Blue Tropic Ltd & Anor v Chkhartishvili

This appeal is concerned with whether the present claim should be allowed to proceed, either at all or at any rate while linked cases in the British Virgin Islands (“the BVI”) and/or Georgia are determined. The defendant, Mr Ivane (or “Vano”) Chkhartishvili, contends that the Court lacks jurisdiction because article 22 of Council Regulation (EC) No 44/2001 (“the Brussels I Regulation”) is applicable or, in the alternative, that the proceedings should be stayed for the time being. Master Marsh rejected both arguments in a judgment handed down on 16 December 2013. Mr Chkhartishvili appeals against that decision.

The claimants, Blue Tropic Limited (“Blue Tropic”) and Coppella Ventures Limited (“Coppella”), were incorporated in the BVI in 2004. Each company has as its only registered shareholder SP Trustees GmbH (“SP Trustees”), which, I gather, is a Liechtenstein company that provides corporate services. SP Directors SA (“SP Directors”) is the sole director of both Blue Tropic and Coppella.

The proceedings with which I am concerned were issued on 8 February of last year and served on Mr Chkhartishvili that month. Mr Chkhartishvili, a prominent businessman, is a Georgian national. However, he had to leave Georgia in 2010 and was granted asylum in the United Kingdom. He was thus resident in England when the proceedings were instituted and served, but he returned to Georgia soon afterwards. Developments in Georgia led him to conclude that he could safely go back there.

It is alleged in the proceedings that in 2007-2008 Mr Chkhartishvili instructed a Mr Giorgi Kavtaradze, a Georgian lawyer who held powers of attorney granted by Blue Tropic and Coppella, to transfer assets in Georgia belonging to those companies to entities associated with Mr Chkhartishvili for no or inadequate consideration. Mr Chkhartishvili is said to have incurred liability under certain provisions of the Civil Code of Georgia in consequence.

For his part, Mr Chkhartishvili maintains that he has at all relevant times been the beneficial owner of the issued share capital of both Blue Tropic and Coppella. That, he says, would explain any transfers that took place at an apparent undervalue. He also argues that it can make no sense for Blue Tropic and Coppella to pursue these proceedings. In contrast, the claimants’ position is that the shares in the companies were held on trust for a Mr Arkadi (or “Badri”) Patarkatsishvili until his death in 2008 and that they are now beneficially owned by Mr Patarkatsishvili’s estate.

In April of last year, Mr Chkhartishvili applied for a declaration that this Court has no jurisdiction in respect of the present claim or, failing that, for an order staying the proceedings while the ownership of Blue Tropic and Coppella is determined in the BVI.

On 2 August 2013, Mr Chkhartishvili issued proceedings in the BVI. The defendants are Blue Tropic, Coppella and SP Trustees. Mr Chkhartishvili seeks a declaration that he is entitled to be entered in the share registers of Blue Tropic and Coppella as the owner of all their shares and rectification of the registers accordingly. SP Trustees is alleged to hold the shares as Mr Chkhartishvili’s “nominee or alternatively on trust for him”. Mr Chkhartishvili also asks for orders:

“setting aside the resolutions taken by the board of directors of [Coppella] and/or [Blue Tropic] (a) deciding to commence and pursue the claims against [Mr Chkhartishvili] in London and/or (b) authorising or providing for the appointment of solicitors to conduct the claims against [Mr Chkhartishvili] in London”.

The resolutions are said to have been:

“adopted as a result of a mistake on the part of the directors as to the beneficial ownership of the companies and/or as a result of a breach of duty on the part of the directors in failing to take into account all relevant matters, and in particular the beneficial ownership of the company, when taking the relevant decisions”.

On 16 December 2013, Master Marsh dismissed the application that Chkhartishvili had issued in April. It is that judgment that Mr Chkhartishvili now challenges on appeal.

In January of this year, pursuant to a direction given by Master Marsh, Mr Chkhartishvili served a draft defence and counterclaim. The draft defence begins with this “overarching” point:

“The present action has been commenced improperly by the Claimants’ directors acting in breach of duty and/or on the basis of a mistake and/or misrepresentations made by third parties as to the ownership of the companies. In the premises, the Defendant contends that the Claimants’ decision to commence and pursue the present proceedings is liable to be set aside as a matter of the law of the British Virgin Islands and that all steps taken to commence and pursue these proceedings are therefore taken without authority and are void.”

In subsequent paragraphs, it is pleaded that Mr Chkhartishvili “has at all material times been the owner” of Blue Tropic and Coppella and that Mr Kavtaradze was entitled to regard instructions he received from Mr Chkhartishvili as “representing the instructions of [the relevant company] and/or of the beneficial owner of and/or individual responsible for the assets of the company”. In the alternative, it is said that Mr Chkhartishvili “believed that he was the owner and/or controller of [the relevant company] and/or of its assets and was entitled to give instructions to Mr Kavtaradze on its behalf”.

The relief sought in the draft counterclaim includes declarations that Mr Chkhartishvili “has at all material times been the owner of Coppella and/or Blue Tropic” and that he is entitled to have his name entered on their registers as the owner of their shares and also orders setting aside the board resolutions authorising the proceedings. In that connection, the following is pleaded:

“Further, as a matter of British Virgin Islands law, a resolution taken by directors as a result of a mistake and/or a breach of duty are liable to be set aside. The Defendant seeks … an order setting aside the resolutions taken by the board of directors of Coppella and Blue Tropic (a) deciding to commence and pursue the claims against him and/or (b) authorising or providing for the appointment of solicitors to conduct the claims, on the grounds that those resolutions were adopted as a result of a mistake on the part of the directors as to the beneficial ownership of the companies and/or as a result of a breach of duty on the part of the directors in failing to take into account all relevant matters, and in particular the beneficial ownership of the company, when taking the relevant decisions.”

During the hearing, I asked Mr Jonathan Crow QC, who appeared with Miss Nienke van den Berg for Mr Chkhartishvili, about the references in the draft defence and counterclaim to Mr Chkhartishvili being the “owner” of Blue Tropic and Coppella. He explained that they relate to beneficial rather than legal ownership. As I understand it, it is not in dispute that, as registered shareholder, SP Trustees is at present the legal owner of the issued capital of Blue Tropic and Coppella.

At much the same time as he served the draft defence and counterclaim, Mr Chkhartishvili began proceedings in Georgia. On 27 January 2014, he submitted a claim to the Tbilisi City Court in which he invites the Court to find that in 2004 he and Mr Patarkatsishvili:

“made an agreement, under which Ivane Chkhartishvili and Arkadi (Badri) Patarkatsishvili undertook to incorporate foreign companies beneficially owned by [Mr Chkhartishvili] and that under that agreement Arkadi (Badri) Patarkatsishvili arranged for the incorporation of Coppella Ventures Limited and Blue Tropic Limited on British Virgin Islands”.

Article 2 of the Brussels I Regulation provides that, subject to the remainder of the Regulation, a person domiciled in a Member State of the European Union must be sued in that State.

In the present case, Mr Chkhartishvili accepts that he was domiciled in the United Kingdom when the present proceedings were issued. He argues, however, that article 22 of the Brussels I Regulation is applicable and, hence, that article 2 is not in point.

Article 22 reads, so far as relevant, as follows:

“The following courts shall have exclusive jurisdiction, regardless of domicile:

…

2.

in proceedings which have as their object the validity of the constitution, the nullity or the dissolution of companies or other legal persons or associations of natural or legal persons, or of the validity of the decisions of their organs, the courts of the Member State in which the company, legal person or association has its seat …;

3.

in proceedings which have as their object the validity of entries in public registers, the courts of the Member State in which the register is kept ….”

Guidance as to the interpretation of article 22 is to be found in the decision of the Court of Justice of the European Union (“CJEU”) in Case C-144/10 Berliner Verkehrsbetriebe v JP Morgan Chase Bank [2011] 1 WLR 2087. It is apparent from that case that the “object” of proceedings, in the context of article 22, is the proceedings’ “principal subject matter”. The Court said (at paragraph 44 of its judgment) that article 22(2) is to be interpreted as covering “only proceedings whose principal subject matter comprises the validity of the constitution, the nullity or the dissolution of the company, legal person or association or the validity of the decisions of its organs”. In the course of the judgment, the Court noted that the objectives of the Regulation include predictability (paragraphs 33 and 35 of the judgment) and “to confer exclusive jurisdiction on the courts of a member state in specific circumstances where, having regard to the matter at issue, those courts are best placed to adjudicate upon the disputes falling to them, because there is a particularly close link between those disputes and the member state” (paragraph 36). The Court also observed (in paragraph 32):

“a strict interpretation of article 22(2) which does not go beyond what is required by the objectives pursued by it is particularly necessary because the jurisdiction rule which it lays down is exclusive, so that its application would deny the parties to a contract all autonomy to choose another forum”.

The Brussels I Regulation had been considered in the previous year by the Court of Appeal in JP Morgan Chase Bank v Berliner Verkehrsbetriebe [2010] EWCA Civ 390, [2012] QB 176. The Court endorsed the view that article 22 calls for an exercise in “overall classification” and an “overall judgment” (see the judgment of Aikens LJ at paragraphs 86-89).

Article 22 is on the face of it concerned with the position as between Member States. It does not in terms address what should happen where the principal subject matter of proceedings is, say, the validity of entries in a public register kept outside the European Union. However, the claimants accept for the purposes of the present appeal that article 22 can be applied “reflexively”: in other words, that the Courts of a Member State can decline to exercise jurisdiction in circumstances where article 22 would apply were the country in which, say, a register is kept, or a company, legal person or association has its seat, a Member State. Andrew Smith J concluded that article 22 should be given reflexive effect in Ferrexpo AG v Gilson Investments Ltd [2012] EWHC 721 (Comm), [2012] 1 CLC 645.

Where a defendant is domiciled in the United Kingdom, an English Court cannot decline jurisdiction on forum non conveniens grounds. That is apparent from the decision of the CJEU in Case C-281/02 Owusu v Jackson [2005] QB 801. The CJEU concluded in that case (at paragraph 46 of the judgment) that:

“the Brussels Convention precludes a court of a contracting state from declining the jurisdiction conferred on it by article 2 of that Convention on the ground that a court of a non-contracting state would be a more appropriate forum for the trial of the action, even if the jurisdiction of no other contracting state is in issue or the proceedings have no connecting factors to any other contracting state”.

It is Mr Chkhartishvili’s case that the “principal subject matter” of these proceedings is either the validity of the decisions of the boards of Blue Tropic and Coppella to bring and pursue them (so that article 22(2) of the Brussels I Regulation applies) or the validity of entries in the companies’ share registers (so that article 22(3) is applicable). Mr Chkhartishvili’s fallback position is that I should use my case management powers to stay the case pending resolution of the BVI action (or, perhaps, that brought in Georgia).

In contrast, the claimants support the Master’s view that the “principal subject matter” of the present case is neither the validity of decisions made by the companies’ boards nor the validity of entries in their share registers. According to the claimants, the dispute is essentially about whether Mr Chkhartishvili is liable for misappropriating assets and that dispute will raise an issue as to whether Mr Chkhartishvili is the beneficial owner of the companies. The claimants further argue that the Master was right to consider that he had no discretion to grant a stay and that it would not anyway be appropriate to grant one even if he had a discretion to do so.

Mr Crow’s submissions on article 22(2) of the Brussels I Regulation were along the following lines. The first and main factual dispute between the parties relates to beneficial ownership of the shares in Blue Tropic and Coppella. If Mr Chkhartishvili wins on that, the claim against him will fail because the boards’ decisions to bring and pursue the proceedings will be invalidated. Since the boards are organs of the companies, the “principal subject matter” of the proceedings must thus be the validity of decisions of organs of the companies and, hence, article 22(2) is applicable. In terms of legal issues, the proceedings are principally concerned with the validity of the board decisions.

For his part, Mr Joe Smouha QC, who appeared with Mr Watson Pringle for the claimants, agreed that the dispute as to beneficial ownership is of central importance, but he denied that that means that the “principal subject matter” of the proceedings is the validity of any board decision. If, Mr Smouha argued, Mr Chkhartishvili establishes that he is the beneficial owner of Blue Tropic and Coppella, the claim against him will fail substantively and there will be no need for the Court to rule on the validity of the boards’ decisions. It is the beneficial ownership of the companies’ shares, Mr Smouha submitted, and not the validity of decisions of their boards, that is the “object” of the proceedings.

I agree. The issue as to the beneficial ownership of Blue Tropic and Coppella clearly goes to the heart of the proceedings. The point is crucial to whether, as is pleaded in the draft defence, Mr Kavtaradze was entitled to regard instructions from Mr Chkhartishvili as “representing the instructions of” Blue Tropic and Coppella and/or of “the beneficial owner of and/or individual responsible for the assets of” the companies. In practice, success by Mr Chkhartishvili on the question could anyway be expected to render the pursuit of the proceedings pointless from the point of view of Mr Patarkatsishvili’s estate and to put Mr Chkhartishvili in a position to bring them to an end. Establishing that he was the beneficial owner of Blue Tropic and Coppella might possibly also enable Mr Chkhartishvili to impugn the board decisions to bring and pursue the proceedings. Even, however, if that is so, it does not render the validity of the decisions the “principal subject matter” of the proceedings. It will be a rare case, I suspect, where the “principal subject matter” of proceedings does not relate to the substance of the claim but to whether it has been properly brought. At any rate, I do not consider the present case to be an example. While the validity of the board decisions might be affected by the “principal subject matter” of the proceedings, it is not itself the “principal subject matter”.

I should perhaps add that the issue as to beneficial ownership cannot properly be characterised as purely factual. Mr Crow was inclined to refer to the dispute as a factual one, and he stressed that article 22(2) requires the Court to focus on the legal questions. However, “beneficial ownership” is a legal concept, albeit that the beneficial ownership of Blue Tropic and Coppella plainly depends on the facts as well as the relevant law (be it Georgian or BVI).

Mr Smouha argued that the “principal subject matter” of the present proceedings is no more the validity of entries in the share registers of Blue Tropic and Coppella than it is the validity of decisions of their boards. It is Mr Chkhartishvili’s claim to beneficial ownership of the companies, Mr Smouha maintained, that provides the basis of his defence. The entries in the share registers are (so Mr Smouha said) neither the “object” of the present claim nor even an issue in it.

Mr Crow, however, submitted that entries in the share registers represent the legal expression of the dispute as to ownership. Mr Chkhartishvili’s case on article 22(3) of the Brussels I Regulation was summarised in these terms in the skeleton argument served on his behalf:

“The correct approach, it is submitted, is to recognise that the question raised in the present proceedings and in the BVI action is in substance the same question, that it is a question the answer to which determines the validity of entries in the Claimants’ share registers in the BVI, and that Art 22(3) therefore applies to it.”

Like the Master, I take a different view. Far from the validity of entries in the share registers of Blue Tropic and Coppella being the “principal subject matter” of the proceedings before me, I doubt whether it is any part of their subject matter. Should Mr Chkhartishvili succeed in having himself entered in the registers as the sole shareholder of Blue Tropic and Coppella, he can be expected to have no difficulty in bringing the present case to an end. It does not follow, however, that the entries in the registers are at issue in the present proceedings. In fact, the claims advanced by the claimants can be determined without considering whether the share registers should be rectified. The beneficial ownership of the shares in Blue Tropic and Coppella is important in the context of the claims advanced by the claimants; the entries in the relevant share registers are not. Beneficial ownership may possibly be key to both the claimants’ allegations and whether the share registers should be rectified, but that does not make the validity of the entries in the registers part of the subject matter of the case, let alone its “principal subject matter”. As the Master pointed out, it is “no part of [Mr Chkhartishvili’s] case to say that the entries in the share registers were made incorrectly or that the wrong shareholder was recorded in the registers”.

I have not forgotten that Mr Chkhartishvili has included in his draft counterclaim a claim for a declaration that he is entitled to have his name entered in Blue Tropic’s and Coppella’s registers as the owner of their shares. I do not think, however, that that affects whether the validity of those registers is the “principal subject matter” of the proceedings brought by the claimants.

Mr Chkhartishvili’s position before the Master, and his primary position before me, was that, if I rejected the arguments based on article 22 of the Brussels I Regulation, the present proceedings should be stayed while the BVI action is disposed of. According to Mr Chkhartishvili, it makes sense for the issue as to the ownership of Blue Tropic and Coppella to be resolved ahead of other issues and the BVI Courts are best placed to determine it. Mr Crow also floated the possibility of granting a stay pending the determination of the Georgian proceedings.

As, however, I have mentioned, an English Court is not entitled to decline jurisdiction on forum non conveniens grounds (see paragraph 19 above), and the Court “should not, under the guise of case management, achieve by the back door a result against which the ECJ has locked the front door” (to quote from Lewison J’s judgment in Skype Technologies SA v Joltid Ltd [2009] EWHC 2783 (Ch), at paragraph 22). That means, I think, that the Court should not grant a stay of the kind sought by Mr Chkhartishvili on forum non conveniens grounds. Yet that is essentially what Mr Chkhartishvili is suggesting should be done. In arguing, for example, that the BVI is “best placed” to resolve ownership (as is said in his skeleton argument), Mr Chkhartishvili is taking a forum non conveniens point. When, during his oral submissions, Mr Crow suggested that it was best to leave the validity of the actions of the boards of BVI companies to be resolved in that jurisdiction, he was similarly putting forward a forum non conveniens argument.

That is not to say that it can never be appropriate for an English Court with jurisdiction under article 2 of the Brussels I Regulation to grant a stay while foreign proceedings are determined. Mr Smouha suggested that it could be proper to order a stay on facts similar to those in Reichhold Norway ASA v Goldman Sachs International [1999] 2 Lloyd’s Rep 567, where the outcome of an arbitration between the claimant and a third party was going to have substantial implications for the claim. Perhaps there could have been an argument for staying the present proceedings for a short period if, say, the BVI action predated them and was just about to come on for trial. It might then have been sensible, as a matter of case management, to delay this case until after judgment had been given in the BVI. As it is, however, I agree with the Master that it cannot be right to grant a stay.

It may be worth adding that it is far from clear that a BVI Court would be better placed than an English one to determine the question of beneficial ownership. While Blue Tropic and Coppella are linked to the BVI by incorporation, (a) it is by no means obvious that the issue as to beneficial ownership is governed by BVI law and (b) few (if any) of the relevant witnesses are likely to live in the BVI.

I agree with the Master both that article 22 of the Brussels I Regulation does not apply and that it is not appropriate to grant a stay. I shall dismiss the appeal.