Polegoshko & Ors v Ibragimov & Ors

This is an application on the part of the First to Fourth and Sixth Defendants whereby they seek an order to vary the terms of an order made by Floyd J on 11 July 2012, so that none of the Claimants in this case could, if I were to make the order requested, take any steps in foreign proceedings, wheresoever commenced, or pursued, brought by or on behalf of the Fourth Claimant Fingood LLP (“Fingood”), or against it, other than as directed by this court.

The background to the case is that Fingood is a limited liability partnership incorporated in England. The case before this court concerns a dispute between the Claimants and the Defendants as to the beneficial ownership of Fingood. The First Claimant (“Mr Piolegoshko”), and the First Defendant (“Mr Ibragimov”) both claim to be the sole beneficial owner of Fingood, a matter which will have to be determined at trial. The claim commenced on 19 April 2011, and in the claim form the Claimants sought declarations to the effect that the Second and Third Claimants, Westa Holding Ltd (“Westa”) and Holding Associates Ltd (“Holding”) were, and at all times had been since Fingood was first registered, designated members of Fingood. They sought also a declaration that the Second, Third, Fourth, Fifth and Sixth Defendants were not and never had been members of Fingood. They sought consequential orders, in particular under section 1096 of the Companies Act 2006, that the Registrar of Companies remove from the register maintained pursuant to section 1080 of the Companies Act 2006 all and any material recording that the Second, Third, Fourth, Fifth and Sixth Defendants are, or were, or ever had been members of Fingood.

Since that time further pleadings have been served by the parties; a Re-Amended Particulars of Claim was served on 11 July 2012 and Re-Amended Defence and Counterclaim on 11 December last year. Those pleadings were served pursuant to directions which I shall mention a little later.

Apart from the history of the pleadings, the procedural history of this case which is of some significance can be summarised as follows. On 23 May 2012 the case came before Proudman J. That was an application on the part of the Claimants for an injunction and also for an interim declaration. Proudman J declined the application for an interim declaration, which at that stage was being sought without notice. (I should add that the proposed Seventh Defendant at that time, the Registrar of Companies, had not been joined as a party, but was before the court simply so that the Registrar’s position could be made clear to the court.) Proudman J declined to grant an interim declaration, but she did grant an interim injunction that until 13 June 2012 or further order in meantime, the Defendants and Transworld Express Ltd (now the Sixth Defendant, which at that stage was merely a proposed defendant) must not deliver or cause or allow to be delivered any documents to the Registrar for entry into the register maintained pursuant to the Companies Act 2006 in respect of Fingood.

On 13 June 2012 the case came before Morgan J who continued the order made by Proudman J and gave further directions for the conduct of the case. Still further directions were given on 25 June 2012 by Deputy Master Lloyd. Then on 11 July 2012 the case came before Floyd J. On that occasion he granted an interim declaration that until trial or further order in the meantime Westa and Holding were entitled to file documents with the Registrar in relation to Fingood for the purposes of removing the Fourth and Sixth Defendants as members of Fingood, and restoring Westa & Holding to the register of members of Fingood, and also for the purposes of changing the registered office of Fingood. The learned judge directed that the declaration for which the order provided was made entirely without prejudice to the claim of any of the parties to the beneficial ownership of Fingood. Floyd J then went on to give further directions for the conduct of the case.

Following the hearing before Floyd J, and on 28 May 2013, the Claimants’ solicitors made an application for summary judgment and other relief. The application for summary judgment came before Voss J (as he then was) on 29 July 2013, when Voss J ordered that the Defendants be permitted to serve defences (or amended defences) and counterclaims if so advised. He gave further directions for the service of any consequential reply or defence to counterclaim, and also directions for the filing of evidence in the case, and provided that the application be listed for hearing before a judge on the first available day after 2 October last year.

A further pleading was served by the Defendants, an Amended Defence and Counterclaim, on 4 September 2013. Then, on 8 October last year, the Claimants issued an application for the Defendants’ counterclaim to be struck out on the basis that it failed to disclose any reasonable grounds for bringing the counterclaim.

On 15 October 2013, the case came before Newey J who declined to grant summary judgment, and, so far as the striking out application was concerned, he directed that the Defendants were to file and serve a Re-Amended Defence and Counterclaim and any further evidence on which they wished to rely by 12 November last year. The position with regard to the striking out application is that the Claimants accept that the Defendants have now served a properly pleaded Defence and Counterclaim, although of course they take issue with its contents.

It is against that background that the present application comes before the court. There are now before the Lithuanian courts a number of cases and claims. Some of those claims have been initiated by those who form part of the Claimants’ camp in these proceedings, and other cases have been initiated on the part of Mr Ibragimov. The various proceedings, apart from some criminal proceedings, have been brought in the name of Fingood. In some of the proceedings the Claimants have purported to act on behalf of Fingood, and in other proceedings it is the Defendants who purported to act on behalf of Fingood.

The first Lithuanian proceedings, entitled Fingood v Polegoshko & Anor (Claim No 2-2979-793/2013) are in the Klaipeda City Area Court. This was a claim initiated by Mr Ibragimov in respect of delivery up of Fingood’s corporate documents. With regard to that case, the Lithuanian court has stayed the proceedings, pending the outcome of the claim now before the High Court in England, in the course of which claim this application now comes before me.

The second case before the Lithuanian courts is Fingood v Danska Bank & Anor, (Claim No 2-11804-235/2013) in the Vilnius City Area Court, and it is similar in nature to the first claim mentioned. In that case the Lithuanian court has determined already that Mr Kouras, Mr Ibragimov’s lawyer, was not a proper representative of Fingood. That matter is now subject to an appeal in Lithuania, but it is perfectly clear that the Lithuanian court is already seised of the case and dealing with it.

At this moment it is convenient for me to mention that whilst the Claimants in the case before me today are represented by learned counsel Mr Tilley, Mr Ibragimov appeared at least initially to be dealing with this matter in person this morning, though he was assisted for translation purposes only by an interpreter. In the course of this morning’s hearing, Mr Kouras, a Lithuanian litigation lawyer, explained that he would like to speak, and said that he was instructed on behalf of the Defendants, including Mr Ibragimov. Having heard his connection with the case, that he had been instructed in Lithuania, and has appeared before the courts there in connection with these cases, including the appellate courts, I came to the conclusion that it was appropriate for Mr Kouras to be granted a special right of audience to represent the Defendants before me today and I therefore made such an order. It seemed to me that it would be in the interests of justice and would assist the court if a lawyer were to be able to make submissions on behalf of the Defendant, rather than somewhat artificially to have to advance submissions, through Mr Ibragimov, to an interpreter. Mr Kouras, I should say, speaks very good English and did not need the assistance of an interpreter at all.

The third Lithuanian proceedings, Fingood v Afalita First Bankruptcy Proceedings (Claim No B2-919-125/2012) are in the Klaipeda Regional Court; those proceedings have been dismissed and therefore, as Mr Tilley fairly submitted in the course of argument this morning, there is no purpose to an injunction so far as those proceedings are concerned.

The fourth proceedings in the Lithuanian courts, Fingood v Apolita Second Bankruptcy Proceedings (Claim No B2-311-460/2014), seem, from evidence which has been filed on behalf of the Claimants in the case by Mr Vikintas Zulonas (a Lithuanian attorney), to be a kind of insolvency procedure for determining the validity of dispute debt. There is an issue in that case as to whether or not Fingood remains a creditor of Apolita. Mr Polegoshko’s case is that Fingood has assigned the debt concerned to a company called Intershipping in exchange for the release of counterclaims which Intershipping had against Fingood. Mr Ibragimov disputes the validity of any such assignment.

With regard to this litigation, the court in Lithuania has decided previously who should represent Fingood, resolved that question in Mr Polegoshko’s favour, and on appeal the decision of the first instance court has been confirmed, but that decision is now itself subject to a second appeal which has not yet been determined. Once again it is clear that the Lithuanian courts are dealing with the matter and are seised of it.

That brings me to the fifth piece of litigation, Fingood v Ibragimov (Claim No 2-670-513/2014) in the Klaipeda Regional Court. It was brought on this occasion by Mr Polegoshko and the subject matter is money allegedly misappropriated by Mr Ibragimov from Fingood. The matter has already been the subject of preliminary hearings in the Lithuanian courts, which again quite clearly are dealing with the dispute and are seised of it.

The sixth case is Fingood v Ibragimov & Ors (Claim No 2-670-513/2014) in the Klaipeda Regional Court. This is another claim which concerns alleged misappropriation of Fingood’s assets; this time supposedly by Mr Polegoshko. It appears that it is the kind of claim which is broadly equivalent to a claim which might in England be litigated under section 423 of the Insolvency Act 1986. The question of representation has been raised in the Lithuanian courts that are clearly seised of the matter although the issue has not been determined.

The seventh case, Fingood v Hanko & Baltas Parkas (Claim No 2-784-112/2014) is also in the Klaipeda Regional Court. It is another claim brought at the instance of Mr Polegoshko and arises from alleged misappropriations by Mr Ibragimov. The case is only at a preliminary stage, and issues with regard to who is authorised to represent Fingood have not yet been investigated by the court.

Finally, criminal proceedings are under way in Lithuania against Mr Ibragimov and it seems that in those proceedings Fingood has been joined as some kind of civil party for the purposes of claiming compensation.

The Claimants resist the application which has been made on the part of the Defendants and with which I am dealing today. Even if I had not been assisted by the helpful submissions that I have heard from all parties’ representatives, standing back and looking at the nature of this application, what is quite striking about it is that if I were accede to it, it would be very one-sided in effect, because it would restrain only the Claimants’ side in the Lithuanian litigation from participation in the various cases, whilst leaving the Defendants’ side completely free to participate, to give evidence, to make submissions, and to make applications. It does seem to me to be an unpromising start for such an application that if it were to be successful its effect would be so one-sided, effectively denying, as I have indicated, one party, or one side, alone from the ability to participate.

There is no issue between the parties that this court has jurisdiction to deal with the dispute now before it, or that the Lithuanian courts have the jurisdiction to deal with the disputes which are the subject of litigation in Lithuania.

I must before dealing with the various submissions that have been made on behalf of the Claimants mention two provisions of the Lithuanian Civil Code, which were drawn to my attention in the course of his helpful submissions this morning by Mr Tilley. These provisions have been exhibited to the witness statement of Mr Zulonas. Article 137 of the Code provides that:

“(1)

The court shall settle the matter as to the acceptance of an action by way of adopting a resolution. This procedural action shall be considered as instigation of civil proceedings.

(2)

The court shall refuse to accept the action if... [then it enumerates eight circumstances, the eighth of which is material to this case]... the application has been filed on behalf of the interested party by a person who is not authorised to conduct the proceedings.”

From that provision it is perfectly clear that the Lithuanian Civil Code caters for the very kind of dispute that has arisen in this case as to the authority of those before the Lithuanian courts to initiate proceedings on behalf of Fingood.

The other provision of the Code which I must mention is Article 164, which deals with the right of the courts to suspend proceedings. It seems that from the wording of the Code suspension in Lithuanian law is equivalent to a stay in English law. Article 164 provides that:

“The court may upon receipt of an application filed by parties involved in the case or at its own initiative suspend the proceedings in the following events... [and it is the fourth event that is material to today’s application] being other events when the court recognises that the proceedings must be suspended.”

As I have indicated already in this judgment, in the case of the first Lithuanian proceedings the court in Lithuania has invoked Article 164 already and suspended the Lithuanian proceedings pending the determination of this court in these proceedings.

Against that background I then turn to the submissions that have been made on behalf of the parties. I should explain by way of background that when I first asked Mr Ibragimov whether he wished to add to the written submissions which he had helpfully provided, and to the evidence to which his application referred, in the course of oral argument he said that he did not wish to do so, and I therefore, in the usual way, called upon Mr Tilley to make submissions on behalf of the Claimants by way of response to the application. It was not until Mr Tilley was a few minutes into his submissions that Mr Kouras indicated that he might wish to say something, and that led to the exchange which ultimately caused me to grant Mr Kouras special rights of audience as I have explained already. The result of all of this was that the first substantive submission that I heard this morning came from Mr Tilley. Effectively Mr Kouras responded to that submission. It was only right in those circumstances that Mr Tilley had an opportunity to reply, but I also allowed a final right of reply to Mr Kouras.

Mr Tilley summarised the Claimants’ objection to the application under four headings: (1) that there was no jurisdiction in this court to grant the relief sought; (2) that the balance of convenience favoured refusal of the application; (3) that the application was in any event an abuse of process; and (4) the Defendants had offered no undertakings in respect of their application; that is to say no undertakings by way of damages.

As to jurisdiction, Mr Tilley began by drawing my attention to the decision of the European Court of Justice in the case of Turner v Grovit [2005] 1AC 101. Mr Tilley submitted that although the application made on behalf of the Defendants might not be seen strictly as an application for an anti-suit injunction, nevertheless if one had regard to how the European Court viewed an anti-suit injunction for the purposes of the Brussels Convention, this case is within that category, or was at the very least akin to it. Turner v Grovit was a case which came before the European Court having previously been before the English courts, and Mr Tilley began by drawing attention to paragraph 31 of the European Court’s decision, which was in these terms:

“... the answer to be given to the national court must be that the Convention is to be interpreted as precluding the grant of an injunction whereby a court of a Contracting State prohibits a party to proceedings pending before it from commencing or continuing legal proceedings before a court of another Contracting State, even where that party is acting in bad faith with a view to frustrating the existing proceedings.”

Of course, Lithuania is a party to the Convention. Mr Tilley also drew my attention to paragraphs 24, 25, 26 and 27 of the European Court’s judgment and those paragraphs were in the following terms:

“24.

At the outset, it must be borne in mind that the Convention is necessarily based on the trust which the Contracting States accord to one another’s legal systems and judicial institutions. It is that mutual trust which has enabled a compulsory system of jurisdiction to be established, which all the courts within the purview of the Convention are required to respect, and as a corollary the waiver by those States of the right to apply their internal rules on recognition and enforcement of foreign judgments in favour of a simplified mechanism for the recognition and enforcement of judgments: Erich Gasser GmbH v MISAT Srl (Case C-116/02) [2005] 1 QB 1, paragraph 72).

25.

It is inherent in that principle of mutual trust that, within the scope of the Convention, the rules on jurisdiction that it lays down, which are common to all the courts of the Contracting States, may be interpreted and applied with the same authority by each of them (see, to that effect, Overseas Union Insurance and Others Case C-351/89 [1991] ECR I-3317, paragraph 23, and Gasser, paragraph 48).

26.

Similarly, otherwise than in a small number of exceptional cases listed in the first paragraph of Article 28 of the Convention, which are limited to the stage of recognition or enforcement and relate only to certain rules of special or exclusive jurisdiction that are not relevant here, the Convention does not permit the jurisdiction of a court to be reviewed by a court in another Contracting State (see, to that effect, Overseas Union Insurance and Others, paragraph 24).

27.

However, a prohibition imposed by a court, backed by a penalty, restraining a party from commencing or continuing proceedings before a foreign court undermines the latter court’s jurisdiction to determine the dispute. Any injunction prohibiting a claimant from bringing such an action must be seen as constituting interference with the jurisdiction of the foreign court which, as such, is incompatible with the system of the Convention.”

Applying those underlying principles which caused the court to reach the conclusion which it did in Turner v Grovit, Mr Tilley submits that it is simply not possible for the court in this case to grant the relief which is sought. The Lithuanian courts are already seised of the cases concerned, and it would be wrong for the English court to step in and make any order which would have the effect of seeking to interfere in the course of the Lithuanian proceedings. It seems to me that there is great force in the submission, and I should note that in the course of his submissions this morning Mr Kouras did not seek to distinguish Turner v Grovit, nor did he advance any other authority which would suggest that the principles in that case are not applicable to the case now before me. If it had been necessary to decide the case by reference to those principles alone I would have done so, and would have dismissed the applications now before me.

That, however, was not the end of the matter because Mr Tilley went on to develop the other grounds of objection. He drew attention to the provisions of the Lithuanian Civil Code, to which I have referred already for the purpose of demonstrating that the Lithuanian courts have all necessary powers to control fairly to the parties any litigation between them in relation to the issues that have arisen. In particular, the Lithuanian courts have the power to investigate the authority of one party to initiate proceedings and they have the power to order a stay of proceedings. The first of the Lithuanian cases which I have mentioned demonstrates that the Lithuanian courts will, if they consider it appropriate, order a stay pending the determination of issues such as beneficial entitlement which are currently before another court. But it seems to me that in addition to those considerations the balance of convenience comes down very firmly indeed against the grant of relief which the Defendants seek for the reason which I identified a little earlier in this judgment, and that is that the effect of the order which is sought would be so manifestly one-sided that it would leave Mr Ibragimov and his associates completely free to pursue proceedings in Lithuania, and to pursue the existing proceedings, whilst taking away from the Claimants an opportunity to participate. In my judgment, it cannot possibly be appropriate for this court which is yet to make any final determination of the current proceedings to take so drastic a step.

I should observe with regard to the proceedings in this court that the orders which have been made to date, that is to say the grant of an interim injunction by Proudman J and the grant of an interim declaration by Floyd J, have not themselves been the subject of any appeal.

In the course of his helpful submissions this morning, which Mr Kouras put forward realistically and succinctly if I may say so, he suggested that a particular disadvantage under which his clients laboured in Lithuania was that there was some misunderstanding in the Lithuanian courts, certainly below appellate level, as to the effect of the orders which had been made by the courts in England, and in particular as to the effect of the interim declaration granted by Floyd J. He said that he feared and apprehended that the Lithuanian courts had misunderstood the effect of the order made by Floyd J, interpreting that order rather as a final order so that the English court had decided conclusively who was beneficially entitled to the control of Fingood.

I must say I do not consider that it can really be the case that the Lithuanian courts would have laboured under any such misapprehension. The terms of the interim declaration made by Floyd J were expressed in relatively simple language and were perfectly clear in indicating that the declaration was an interim declaration only pending trial of the case. When matters have been before the Lithuanian court Mr Kouras has been available to make representations; if there were any real doubt as to the meaning of the orders which have been made, it would of course have been possible for an interpreter with legal understanding to have assisted the Lithuanian courts in appreciating what was the true effect of the order made by Floyd J, and that of the order which had been made by Proudman J. I cannot conceive that there is a real difficulty in the Lithuanian courts in grasping the actual effect of the orders which have been made in this court.

Also with regard to the balance of convenience Mr Kouras raised a fear on the part of his clients that that without some kind of interim relief along the lines sought, it would be possible for the Claimants to meddle inappropriately in the assets of Fingood and to dissipate those assets inappropriately, perhaps to the great prejudice of the Defendants. In my judgment if that fear really does exist, then it was a misconceived application that was made before me with a view to addressing it. An appropriate course would have been to make an application, perhaps for the appointment of a receiver pursuant to section 37 to the Senior Courts Act so that the receiver could hold the ring between parties and protect the interests and assets of Fingood pending ultimate resolution of the disputes before the court in England. When I raised that matter Mr Kouras seemed to appreciate its good sense forprotecting the position in the meanwhile, but I must stress that I raised the matter not out of a desire to encourage any such application but really to test the appropriateness of the application presently before the court. I express no view with regard to the wisdom of making any application for a receiver or any other kind of interim relief, but it does seem to me that the application presently before the court was inappropriate if it was made with a view to addressing the concerns identified by Mr Kouras.

Before I move on to the next ground which Mr Tilley advanced in resisting the application, I should say that for these reasons, in relation to the balance of convenience, I would refuse the application which is now before me.

That brings me on to the third basis of the submission in resisting the applications upon which Mr Tilley relied, namely abuse of process. For this purpose he identified two types of abuse; the first being collateral attack and the second an improper purpose. For collateral attack upon a decision of another court of competent jurisdiction, Mr Tilley referred me to the well-known decision of the House of Lords in Johnson v Gore Wood & Co (No 1) [2002] 2AC p1. It is not necessary for me in this judgment to elaborate upon what was said in the speeches of that case. It is very well-established in English law that it is an abuse of process for one party to make an application to the court for the purpose of making a collateral attack upon the correctness of a decision of another court in relation to the same subject matter. It seems to me that in so far as the Lithuanian courts have pronounced already upon the issues which have arisen with regard to representation in Lithuanian proceedings, this application would amount to a collateral attack.

Secondly, with regard to improper purpose Mr Tilley drew my attention to the case of JSC BTA Bank v Ablyazov (No 6) [2011] 1 WLR 2996. In that case Teare J at paragraph 8 referred to the decision of Bridge LJ (as he then was) in Goldsmith v Sperrings Ltd [1997] 1 WLR 478 where the learned Lord Justice said at page 503:

“On the other hand, if it can be shown that a litigant is pursuing an ulterior purpose unrelated to the subject matter of the litigation and that but for his ulterior purpose he would not have commenced proceedings at all that is an abuse of process.”

Developing that point Mr Tilley took me to paragraph 22(3) of Teare J’s judgment in Ablyazov:

“Where a claimant has two purposes for commencing proceedings one legitimate and the other sufficiently collateral as to be illegitimate, the question arises whether the commencement of those proceedings in those circumstances is an abuse of process in the light of Metall and Rohstoff AG v Donaldson Lufkin and Jenrette Inc [1990] 1 QB 391 it is of course arguable that the commencement will be an abuse if the illegitimate purpose is the Claimant’s predominant purpose. However, that question is not it seems at issue in that case and therefore I am persuaded that I should not regard that case as a binding authority on that question. It is arguable that the commencement of proceedings will not be an abuse of process if one of the purposes is legitimate in the light of the approach or indication of Bridge LJ in Goldsmith v Sperrings. However, Bridge LJ also did not decide the point as his approach or indication is also not binding upon me.

(4)

I must therefore decide which approach I prefer. I consider that I should adopt the approach or indication of Bridge LJ for these reasons: (a) if one or two purposes is legitimate it seems to me right in principle that the claimant should be entitled to proceed with his claim; (b) it avoids the need to embark upon the difficult exercise of establishing which of two purposes is the claimant’s predominant purpose – see the approach of Bridge LJ which has been commended by both Simon Browne LJ in Broxton v NcClelland [1995] EMLR 485 and by Etherton LJ in Lamb Securities v Fladgate Fielder [2010] Ch 467: see the approach of Nourse LJ in Re Ross (A Bankrupt) (No 2) [2000] BPIR 636 which is consistent with the approach of Bridge LJ.”

It seems to me that Mr Tilley fairly submits that the proceedings which are now before the court have been brought for an ulterior purpose of seeking to gain advantage in the proceedings now before the courts in Lithuania. This application was made with the benefit of gaining legal advantage and, therefore, I consider that the application now before this court amounts to abuse of process on both grounds.

Finally, I note that even at this stage no cross-undertaking in damages has been offered on the part of the Defendants in respect of the application for the order which is made. That would be a further reason for declining relief sought. As it is, it is not necessary even to consider that matter because there are three other very good reasons for dismissing this application which is before me today and I do so.