Sberbank of Russia v Ramljak

JUDGMENT

Wednesday, 21 February 2018

(2.04 pm)

1. JUDGE PAUL MATTHEWS: In the course of this application for a variation of the stay automatically granted by virtue of the order which I have already made, recognising certain proceedings in Croatia as a main proceeding for the purposes of the Cross Border Insolvency Regulations, I have been treated to an interesting argument about the meaning of an undertaking which was given at an early stage in the litigation. The parties came before Mr Justice Barling on 3 August 2017, shortly after the original application had been issued on, I think, 28 July 2017. They effectively agreed an order which was put to the judge for his approval, and he duly approved it. The terms of the order are important, and in particular the recitals to it.

2. The order is headed "Consent order", and it begins as follows:

"Upon the application of Ante Ramljak as the Extraordinary Commissioner of Agrokor DD for the recognition under the Cross Border Insolvency Regulations 2006 of the Extraordinary Administration Proceedings commenced in Croatia in respect of Agrokor DD."

3. Then it says this:

"And upon the applicant and the respondent Sberbank agreeing and undertaking that:

(1) Pending final determination of the Recognition Application, Sberbank shall take no further steps in LCIA arbitration no. 173684 as against Agrokor DD and its subsidiaries which are the respondents to the arbitration (together the Relevant Companies) and the applicant will cause or procure that the Relevant Companies shall take no further steps in the LCIA arbitration no. 173684 as against Sberbank, save as required to comply with this undertaking;

(2) They shall take all necessary steps to procure a stay of LCIA arbitration no. 173684 as against the Relevant Companies pending final determination of the Recognition Application.

(3) Pending final determination of the Recognition Application, no further arbitration or claim in relation to any debts arising prior to the commencement of the Extraordinary Administration roceeding shall be commenced by Sberbank against the Relevant Companies in the courts of England and Wales or before an arbitral tribunal seated in England and Wales.

IT IS ORDERED BY CONSENT that ..."

4. Then the rest of the order gives directions for the evidence and other preparations for the application itself, which I heard in October last year. I handed down my judgment on 9 November last year, in which I decided that it was right to recognise the main proceeding in Croatia.

5. So, in this order, the parties are agreeing, and an undertaking is given by Sberbank, that it will not prosecute the arbitration already commenced or carry on any further arbitration in England and Wales or make any other application to the court, “pending final determination of the Recognition Application”.

6. The difference between the parties today is, broadly speaking, is this. Sberbank says that the application has now been determined by the court, and therefore the undertakings have come to an end. The Extraordinary Administrator, Mr Ramljak, says that the final determination of the Recognition Application has not yet occurred, because there is still an outstanding application for permission to appeal. Until that is dealt with -- and of course any succeeding substantive appeal, and I suppose even up to and including the Supreme Court -- it cannot be said that there has been a final determination. Hence the undertakings continue.

7. Two important points to notice are these. First, this is actually an order by consent and the parties are agreeing, which means that this is a contract as well as an order of the court. The second point is that the undertakings in fact go wider than the automatic stay that would be imposed by the recognition order itself, because the recognition order only applies as against Agrokor DD and does not apply to any of its affiliates or subsidiaries, whereas the undertakings plainly are expressed to apply in relation to the affiliates and subsidiaries known as the “Relevant Companies”.

8, So, the question that I have to decide is simply a question of construction. Rather to my surprise, I have not been shown any authority which covers this precise situation arising in the context of either an agreement or an undertaking to the court. I have however been shown a number of authorities which bear on what might be regarded as analogous situations using language which is more or less similar to the language of the undertaking.

9. Sberbank, by Mr Allison QC, has referred me to several of these authorities. The first is Kirby v Telegraph plc [1999] EMLR 303, a decision of the Court of Appeal. That was a question, not really of construction of any phrase which appears in a statute, or even a contract, so much as a question whether, the court at first instance having rendered its decision, it retained any jurisdiction to take further steps in the litigation. It was a case of defamation, where at a very late stage indeed, the claimant received notice that he was going to suffer a greater loss, it was said, as a direct result of the defamation that had taken place, than he had otherwise thought. Unfortunately, because it was so unexpected, he had not pleaded any special damage in this respect. The question was whether, the court having made its order after the conclusion of the trial, it was too late to do anything about it.

10. The Court of Appeal decided that this set of circumstances attracted the operation of the principle that a court, once having reached a final conclusion on a matter at trial, no longer had jurisdiction to adjudicate on any matters related to that, except of course for those special cases provided for in the rules, for example, costs, permission to appeal and so on. The only way forward for the unfortunate claimant was the possibility of an appeal out of time.

11. So that is, as I say, an interesting decision on the question of what powers the court has to continue with aspects of the litigation after a court of first instance has reached a conclusion at the trial, But it really does not help me to decide what is meant by “final determination” in the context of this order. Similarly with another case which was referred to in the skeleton argument, Tardios v Linton [2015] EWHC 1429 (QB), where Kirby v Telegraph plc was discussed, exactly the same point having arisen.

12. Another authority relied on by Sberbank was Tanfern v Cameron-MacDonald [2000] EWCA Civ 3023. That was a case in a different, effectively a statutory, context. The facts of the case do not matter for present purposes, but the Court of Appeal, comprised of the Master of the Rolls, Lord Justice Peter Gibson and Lord Justice Brooke, gave some guidance as to the rules which were about to, or had just, come into force in relation to the destination of appeals from lower courts to higher ones. These were contained in what was then the Practice Direction to CPR Part 52. I just mention now that the rules are of course now rather different, but this was the position being described at the time. For those purposes, it was necessary to distinguish between a “final” decision and an “interim” decision. If it was a final decision from a lower court, it would go to one appeal court, and if it was an interim decision, it might go to a different appeal court. So, again, I do not derive any particular assistance from that decision, interesting as it is in its own context. I was also shown the destination tables for appeals in CPR Practice Direction 52 from the 2016 White Book, but those references to my mind do not add anything to what has already been said. I also add that I was referred to a much earlier decision which drew a similar distinction for the purposes of appeals, Salaman v Warner [1891] 1 QB 734, where again the question was whether an order was final or interlocutory for the purpose of the appeal process.

13. There is then a further case to which I must come back at a later stage, Re Riddell (1888) 20 QB 512. This was concerned with the meaning of the phrase "final judgment" for the purposes of the Bankruptcy Act 1883, section 4(1)(g). The reason it mattered in this case was that the court had struck out a claim for want of prosecution and made an order that the unsuccessful party should pay costs to the successful, and the question was whether the order for costs to be paid was such as could be the foundation of a bankruptcy petition under the then current Bankruptcy Act of 1883. For that purpose a ‘final judgment’ was needed. Because the order for costs had been made in an order striking out the claim for want of prosecution, the Court of Appeal was clear that this was not a “final judgment” for that purpose, and therefore could not be the foundation of the bankruptcy petition.

14. I was also referred to a passage in the White Book at page 1765, paragraph 52.0.6, which referred to "determination" in, as it were, the same phrase as "judgment" and "order", suggesting that the three words were used in an interchangeable sense. But there was no authority supporting the note. However, in the second volume of the White Book, at page 2492, I was shown another note, referring to an interesting decision in the Court of Appeal called Re M (Children) [2013] EWCA Civil 1170. In this case parties who had succeeded at first instance, but were dissatisfied with some of the things the judge had said on the way to that decision, sought to appeal to the Court of Appeal. They were told that an appeal was not possible, because appeals are, of course, against the order made in a case, and not against the reasons or other expressions or comments made by the judge in reaching the conclusion.

15. In the course of its decision, the Court of Appeal made clear that the word "determination" used in section 77 of the County Courts Act 1984 was equivalent to the phrase "judgment or order" in section 16 of the Senior Courts Act 1981. These are the two statutory provisions, one for the county court and the other for the High Court, which permit or authorise appeals to the Court of Appeal from those courts respectively. One can therefore see the word "determination" being used, as it were, as equivalent to the word "judgment" or "order". But of course nothing is said at any stage about any kind of “final determination”, which is the phrase with which I am concerned.

16. On the other side, for Mr Ramljak, the Extraordinary Administrator, I was referred by Mr Smith QC to a number of tax cases dealing with VAT liability. These concerned section 77(2) of the VAT Act, which provides that a penalty assessment, or an assessment of penalties and interest, to be paid by a person who has not paid a VAT liability, must be made within two years from the date on which the VAT liability "has been finally determined".

17. So there we have the precise phrase with which we are concerned. Unfortunately it is in a context which is utterly remote from the present. Indeed, it is not even like ordinary litigation. This is because, as everybody knows, tax cases begin with the Revenue telling you how much you owe by way of an assessment, and you are then on the back foot trying to appeal it to a tribunal. So the context is extraordinarily different from that with which we are concerned.

18. Nevertheless, in this context I was referred to Teletape v HMRC [2016] UKFTT 797 (TC), and I was also referred to a case on which that decision was itself based, Liaquat Ali v HMRC [2006] EWCA Civil 1572, where in particular Lady Justice Arden said this (at [55]):

"I agree with the rejection by Lord Justice Lloyd of the appellant's arguments as to the meaning of 'finally determined' for the reasons he gives. I agree with him that it refers to the final determination of the VAT due, whether by assessment and the expiration of the time for appeal against that assessment or by appeal so far as an appeal lies. That approach to final determination leads Ms Lonsdale on behalf of Mr Ali to submit as her core proposition that the amount of the penalty must be fixed by reference to the amount of VAT as finally determined. There is unlikely to be an issue about this if the evasion is detected before the amount of VAT due is finally determined. In that situation the commissioners would take steps to ensure that the VAT as finally determined reflects the adjustments necessary to correct this evasion. However, even once the VAT due is finally determined, the commissioners still have two years in which to raise a penalty assessment, see section 77(2). This is a comparatively long period if the amount of the liability to the penalty must always be calculated by reference to the amount due by way of VAT as finally determined. There would seem to be little point in such a lengthy period on the respondent's approach and that consideration throws doubt upon the respondent's core proposition."

19. So there Lady Justice Arden not only agrees with Lloyd LJ that "finally determined" includes the time taken for any appeals, but also explains why the time allowed for a penalty assessment is such a long period as two years. It is clear in that case that the appeal process was part of the process of determining the VAT liability. I do not, myself, gain any help from that decision or from Teletape for the construction of “final determination” in this order.

20. The Extraordinary Commissioner also refers to another tax case, Foneshops v HMRC [2015] UKFTT 410 (TC), which I think is based ultimately on the same authority. But this decision is slightly more helpful, because of the way in which the judge goes about reaching her decision. It is a VAT appeal, and the same statutory provision is in play, ie VATA s 77(2). The judge (at [90]) says this:

"However, having said that, does the appellant also have a good case that it is the date of the striking out which matters for measuring the two years? What does 'finally determined' in section 77(2) VATA mean? There is no statutory definition. Applying a normal meaning to the phrase, it is clear that 'finally' is meant to qualify 'determined'. So Parliament was not referring to something which merely determined the proceedings, it was referring to something which finally determined the proceedings.

"91. It seems unarguable to me that Parliament clearly had in mind proceedings coming to a final end. It had in mind the end of any appeal process and, it necessarily follows, any reinstatement process. The strike out, whether it took place on 5 May or 29 June, while it determined the proceedings, could not have been final until the time for a reinstatement application elapsed, without such application being made or if such application was made, until it was finally resolved. Final resolution in this appeal was when the appeal against the reinstatement refusal was finally determined in the Upper Tribunal on 3 March 2014."

21. So there the judge has obviously taken a view about the meaning of the phrase "finally determined". But it is noteworthy that she has done so by taking the component parts and looking at them separately. I have to say that I find that helpful, at least to some extent.

22. I was also referred to a decision of the High Court of Singapore in a case called Global Distressed Alpha Fund v Bakrie [2013] SGHC 30. In this case, as the judge, Mr Justice Tay Yong Kwang said, at paragraph 1:

"This case turns on the interpretation of Order 67 rule 10(2) of the Rules of Court. The appellant/judgment debtor, PT Bakrie Investindo ... is appealing against the dismissal of an application to adjourn the examination of judgment debtor proceedings ... granted in favour of the respondent/judgment creditor, Global Distressed Alpha Fund I Limited Partnership ...

2. This appeal raises two issues in relation to Order 67 rule 10(2):

"(a) first, whether an EJD comes within the meaning of 'execution' for the purposes of order 67 rule 10(2); and

"(b) second, whether an application to set aside a registration of a foreign judgment registered under the Reciprocal Enforcement of Commonwealth Judgments Act ... ('RECJA') is considered “finally determined” for the purposes of order 67 rule 10(2) if the application is pending hearing before the Court of Appeal."

Pausing there, it can be seen that that actually raises almost exactly the point which I have to decide, except of course that it does it in a quite different statutory context, and the statutory context, indeed, of a foreign legal system.

23. Paragraph 3 of the judgment begins:

"Order 67, rule 10 reads as follows ..."

I need not read paragraph 1 of the rule. It deals with a limit on execution on a judgment registered under the reciprocal enforcement legislation.

Then subparagraph 2 reads:

"If an application is made to set aside the registration of a judgment, execution on the judgment shall not issue until after such application is finally determined."

There is then subrule 3 which I need not read.

So there is the text of the rule. The question therefore is whether execution is restricted until after such application is finally determined by way of an appeal , or whether it is sufficient that the court at first instance should have disposed of the application.

24. In his judgment, the judge set out the competing submissions, at paragraphs 35 and 36. One was that the application was only finally determined once all the avenues of appeal were exhausted, and the other was that you did not have to wait for the avenues of appeal to be exhausted; it was sufficient that the first instance decision had been made.

25. The judge referred to an earlier decision from Malaysia and found it of little assistance because it was a decision on the meaning of the phrase, "final judgment ". Then, in paragraph 43, he referred to the decision of the English Court of Appeal in Re Riddell , to which I have already referred. He quoted an extract from the judgment of the Malaysian judge, who had himself quoted an extract from the judgment of Lord Esher, MR, where, at page 516, he said:

"In my opinion a final judgment means a judgment obtained in an action by which the question whether there was a pre-existing right of the plaintiff against the defendant is finally determined in favour either of the plaintiff or the defendant. I think that definition will be found to cover most cases, though perhaps not every one. In my opinion, the question is not only was the claim determined, but was it finally determined? It can only have been finally determined if between the two parties to the action, it cannot be raised again."

26. So, there, Lord Esher is using the phrase "finally determined", but he is using it in order to explain the meaning of the phrase "final judgment" in a different statutory context, namely whether the order in question is capable of founding a bankruptcy petition under the Bankruptcy Act. So I do not find a great deal of help in the fact that Lord Esher happens to have used the very words that we are concerned with, because he is doing so in a quite different context.

27. But I am assisted a little by what the learned judge says in paragraph 40 of his judgment, where he refers to the definition section of the reciprocal enforcement legislation. He had actually set out the relevant provisions in paragraph 38 of his judgment, where it says, section 3(2):

"Any judgment of a superior court of a foreign country to which this part extends other than a judgment of such a court given on appeal from a court which is not a superior court, shall be a judgment to which this part applies if (a) it is final and conclusive as between the parties thereto ..."

I need not read (b) or (c).

Then subsection 3:

"For the purposes of this section, a judgment shall be deemed to be final and conclusive, notwithstanding that an appeal may be pending against it, or that it may still be subject to appeal in the courts of the country of the original court."

28. What the judge then goes on to say in paragraph 40 is this:

"In fact it was deemed necessary to include section 3(3) of the REFJA to clarify any potential ambiguity in the interpretation of 'final' in section 3(2) of the REFJA, since a natural reading of 'final' in section 3(2) of the REFJA suggests that it means no further avenues for either party to raise any arguments in relation to the foreign judgment before the foreign court are available. However, there is no similar clarifying provision in relation to section 4(5) of the REFJA (and correspondingly in order 67, rule 10) which suggests that it is the natural meaning of 'finally determined' that is to be preferred in section 4(5) of the REFJA (and correspondingly in Order 67, rule 10) ie no further appeals are possible."

Of course that is in a different statutory context. But, again, I think it is the way in which the judge approaches the task of construction that is of assistance to me.

29. Then I was also referred to the decision of the Court of Appeal of Trinidad and Tobago in Water and Sewerage Authority v Waite (1972) 21 WIR 498. This was a decision about the circumstances in which it was possible under the then procedural rules of the court to give hearsay evidence in an affidavit. The relevant rule in Trinidad and Tobago was Order 38, rule 3. This provided that

“Affidavits shall be confined to such facts as the witness is able of his own knowledge to prove… Provided that in interlocutory proceedings, an affidavit may contain statements of information and belief with the sources and grounds thereof.”

The argument was that this is not an interlocutory proceeding and therefore hearsay evidence was not permitted in the affidavit.

30. Now, that rule in Trinidad and Tobago is taken more or less directly from the relevant English rule of the time, which indeed lasted up until the introduction of the CPR. It corresponds to, in fact, two English rules which are slightly differently expressed but mean the same thing: Order 41, rule 5 and Order 38, rule 2 of the Rules of the Supreme Court. But the important point is that it will be seen that there is no question of trying to construe any phrase such as "final order", "final determination", "final judgment"; it is simply saying: are these interlocutory proceedings or are they not; and that is all.

31. But what is of some interest, I think, is that at the bottom of page 499, the Acting Chief Justice says this. He refers to the case of Salaman v Warner (which is a case to which I have already referred), and he says:

"This was a case in which an order dismissing an action was made upon the hearing of a point of law raised by the pleadings before the trial under Order 25, rules 2 and 3 (UK). For present purposes we consider it sufficient to quote the judgment of Lord Justice Lopes ([1891] 1 QB at pages 736 and 737):

‘I am of the same opinion. I think the definition suggested by the Master of the Rolls in the case that has been referred to is the right definition for this purpose.

I think that a judgment or order would be final within the meaning of the rules when, whichever way it went, it would finally determine the rights of the parties. The case of In Re Riddell appears to me to be in point. That was a decision under the bankruptcy rules in which the term "final judgment" is used. The court held that an order dismissing an action for want of prosecution was not a final judgment’."

32. The Chief Justice goes on:

"It seems to us that the critical point in determining that an order is final for this purpose is that it must appear that whichever way it went -- in other words, whatever was the decision of the judge in chambers in this application -- it would have the effect of determining the rights of the parties. Of course, determining does not mean that there cannot be an appeal, but determining the rights of the parties in a case where the plaintiff had obtained an order against the defendant entering judgment for damages to be assessed."

33. So there the Court of Appeal of Trinidad and Tobago is referring back to specific decisions, relating first of all to the distinction between interlocutory and final orders for the purposes of appeals -- that is Salaman v Warner -- and also to “final judgment” for the purposes of bankruptcy – that is Re Riddell . But it does go on to say, almost as an afterthought, that the word "determining" by itself does not mean that there cannot be an appeal. So I consider that that offers a straw in the wind that may be of assistance to me here.

34. What I can say is that none of these authorities can be said to be in point. They all arise in specific statutory, mostly statutory, and what I have to construe here is an undertaking in a court order which was made by consent and therefore constitutes a contract. Of course, in construing a contract, as everybody knows now, from a number of decisions of the Supreme Court, I have to take into account the whole commercial context, the factual matrix. The one thing I am not allowed to take into account is evidence of the subjective intentions of the parties. But I must take into account almost everything else.

35. Here, Mr Ramljak had made an application or launched an application for recognition of the Croatian proceedings. At that time he wanted Sberbank to stop the arbitration that it had launched after the extraordinary administration was opened. The arbitration of course was not only against Agrokor, it was against Agrokor's subsidiaries, and Mr Ramljak wanted it to be stopped as soon as possible.

36. Sberbank, perfectly reasonably, were fearful of being bounced into a hearing, and a decision being taken, without proper evidence being put in on its behalf. They would rather not fight straight away, they needed time to prepare, and so there was a kind of negotiation between the two sides as to the terms on which the situation would be carried over until such time as there had been proper preparation.

37. From Mr Ramljak's point of view, he knew that if he succeeded with his application he would get -- indeed both sides knew -- an automatic stay for Agrokor, but of course he would not get an automatic stay in respect of the subsidiaries. On the other hand, even if he succeeded, Sberbank might appeal the decision. On the other side, if Mr Ramljak failed to get recognition for the Croatian proceedings, he might appeal. Either way, there might be a further appeal, indeed to the Supreme Court.

38. I bear in mind, in this context, as Mr Allison quite properly mentioned, that of course there is not unlimited time for these proceedings because the timetable prescribed by the legislation in Croatia requires that at the latest, a settlement agreement should be put forward for approval by 15 months from the date on which the proceedings were opened. They were opened in April 2017, which means at the latest, therefore, by July 2018.

39. The question is, why would Mr Ramljak want an undertaking at all at this stage to continue, and why would he want it to continue during appeal proceedings if he were successful in his application at first instance? Well, of course, he would want that because it -- the undertaking -- goes further than any stay in that it covers the subsidiaries. He would also want it to cover an appeal if he lost at first instance.

40. So one can see why he would have been anxious to have an undertaking that covered not just the first instance but also an appeal. He does not want to face the arbitration in the LCIA until after he has his recognition order because then, with that order, his arguments to seek a stay before the arbitral tribunal in relation to the subsidiaries (because they are not covered by the automatic recognition) will be stronger. On the other hand, Sberbank says that that the undertaking that was given should not have any continuing effect following recognition, because that would duplicate the automatic stay and indeed, it says undermine the court's ability to vary it.

41. The problem that I have here is that I am construing not a statute or even a rule of court; I am construing a voluntary undertaking amounting to a contract between the parties. There can be no doubt that the two parties in this case could, if they wished, make exactly the agreement which the Extraordinary Administrator says they have made. The only question is whether that is what they have agreed.

42. In deciding what they have agreed, I must look at what words they have used in the context in which they have used them. Here, time and again during the argument, I was brought back to the phrase that is in fact the subject of this controversy. It is " final determination" and not just "determination". What does the word "final" add if the undertaking is confined to the first instance decision?

43. I am in no doubt that, when I reached the conclusion I did in November last year, I was determining the application. There was no part of the application left undetermined. Why, then, should that also be referred to as a final determination? The word "final" would be entirely superfluous. As Mr Smith rightly pointed out, it is not possible to have an interim determination under the model law and the CBIR. He took me to article 19 of the schedule to the CBIR, which demonstrates that the court has the power to grant interim relief pending the determination of an application. But it does not follow that the grant of any interim relief would amount to some kind of determination of the application, even in part , because it may have nothing whatever to do with the recognition of the foreign proceeding.

44. So in my judgment, the word "final" in the phrase "final determination" must refer to a point in time when that determination can no longer be changed. In my judgment, it must therefore be referring either to the end of the possibility of any appeal or, if sooner, to a point at which the losing party at first instance acknowledges that there will be no appeal or no further appeal. Accordingly, I hold that on the true construction of this undertaking, the undertaking has not yet come to an end.

(2.46 pm)