”

Those innocent-sounding words have a long history which has given rise to sustained argument both before the judge and in this court about their true interpretation.

Considerable effort was devoted on this appeal both in skeleton arguments and submissions to the question whether we should follow the line of first instance authorities (referred to above), which have interpreted the phrase “damage was sustained within the jurisdiction” as extending to any damage, rather than “the damage” in the sense in which that phrase has been interpreted in the European jurisprudence on Article 5(3) of the Judgments Regulation. Originally, before 1987, permission under the predecessor of this gateway could only be obtained if the tort had been committed within the jurisdiction. In 1987 the relevant paragraph of the Rules of the Supreme Court was changed so as to enable permission to be obtained where “the damage” from the tort was sustained within the jurisdiction, at the same time as the Brussels Convention became part of English law, including Article 5(3). When the new CPR were introduced, the definite article “the” was omitted from Rule 6.20(8)(a), and that omission was carried through to the restatement of the tort gateway in what is now paragraph 3.1(9) of PD6B.

We have already described the European jurisprudence on the equivalent gateway in what is now the Judgments Regulation, in the section dealing with applicable law. Were it not for the string of first instance authorities to the contrary, we would have regarded as very attractive the submission that the tort gateway was intended to reflect the same jurisprudence.

By contrast, the effect of the first instance authorities is to make this gateway extraordinarily wide. For example, in Booth v Phillips [2004] 1 WLR 3292 it was sufficient that the executrix of the deceased, who had died in an accident in Egypt, had paid funeral expenses in England to enable her to serve out of the jurisdiction on behalf of his estate for the whole of the estate’s loss: see paragraph 33. In Cooley v Ramsey [2008] EWHC 129 (QB) [2008] I.L.Pr 27, it was sufficient that the claimant, who had been left gravely handicapped by an accident in Australia, suffered loss of earnings after repatriation to England six months later. It follows that, subject to issues of forum conveniens, an English domiciled claimant injured anywhere in the world (outside the EU) may serve proceedings out of the jurisdiction for a claim in tort, provided that his injury caused him some loss after his return. The loss may apparently be continuing (e.g. loss of earnings) or it may be one-off (e.g. funeral expenses).

While we have serious reservations as to whether those first instance cases were right, it is unnecessary to decide on this appeal whether they should be overruled, and we would therefore prefer not to do so.

Rather, it seems to us that the tort gateway is not satisfied in any event on the claim pleaded because, largely for reasons already given in relation to applicable law, we have reached the clear view that the relevant damage for this purpose was sustained in New York rather than London. None of the first instance cases had treated as relevant damage a non-payment of money in England which is simply and precisely dependent upon an earlier non-payment outside England, in circumstances where there were prior arrangements, for example with an agent, that the offshore payment would be followed by an onward payment to an account within the jurisdiction. On the contrary, the damage successfully relied upon was, in each of those cases, “direct” damage, whether it consisted of payment of funeral expenses or a continuing loss of earnings, arising afresh month by month when salary would otherwise have been paid to the victim, but for his injury.

In the present case, the relevant loss was the destruction of the value of the Bank’s receivables under the Loan Agreement and Guarantee which, for reasons already given, is properly to be regarded as having occurred in New York, that being the place of payment. The knock-on consequence, namely non-payment by the Facility Agent to the Bank’s Facility Office in London was merely reflective of that earlier loss. In relation to the Bank’s share of repayments it was, dollar for dollar, the same. It was not in any rational sense a fresh, different or separate loss. Nor was it a continuing loss, like loss of earnings.

For that simple reason, we consider that the judge was wrong to accept that the Bank had established a good arguable case that its tort claim qualified under gateway (9).

D3 and D5 pursued on this appeal a submission rejected by the judge, namely that if (as they argued) Russian law was plainly the applicable law for the purposes of the tort claim, then the Bank had failed to demonstrate a serious issue to be tried on the merits, because no Russian law had been pleaded.

The judge rejected that submission on two grounds. First (although second in his judgment) because it was arguable that English law was the applicable law. In that respect we have already concluded above that he was wrong about this. But his second reason (based in particular on Kuwait Oil Tanker Co. SAK v Al Bader [2000] 2 All ER (Comm) 271 at paragraphs 178 and 180, and VTB Capital v Nutritek International [2012] EWCA Civ 808), was that where the facts alleged disclosed a serious issue to be tried as a matter of English law, it was for a party alleging that some foreign law both applied, and was fatal to the claim, to plead and prove it. Against that, the judge noted that there were dicta which appeared to be to the contrary in the decision of Sir Andrew Morritt C. in Global Multimedia International v Ara Media Services [2006] EWHC 1307, at paragraphs 38 and 39, but he regarded those as distinguishable because that case depended upon the implication of terms into a contract expressly governed by Saudi law.

In our view the analysis which the judge derived from the Kuwait and VTB cases is clearly to be preferred, at least in the present case. Despite the deployment of voluminous expert evidence about Russian law in the application before the judge, at no point had the Defendants suggested at any stage that the conspiracy alleged in the Particulars of Claim would not be actionable under Russian law. All that has been suggested is that a narrower basis for the quantification of damages might be applied, so that the Bank would obtain an unwarranted juridical advantage if the case were to be tried in England under English law, rather than in Russia under Russian law.

In this claim the primary case of the Bank is that the applicable law of the alleged tort is English law. It is the defendants D3 and D5 who would wish to assert that the applicable law of the alleged tort is Russian law. In those circumstances there is no obligation on the claimant to plead the foreign law as an alternative to its primary case at the stage of Particulars of Claim. We accept that if there is a case that a foreign law might be applicable to the tort claim and that, if so, there would be a defence to the claim under that law, the claimant seeking permission to serve out of the jurisdiction under paragraph 3.1(9) of PD6B would be wise to give full and frank disclosure of this fact in the evidence that leads to the without-notice application for permission for leave to serve out. If permission is given and the defence based on foreign law is then pleaded, the claimant will respond in a reply in the normal way. But the claimant is not obliged to cross that bridge before it is reached. So, like the judge, we reject this argument based on the pleadings.

The issue which arise under this head may be summarised as follows:

In turn this raised the following sub-issue:

So far as is relevant, Section 423 of the Insolvency Act 1986 provides as follows, under the heading “Transactions defrauding creditors”:

“(1)

This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if-

He makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration;

…

He enters into a transaction with the other for a consideration that the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by himself.

Where a person has entered into such a transaction, the court may, if satisfied under the next sub-section, make such an order as it thinks fit for-

Restoring the position to what it would have been if the transaction had not been entered into, and

Protecting the interests of persons who are victims of the transaction.

In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose-

Of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or

Of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.

…

In relation to a transaction at an undervalue, references here and below to the victim of the transaction are to a person who is, or is capable of being, prejudiced by it; and in the following two sections the person entering into the transaction is referred to as “the debtor”.

Section 424 provides, so far as is relevant, as follows under the heading

It is clear that section 423 may be given extra-territorial effect: see re Paramount Airways Limited (No.2) [1993] Ch 223, where service out of the jurisdiction had been effected pursuant to the provisions for service in the Insolvency Rules 1986, and re Banco Nacional de Cuba [2001] 1 WLR 2039, where Lightman J recognised a discretion to permit service out under what was then CPR rule 6.20(10). But both those cases recognised that for the court to exercise this jurisdiction extra-territorially, a sufficient connection with this jurisdiction must be shown. As Sir Donald Nicholls VC (as he then was) put it in the Paramount Airways case (at page 239H), the court will need to be satisfied that, in respect of the relief sought against him, the defendant is sufficiently connected with England for it to be just and proper to make the order against him despite the foreign element.

Recognising this, the judge concluded that it was misconceived for the question whether there existed a sufficient connection to be determined at the earlier stage of an application for permission to serve proceedings out of the jurisdiction, but rather at the discretion stage (i.e. at trial): see paragraph 150. In taking this approach he gave as his reasons those which he had earlier set out in Fortress Value v Blue Skye [2013] EWHC 14 (Comm), in which he said, at paragraph 114, referring to the Paramount Airways case:

“As that passage indicates, the question whether there is sufficient connection with England to justify relief under section 423 is a matter which depends upon all the circumstances of the case. This is not a threshold question of jurisdiction, but a question of discretion. Clearly a question of discretion which depends upon a fact-sensitive enquiry is not appropriate for determination on a summary basis at an interlocutory stage, such as when permission to amend is sought.”

The judge therefore did not think it necessary to conduct any examination of the Particulars of Claim, to identify precisely what relief was being sought under section 423, or to consider the other circumstances of the case as revealed by the evidence before him. In the Banco Nacional de Cuba case, Lightman J took the opposite view. Noting (correctly) that it was necessary for the applicant for permission to serve out to demonstrate a serious issue to be tried in relation to the relief sought, he concluded (on an application to set aside service out of the jurisdiction) that the particular facts of that case were, without the need for a trial, sufficient to show that there was no such serious issue to be tried, because no sufficient connection with this jurisdiction could be established at trial.

On this issue of principle, we prefer the approach taken by Lightman J. Of course there will be cases where the question whether a sufficient connection with this jurisdiction can be shown can only be resolved at trial and where, at the stage of considering service out of the jurisdiction, the claimant may demonstrate a serious issue to be tried in relation to the question of sufficient connection. But that cannot, in our view, mean that the court will in no circumstances address that question (albeit only on a “serious issue to be tried” basis) at the stage of considering whether to grant, or to set aside, service out of the jurisdiction. It is accordingly necessary to consider in the present case whether there is a more than fanciful prospect that the Bank would, if permitted to pursue a claim under section 423, obtain such relief at trial. Since the judge did not consider this question, it falls upon this court to do so for the first time.

The claim under section 423 is mainly to be found in the prayer to the Particulars of Claim. At paragraph (8) the Bank seeks an order under section 423 “to protect the interests of the Claimant as victim of the divesting of assets by the First and/or Second Defendants inter alia on 26 May 2009 [the asset transfer to D7 referred to above], 8 April 2010, 14 May 2010 and/or 13 July 2011 [the Amicable Agreement referred to above] pursuant to transactions at an undervalue to put assets out of the reach of and/or prejudice creditors”.

Earlier, at paragraph 111, the Bank identifies a further transaction in about September 2011, also alleged to have been aimed at defrauding creditors of the First Defendant by putting its remaining assets out of their reach.

With the help of a useful schedule provided during the hearing by Mr. Mumford, it can be seen that, on the evidence submitted to the judge, each of those transactions has been the subject of review by the Russian courts. Some of them have already been set aside, and others have been specifically approved. The decisions of the relevant Russian court in relation to each of them were available to the judge, although not all were in the original appeal bundles.

In those circumstances, and bearing in mind the close connection between the Bank’s claim as a whole, and Russia, for the reasons given elsewhere in this judgment, it seems to us inconceivable that the Bank would be able to show at trial that a sufficient connection existed with this jurisdiction. This is not one of those relatively unusual cases where the claimant is the only alleged victim of the impugned transactions. Plainly the other members of the lending syndicate were also victims, and it appears from the evidence that there were other unsecured creditors of D1 and D2 who were (if the Bank’s claim is well-founded) equally prejudiced by the impugned transactions.

Since therefore relief sought under section 423 would have to be treated as an application made on behalf of every one of those victims, it seems to us inconceivable that any courts other than the Russian courts which have jurisdiction over the insolvencies of D1 and D2 could be regarded as the appropriate courts for the grant of such relief.

Yet further, relief directed to restoring the position to what it would have been had the transactions not been entered into and generally protecting the interests of persons who were their victims would again only be capable of being granted effectively by the Russian courts which have already adjudicated upon all those transactions.

It follows in our judgment that, on the question whether there exists a sufficient connection with this jurisdiction, and on the question whether any practicable relief could be obtained at trial, the Bank has failed to disclose a serious issue to be tried. The result is that permission to serve out should not have been granted under Gateway (20).

The issues which arise under this head are:

In the light of our conclusions that permission to serve out should not have been granted under any of the relevant gateways, it could be said that Issue 4 does not strictly arise for consideration. But in our judgment it is nonetheless necessary to address this issue as a stand-alone ground of appeal for two reasons: first, our decision in relation to Issue 1 (namely whether the paragraph 3.1(3) gateway requirements were satisfied) might be regarded as controversial; and second, in reality the issue as to whether England and Wales was, in all the circumstances, clearly or distinctly the appropriate forum for the trial of the dispute was the predominant issue in the case.

If, for the reasons which we have already set out above, we are correct in concluding that the judge erred in relation to: the proper approach to the determination of the issue under paragraph 3.1(3); the applicable law; and whether each of the “gateway requirements” were satisfied, then those errors would fatally undermine the evaluative conclusion which he reached in relation to appropriate forum and likewise affected the exercise of his general discretion.

However, even if this court were wrong in its conclusion that the requirements of the paragraph 3.1(3) gateway (or indeed the other gateways) were not satisfied, nonetheless we are of the view that on any basis the judge was “plainly wrong” in concluding that England and Wales was the appropriate place in which to try the Bank’s conspiracy claims against the Defendants. This is not a case of the sort disparaged by Lord Neuberger PSC and Lord Wilson JSC in VTB v Nutritek [2013] UKSC 5; [2013] 2 WLR 398, 441 at paragraphs 93 and 157, where an appeal court does little more than repeat the evaluative balancing exercise carried out by the first instance judge as to the relevant factors for and against the English forum. On the contrary, this is a case where in our view the judge was plainly wrong, not just in relation to the factors which he took into account, but also in the conclusion which he reached that England was the appropriate forum.

As we have already described in paragraphs 97 - 99 and 122 - 125 above, on any basis this was overwhelmingly a Russian case and (if there was one) a Russian conspiracy. It had no connection whatsoever with England other than the exclusive jurisdiction clauses in the Loan Agreement and the Guarantee. None of the arguments put forward by the Bank were sufficient in our judgment to discharge the burden it had of showing that England was clearly or distinctly the appropriate jurisdiction. Our reasons for reaching this conclusion are set out below.

Because we largely accept the reasons put forward by Mr Snowden and Mr Morgan in their submissions in relation to this issue, we do not rehearse them separately.

Mr Salzedo submitted that the judge (at paragraphs 151-190 of the judgment) had conducted a thorough, comprehensive and irreproachable assessment of the competing factors pressed upon him by each side as to why either England (as contended for by the Bank) or Russia (as contended for by D3 and D5) was the appropriate jurisdiction for the trial of the claims brought by the Bank. D3 and D5 had no basis for challenging the generous ambit of the judge's discretion by requesting this Court to conduct the evaluative exercise afresh. Mr Salzedo further submitted that the judge had fully appreciated that the Bank had the burden of proof of showing that England was the most appropriate jurisdiction despite the fact that most of the events and alleged events to which the claim related happened in Russia. Contrary to the suggestion from this court, the judge had not taken as his starting point the jurisdiction clause, namely that, as against D1 and D2, the Bank had tort claims which the Bank was contractually entitled to bring in England. He had correctly stated that that factor was not sufficiently significant on its own to outweigh the obvious connection of the facts with Russia rather than with England; see paragraph 161 of the judgment. However the jurisdiction clause was nonetheless a very weighty factor particularly in circumstances where the tort claims which the Bank sought to bring against the other Defendants -and in particular for procuring a breach of one of those contracts - were very closely connected to the claims against D1 and D2. Indeed they were the same conspiracy claims. Moreover D3, on the Bank's case, was firmly in control of the whole thing, including the wrongful acts of D1 and D2. It would be a very surprising thing if the Bank was prevented from pursuing its tort claims in conspiracy against D1 and D2 in England, as it was entitled to do contractually, simply because those acts were orchestrated by parties controlling them in Russia. Accordingly there was no material error of law or principle in the judgment below.

We start our analysis with the reasons given by the judge for concluding that he was satisfied that England and Wales was the appropriate forum. The judge approached his consideration of the question on the assumption that the Bank would get a fair trial in Russia. The judge then proceeded to address 5 factors which the Bank contended pointed to England and Wales as clearly the appropriate forum.

The first, and foremost, factor referred to by the judge was that the Bank was proceeding in England with the conspiracy claims not only against D1 and D2, as it was entitled to do under the exclusive jurisdiction clauses, but also as against D7, which had not applied to set aside service. He referred to Mr Salzedo’s submission that "the question of whether there is a conspiracy, which is largely a question of fact, will thus be litigated in this jurisdiction in any event” and that the Bank was going to pursue its claims against D1, D2 and D7, "seeking a determination of the issues as a trial on the merits even if those three defendants chose not to participate". In those circumstances the judge held that

“it would be verging on the perverse for [the Bank] to have to litigate the conspiracy and other tort claims against companies in arguably the same group as [D1 & D2] in Russia .... involving as that would litigating the same complex issues of fact twice with all the attendant waste of costs and risk of inconsistent findings in the two jurisdictions…. whilst that is not quite unthinkable, it is certainly not something the Court would want to contemplate. In my judgment this is a very strong factor in favour of England as the appropriate forum.” (Footnote: ⁹)

But for the reasons which we have already given above in the context of our consideration of the paragraph 3.1(3) gateway, it is unrealistic to suppose, even as at the date of the application before Cooke J (and as confirmed by subsequent events), and certainly by the time of the hearing before Flaux J, that there was ever going to be a trial in England on the merits and based on evidence, of the conspiracy claims as against D1, D2 and D7. First it was and is obvious that D1, D2 and D7, which were all the subject of Russian insolvency procedures in October 2012 (Footnote: ¹⁰), which had no assets outside Russia, which had not by that date (or in the case of D7, subsequently) filed acknowledgements of service, and which had not opposed the summary judgment proceedings, were not on any basis going to participate in a trial on the merits of the conspiracy claims in England. Second, the Bank's assertion that it intended in any event to proceed with a full evidentiary hearing of its conspiracy claims on the merits as against D1, D2 and D7, was highly questionable. As we have already pointed out, there was no utility in the pursuit of such claims, in circumstances where the Bank had already obtained summary judgment on its debt and contractual claims, where no additional quantum could be obtained beyond the full amount of that judgment and where any English conspiracy judgment would have to be taken back to Russia to be the subject of proof in the liquidations of the relevant companies, and, on the evidence before the judge, subject to re-evaluation by the Russian Courts. There was no evidence that suggested that the Russian court would recognise or enforce an English judgment on the conspiracy claim. Third, it is inconceivable in such circumstances that the English Commercial Court would have regarded it as consistent with the overriding objective, to have made available court and judicial time for such a trial, when there was no obvious utility for a trial or for a judgment on the complex factual and legal issues arising on the conspiracy claims.

Moreover, so far as the potential costs of proceedings were concerned, in the context of this first factor, the judge appears to have ignored obvious considerations such as the fact that all relevant documentation was in Russia and was written in Russian; that all relevant witnesses spoke Russian; that the basis for decisions by Russian insolvency practitioners and their ratification by the Russian Courts were being impeached, so that Russian law and insolvency procedure would need to be proved as a matter of fact by expert evidence in this jurisdiction, whereas these costs would not be incurred in proceedings in Russia.

Thus, in relation to this first factor, in our judgment the judge wrongly placed far too much weight on what was, in reality, a negligible risk that the alleged complex issues of fact arising on the conspiracy claims would be litigated twice, with attendant waste of costs and risk of inconsistent findings in the two jurisdictions. He ought to have concluded that, in reality, there was no prospect, or at most a very slight prospect, of there being a trial on the merits in this jurisdiction of the conspiracy claims against D1, D2 and D7.

We also agree with Mr Morgan's submission that, in concluding as he did, the judge did not give due weight to the guidance identified in the passage from the speech of Lord Collins in AK Investment CJSC –v- Kyrgyz Mobil Tel Ltd [2011] UKPC 7, [2012] 1 WLR 1804 at paragraph 73, where Lord Collins cites from Lloyd LJ (as he then was) in Golden Ocean Assurance Ltd v Martin (The Goldean Mariner) [1990] 2 Lloyd’s Rep 215, 222 that

“I agree…. that caution must always be exercised in bringing foreign defendants within our jurisdiction under Ord 11, r1(1)(c). It must never become the practice to bring foreign defendants here as a matter of course, on the ground that the only alternative requires more than one suit in more than one different jurisdiction”.

Although the judge recited this guidance at paragraph 154 of the judgment he does not appear to have given it any proper consideration. It was highly doubtful here whether in reality this was a situation where "the only alternative require[d] more than one suit in more than one different jurisdiction.”

The second factor put forward by the Bank, and to which the judge attributed some, but not decisive, weight, was the fact that the Loan Agreement and Guarantee contained English law and jurisdiction clauses. He appears to have accepted Mr Salzedo's submissions that

“the tort claims in this case are all about breaching and undermining the obligations under those contracts. [Mr Salzedo] submits that those claims are closely bound up with the contracts themselves so that the natural forum for the determination of the entire dispute is England.” (Footnote: ¹¹)

Having cited passages from the judgment of Lord Neuberger in VTB Capital Plc –v- Nutritek (supra) at paragraphs [108]-[109] he continued in these terms:

“160.

However, it seems to me Mr Salzedo is correct in his submission that the present case falls within the different case contemplated by Lord Neuberger in the first sentence of [109]. Whilst Lord Neuberger only deals with that different case briefly, the clear implication is that, if there is before the Court a claim against another party under a contract containing an English jurisdiction clause with which the particular claim in tort is connected, that is a potentially significant factor in favour of England as the appropriate forum. Since Erste’s case is that the Defendants conspired to undermine the performance of two contracts governed by English law and containing English jurisdiction clauses, Mr Salzedo submits that that connection between the contracts and the torts is established here and also points to England as the appropriate forum.

161.

The answer which Mr Morgan puts forward to this point is that RT and RT Capital are not parties to the contracts and that all the events with which the factual dispute is concerned have taken place in Russia pursuant to relationships governed by Russian law, applying Russian accountancy reporting standards and that pretty well all the factual witnesses on each side will be Russian speaking and resident. I accept that this is a factor pointing away from England and towards Russia as the appropriate forum, as was the case in VTB v Nutritek. Accordingly, if Mr Salzedo's second point stood alone, I would not consider it a sufficiently significant factor to outweigh the obvious connection of the facts with Russia rather than England.”

However it is clear from paragraph 190 of the judgment that the judge did indeed attach weight to the second factor when taken into account with the other considerations put forward by the Bank.

In our judgment, given the nature of the factual disputes involved in the Bank's conspiracy claims, the judge was wrong to regard this second factor as weighing on the scales in favour of England as the appropriate forum. D3 and D5 were not parties to the Loan Agreement and Guarantee and had nothing to do with their formation; and there was no issue on those agreements that required to be determined under English law. The statements of Lord Mance in VTB Capital Plc –v- Nutritek at paragraphs 64 and 70, that the fact that the facility agreement in that case was governed by English law was irrelevant, given that no issue as to interpretation of the agreement arose, are particularly pertinent to the circumstances of this case. Lord Mance said:

“64.

I am inclined to agree with Arnold J (para 187) that the fact that the facility agreement was subject to English law is not relevant. He discounted it because of his view, erroneous on the basis on which I approach the case, that the tort claims were subject to Russian law. But, in my view, even though the tort claims are subject to English law, it bears scarcely - if at all - on the appropriateness of the forum for their resolution that they were designed to induce another English law contract. No issue arises about the interpretation of the facility agreement.

…….

70…… The fact that any deceit was intended to induce an English law contract which provided for English jurisdiction is relevant, but cannot determine the appropriate forum in which to decide whether there was in fact any such deceit or conspiracy.”

Moreover, as we have already said in paragraph 98 above, no aspect of the question whether D3 and D5’s conduct was or was not unlawful could possibly turn upon any issue of interpretation of the Loan Agreement or Guarantee, to which the main alleged perpetrators of the conspiracy (i.e. the puppet masters, D3 and D5, rather than the puppets) were not parties in any event. In all the circumstances this second factor should have been treated by the judge as irrelevant to the issue of the appropriate jurisdiction for the resolution of the claims against D3/5. What he should have addressed, and given appropriate weight to, were the factors which Mr Morgan had put forward (Footnote: ¹²) as overwhelmingly pointing to Russia as the appropriate forum. Apart from his brief reference in paragraph 161, he did not do so. We consider these factors further below.

The third factor to which the judge attributed considerable weight in favour of England being the appropriate forum was the fact that a Russian court would proceed on the basis that the Guarantee was invalid as a matter of Russian law, even though the Guarantee was subject to English law and jurisdiction and that in those circumstances that would have a potential impact on the liability of each Defendant such as to make the Bank's claims more difficult to establish in Russia. At paragraphs 163-166 he said:

“163.

I accept that this is not a question of a legitimate difference between two equally appropriate fora, but of the Russian court reaching the wrong result by applying the wrong governing law as a matter of English conflicts of laws rules. That this is a significant factor pointing to England as the appropriate forum is borne out by the judgment of Christopher Clarke J (as he then was) in Stonebridge Underwriting v Ontario Municipal Insurance Exchange [2010] EWHC 2279 (Comm); [2010] 2 CLC 349. …………

165.

In my judgment, the present is an a fortiori case, since the Guarantee is expressly governed by English law, pursuant to which it is a valid and binding contract and the Russian court has already applied its own law to declare the contract invalid, so there can be no doubt that if Erste were required to litigate in Russia it would be deprived not only of the benefit of English law but of a valid binding contract of guarantee. Mr Morgan QC really has no sustainable answer to this point. He reiterated that the judgment of the Russian court declaring the Guarantee invalid was binding on Erste but that contention depends upon Erste having submitted to the jurisdiction of the Russian courts, which I have already held it did not.

166.

The only other argument he raised on this point was that the validity or otherwise of the Guarantee did not impact upon either Erste's cause of action or the quantum of its loss. Although that argument has a superficial attraction, it seems to me on closer analysis it is misconceived. The conspiracy alleged by Erste does not involve just the deliberate insolvency of the borrower, but of the guarantor as well and the loss claimed is in respect of the non-fulfilment of their obligations by both: see for example [120] and [121] of the Particulars of Claim. Accordingly, the fact that the Russian court would consider the Guarantee invalid would have a considerable impact upon Erste's ability to recover the loss it claims to have suffered. That is a significant factor pointing to England as the appropriate forum.”

We cannot agree that the fact that the Russian court would consider the Guarantee invalid, and so “have a considerable impact on the Bank’s ability to recover its loss”, is a significant factor pointing to England as the appropriate jurisdiction, whether for the reasons which the judge gave or at all. First, the judge's approach to the issue appears to be based on a misconception. In the context of the Bank's conspiracy claims against D3 and D5, the premise is: that they and the other Defendants wrongfully contrived to render D1 and D2 insolvent, with the result that D1 and D2 were wrongfully subjected to insolvency proceedings; that D3 and D5 wrongfully procured that D1 and D2 were divested of their assets; and that they wrongfully procured the setting aside of the Guarantee (as to the last point see paragraph 100 (a) of the Particulars of Claim). If the Russian court were to find those allegations proved, it would have to decide, in order to establish the quantum of D3 and D5’s liability in damages, what the position would have been on the hypothesis that these wrongful events had not happened - in other words what the amount of the Bank's recovery would have been in that event under the Loan Agreement and the Guarantee. In that scenario, the fact that the Guarantee had in fact been set aside would not adversely impact on the quantum of the Bank's conspiracy claim, unless, possibly, if it could be said that, even if the Defendants had behaved perfectly properly, the Guarantee would never have been enforceable as against D2 in Russia because it was a “related party transaction”, under Article 10 of the Russian Civil Code. But precisely the same position would prevail if the conspiracy claims were to be tried in England against D3 and D5 and the other defendants. Even if, as a matter of English law, the Guarantee would be regarded as valid, in accordance with the Gibbs principle, in assessing the damages caused as a result of the alleged D3 and D5 conspiracy, an English court would have to take account of the same fact, namely that the Guarantee would (or might) never have been enforceable as against D2 in Russia in any event because it was a related party transaction, and, accordingly, in the absence of D2 having assets outside Russia, the Bank had suffered no loss as a result of the Guarantee having been set aside in wrongly brought about insolvency proceedings.

Second, we cannot agree with the judge's statement that this was a case of "the Russian court reaching the wrong result by applying the wrong governing law as a matter of English conflicts of laws rules". The Russian court was not addressing the issue of governing law of the Guarantee or the relevant law of conflicts; nor was it addressing the issue in the context of a claim for damages for conspiracy against D3 and D5. What it was doing, in the context of its own insolvency jurisdiction, was applying the domestic insolvency law of D2’s COMI (i.e. Russia) in the insolvency of D2 to decide whether the transaction should be invalidated on the grounds that, as a matter of Russian law, it fell to be characterised as a “related party transaction”. Whether or not a transaction falls to be avoided under the insolvency jurisdiction of a debtor’s COMI or state of incorporation cannot depend on the proper law of the transaction itself. Not surprisingly, no authority was cited by the Bank to support its proposition to the contrary. It is inconceivable to think that, if the circumstances were reversed, an English insolvency court would refrain from declaring that a transaction concluded under a foreign law by an English registered company, or which had an English COMI, was a preference, or ought otherwise to be avoided, for example on the grounds that it was a transaction at an undervalue, merely because the applicable law of the contract was a foreign law, which expressly excluded such a contract being avoided or declared invalid on the grounds stated in the English insolvency legislation. Neither of the cases upon which the Bank sought to rely in this context (Stonebridge Underwriting v Ontario Municipal Insurance Exchange and Dornoch v Mauritius [2010] EWHC 2279 (comm), [2010] 2 CLC 349, [2006] 2 Lloyd's Rep 475) addressed the situation which would arise in an insolvency and accordingly they are of no assistance.

For these reasons the Bank's third factor cannot in our view be regarded as "a significant factor pointing to England as the appropriate forum" or a reason for rejecting Russia as the appropriate jurisdiction.

The fourth and fifth factors put forward by the Bank and relied upon by the judge were (i) that the Russian court would apply the wrong applicable law, Russian law, to the conspiracy claim and (ii) that the applicable law of the torts alleged was English law. As we have set out above, in the context of our consideration of the gateway contained in paragraph 3.1(9) of PD6B, the applicable law of the conspiracy and other tort claims was Russian law. In the light of that conclusion the judge’s reliance on these factors as pointing to England as the appropriate forum cannot stand.

Quite apart from the 5 factors which the judge did take into account in reaching his conclusion, in our view (apart from his passing reference to Mr Morgan's submissions in paragraph 161 of the judgment) he ignored, or attached far too little weight to, the fact that the fundamental factual and legal focus of this litigation concerned events which had occurred in Russia. Thus the judge failed, or failed adequately, to take into account the following critical factors in his evaluation of the issue of appropriate forum:

For all the above reasons we consider that the judge was clearly wrong in his evaluation that England was the appropriate forum for the determination of the Bank's claims against D3 and D5. In our view he approached the issue relating to forum by examining the technical factors urged on him by the Bank, rather than by standing back and asking the practical question where the fundamental focus of the litigation was to be found. As Lord Mance said in VTB Capital v Nutritek at paragraphs 14-16 and 51, the appropriate starting point for deciding on appropriate forum is the place of commission of the tort. In the present case that was manifestly Russia. There was no reason to depart from that starting point. We have no doubt that the clearly appropriate forum for the determination of this dispute was Russia and that, on any basis, the Bank failed to discharge the burden on it to establish that England was the appropriate forum.

Further, in the exercise of his general discretion the judge did not give any consideration to the fact that in reality the only commercial driver behind the Bank’s issue of proceedings in England against D1 and D2 was to enable a claim to be brought against D3 and D5 and to attempt to execute against their assets, whether in Russia or elsewhere. Whilst taken on its own this particular factor did not predicate that permission to serve out should be refused, it was, in the circumstances of this case, clearly an important factor that should have been taken into account.

For all the above reasons, the exercise of the judge's discretion in granting permission to serve out cannot be upheld. Accordingly we re-exercise the discretion under CPR Part 6.36 and 6.37 by setting aside the permission granted to the Bank by Cooke J to serve D3 and D5 out of the jurisdiction.

The appeal is allowed.