AS Latvijas Krajbanka v Antonov

In the judgment which I handed down on 27 May 2016 following the trial of this action, I concluded that, in each of the eight transactions which are the subject of the Bank’s claims, the defendant, Mr Antonov, acted dishonestly and in breach of duties owed to the Bank under Latvian law. I further concluded that, as a result of Mr Antonov’s wrongdoing, the Bank suffered losses of €60,499,567 and US$30,762,458 which it is entitled to recover as damages.

In its particulars of claim and submissions made at the trial, the Bank claimed interest on damages pursuant to Article 195 of the Latvian Civil Procedure Code, or alternatively under section 35A of the Senior Courts Act 1981, at the rate of 6% per annum. In the judgment given on 27 May 2016, I did not determine the amount of interest recoverable by the Bank and invited further submissions on the appropriate rate and on the law applicable to that question.

The Bank filed such submissions on 17 June 2016, along with a further expert report from a Latvian lawyer, Mr Romualds Vonsovics, concerning the Latvian law applicable to an award of interest in civil proceedings and a witness statement addressing the calculation of interest. A revised calculation of interest was provided on 5 July 2016.

In this judgment I will first address the question whether the rate of interest is governed by Latvian law or English law, and I will then specify the rates at which the Bank is entitled to interest on the sums awarded as damages.

English rules of private international law distinguish between questions of substance, which are governed by the law applicable to the cause of action, and questions of procedure, which are governed by the law of the forum. In dealing with interest, a preliminary question arises as to whether the award of interest is a matter of substance or procedure. In applying that distinction, the position is complicated by the fact that the transactions in this case span three different legal regimes.

The Plazmexon, Krapivny and Davitiashvili loans were made before 11 January 2009 and therefore fall outside the temporal scope of Regulation (EC) No. 864/2007 of 11 July 2007 on the law applicable to non-contractual obligations (“Rome II”). The law applicable to Mr Antonov’s non-contractual liability in relation to these transactions is determined by the Private International Law (Miscellaneous Provisions) Act 1995. There is no doubt that, pursuant to section 11(1) of the 1995 Act, the applicable law is the law of Latvia, being the country in which the events constituting the torts occurred. This is subject, however, to section 14(3)(b), which provides that nothing in the relevant part of the Act “authorises questions of procedure in any proceedings to be determined otherwise than in accordance with the law of the forum.”

The proper approach to applying this distinction has been considered by the House of Lords in Harding v Wealands [2007] 2 AC 1 and by the Supreme Court in Cox v Ergo Versicherung AG [2014] AC 1379. Those cases decide that the question whether a particular head of loss is recoverable is a question of substance governed by the law applicable to the obligation. On the other hand, whether there is a remedy available for any particular item of loss is a procedural question governed by English law as the law of the forum. Applying that distinction to a claim for interest, the Court of Appeal held in Maher v Groupama Grand Est [2010] 1 WLR 1564, para 40, that the existence of a right to recover interest as a head of damage is a matter of substance governed by the applicable law, but that section 35A of the 1981 Act is a procedural provision which creates a remedy exercised at the court’s discretion. The Court of Appeal considered that this discretionary remedy is available whether a substantive right to recover interest exists or not, although the factors to be taken into account in exercising the court’s discretion might well include any relevant provisions of the applicable foreign law relating to the recovery of interest.

The Eagle River, Multikapitals, Clarkson, VTB Bank and EWUB transactions all fall entirely within the temporal scope of Rome II. Pursuant to Article 4(2) of the regulation, for these transactions the law applicable to the claims arising out of tort/delict is again that of Latvia, as the country in which the damage occurred. Article 1(2)(d), however, excludes from the scope of Rome II non-contractual obligations arising out of the law of companies. The claims made against Mr Antonov for breach of duties owed to the Bank as a member of the Bank’s Supervisory Council after 15 September 2009 fall within this exclusion. Under common law choice of law rules, these claims are governed by Latvian law as the law of the place of incorporation of the Bank: see Base Metal Trading Ltd v Shamurin [2005] 1 WLR 1157, paras 65-69. For these claims, the distinction between substance and procedure must be drawn in the same way as the claims to which the 1995 Act applies, as section 14(3)(b) of the 1995 Act (quoted above) merely preserved the common law distinction between matters of substance and procedure.

For the claims arising out of tort/delict which fall within the scope of Rome II, Article 15(c) of the regulation provides that the law applicable to the non-contractual obligation governs “the existence, the nature and the assessment of damage or the remedy claimed”. Pursuant to Article 15(d), the same law governs “within the limits of powers conferred on the court by its procedural law, the measures which a court may take to ensure the provision of compensation.”

Article 1(3) of Rome II states that the regulation “shall not apply to evidence and procedure.” A distinction is therefore made between matters of procedure and matters of substance. It does not follow, however, that this distinction is to be drawn in precisely the same way as it is drawn at English common law and under the 1995 Act. In particular, the authors of Dicey & Morris,“The Conflict of Laws” (15^th Edn, 2015) at para 7-112,point out that it might be argued that the rate of interest recoverable on damages goes to, or is intrinsically linked with, the assessment of the overall amount which the claimant can recover in respect of a damages claim and thus falls within the scope of Article 15 of Rome II. It is their tentative suggestion that the rate of interest on damages is governed by the law applicable to the non-contractual obligation. I find this suggestion and the argument on which it is based persuasive. Indeed, it seems to me that the broad wording of Article 15 requires the court to exercise any power conferred by its procedural law to award interest as compensation to a claimant for being kept out of money as a result of the defendant’s wrong only when and in the way that a remedy would be granted under the applicable foreign law to provide such compensation.

It is clear from the evidence of Mr Vonsovics that in a claim founded on non-contractual liability interest is in principle recoverable as a head of loss under Latvian law. However, as I noted in the judgment given on 27 May 2016 (at para 106), the Bank has not sought to prove the amount of financial loss actually suffered as a result of the loss of use of the money awarded as damages. I was also not satisfied on the basis of the original expert’s report from Mr Vonsovics that interest at the rate of 6% per annum claimed by the Bank would be awarded by a Latvian court. Article 1765 of the Latvian Civil Code provides that “where the law requires calculation of interest set by law, the interest rate shall be fixed at 6% per year”. However, Mr Vonsovics did not identify any provision of Latvian law which would require the calculation of interest set by law in this case. In particular, Article 195 of the Civil Procedure Code, on which the Bank relied, seemed to me to be a purely procedural provision which requires a Latvian court in giving a judgment for the recovery of monetary amounts to set out in the judgment various matters including the amount of interest recoverable, but does not address the appropriate rate of interest.

In his supplemental report dated 14 June 2016, Mr Vonsovics has now clarified that the rate of 6% fixed by Article 1765 of the Civil Code would only apply from the date on which a judgment given by a Latvian court came into effect until the full amount of the judgment debt has been paid. It would not apply to the period before judgment is given. Mr Vonsovics has explained that Article 195 of the Civil Procedure Code has been interpreted by the Latvian courts as (1) permitting interest to be awarded whether or not interest forms part of the claim since it is a procedural provision and (2) allowing interest to be calculated only from the time when judgment is entered.

In these circumstances I consider that I should exercise the discretionary power conferred by section 35A of the Senior Courts Act 1981 as follows. In relation to the Bank’s claims which fall within the scope of Rome II, for which the remedy as well as the right to recover interest is therefore governed by Latvian law pursuant to Article 15 of the regulation, no interest should be awarded for the period prior to the entry of judgment because such a remedy is not available in Latvian law. On the other hand, in relation to those claims outside the scope of Rome II, where the discretionary remedy provided by section 35A is available to be used, the court should exercise its discretion by awarding interest to compensate the Bank for being kept out of its money. In agreement with Teare J in JSC BTA Bank v Ablyazov [2013] EWHC 867 (Comm) at para 26, I do not think it would be just to deprive the Bank of such compensation merely because a similar procedural remedy would not be available to a Latvian court. I consider that interest should be awarded at a suitable commercial rate from the time when each relevant sum was paid out.

As I have indicated, even in the case of those transactions which fall within the temporal scope of Rome II, the Bank has a right to recover damages under Article 169 of the Latvian Commercial Law which is outside the subject-matter of Rome II. It follows that pre-judgment interest will be awarded under section 35A at a commercial rateon all the sums which the Bank is entitled to recover as damages.

Where judgment is given in the Commercial Court for a sterling sum, in the absence of evidence about the situation of the claimant or a party with the claimant’s general characteristics, a suitable commercial rate of interest is at present generally considered to be 2% above the Bank of England base rate. The Bank’s losses have not been suffered in sterling but in Euros and US dollars.  The Bank of England base rate is therefore not an appropriate benchmark. An equivalent benchmark in the case of sums denominated in Euros seems to me to be the European Central Bank rate. I will accordingly award interest on the sum of €60,499,567 awarded as damages at 2% above that rate (which currently stands at 0%).

On the damages denominated in US dollars in the sum of US$30,762,458, I consider an appropriate rate to be the rate of 2.5% above 6 month US dollar LIBOR which I applied in Thai Airways v KI Holdings [2015] EWHC 1476 (Comm). The current 6 month US dollar LIBOR rate is 0.92% per annum.

Section 17 of the Judgments Act 1838 provides that every judgment debt shall carry interest at the rate of 8% per annum. In the case of judgment debts expressed in currencies other than sterling, however, this is subject to section 44A of the Administration of Justice Act 1970, which states:

“(1)

Where a judgment is given for a sum expressed in a currency other than sterling and the judgment debt is one to which section 17 of the Judgments Act 1838 applies, the court may order that the interest rate applicable to the debt shall be such rate as the court thinks fit.

(2)

Where the court makes such an order, section 17 of the Judgments Act 1838 shall have effect in relation to the judgment debt as if the rate specified in the order were substituted for the rate specified in that section.”

In Novoship (UK) Ltd v Mikhaylyuk [2015] QB 499, paras 128-138, the Court of Appeal held that the purpose of section 17 of the Judgments Act 1838 is to compensate judgment creditors for being kept out of their money, and the fact that the rate prescribed by section 17 is currently out of line with market rates of interest does not justify applying that rate in a case where the court has power to make an order under section 44A of the 1970 Act.

In the present case the court has that power and it would not be justifiable to allow interest on the judgment debt to run at the rate of 8% per annum. In my view, the appropriate rate to apply is the rate of 6% per annum which would be applied by a Latvian court. Although this is still significantly higher than the rates which I have awarded before the period before judgment, I do not think it right that for any period while the judgment remains unpaid the Bank should be prejudiced by the fact that these proceedings have been brought in England because the defendant had re-located here after the Bank collapsed, rather than in Latvia where the Bank’s losses were incurred and are being felt.

I will enter judgment for the Bank for sums which include interest calculated at the rates specified from the date when each relevant sum was lost until the date of judgment. From the date of judgment, the judgment debt will carry interest at a rate of 6% per annum.