Strand, London, WC2A 2LL
B e f o r e :
| VTB CAPITAL PLC
|- and -
|(1) NUTRITEK INTERNATIONAL CORP
(2) MARSHALL CAPITAL HOLDINGS LIMITED
(3) MARSHALL CAPITAL LLC
(4) KONSTANTIN MALOFEEV
Daniel Toledano QC, Jamie Goldsmith and Alexander Brown (instructed by Weil, Gotshal & Manges) for the First Defendant
Michael Lazarus and Christopher Burdin (instructed by SJ Berwin LLP) for the Second Defendant
Stephen Rubin QC, Cyril Kinsky QC, Edward Brown and James McClelland (instructed by SJ Berwin LLP) for the Fourth Defendant
Hearing dates: 2-4, 7-9 November 2011
Crown Copyright ©
MR JUSTICE ARNOLD :
|The Facility Agreement||47|
|The Participation Agreement||52|
|Drawdown of the loan||53-54|
|Service out of the jurisdiction: general principles||64|
|VTB's application to amend the Particulars of Claim||65-117|
|Piercing the corporate veil||69-102|
|Article 23(1) of the Brussels Regulation||103-110|
|The rule in Parker v Schuller||111-114|
|Necessary or proper party||115-116|
|The Defendants' application to set aside permission to serve out||118-223|
|Serious issue to be tried||144-183|
|(1) No loss||145-169|
|(2) No joint liability of MarCap BVI||170-176|
|(3) No joint liability of Mr Malofeev||177-183|
|Forum non conveniens||185-222|
|Competition of claims and the need for the contract to invalidated first||207-213|
|The need for a criminal prosecution first||214-220|
|Good arguable case||226|
|Risk of dissipation of assets||227-243|
|Failure to disclose details of the loan transaction||248-252|
|Failure to disclose that information had been obtained in breach of confidence etc||253|
|Should the injunction be continued or re-granted?||254|
i) Applications by Nutritek, the Second Defendant ("MarCap BVI") and Mr Malofeev to set aside permission to serve out. (The Third Defendant ("MarCap Moscow") has not yet been served.)
ii) An application by VTB to amend its Particulars of Claim to add a claim in contract against MarCap BVI, MarCap Moscow and Mr Malofeev.
iii) An application by VTB to continue the WFO until trial.
iv) An application by Mr Malofeev to discharge the WFO.
v) An application by VTB for further disclosure of Mr Malofeev's assets.
"Just wanted to let you know in addition to information supplied in ACF [presumably Application for Credit Facility] that:
- OOO Rusagroprom [sic] was incorporated on 21.05.2002 [sic – this should read 2007] as an SPV with the purpose of a Nutritek DD [Dairy Division] acquisition and has no other operations;
- OOO Rusagroprom's beneficiary is Mr Vladimir (Ivanovich) Alginin, who was up until recently the head of the Agro division of OAO Vimm-Bill-Dann Food Products (The largest Russian Milk and Juice producer). Before that Mr Alginin was the first vice-president of the federal contract corporation Roskhlebprodukt and the Deputy Minister of Agriculture."
There is nothing in the email to indicate Ms Bragina's source for this information. VTB's case is that it must have come from Nutritek or MarCap Moscow.
"Following my conversation with Juliet this morning, below are the remaining pieces of information that we need to supply you with for Nutritek transaction. We will endeavour to answer all of them towards the end of the day. For the sake of time I will be sending you the answers as I have them. Some of the answers you will find in blue below. Please let me known if in your view the other info is outstanding.
1. Confirm that OOO Russagroprom is 100% owned by Alginin. As per the info just received from Nutritek management, Mr Alginin has a 90% share in Russagroprom, the remaining 10% share belongs to the management team.
4. Sub-participation confirmation/participation agreement with VTB [i.e. VTB Moscow]. The VTB/VTBE [i.e. VTB Moscow/VTB] participation agreement signing is a CP [condition precedent] to Utilization of the Facility (see Schedule 2 of the Facility Agreement). Please let me know if anything else is needed, otherwise I assume this matter is closed.
VTB relies on the fact that the email states the information about Mr Alginin had come from Nutritek management, while counsel for Mr Malofeev points to the absence of any other documentary evidence to support this statement.
"VTB [i.e. VTB Moscow] Funding Participation and No Credit Risk for VTBE [i.e. VTB]. A Participation Agreement between VTB and VTBE provides that VTB fully funds the facility before any draw-downs are made against it. This makes the transaction possible under the current liquidity situation in the market and helps to circumvent the per customer lending limit of VTBE. Also, the Participation Agreement ensures that in the event of default VTB takes responsibility for all the amounts due from the Borrower, thus eliminating the credit risk exposure for VTBE for the main credit facility."
VTB [i.e. VTB Moscow] Funding Participation and no Credit Risk for VTBE [i.e. VTB]: The participation agreement between VTB and VTBE provides that VTB fully funds the facility before any draw-downs are made against it. Further, VTB takes responsibility for all the amounts due from the Borrower, eliminating any credit risk faced by VTBE.
Risk Comments and Recommendation
… The total value of the transaction is US$280M, with Russagroprom contributing US$50M equity. The ultimate beneficiary of Russagroprom appears to be Mr Vladimir Alginin, who has held a number of government posts in the agricultural sector, however, IB [Investment Branch] is required to confirm this as a CP [Condition Precedent]
US$5M 2 year interest swap line supported, subject to:
- Confirmation by VTBE Legal that the participation agreement with VTB is in compliance with FSA requirements ensuring that no credit risk is reportable on VTBE balance sheet (C/P).
Structure Risk Potentially High but Acceptable
- The structure risk is potentially high, as Credits considers the transaction to be unsecured; the security package is of little tangible value. The pledge of shares by the Borrower for the subsidiaries is for 100% of the capital owned by the Borrower….
- The Facility structure includes guarantees from the Borrower's intermediate holding companies (Brentville, the parent company of Migifa, the parent of Russagroprom). We have no financial visibility of Brentville, and we are not aware whether it has any other subsidiaries besides Migifa, or who the parent of Brentville is, besides being advised the ultimate beneficial owner is Mr Vladimir Alginin. Consequently, we consider the Brentville/Migifa guarantees as having minimal tangible value.
Financial Risk High
- Credit has limited visibility to financial information on all parties involved in this transaction. Russagroprom is newly formed and subsequently has no historical information. We have no financial visibility to Brentville, Migifa (borrower holding companies), or Mr Alginin, however the Business Information Report (BIR) states that Migifa is not listed as a parent company for any other legal entity besides Russagroprom….
- The historical balance sheets (unaudited management figures) will be key operating subsidiaries indicate that the price being paid for the company appears to be at a level significantly above the book value of the assets….
Legal/Documentation Risk Medium
- As VTB Moscow are participating 100% in this loan, while VTBE are to the Lender of Record, under FSA guidelines we will be required to ensure that the VTB have approved and are committed to this transaction. Therefore as a condition precedent to drawdown, we will require a signed copy of the credit approval from VTB Moscow.
i) the Facility Agreement;
ii) a share purchase agreement between RAP, Nutritek and Newblade dated 27 November 2007 ("the SPA");
iii) an interest rate swap agreement between VTB and RAP dated 28 November 2007 ("the ISA");
iv) a participation agreement between VTB and VTB Moscow dated 28 November 2007 ("the Participation Agreement").
i) A share charge executed by RAP in favour of VTB in respect of the shares in Newblade dated 23 November 2007.
ii) A share warrant deed between Migifa, VTB, Brentville and RAP dated 23 November 2007 under which VTB held five 1% warrants for RAP shares.
iii) An undated share warrant deed between Migifa, Dalford, Brentville and RAP apparently executed on 28 November 2007 under which Dalford held ten 1% warrants for RAP shares.
iv) A loan facility agreement between Migifa as lender and RAP as borrower dated 23 November 2007 for a facility not to exceed US$30.5 million.
v) A loan agreement between Migifa as lender and RAP as borrower dated 26 November 2007 in respect of promissory notes totalling a little over 573 million roubles.
vi) A loan facility agreement between Leskata Finance SA ("Leskata", a company incorporated in the BVI) as lender and Migifa as borrower dated 26 November 2007 for a facility not to exceed US$30.5 million.
vii) An undated loan agreement between Leskata as lender and RAP in respect of promissory notes totalling nearly 473 million roubles.
The Facility Agreement
"1. DEFINITIONS AND INTERPRETATION
In this Agreement:
'Acquisition Agreement' means the sale and purchase agreements to be entered into relating to the sale and purchase of the Target Shares …
'Buyer's Account' shall mean the blocked bank account in the name of the Company with the London officer of the Lender with account number 1001632020.
'Fee Letter' means the letter dated on or about the date of this Agreement between the Lender and the Company in respect of the arrangement fee.
'Obligor' means each of the Company, the Guarantors and the Production Companies.
'Participant' means [VTB Moscow] in its capacity as participant under the Participation Agreement.
'Participation Agreement' means the Terms and Conditions of the funded participation agreement dated or on about the date hereof between the Lender as grantor and the Participant …
'Party' means a Party to this Agreement.
'Pledged Shares' means the Production Company Shares, the Company Participatory Interest, the Target Shares and the Migifa Shares.
'Production Companies' means [the Dairy Companies].
'Repeating Representations' means each of the representations set out in Clause 18 (Representations) other than Clauses 18.9 (No Filing or Stamp Taxes) and 18.29 (Sales Contracts).
'Seller' means [Nutritek].
'Seller's Acquisition Account' means the account at the offices of the Lender with account number 1001622020.
'Target' means [Newblade].
'Target Shares' means 49,001 shares (being 100% of the issued and outstanding shares) in the Target purchased by the Company pursuant to the Acquisition Agreement
'Tranche A Commitment' means two hundred eight million seven hundred thousand Dollars ($208,700,000).
'Tranche B Commitment' means twenty-one million three hundred thousand Dollars ($21,300,000).
1.3 Contracts (Rights of Third Parties) Act 1999
A person who is not a Party has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce or enjoy the benefit of any term of this Agreement.
2. THE FACILITY
2.1 The Facility
Subject to the terms of this Agreement, the Lender makes available to the Company:
2.1.1 a US Dollar term loan facility in an aggregate amount equal to the Tranche A Commitment ('Tranche A'); and
2.1.2 a US Dollar term loan facility in an aggregate amount equal to the Tranche B Commitment ('Tranche B'),
together, the 'Facility'.
The Company shall apply all amounts borrowed by it:
3.1.1 under Tranche A, towards partial payment of the purchase price for the Target Shares under the Acquisition Agreement, payment of the Acquisition Costs, (other than periodic fees), payment of financing and other transactional costs (including legal fees) incurred in connection with the Finance Documents, or for the general corporate purposes of the company; and
3.1.2 under Tranche B, towards the general corporate purposes of the Company.
3.2 Direction to Pay
3.2.1 The Company directs the Lender to deposit into the Buyer's Account (and such monies shall be thereafter immediately transferred into the Seller's Acquisition Account in accordance with the irrevocable instructions referred to in Schedule 2, Part 1 Clause 4.17) on the date of first Utilisation of Tranche a, part of the proceeds of the first Utilisation of Tranche A equal to the purchase price (howsoever defined) under the Acquisition Agreement to be paid by the Company less the Reserved Amount.
4. CONDITIONS OF UTILISATION
4.1 Initial Conditions Precedent
4.1.1 The company may not deliver a Utilisation Request in respect of Tranche A unless the Lender has received all of the documents and other evidence listed in Part 1 of Schedule 2 (Conditions Precedent) in form and substance satisfactory to the Lender (acting reasonably). The Lender shall notify the Company promptly upon being so satisfied. The first drawdown of Tranche A shall comply with Clause 3.2 above.
4.2 Further conditions precedent
Subject to Clause 4.1 (Initial Conditions Precedent), the Lender will only be required to comply with Clause 5.3 (Lender's Funding), if on the date of the Utilisation Request and on the proposed Utilisation Date:
4.2.1 no Default is continuing or would result from the proposed Loan;
4.2.2 the Repeating Representations to be made by each Obligor are true in all material respects; and
4.2.3 the Participant has credited the Receiving Account of the Lender with the funding for that Loan in accordance with the terms of the Participation Agreement.
11.1 Arrangement Fee
The Company shall pay to the Lender an arrangement fee in the amount and manner specified in the Fee Letter.
18. REPRESENTATIONS, UNDERTAKINGS AND EVENTS OF DEFAULT
18.11 No Misleading Information
Save as disclosed in writing to the Lender prior to the date of this Agreement:
18.11.1 any factual information (including in relation to the Acquisition and the Group) provided to the Lender was true and accurate in all material respects as at the date it was provided;
18.11.2 any financial projection or forecast (including in relation to the Acquisition and the Group) provided to the Lender has been prepared on the basis of recent historical information and on the basis of reasonable assumptions and was fair (as at the date it was provided) and arrived at after careful consideration;
18.11.3 the expressions of opinion or intention provided by or on behalf of an Obligor to the Lender were made after careful consideration and (as at the date of the relevant report or document containing the expression of opinion or intention) were fair and based on reasonable grounds; and
18.11.4 no event or circumstance has occurred or arisen and no information has been omitted from the information provided to the Lender pursuant to paragraphs 18.11.1 to 18.11.3 above and no information has been given or withheld that results in the information, opinions, intentions, forecasts or projections contained in the information provided to the Lender pursuant to paragraphs 18.11.1 to 18.11.3 being untrue or misleading in any material respect.
34. GOVERNING LAW
This Agreement is governed by English law.
35.1 Jurisdiction of English Courts
35.1.1 Subject to Clause 35.3 (Arbitration) below, the courts of England have nonexclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a Dispute regarding the existence, validity or termination of this Agreement) (a 'Dispute').
35.1.2 The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary.
35.1.3 This Clause 35.1 is for the benefit of the Lender only. As a result, the Lender shall not be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Lender may take concurrent proceedings in any number of jurisdictions.
In addition to Clause 35.1 (Jurisdiction of English Courts) above, the Lender shall have the right to refer any dispute which may arise out of or in connection with this Agreement to final and binding arbitration in London, England, pursuant to the arbitration rules of LCIA (the 'LCIA Rules'). The language of the arbitration proceedings shall be English. Such arbitration shall be conducted in accordance with LCIA Rules. The seat or legal place of arbitration shall be deemed to be England, and accordingly the substantive laws of England shall be applicable for the purposes of the arbitration. The procedural law for any reference to arbitration shall be English law. …
Conditions Precedent Utilisation of Tranche A
The Lender shall have received (in form and substance satisfactory to the Lender) each of the following:
2. Finance Documents
The following original Finance Documents each duly executed by each of the parties to it:
2.1.1 this Agreement;
2.1.2 the Participation Agreement (and confirmation thereto);
2.1.3 the Transaction Security Documents;
2.1.4 the Hedging Documents;
2.1.5 the Production Company Guarantees (other than MK Penzensky);
2.1.6 the Fee Letter; and
2.1.7 an Accession Letter from the Target.
3. Transaction Security
3.1 A financial report of an independent valuer acceptable to the Lender regarding the determination of the market value of the Pledged Shares (other than the shares in Molkombinat and the participatory interests in Aktiv).
The Participation Agreement
"1. APPLICABILITY AND INTERPRETATION
In these Terms and Conditions words and expressions shall (unless otherwise expressly defined in these Terms and Conditions) have the meaning given to them in the Facility Agreement and:
'Enforcement Proceeds' means, following an Enforcement Event, all receipts and recoveries by the Lender (or by any person which are properly paid over to the Lender):
(a) pursuant to, upon enforcement of or in connection with the Transaction Security; and
(b) without prejudice to subclause (a) above, in respect of all representations, warranties, covenants, guarantees, indemnities and other contractual rights of the Lender made or granted in or pursuant to any Finance Document.
2. PARTICIPANT'S PAYMENT OBLIGATIONS
2.1 Sums Due Under the Relevant Finance Documents
If at any time on or after the date of the Confirmation a sum falls due from the Grantor under the Relevant Finance Documents and the sum is, in the Grantor's reasonable opinion, attributable in whole or in part to any Loan or Participated Tranche, then the Participant shall pay to the Grantor amount equal to such sum.
2.2 Payment of sums due
The Participant shall make each payment required under Clause 2.1 (Sums Due Under the Relevant Finance Documents) in the currency and funds and in the place and time at which the Grantor is required to make the payment under the Relevant Finance Documents.
The Grantor is entitled to receive, recover and retain all principal, interest and other money payable under the Relevant Finance Documents in relation to each Participated Tranche.
Subject to compliance by the Participant with its payment obligations under the Participation, on and after the date of the Confirmation the Grantor shall, upon applying any amount actually received by it in respect of any Loan or Commitment (whether by way of actual receipt, the exercise of any right of set-off or otherwise), pay to the Participant:
(a) if that amount is applied in respect of the principal of a Loan, an amount equal to the amount so applied by the Grantor;
4. PAYMENTS ADMINISTRATION
All payments or deposits by either Party to, or with, the other under the Participation shall be made to the Receiving Account of that other Party. Each Party may designate a different account as its Receiving Account for payment by giving the other not less than five Business Days notice before the due date for payment.
4.5 Failure to remit
The Grantor shall not be:
(b) liable to remit to the Participant any amount greater than the amount it received from any Obligor in respect of any Participated Tranche or Loan.
6. STATUS OF PARTICIPATION
6.1 Status of Participation
(a) The Grantor does not transfer or assign any rights or obligations under the Relevant Finance Documents and, subject to Clause 6.3 (Assignment Following Event of Default) the Participant will have no proprietary interest in the benefit of the Relevant Finance Documents or in any monies received by the Grantor under or in relation to the Relevant Finance Documents.
(b) The relationship between the Grantor and the Participant is that of debtor and creditor with the right of the Participant to received monies from the Grantor restricted to the extent of an amount equal to the relevant portion of any monies received by the Grantor from any Obligor.
(c) The Participant shall not be subrogated to or substituted in respect of the Grantor's claims by virtue of any payment under the Participation and the Participant shall have no direct contractual relationship with or rights against any Obligor.
(d) Nothing in the Participation constitutes the Grantor as agent, fiduciary or trustee for the Participant.
6.3 Assignment Following Event of Default
At any time following an Event of Default and while such Event of Default is continuing, the Participant may (at its election and in its sole discretion):
(a) require the Grantor to assign and/or novate all of its rights and interest in the Facility Agreement and other Relevant Finance Documents to the Participant; and/or
(b) instruct the Grantor to procure that all amounts payable by the Obligors to the Grantor under the Relevant Finance Documents be paid by such Obligors directly to the Participant, at such account as the Participant may inform the Grantor,
and the Grantor shall so comply.
6.4 Enforcement Event
Notwithstanding any other provision of these Terms and Conditions the Parties hereby agree that, subject to Clause 6.3 (Assignment Following Event of Default) above, following the occurrence of an Early Termination Date, the Grantor shall apply all Enforcement Proceeds in the following manner:
(a) first, in payment of costs, charges, expenses and liabilities incurred by on or behalf of the Grantor and any receiver, attorney or agent in connection with exercising its powers of enforcement under the Finance Documents and the remuneration of every receiver, attorney or agent under or in connection with the Finance Documents;
(b) second in pro rata payment of:
(i) amounts due to the Participant under the Participation; and
(ii) amounts due under the Hedging Documents;
9.2 No obligation to support losses
(a) The Grantor notifies the Participant and the Participant acknowledges that the Grantor shall have no obligation to repurchase or reacquire all or any part of the Participation from the Participant or to support any losses directly or indirectly sustained or incurred by the Participant for any reason whatsoever, including the non-performance by any Obligor under the Relevant Finance Documents of its obligations thereunder (other than any loss caused by the gross negligence or wilful default of the Grantor in performing its obligations under the Participation).
(b) Any rescheduling or renegotiation of Participation shall be for the account of, and the responsibility of, the Participant, who will be subject to the rescheduled or renegotiated terms.
16. GOVERNING LAW AND JURISDICTION
16.1 Governing Law
These Terms and Conditions and the Participation are governed by English law.
The parties submit to the non-exclusive jurisdiction of the English courts.
16.4 Convenient Forum
Save as provided below, the Parties agree that the courts of England are the most appropriate and convenient courts to determine and settle any dispute arising relation to the Agreement (including any question as to its existence, validity or termination) (a "Dispute") between them and accordingly no party shall raise any arguments based on forum non convenience.
Notwithstanding the submission by the Parties to the jurisdiction of the English courts in Clause 16.2 (Jurisdiction), either Party refer any Dispute to be finally resolved by arbitration under the Rules of the London Court of International Arbitration in London, England. There will be 3 arbitrators, one of whom will be nominated by each of the claimant and the defendant, and the third to be agreed by the 2 arbitrators so appointed and in default thereof shall be appointed by the President of the London Court of International Arbitration. If there is more than one claimant or defendant they will jointly nominate one arbitrator. The arbitration will be conducted in English and any judgment rendered shall be final and binding on the Parties.
Drawdown of the loan
Service out of the jurisdiction: general principles
"71. On an application for permission to serve a foreign defendant … out of the jurisdiction, the claimant … has to satisfy three requirements: Seaconsar Far East Ltd. v Bank Markazi Jomhouri Islami Iran  1 AC 438, 453-457. First, the claimant must satisfy the court that in relation to the foreign defendant there is a serious issue to be tried on the merits, i.e. a substantial question of fact or law, or both. The current practice in England is that this is the same test as for summary judgment, namely whether there is a real (as opposed to a fanciful) prospect of success: e.g. Carvill America Inc v Camperdown UK Ltd  EWCA Civ 645,  2 Lloyd's Rep 457, at . Second, the claimant must satisfy the court that there is a good arguable case that the claim falls within one or more classes of case in which permission to serve out may be given. In this context 'good arguable case' connotes that one side has a much better argument than the other: see Canada Trust Co v Stolzenberg (No 2)  1 WLR 547, 555-7 per Waller LJ, affd  1 AC 1; Bols Distilleries BV v Superior Yacht Services  UKPC 45,  1 WLR 12, -. Third, the claimant must satisfy the court that in all the circumstances [England] is clearly or distinctly the appropriate forum for the trial of the dispute, and that in all the circumstances the court ought to exercise its discretion to permit service of the proceedings out of the jurisdiction.
81. A question of law can arise on an application in connection with service out of the jurisdiction, and, if the question of law goes to the existence of jurisdiction, the court will normally decide it, rather than treating it as a question of whether there is a good arguable case: Hutton (EF) & Co (London) Ltd. v Mofarrij  1 WLR 488, 495 (CA); Chellaram v Chellaram (No 2)  EWHC 632 (Ch),  3 All ER 17, .
88. The principles governing the exercise of discretion set out by Lord Goff of Chieveley in Spiliada Maritime Corp v Cansulex Ltd  AC 460, at 475-484, are familiar, and it is only necessary to re-state these points: first, in both stay cases and in service out of the jurisdiction cases, the task of the court is to identify the forum in which the case can be suitably tried for the interests of all the parties and for the ends of justice; second, in service out of the jurisdiction cases the burden is on the claimant to persuade the court that England (in this case, of course, the Isle of Man) is clearly the appropriate forum; …"
VTB's application to amend the Particulars of Claim
"71. Further and in any event, VTB is entitled and seeks to 'pierce the corporate veil' and to hold Marcap BVI, Marcap Moscow and Mr Malofeev jointly and severally liable with RAP on the Facility Agreement (and the associated [ISA]) in respect of VTB's losses.
72. The reason for this is by reason of the control which each of Marcap BVI, Marcap Moscow and/or Mr Malofeev exercised over RAP, together with the connected impropriety, that is, the use of the corporate structure of RAP to conceal their wrongdoing, and the accompanying misrepresentations about control and the trading performance and value of the Dairy Companies. As regards control, as set out in paragraphs 55 and 56 above, and contrary to the representations that they were under separate control, RAP was at all material times controlled by each of Marcap BVI, Marcap Moscow and/or Mr Malofeev. As regards impropriety, the use of RAP as the corporate vehicle to enter into the Facility Agreement (and the accompanying [ISA]) and to obtain thereby the sums of US$225,050,000 from VTB involved the fraudulent misuse of the company structure. This was an improper use of the company structure of RAP, which was used as a device or façade to conceal the wrongdoing of each of Marcap BVI, Marcap Moscow and Mr Malofeev."
Piercing the corporate veil
"Those comments on the relationship between the individual and the company apply even more forcibly to the present case. The defendant company is the creature of the first defendant, a device and a sham, a mask which he holds before his face in an attempt to avoid recognition by the eye of equity. The case cited illustrates that an equitable remedy is rightly to be granted directly against the creature in such circumstances."
Although there was a claim for damages in that case, there is nothing to suggest that Russell J awarded damages against the company.
"Situation (1) is where one party to an action can show that the other party has invaded, or threatens to invade, a legal or equitable right of the former for the enforcement of which the latter is amenable to the jurisdiction of the court. Situation (2) is where one party to an action has behaved, or threatens to behave, in a manner which is unconscionable."
"In my judgment the court is entitled to 'pierce the corporate veil' and recognise the receipt of the company as that of the individual(s) in control of it if the company was used as a device or facade to conceal the true facts thereby avoiding or concealing any liability of those individual(s). …"
"In my view these conclusions are such as to entitle the court to recognise the receipt of the money of Trustor by Introcom as the receipt by Mr Smallbone too. Introcom was a device or facade in that it was used as the vehicle for the receipt of the money of Trustor. Its use was improper as it was the means by which Mr Smallbone committed unauthorised and inexcusable breaches of his duty as a director of Trustor…."
"The present case differs from Jones v. Lipman  1 W.L.R. 832 and Gilford Motor Co. Ltd. v. Horne  Ch. 935, where equitable relief was granted against the company being used to perpetrate a continuing breach of contract by its controller, of which the company had full knowledge. If either Mr. Horne's wife or Mr. Lipman's wife (assuming their existence) had agreed to act in a similar role to that of company, no doubt similar equitable relief would have been granted against the lady concerned. Salomon's case  AC 22 would have been irrelevant. In the same way, the fact that the company had separate legal personality was no bar to the court granting relief against it as well as the contract breaker. That is quite different from awarding damages against it for some antecedent breach of duty by the contracting party (for example, some breach by Mr. Horne of his employment contract prior to its termination or some misrepresentation by Mr. Lipman in answers to inquiries before contract) on the basis that the company was to be put in the shoes of the contract breaker. Mr. Gross submitted that this was the logical result of such cases and was sound in principle. I do not agree. I do not see why in logic or in principle the company should have been liable for damages in such a situation, any more than Mrs. Lipman, if the land had been conveyed to her, should thereby have become liable for any and every breach by Mr. Lipman of his contract with Mr. Jones. I do not therefore regard those cases as establishing a principle enabling Mr. Yamvrias to be treated as the charterer and so liable to Yukong for damages for wrongful repudiation of the charterparty."
"682. In all of the cases where the court has been willing to pierce the corporate veil, it has been necessary or convenient to do so to provide the claimant with an effective remedy to deal with the wrong which has been done to him and where the interposition of a company would, if effective, deprive him of that remedy against him. It seems to me that the veil, if it is to be lifted at all, is to be lifted for the purposes of the relevant transaction. It must surely be doubtful at least that the ex-employee in Gilford Motor Co v Horne would have been liable for the company's electricity bill simply because he was using the company as device and sham to avoid a covenant binding on him personally; and the same goes for the vendor of the property in Jones v Lipman.
683. It is not permissible to lift the veil simply because a company has been involved in wrong-doing, in particular simply because it is in breach of contract. And whilst it is clear that the veil can be lifted where the company is a sham or façade or, to use different language, where it is a mask to conceal the true facts, it is, in my judgement, correct to do so only in order to provide a remedy for the wrong which those controlling the company have done. Charlton was not being used to conceal the purchase of the Tooling and General Equipment [i.e. the subject matter of the contact]; what it was being used for was to hide Jack and Helga's involvement in that purchase.
684. However, Mr Freedman submits that it [is] no answer to a claim that the corporate veil should be lifted that there are concurrent liabilities or remedies in tort and that DGI must proceed by the tortious route. He relies on Trustor where he says that the court proceeded on the basis of lifting the veil but could have proceeded on a restitutionary basis. I am not sure that the position in relation to a restitutionary claim is as clear as Mr Freedman suggests. But even if it were, there would be no overlap between the two claims and to put forward different ways of recovering the same compensation/loss/property is perfectly acceptable. It seems to me, in contrast, that whilst a person committing the tort of deceit should be liable for all the loss which flows from his misrepresentation, it would be unprincipled to impose a liability on him for the loss of bargain suffered by a misrepresentee in respect of a contract with a third party with whom he had been induced to contract by the misrepresentation.
685. In relation to that point, Mr Freedman says that it is no answer to say that the loss of bargain damages claimed are by reference to a bargain which was not desired - an innocent party entering into a contract owing to a fraud is not restricted to a claim for reliance loss. Now, it may well be that where A contracts with B as a result of B's fraudulent misrepresentation and the contract has been completed (so that questions of rescission and adoption of the contract with knowledge of the fraud to do not arise), A is able to claim (a) damages for loss of bargain as a result of B's breach of contract and (b) reliance loss, although he could not obtain double recovery. It does not follow that B should be liable for contractual damages to A where the contract which he procured was one between A and C, even where C is the creature of B. To put the point another way, where in that example the principle of corporate separation exemplified in Salomon v A Salomon & Co Ltd  AC 22 would apply absent a misrepresentation by the person controlling the company, there is no need, and it would be inappropriate, to lift the veil in order to provide A with a contractual remedy against B; A recovers all his loss arising as a result of the misrepresentation by his tortious claim in deceit.
686. If that is correct, the question arises whether it is necessary in the present case to lift the veil of Charlton and perhaps Ancon as well in order to provide the Claimants with the remedy to which they are entitled. In my judgment, it is not. Charlton, if it was being used as a device at all, was being used to hide the involvement of Jack and Helga and, if that concealment had not taken place, the Option Agreement would not have been entered into. The Claimants have their remedy against Jack and Helga in the form of an action for fraudulent misrepresentation. There is simply no need, in order to give the Claimants redress for that misrepresentation, to lift the veil at all: indeed, to do so would achieve nothing in relation to that wrong."
"159. In the first place, ownership and control of a company are not of themselves sufficient to justify piercing the veil. This is, of course, the very essence of the principle in Salomon v A Salomon & Co Ltd  AC 22 , but clear statements to this effect are to be found in Mubarak at page 682 per Bodey J and Dadourian at para  per Warren J. Control may be a necessary but it is not a sufficient condition (see below). As Bodey J said in Mubarak at page 682 (and, dare I say it, this reference requires emphasis, particularly, perhaps, in this Division): 'it is quite certain that company law does not recognise any exception to the separate entity principle based simply on a spouse's having sole ownership and control.'
160. Secondly, the court cannot pierce the corporate veil, even where there is no unconnected third party involved, merely because it is thought to be necessary in the interests of justice. In common with both Toulson J in Yukong Line Ltd of Korea v Rendsberg Investments Corporation of Liberia (No 2)  1 WLR 294 at page 305 and Sir Andrew Morritt VC in Trustor at para , I take the view that the dicta to that effect of Cumming-Bruce LJ in In re a Company  BCLC 333 at pages 337-338, have not survived what the Court of Appeal said in Cape at page 536:
'[Counsel for Adams] described the theme of all these cases as being that where legal technicalities would produce injustice in cases involving members of a group of companies, such technicalities should not be allowed to prevail. We do not think that the cases relied on go nearly so far as this. As [counsel for Cape] submitted, save in cases which turn on the wording of particular statutes or contracts, the court is not free to disregard the principle of Salomon v Salomon & Co Ltd  AC 22 merely because it considers that justice so requires. Our law, for better or worse, recognises the creation of subsidiary companies, which though in one sense the creatures of their parent companies, will nevertheless under the general law fall to be treated as separate legal entities with all the rights and liabilities which would normally attach to separate legal entities.'
161. Thirdly, the corporate veil can be pierced only if there is some 'impropriety': see Cape at page 544 and, more particularly, Ord at page 457 where Hobhouse LJ said:
'it is clear … that there must be some impropriety before the corporate veil can be pierced.'
162. Fourthly, the court cannot, on the other hand, pierce the corporate veil merely because the company is involved in some impropriety. The impropriety must be linked to the use of the company structure to avoid or conceal liability. As Sir Andrew Morritt VC said in Trustor at para :
'Companies are often involved in improprieties. Indeed there was some suggestion to that effect in Salomon v A Salomon & Co Ltd  AC 22. But it would make undue inroads into the principle of Salomon's case if an impropriety not linked to the use of the company structure to avoid or conceal liability for that impropriety was enough.'
163. Fifthly, it follows from all this that if the court is to pierce the veil it is necessary to show both control of the company by the wrongdoer(s) and impropriety, that is, (mis)use of the company by them as a device or façade to conceal their wrongdoing. As the Vice Chancellor said in Trustor at para :
'the court is entitled to "pierce the corporate veil" and recognise the receipt of the company as that of the individual(s) in control of it if the company was used as a device or facade to conceal the true facts thereby avoiding or concealing any liability of those individual(s).'
And in this connection, as the Court of Appeal pointed out in Cape at page 542, the motive of the wrongdoer may be highly relevant.
164. Finally, and flowing from all this, a company can be a façade even though it was not originally incorporated with any deceptive intent. The question is whether it is being used as a façade at the time of the relevant transaction(s). And the court will pierce the veil only so far as is necessary to provide a remedy for the particular wrong which those controlling the company have done. In other words, the fact that the court pierces the veil for one purpose does not mean that it will necessarily be pierced for all purposes."
"The common theme running through all the cases in which the court has been willing to pierce the veil is that the company was being used by its controller in an attempt to immunise himself from liability for some wrongdoing which existed entirely dehors the company. It is therefore necessary to identify the relevant wrongdoing – in Gilford and Jones v Lipman it was a breach of contract which, itself, had nothing to do with the company, in Gencor and Trustor it was a misappropriation of someone else's money which again, in itself, had nothing to do with the company – before proceeding to demonstrate the wrongful misuse or involvement of the corporate structure. But in the present case there is no anterior or independent wrongdoing. All that the husband is doing, in the circumstances with which he is now faced – the wife's claim for ancillary relief – is to take advantage, in my judgment legitimately to take advantage, of the existing corporate structure and, if one chooses to put it this way, to take advantage of the principle in Salomon."
"130. Given that I have found that the claim in deceit succeeds, it is not strictly necessary to decide whether this is an appropriate case in which to pierce the corporate veil and permit a claim which should otherwise be pursued against the company to be pursued against the defendant. Indeed, in Dadourian Group International Inc v Simms  EWHC 2973 (Ch), at paragraphs 684 and 685, Warren J held that where a claim in deceit succeeded against the person controlling the company, it would be inappropriate to permit the veil to be lifted to enable the claimant to pursue a contractual claim against that person. As he put it the claimant 'recovers all his loss arising as a result of the misrepresentation by his tortious claim in deceit' (paragraph 685). This point was not addressed in the Court of Appeal.
131. I can deal relatively briefly with the question whether I would have permitted the corporate veil to be lifted if the claim in deceit had not succeeded. Clearly if the claim in deceit had failed because I had concluded that there had been no fraudulent misrepresentations made, there being no other impropriety pleaded, there would be no basis for piercing the corporate veil.
132. The position would have been more difficult if I had concluded that fraudulent misrepresentations had been made, but that they were unenforceable by virtue of section 6 of the Statute of Frauds (Amendment) Act 1828. In that case there would have been impropriety by the defendant….
137. This is not an easy point, but on reflection I consider that [counsel for the defendant] is right in his submission that the cases where it is appropriate to pierce the corporate veil are all concerned with the defendant who controlled the relevant company using the corporate structure to disguise his wrongdoing, which had nothing to do with the company. As Munby J put it [in Ben Hashem], the wrongdoing was 'entirely dehors the company'.
138. The pleaded case here is that the defendant used Global FX and/or FX Solutions as a façade for his fraudulent trading. The relevant fraudulent trading is defined in paragraph 7 of the Particulars of Claim as, inter alia, accepting payments from customers pursuant to currency exchange contracts and then using the money for other purposes including the payment of the company's expenses, payments to himself and associates and paying money to other customers to give the appearance of legitimate trading. That is not wrongdoing which has nothing to do with the company or companies. It is wrongdoing at the heart of the actual business of the company.
140. In my judgment, this would not be an appropriate case in which to pierce the corporate veil. …"
"The only apparent limitation that has been placed on the doctrine, given the necessary requirement that the trigger for it is not simply fraudulent dealing by a company but the fraudulent misuse of the company structure, as Morritt VC made clear, is that, using the gallicised words of Munby J in Ben Hashem at para 199 (referred to by Flaux J in Lindsay v O'Loughnane  EWHC 529 (QB) at para 134) the wrong-doing must not be 'dehors the company', i.e. something outside the ordinary business of the company. Whether the phrase 'dehors the company' is ever a very helpful or meaningful expression, I do not know, but consideration of it is clearly inappropriate on the facts of this case, when the Corporate Defendants had, on the claimants' case, no independent or non-fraudulent existence. The fraud was plainly 'dedans' the company, but that was because the company was set up for that very purpose, in order to abuse the company's structure."
"18. … What Warren J said [in Dadourian v Simms at ] seems to me plainly not to be the case. As will be seen, in Gilford Mr Horne was under a restrictive covenant preventing competition (clause 9) in his contract of employment, and he set up a company in order to disguise the existence of such competition. There would not have been any difficulty in putting the case, and seeking or granting a remedy, by reference to a claim against the company for knowing procurement of Mr Horne's breach of contract, or simply relying upon agency, by granting an injunction against Mr Horne restraining breaches by himself his servants or agents, which would plainly have included his company: but this was neither done nor addressed. Similarly in Jones v Lipman  1 WLR 832 where Mr Lipman personally entered into a contract for sale of a property to the plaintiff, and then sold on to his puppet company (as found), there could have been relief and remedy, as Mr Millett himself pointed out by virtue of his researches in Snell's Equity, by the grant of an order in equity for specific performance by reference to the estate contract, against the puppet company as being a third party purchaser with notice: but again this was not addressed or considered at all, and specific performance was granted only by reference to Gilford and the piercing of the veil. In Trustor too, it is plain that there could have been a claim against the puppeteer for equitable compensation for breach of fiduciary duty.
20. It is in [the circumstances explained in Dadourian v Simms at -] that, at the end of a lengthy trial and a lengthy judgment, Warren J did not think it was necessary to consider piercing the veil. So too, in not dissimilar circumstances, Flaux J said in Lindsay:
'130. Given that I have found that the claim in deceit succeeds, it is not strictly necessary to decide whether this is an appropriate case in which to pierce the corporate veil and permit a claim which would otherwise be pursued against the company to be pursued against the defendant.'
and he refers to Warren J's conclusion in para 685 of Dadourian that the claimant 'recovers all his loss arising as a result of the misrepresentation by his tortious claim in deceit'.
21. It is wholly clear to me that the fact that a trial judge may conclude in his judgment that it is not necessary on the facts of a particular case (particularly where the defendant sought to be made liable as alter ego has already been found personally liable, and by reference to an inconsistent measure of damages), to pierce the veil, in no way supports the proposition that a claim at the outset of proceedings is demurrable unless it is shown to be necessary. The concept of necessity is not a fetter upon such a claim. It does not need to be pleaded or proved in limine. …"
"Mr Rainey accepts that there is no reported case in which the veil has been pierced so as to place the puppeteer into the puppet's contract, but he submits not only that there is nothing in the decided cases to cast doubt upon his proposition, but that support can be gained from them:
(i) In Gilford, the puppet company was not in existence at the date when Mr Horne entered the restrictive covenants. The remedy that was granted, and upheld on appeal, was an injunction restraining breach of clause 9 against both Mr Horne and his company. Mr Rainey submitted that the company was treated as party to the contract – no other jurisdiction to grant the injunction against Mr Horne and the company was relied upon. Mr Millett submitted that it was a question of remedy only, but Lord Hanworth MR at 956 did expressly refer to breaches of the covenant by Mr Horne and his company, which tends to support Mr Rainey's submission. It is a case in which, if such is what occurred, the puppet was liable under the puppeteer's contract, but, submits Mr Rainey, there is nothing to prevent the puppeteer being made liable under the puppet's contract and he would be if, for example, a contract for sale by Gilford to the puppet company (in breach of a similar obligation on non-competition) were sought to be enforced against the puppeteer.
(ii) In Jones the puppet company was probably in existence at the date of the sale contract by Lipman (though still on the shelf). Although, as Mr Millett says (see paragraph 18 above), the cause of action could have been put on a different basis, it was not. Specific performance of the contract of purchase was ordered both against puppeteer and puppet, by express reference to Gilford and piercing of the veil. Again in the reverse situation the same result could have occurred if it had been, for example, a sale by the puppet company, and the sale on had been to the puppeteer; on exactly the same basis the contract could have been enforced against both.
(iii) In Dadourian, the decision of Warren J was not to lift the corporate veil so as to render 'Jack and Helga' liable in contract, though to an extent the decision could be said to have been obiter, or at any rate less significant, as he concluded that he would not have lifted the corporate veil anyway (paras 690 to 693) and that he would not have found that the fraud was dehors the company: 'the fraud….was the misrepresentation not the use of a company' (at 692). …"
"26. I am satisfied that both Warren J in Dadourian and Flaux J in Lindsay were only ruling out the course of finding the puppeteer liable for breach of contract because in neither case was it appropriate to do so in the event, since a remedy of finding the puppeteer personally liable (as tortfeasor) had already been granted which was, certainly in the case of Dadourian, inconsistent with taking the contractual route. None of the reasons which Warren J put forward argues against a conclusion, depending on how the facts fall out at trial, that in this case the puppeteer should be held party to the puppet company's contract. There is in my judgment no good reason of principle or jurisprudence why the victim cannot enforce the agreement against both the puppet company and the puppet who, all the time, was pulling the strings. The claimants seek to enforce the contract against both puppeteer and the puppet company (as in Gilford and Jones). …
27. Two matters remain to be dealt with:
(i) I accept the force of Mr Rainey's case that the puppeteer can be made liable, as a party to the contract, but that as a matter of public policy he cannot enforce the contract. This is, to an extent, the obverse of the case where, if a third party can establish that an agreement was entered into for its benefit, he can enforce, but not be sued under, that contract by reference to the Contracts (Rights of Third Parties) Act 1999 (see eg WPP Holdings Italy SRL v Benatti  2 CLC 142). Mr Millett raised what he said was an anomaly, if such a submission were accepted, whereby, if the victim wanted to keep alive a contract after discovery of the existence of the puppeteer, e.g. in this case to continue with a charterparty, the puppeteer, though liable under the contract, would not be able to enforce it, so as, for example, to obtain sums due under it, but that is of course not a problem, as in such an unlikely event the puppet company could still enforce the contract, and recover any monies due.
(ii) Mr Rainey did run an alternative case that the puppeteer could be said to have become a party by succession, although recognising the difficulties that it is only the obligations and not the rights under the contract to which the puppeteer would be said to have succeeded: Gilford, where the company was not in existence at the time of the contract, could only be explained on that basis. He recognised however, in the course of argument, that in reality his claim in this case is put forward not by reference to any reliance upon succession, but firmly on the basis that at the date of the contract the puppeteer was, and then remained, an original party to the contract."
"18. It seems to me, on reflection that, at least in a case (of which Gramsci was an egregious example) where the whole purpose of the corporate structure is to perpetrate fraud, it cannot be correct that the ability to pierce the corporate veil is limited by the need that the wrongdoing is dehors the company. However the point does not matter in the present case since, on analysis, the relevant wrongdoing here (for reasons I will come to) was the transfer of assets from the first defendant to the third defendant with a view to frustrating enforcement against the first defendant. Thus the relevant wrongdoing was dehors the companies in respect of which the claimants seek to pierce the corporate veil.
19. For the purposes of the present case, the critical principle identified by Munby J (which is the one particularly recognised and applied in other cases to which my attention was drawn in submissions) is the fourth one that: 'if the court is to pierce the veil it is necessary to show both control of the company by the wrongdoer(s) and impropriety, that is, (mis)use of the company by them as a device or façade to conceal their wrongdoing.' In other words it is not enough to show that a company or a group of companies is closely controlled by an individual or a family or by a holding company. If the element of control were sufficient in itself, the English courts would have accepted the concept of the 'single economic unit' which, as I will demonstrate later in this judgment, has been consistently rejected by our courts. The claimant who wishes to pierce the corporate veil must show not only control but also impropriety, in the sense of misuse of the company or the corporate structure to conceal wrongdoing."
"139. Superficially there is thus some similarity between the basis upon which the claimants put their case in Gramsci and the way in which the claimants here put their case against the third to thirteenth defendants. However, the fundamental difference is that that was a case where, (as will be clear from the summary of the facts set out above), the claimants had a good arguable case that the whole purpose of the corporate structure was to perpetrate the relevant fraud and both the chartering companies and the charterparties themselves were effectively a sham or façade from the outset: see paragraph 2 of the judgment where Burton J summarised the conclusions of Gross J and paragraphs 13 to 15 of Burton J's judgment at the end of which he said: 'The fraud was plainly "dedans" the company, but that was because the company was set up for that very purpose, in order to abuse the company's structure.'
140. That is the context in which Burton J reached the conclusion which he did at paragraph 26 of his judgment that the claimants had a good arguable case that the defendant as 'puppeteer' could be made liable under the puppet company's contract: …
141. Clearly the basis of that reasoning was that the contract (the charterparty) was in reality one made by the puppeteer using the puppet to disguise the fact that the contract was part of a fraud being perpetrated on the claimants. The critical difference in the present case is that, as I have already held above, there was nothing untoward about either the charterparties or the guarantees when they were made. The charterparties were all genuine contracts made with the first defendant, performance by which was guaranteed by the second defendant. There was and is no basis for piercing the corporate veil at the time the contracts were made. Nothing in Gramsci is dealing with such a case and there is nothing in Burton J's reasoning to support the claimants' proposition that abuse of the corporate structure, long after the relevant contracts were made, can lead to the corporate veil being pierced to make companies in the group or Mr Tommy Suharto liable as if they had been or had become parties to those charterparties and guarantees."
"In that connection, it seems to me that the reasoning of Toulson J in Yukong Line Ltd of Korea v Rendsberg Investments Corporation of Liberia (No 2)  1 WLR 294 in this connection was correct. Furthermore, I note that Munby J in Ben Hashem v Ali Shayif  EWHC 2380 (Fam) held that piercing the corporate veil was a course which the court should take if no other remedy was possible and if certain requirements were satisfied. The requirements in this case are not satisfied and, if they are, an appropriate remedy is available, namely following the assets."
Article 23(1) of the Brussels Regulation
"If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. Such an agreement conferring jurisdiction shall be either:
(a) in writing or evidenced in writing; or
"47. It is common ground that the issue of consensus is decided by EU law. The European Court at paragraph 14 of its judgment in Partenreederei MS Tilly Russ v V Haven & Vervoerbedrijf Nova (The Tilly Russ) Case 71/83  ECR 2417,  QB 931 stated that 'the purpose of Article  is to ensure that the parties have actually consented to such a clause, which derogates from the ordinary jurisdiction rules laid down in Articles 2, 5 and 6 of the Convention, and that their consent is clearly and precisely demonstrated.'
48. The question thus is whether, once English law has identified the parties to this contract (including the jurisdiction clause) as being the Claimants, the puppet companies and the puppeteer, such test is established in relation to them …"
"62. EU law then falls to be considered to consider the question as to whether there was consensus between the parties so identified. There are two formulations which I have found helpful. In Bank of Tokyo at paragraph 192 Lawrence Collins J stated:
'Whether there has been a sufficient consensus so as to satisfy Article 23 as predominantly a question of fact for the court seised and it is to be answered without recourse to rules of national law.'
This was expanded by Hamblen J in Polskie, expressly by reference to Lawrence Collins J wearing his academic hat in the 14th Edition of Dicey, Morris and Collins at 12-108, namely:
'As to the need for agreement – the claimant must show that both the parties "clearly and precisely" consented to the alleged jurisdictional agreement. In a case, such as this, where a party alleges that it never accepted the clause, the task of the court is to determine if there was sufficient consensus between the parties as a question of fact, without recourse to any rules of national law.'
63. I am satisfied that this question is a mixed question of law and fact, and that there is a good arguable case, in the sense referred to above, that the Claimants will establish such consensus by and between the Claimants and the Defendant as puppeteer."
"In the present case, as the case law of the Court of Justice emphasises, in order to establish that the usual rule in article 2(1) is ousted by article 23(1), the claimants must demonstrate 'clearly and precisely' that the clause conferring jurisdiction on the court was in fact the subject of consensus between the parties."
Burton J's approach appears to me to be consistent with this statement.
The rule in Parker v Schuller
"In our judgment, if the draftsman of a pleading intended to be served out of the jurisdiction under Ord.11, r.1(1)(f) (or indeed under any other sub-paragraph) can be reasonably understood as presenting a particular head of claim on one specific legal basis only, the plaintiff cannot thereafter, for the purpose of justifying his application under Ord. 11, r.1(1)(f), be permitted to contend that that head of claim can also be justified on another legal basis (unless, perhaps, the alternative basis has been specifically referred to in his affidavit evidence, which it was not in the present case). With this possible exception, if he specifically states in his pleading the legal result of what he has pleaded, he is in our judgment limited to what he has pleaded, for the purpose of an Order 11 application."
Necessary or proper party
The Defendants' application to set aside permission to serve out
"Articles 31 and 32 of Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations ('Rome II'), read in conjunction with Article 297 TFEU, must be interpreted as requiring a national court to apply the Regulation only to events giving rise to damage occurring after 11 January 2009 and that the date on which the proceedings seeking compensation for damage were brought or the date on which the applicable law was determined by the court seised have no bearing on determining the scope ratione temporis of the Regulation."
"Choice of applicable law: the general rule.
11.(1) The general rule is that the applicable law is the law of the country in which the events constituting the tort or delict in question occur.
(2) Where elements of those events occur in different countries, the applicable law under the general rule is to be taken as being:
(a) for a cause of action in respect of personal injury caused to an individual or death resulting from personal injury, the law of the country where the individual was when he sustained the injury;
(b) for a cause of action in respect of damage to property, the law of the country where the property was when it was damaged; and
(c) in any other case, the law of the country in which the most significant element or elements of those events occurred.
(3) In this section 'personal injury' includes disease or any impairment of physical or mental condition.
Choice of applicable law: displacement of general rule.
12.(1) If it appears, in all the circumstances, from a comparison of:
(a) the significance of the factors which connect a tort or delict with the country whose law would be the applicable law under the general rule; and
(b) the significance of any factors connecting the tort or delict with another country, that it is substantially more appropriate for the applicable law for determining the issues arising in the case, or any of those issues, to be the law of the other country, the general rule is displaced and the applicable law for determining those issues or that issue (as the case may be) is the law of that other country.
(2) The factors that may be taken into account as connecting a tort or delict with a country for the purposes of this section include, in particular, factors relating to the parties, to any of the events which constitute the tort or delict in question or to any of the circumstances or consequences of those events."
"16. S.11 of the 1995 Act adopts a geographical test. … In any other case, it selects the law of the country 'in which the most significant element or elements of those events [i.e. those constituting the tort] occurred.' What is required is an analysis of all the elements constituting the tort as a matter of law, and a value judgment regarding their 'significance', in order to identify the country in which there is either one element or several elements, which taken alone or together, outweighs or outweigh in significance any element or elements to be found in any other country. The governing law under s.11(2)(c) will be the law of that country
19. In the present case, elements constituting the alleged tort occurred both in England and in Monaco. But I agree with the Judge that the most significant elements occurred in Monaco. The making by [the defendant] through its catalogue in England of a negligent misstatement is of course one essential element. But the element of reliance was present in the form of a continuum of activity, starting in England, but having by far its most significant aspect in the form of [the claimant's] presence and successful bidding in Monaco. By the same token, although some loss was caused in England, the successful bid involved [the claimant] entering into a contract in Monaco, under which he bought and received the car there and became liable to pay there the price and auction premium, which he met by remittance from the Bahamas. It is his decision on the spot when making his successful bid, and his resulting commitment to buy the car and pay that price and premium, which represent by far the major elements of his reliance and of the loss caused and claimed in this case. The entering into of an adverse contractual commitment involves on its face an actionable loss, even prior to any actual financial expenditure pursuant to it (see e.g. Forster v. Outred  1 WLR 86, 97B-C)."
"105. It seems to me that there are six significant elements that make up the torts alleged in this case, ie. deceit and fraudulent or negligent misrepresentation. First there is the situation in MCB during the period 1991 to 2002 as it actually existed; were there irregularities and failures in regulation and did officers and directors of MCB know of them? That element is connected to Mauritius. Secondly, there is the completion of the Proposal Form by the directors and officers of MCB, which is said to have been done fraudulently. That was all done in Mauritius. Thirdly, there is the transmission of the Proposal Form to City Brokers Ltd in Mauritius and then to BRS in England, with the implication that MCB were content that the answers given should be used for presentation to the Reinsurers. That continuing representation took place in both Mauritius and England. Fourthly, there is the presentation of the Proposal Form by BRS to the Reinsurers as part of the renewal programme for 2002, with the continued implication that MCB continued to stand by the statements made in the Proposal Form. The presentation took place in England. Fifthly, there is the reliance by the Reinsurers (so it is said) on the Proposal Form, so as to conclude the Excess Reinsurance. That took place in England. Sixthly, there is any loss that the Reinsurers have suffered or will suffer as a consequence of the alleged deceit. If loss is suffered, it will be in England.
106. What is the proper 'value judgment' regarding the significance of those six elements? In considering this I think I must assume for the present that the alleged torts did occur; I cannot see how one can proceed otherwise. That is not to say that I must reach a concluded view on the law applicable to the torts; other facts may come to light at a trial which change the analysis. But, in my view the most significant elements of the torts of deceit or fraudulent misstatement are those which concern making the untrue statements in the Proposal Form (knowing them to be so), presenting the untrue statements to the other person with the intent that he should rely on it and then the actual reliance by that person on the untrue statement to his loss. Although the first of these elements starts in Mauritius, it is continued in England, because the Proposal Form, with the MCB signatures, comes to England and MCB continues to make the fraudulent misrepresentations here. The intention that the Reinsurers should rely on them continues to operate here in England where the Reinsurers receive the Proposal Form. The reliance, which is the most significant element of all, in my view, takes place in England.
107. The antecedent facts concerning the true situation in MCB are important, but it is what is done with those facts that really matters so far as the tort of fraudulent misrepresentation or deceit is concerned. In short, it is (on the assumptions I have made) MCB's decision not to tell the facts as they are and to continue to mislead that matters most, not the true facts themselves.
108. On this basis the proper law of the torts alleged will be English law, applying section 11(2)(c) of PILA."
"… The defendants first submitted that the thrust of the allegation against them is that the transactions in the various schemes were all undertaken pursuant to a single overarching conspiracy by which bribes were paid or promised by or on behalf of Mr. Nikitin in order to bring about uncommercial transactions which would benefit him and his companies at the expense of the Sovcomflot group. The claims in conspiracy, and the other claims, should all be regarded as manifestations of this single scheme, and they are governed by the law of Russia, where the events most significant to the scheme occurred. It was a conspiracy which originated in Russia, which was targeted at a group controlled by a Russian company, which was for the benefit of a Russian businessman and which depended on and was characterised by the corruption of the Director-General of Sovcomflot, who worked from the group's headquarters in Moscow."
"As I have said, in my view it is right to consider separately the elements of the tort of conspiracy in relation to each scheme. However, the defendants are able to identify elements relating to the agreement or collusion which are common to all the parts of the claimants' conspiracy claims in so far as they allege that Mr. Skarga was party to the collusion against Sovcomflot. … The central thrust of the claimants' allegations in relation to each scheme is that Mr. Nikitin was dishonestly working with Sovcomflot's Director-General, Mr. Skarga, and their Chief Financial Officer, Mr. Borisenko, to secure the group's agreement to transactions and arrangements which favoured him. I conclude that generally Mr. Nikitin would have had any discussions with Mr. Skarga and Mr. Borisenko in Russia, although I accept that on occasions there will have been some discussions outside Russia, such as when Mr. Nikitin and Mr. Skarga were on holiday together in September 2004. Further, in so far as Mr. Skarga or indeed Mr. Borisenko implemented an agreed scheme by ensuring that Sovcomflot or one of the companies in the group entered into the transactions, they generally did so when they were in Russia. For example, all the meetings of the Sovcomflot Executive Board which decided upon, approved or ratified transactions took place in Russia, and minutes of meetings of the Fiona board were signed in Russia by Mr. Skarga, Mr. Borisenko and others. Mr. Privalov, as the claimants allege, was party to the schemes (other than the Sovcomflot time charters scheme), and, working from London, provided important assistance to implement them, but the defendants pointed out that, according to Mr. Privalov's own evidence, his discussions with Mr. Nikitin, Mr. Skarga and Mr. Borisenko took place sometimes in Russia and on other occasions in London or elsewhere. In any event, it seems to me that, if, as the claimants allege, Mr. Skarga was party to the schemes, Mr. Nikitin's collusion with him as Sovcomflot's most senior executive is of greater significance than Mr. Privalov's relatively junior participation in them, and Mr. Skarga's role in implementing them by way of ensuring that Sovcomflot agreed to transactions designed to benefit Mr. Nikitin and his companies at Sovcomflot's expense was, in terms of identifying the wrongful acts that caused Sovcomflot damage, of greater significance than the arrangements that Mr. Privalov made in the London market in order to implement the transactions. In substance the impact of the financial damage was suffered by Sovcomflot in Russia."
"170. I consider that some of the matters upon which the claimants relied are not elements of the events that constitute a conspiracy relating to the scheme in question or to a transaction under it, and the conspiracies are the focus of the claimants' allegations. Although lawyers' documentation was required in order to carry out the schemes, I do not regard the drafting work of Lawrence Graham and Mr. Wettern as an event constituting the tort of conspiracy. In the case of the newbuildings scheme, the Supplemental Agreement was drawn up after any tort had been completed. In any event, I would not consider these matters to be significant events for the purpose of deciding where the tort is to be regarded as having occurred. I have explained why I consider the part played in London by Mr. Privalov in carrying out the schemes to be less significant than the events in Russia. The same applies to the part played in Switzerland by Sovchart in carrying out the Sovcomflot time charters scheme and the 'Romea Champion' commission scheme.
171. The claimants' arguments are strongest, as it seems to me, in relation to the other commissions schemes, because of the role played by the brokers in London and because Clarkson were engaged to act for Sovcomflot and the Clarkson arrangements with Mr. Gale were made in London. But here too, on balance, I accept the defendants' submission that, if Mr. Skarga was a participant in the schemes, the most significant elements of the conspiracy in relation to them occurred in Russia. It was there that the crucial arrangements in relation to the schemes would have been made between Mr. Nikitin and the senior conspirator in the Sovcomflot organisation, the originating steps to carry them out were taken in Russia, and the events in London flowed from what occurred in Russia. In my judgment, therefore, if the general rule under the 1995 Act is applied to the claims of conspiracy in relation to the various Sovcomflot schemes, the applicable law is Russian."
"21. … significance under s.11 directs attention to the intrinsic nature of the element(s) of the tort — and not to the nature or closeness of any tie between those elements and the country where they occurred. The nature or closeness of any tie can, however, be very relevant on an issue arising under s.12, when considering 'factors which connect a tort' with one or another country. The embrace of 'factors connecting' a tort with a country extends potentially much wider than the "elements constituting the tort.
23. The next question arising in relation to the application of s.12 would have been whether the concept of "factors which connect a tort" with a country embraces the parties' choice of the law of a particular country. In general terms, it would seem odd, if an express choice of law were not at least relevant to the governing law of a tort. But Adrian Briggs, in an article 'On drafting agreements on choice of law' in  LMCLQ 389, points out the difficulty of the language of s.12 - adding however that 'it may not be impossible' to overcome its 'anti-commercial cast'. The law of a country is after all a feature of the country. Further, one should not forget that clause 9.1 [of the contract of sale] not only deals with governing law, but provides for submission to the non-exclusive jurisdiction of the Monegasque courts. It may be open to argument that that itself constitutes a 'factor connecting the tort' to Monaco. The judge did not decide any points relating to s.12, and, since we do not have to do so either, I prefer to leave them all open."
"103. With respect to Professor Briggs, in my view he adopts too narrow a construction of section 12(1) and (2). In section 12(1) the court is invited to make a comparison of the significance of the factors which connect a tort with the country whose law would be the applicable law under the 'general rule' and "the significance of any factors connecting the tort ... with another country'. I would emphasise the use of the words 'any factors' in section 12(1). In my view Professor Briggs' comments also do not give adequate scope to the breadth of section 12(2). As I have already commented, it is inclusive, not exclusive in its terms. But it does state that the court can take into account '…in particular, factors relating to the parties' as factors that might connect the tort with 'another country' for the purposes of section 12. It seems to me that the phrase 'factor relating to the parties' is broad. The factor only has to 'relate to the parties'. I would hold that the phrase can include the fact of a pre–existing relationship between the parties, whether contractual or otherwise. Another factor 'relating to the parties' must be, in my view, the law that the parties have expressly or impliedly chosen to govern their pre–existing contractual relationship. If that pre–existing relationship is said to give rise to events constituting the alleged tort in question, then it seems to me that the factual and contractual context in which the events took place and the law governing any related contracts must be within the phrase in section 12(2): '… relating to … any of the events which constitute the tort … in question or to any of the circumstances or consequences of those events'.
104. For my part I see no difficulty in the idea that if the governing law of a contract, or a chosen jurisdiction provision in a contract is that of country A, that may be a factor that connects the alleged tort under consideration with country A. An analogous exercise is carried out every time the court considers the impact of the applicable law of a contract when deciding whether England is the appropriate jurisdiction in a 'forum non conveniens' case. So in my view the contractual 'matrix' in which it is said the alleged tort constituting the 'security claim' occurred is a potential 'factor' for consideration under section 12."
"106. To my mind the first connecting factor which [counsel for Trafigura] identifies, that is, the L/C contract between Trafigura as beneficiary and Kookmin as issuing bank, is by far the most important …. The existence of the L/C contract is the reason for any kind of connection between Trafigura and Kookmin at all. The L/C was the pre–existing relationship which, at least in contract, governs the rights and obligations of Trafigura and Kookmin as, respectively, beneficiary and issuing bank under the L/C. Cooke J held that the L/C contract, as between Trafigura and Kookmin, is governed by English law …. That conclusion has not been challenged before me by Kookmin. Nor has Kookmin challenged the conclusions of Cooke J that Kookmin would have no claim against Trafigura under the L/C as a matter of contract and that the English law contracts leave no room for a claim in tort where the contracts are fulfilled …
112. Therefore it seems to me that the second important factor for the purposes of section 12 is that all but one of the relevant contractual relationships between the parties – that between the sellers (Trafigura) and buyers of the cargo; that between the sellers and the carriers; that between the issuing bank and the beneficiary under the L/C; and that between the sellers and the buyers in the LOI contract – are all governed by English law. All those parties' contractual rights and obligations are therefore connected with England, because, as Mance LJ said in paragraph 23 of the Morin case, '…the law of a country is a feature of the country'.
118. Ultimately I have concluded that it is substantially more appropriate that the applicable law governing the contractual relationship between Trafigura and Kookmin for issues relating to tort should be the same as that governing their contractual relationship: viz. the law of England. That conclusion is supported by the fact, as I have stated, that all but one of the other contractual relationships between all relevant parties are governed by English law. I repeat: it would seem bizarre for all those parties' contractual relations to be governed by one applicable law, yet hold that the law of another country is to determine non – contractual rights and obligations."
"Mr Kealey appeared to rely on the fact that, as he submitted, the Excess Reinsurance is governed by Mauritius law, in order to invoke section 12 of PILA. I have held, provisionally, that the proper law of the Excess Reinsurance is English law. But even if I had concluded to the contrary, that would not help him establish that the law applicable to the torts of MCB is Mauritius law. I must confess to finding section 12(1) difficult to apply in relation to all the issues in this case. Section 12(1) appears to say that, if having considered the matter under section 11(2(c) you decide that the most significant elements lead to the proper law of the tort being that of country A, nevertheless, you may consider it more appropriate to conclude that the proper law should be that of country B ('the other country'), bearing in mind the factors set out in section 12(2). But, in this case at least, that involves considering precisely the same elements all over again. In any event, the fact that the fraudulent misrepresentations were made in order to induce the Reinsurers to enter the Excess Reinsurance whose proper law would be that of Mauritius seems to me to have nothing to do with the tort in question. Nor does the fact that the Proposal Form was also used in respect of the direct insurance, which is governed by Mauritius law."
"172. The claimants submitted that, nevertheless, the issues relating to the conspiracy claims are to be determined by English law because the general rule is displaced by the secondary rule in section 12 of the 1995 Act; that is to say, that it is apparent that it is substantially more appropriate for the issues to be determined by English law if the significance of the factors that connect the tort with Russia are compared with the significance of the factors that connect the tort with England. The factors that may be considered in applying the secondary rule are not limited to where events constituting the tort occurred. The claimants relied not only upon the considerations that they invoked in relation to the general rule but also upon the fact that the contracts and arrangements with yards, purchasers of vessels, charterers and other third parties whereby the various schemes were implemented were governed by English law through the parties' express choice and in many cases had English jurisdiction or English or London arbitration provisions.
173. The law indicated by the general rule is not displaced simply because on balance, when all factors relating to a tort are considered, those that connect the tort with a different country prevail. That would emasculate the general rule. The secondary rule is applied only if it indicates that another law is substantially more appropriate. In my judgment, the considerations identified by the claimants, including the terms of the contracts implementing the schemes, are not sufficient to displace the general rule so as to have any issues relating to the conspiracy claims in the Fiona actions determined by English law. On the contrary, when the secondary rule is considered, the defendants for their part are entitled to invoke "factors relating to the parties" (see section 12(2) of the 1995 Act), and so they rely upon the facts that Sovcomflot is the parent company of a nationalised Russian group of strategic importance and that the defendants are for the most part Russian individuals or companies said to be owned or controlled by Russians. These factors seem to me of more importance than the terms of the agreements with third parties through which the schemes were implemented, and, had I not concluded that the general rule requires the application of Russian law, I would have accepted the defendants' submission that the secondary rule applies and that English or any other law is displaced in favour of Russian law.
174. It is true that the schemes said to have been devised by the conspirators were played out on the international stage. They implemented their schemes in different countries according to the business and activity involved. They used companies incorporated in the BVI and elsewhere. They carried on their banking and conducted their financial dealings through Swiss banks. They dealt with sales and purchases of ships and ship financing transactions through London. Sovcomflot dealt with charters in Switzerland. Because many of the schemes concerned sales and purchases and ship financing, much of the business about which the claimants complain was done through London. Because the schemes concerned shipping, the contractual arrangements by which they were conducted were governed by English law, as is commonly chosen by the parties to contracts of this kind. However, the focus of the conspiracy remained Russian and the collusion was based in Russia although the schemes were played out elsewhere."
Serious issue to be tried
"I do not think there is any difference of opinion as to its being a general rule that, where any injury is to be compensated by damages, in settling the sum of money to be given for reparation of damages you should as nearly as possible get that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation."
"There is in truth only one legal measure of assessing damages in an action for deceit: the plaintiff is entitled to recover as damages a sum representing the financial loss flowing directly from his alteration of position under the inducement of the fraudulent representations of the defendants."
"VTB Moscow was fully funding the facility before any drawdowns were made against it pursuant to the Participation Agreement between VTB and VTB Moscow. The consequence of the Participation Agreement was that in the event of default VTB Moscow took responsibility for all the amounts due from RAP, thereby eliminating credit risk exposure for VTB for the main credit facility."
"The banks which joined in the loan transactions by subsequent syndication reimbursed BBL in respect of part of the loans that BBL had advanced. They became parties to the loan transaction by novation and had transferred to them a pro rata share of BBL's rights under those transactions including BBL's interests in the property securing the transactions. There was thus transferred from BBL to the syndicate banks a share of the risks inherent in the loan transactions. BBL contends that the Court should disregard this transfer of risk and assess damages as if the subsequent consequences of the transactions were borne exclusively by BBL. The principle of res inter alios acta requires the Court to disregard an indemnity received by the Plaintiff from a third party in respect of the loss caused by the Defendant. It does not require or permit the Court to assess damages on the basis of a fiction; to treat losses sustained by third parties as if they had been sustained by the Plaintiff. The intervention of the syndicate banks did not indemnify BBL in respect of consequences of entering into the loan transactions. It resulted in the syndicate banks suffering those consequences in place of BBL. The loss claimed by BBL is not loss suffered by BBL prior to syndication, but loss suffered by all the syndicate banks after syndication. The principle of res inter alios acta does not permit BBL to recover damages in respect of the losses sustained by the syndicate banks."
"84. In our judgment a fundamental distinction must be drawn, for present purposes, between repair costs and hire charges. When a vehicle is damaged by the negligence of a third party, the owner suffers an immediate loss representing the diminution in value of the vehicle. As a general rule, the measure of that damage is the cost of carrying out the repairs necessary to restore the vehicle to its pre-accident condition (see Dimond at page 1139G per Lord Hobhouse).
85. In Burdis v Livesey the general rule applied, and it was common ground that the repairs restored Miss Burdis' car to its pre-accident value. Nor was there any issue as to the reasonableness of the garage's charges. Thus at the moment when the accident occurred Miss Burdis suffered a direct and immediate loss, the measure of which was the cost of the repairs which were in fact carried out (£2,981.19). But it was not a condition precedent to the recovery of compensation for that loss that the car be repaired: Miss Burdis' cause of action for the recovery of damages representing the diminution in the value of her car caused by Mr Livesey's negligence was complete when the accident occurred: see The Glenfinlas (Note)  P 363 and The London Corporation  P 70. Similarly, a claimant's damages will not be affected by the fact that, in the event, the repairs are carried out at no cost to him: see The Endeavour (1890) 6 Asp MC 511, where the vessel was repaired but, due to the bankruptcy of the owner, the repairer was never paid.
86. By contrast, the hire charges which were sought to be recovered in Dimond represented a potential future loss, consequent upon the defendant's tort, which was recoverable as damages only if and when it was in fact suffered. In the language of pleading, the hire charges constituted special damage. As the judge put it in Seddon v Tekin  GCCR 2865, 2890, in the passage quoted earlier, the hire charges are 'of the essence of the damage which is consequential loss or special damage'. Hence in Dimond, because the credit hire agreement was unenforceable and the hire charges were accordingly irrecoverable from the claimant, the hire charges never formed part of the claimant's loss.
87. The distinction between an immediate and direct loss on the one hand and a potential future loss on the other is of importance for present purposes because it leads to different treatment of benefits derived from a third party after the commission of the tort. In every case a claimant's recoverable loss is limited to the loss which he has actually suffered - damages in the tort of negligence are, after all, 'purely compensatory' (see per Lord Bridge in Hunt v Severs  2 AC 350, 357H) - but the process of determining, in the light of subsequent events, what loss the claimant has actually suffered differs according to whether the loss was suffered when the tort was committed (direct loss) or whether it was suffered subsequently (consequential loss).
88. In a case of direct loss, subsequent events will operate to reduce or extinguish the loss only in so far as such events are referable to the claimant's duty to mitigate his loss, and hence referable in a causative sense to the commission of the tort: see the British Westinghouse case  AC 673 and Koch Marine Inc v D'Amica Societa di Navigazione ARL  1 Lloyds's Rep 75. In the Koch Marine case, Robert Goff J said, at p 88: 'what is alleged to constitute mitigation in law can only have that effect if there is a causative link between the wrong in respect of which damages are claimed and the action or inaction of the plaintiff.'
91. In our judgment, the authorities to which we have so far referred establish that subsequent events which are not referable in a causative sense to the commission of the tort, that is to say events which, on a true analysis, are collateral to the commission of the tort, or res inter alios acta, or too remote - we regard these expressions as interchangeable - do not affect the measure of a direct loss suffered when the tort was committed.
92. In the case of potential future losses, on the other hand, the general rule is that to the extent that such a loss is in fact avoided (for whatever reason) it is a loss which is never suffered and which is accordingly irrecoverable for that reason. … "
""Did the negligence which caused the damage also cause the profit"? Was the increased value of the fund consequent on its retention "part of a continuous transaction of which [the appellants' negligence] was the inception"? Or did the negligence merely provide the opportunity for the respondent to gain the benefit and not itself cause it?"
On the facts, the Court held that the loss should be assessed as at 1995, since the gain realised by the claimant after 1995 was caused by the claimant's own actions (and the advice of subsequent advisors) from 1997 onwards rather than by the defendant's negligent misrepresentations, albeit that the latter had provided the opportunity to make the gain.
"Taking into account the important consideration that the sub-participation agreements were made at a time when Interallianz had no knowledge of Allsop's breach of duty or of any damage flowing from it and thus did not arise out of the breach of duty or the loss but were wholly independent of it, I do not consider that the sub-participation agreements should be brought into account to reduce the damages that Allsop would otherwise have to pay. The sole relationship that Allsop had was with Interallianz and the sole relationship that Iris had was with Interallianz. They in fact obtained security for their loan to Iris of a value less than they had been told by Allsop; they suffered that loss on draw down. The fact that they entered into independent arrangements with others which had the consequence that loans to them by the sub-participants do not have to be repaid is a matter that is in my judgment collateral and does not have to be brought into account. There is nothing unjust or unreasonable in that conclusion."
He went on to distinguish the Banque Bruxelles case on the ground that in that case there had been a novation as discussed above.
"a. Marcap [defined previously to mean 'the Marshall Capital group of companies'], through MarCap BVI, had de facto control of and beneficially owned in part Nutritek at the time of the Facility Agreement and SPA.
b. Marcap stood to benefit from the deceit on VTB.
c. Marcap was heavily involved in the negotiations leading to the Facility Agreement and SPA and the provision of information in relation thereto as explained in detail above.
d. The whole transaction under which VTB was defrauded was co-ordinated by Marcap.
e. The whole transaction was introduced to VTB/ VTB (Moscow) by Mr Malofeev and it is clear from the discussions he had with Mr Tulupov that Mr Malofeev was closely involved in the then proposed transaction.
f. Further, it is apparent from the matters set out in section A above that Mr Malofeev exercises substantial control over the affairs of Marcap.
g. Given the fraudulent nature of the scheme to extract funds from VTB, it is inconceivable that it would have taken place without Mr Malofeev's approval and encouragement."
"The only inference that can reasonably be drawn is that Marcap group and Mr Malofeev were party to a conspiracy with Nutritek to defraud VTB. Further, it is reasonable to infer that the Marcap companies involved included not only Marcap Moscow (which was directly involved in the negotiations) but also by Marcap BVI which owned at least a little under half of Nutritek."
Forum non conveniens
i) a statement made by Andrey Puchkov, Deputy Chairman of VTB Moscow, which among other matters dealt with VTB Moscow's reliance on the misrepresentations alleged, Mr Puchkov having been present at the Management Board meeting on 13 November 2007 at which the transaction was approved;
ii) a statement made by Vadim Muraviev, Head of the Division of Distressed Debt Settlements at VTB Moscow, who gave evidence as to VTB's reliance on the misrepresentations alleged based on interviews with four English employees of VTB including Mr Magee and Mr Pasek; and
iii) a statement made by Denis Zemlyakov, General Director of VTBDC, who gave evidence concerning RAP's default and the enforcement of the security.
"…as Oliver L.J.  2 Lloyd's Rep. 116, 135, pointed out in his judgment in the present case, an advantage to the plaintiff will ordinarily give rise to a comparable disadvantage to the defendant; and simply to give the plaintiff his advantage at the expense of the defendant is not consistent with the objective approach inherent in Lord Kinnear's statement of principle in Sim v. Robinow, 19 R. 665, 668.
The key to the solution of this problem lies, in my judgment, in the underlying fundamental principle. We have to consider where the case may be tried 'suitably for the interests of all the parties and for the ends of justice.' Let me consider the application of that principle in relation to advantages which the plaintiff may derive from invoking the English jurisdiction. Typical examples are: damages awarded on a higher scale; a more complete procedure of discovery; a power to award interest; a more generous limitation period. Now, as a general rule, I do not think that the court should be deterred from granting a stay of proceedings, or from exercising its discretion against granting leave under R.S.C. Ord. 11, simply because the plaintiff will be deprived of such an advantage, provided that the court is satisfied that substantial justice will be done in the available appropriate forum."
"From the discussion [in Spiliada v Cansulex], a general principle may be derived, which is that, if a clearly more appropriate forum overseas has been identified, generally speaking the plaintiff will have to take that forum as he finds it, even if it is in certain respects less advantageous to him than the English forum. He may, for example, have to accept lower damages, or do without the more generous English system of discovery. The same must apply to the system of court procedure, including the rules of evidence, applicable in the foreign forum. This may display many features which distinguish it from ours, and which English lawyers might think render it less advantageous to the plaintiff. Such a result may in particular be true of those jurisdictions, of which there are many in the world, which are smaller than our own, and are in consequence lacking in financial resources compared with our own. But that is not of itself enough to refuse a stay. Only if the plaintiff can establish that substantial justice cannot be done in the appropriate forum, will the court refuse to grant a stay …"
i) the comparative level of disclosure: see Spiliada v Cansulex at 482E-G;
ii) different rules of evidence or provision for cross-examination: see RTZ v Connelly at 873 and Ceskoslovenska Obchodni Banka AS v Nomura International plc  ILPR 20 at  (Jonathan Sumption QC sitting as a Deputy High Court Judge);
iii) the experience of the foreign court in trying particular types of case: see The Varna (No 2)  2 Lloyds Rep 41 at 48 (Clarke J, as he then was) and Ceskoslovenska v Nomura at ;
iv) the duration of proceedings in the natural forum unless the delay would be excessive: compare The Vishva Ajay  2 Lloyd's Rep 558 with Radhakrishna Hospitality Service Private Ltd v EIH Ltd  2 Lloyd's Rep 249, Chellaram v Chellaram (No 2)  EWHC 632 (Ch),  3 All ER 17 and Ceskoslovenska v Nomura;
v) the claimant's prospects of success: see Dicey, Morris & Collins on The Conflict of Laws (14th ed) at §12-033.
"1. Harm caused to the person or property of a citizen and also harm caused to the property of a legal person shall be subject to compensation in full by the person who has caused the harm. A statute may play a duty for compensation for harm on a person who is not the person that caused the harm. A statute or contract may establish a duty for the person who caused the harm to pay the victim compensation in addition to compensation for the harm.
2. The person who has caused the harm is freed from compensation for the harm if he proves that the harm was caused not by his fault. A statute may provide for compensation for the mark even in the absence of fault of the person who caused the harm.
3. Harm caused by lawful actions shall be subject to compensation in the cases provided by a statute. Compensation for harm may be refused if the harm was caused at the request, or with the consent, of the victim, and the actions of the person who caused the harm do not violate the moral principles of society."
"1. A transaction made under the influence of fraud, duress, threat, an ill-intentioned agreement of the representative of one party with another party, and also a transaction that a person was compelled to make as a result of the confluence of harsh circumstances on conditions extremely unfavourable for himself that the other party used (an oppressive transaction) may be declared invalid by a court on suit of the victim.
2. If a transaction is declared invalid by a court on one of the bases indicated in paragraph 1 of the present Article, then the other party shall return to the victim everything it received under the transaction and, if it is impossible to return it in kind, its value in money shall be compensated. Property received under the transaction by the victim from the other party and also due to it in compensation for that transaction shall be transferred to the income of the Russian Federation. If it is impossible to the transfer the property to the income of the state in kind, its value in money shall be taken. In addition the victim shall be compensated by the other party for the actual damage caused to him."
Good arguable case
Risk of dissipation of assets
"In our view the test is whether, on the assumption that the plaintiffs have shown at least 'a good arguable case', the court concludes, on the whole of the evidence then before it, that the refusal of a Mareva injunction would involve a real risk that a judgment or award in favour of the plaintiffs would remain unsatisfied."
"70. In order to consider that risk, the applicant is often said to have to show a risk of 'dissipation' of the Defendant's assets. But a risk that the assets will be hidden or otherwise dealt with so as to make any judgment nugatory will suffice as well. See Derby v Weldon  Ch 48 per Parker LJ at p 57. There needs to be 'solid evidence' of this risk. See Thane v Tomlinson  EWCA Civ 1272 per Gibson LJ at paragraph 21. The context there was a without notice application but there is no reason why the same stringency should not apply to a 'with notice' application.
71. The ultimate 'risk' to be guarded against is that of an unsatisfied judgment. The reason why emphasis is placed on the risk of dissipation is because what has to be shown is the risk of an unsatisfied judgment by reason of the dissipation or secretion of assets. Thus, the freezing injunction is not to be used simply to provide security for the claim. So if in truth the risk that the judgment may not be fruitful is because the Defendant happens to live in some remote location or because he does not have much by way of assets anyway, it is not appropriate to grant it. See the judgment of Colman J in Laemthong v Artis  1 Lloyds Rep 100 at paragraph 54. Hence the standard of proof of the risk of dissipation is 'relatively high': see paragraph 61."
"Mr Blackett-Ord submitted that it has now become the practice for parties to bring ex parte applications seeking a freezing order by pointing to some dishonesty, and that, he says, is sufficient to enable this court to make a freezing order. I have to say that, if that has become the practice, then the practice should be reconsidered. It is appropriate in each case for the court to scrutinise with care whether what is alleged to have been the dishonesty of the person against whom the order is sought in itself really justifies the inference that that person has assets which he is likely to dissipate unless restricted."
i) the fact that, if VTB's claims were correct, Mr Malofeev had been engaged in a major fraud;
ii) the fact that Mr Malofeev operated "a complex web of companies in a number of jurisdictions", particularly Cyprus, the BVI and the Cayman Islands, which both enabled him to commit the fraud and made it difficult for VTB to enforce any judgment;
iii) "most significantly", evidence that Mr Malofeev was actively seeking to dispose of or diminish the value of the most substantial asset which VTB had identified Mr Malofeev as having a direct or indirect interest in, namely shares in OJSC Rostelecom, a leading Russian telecommunications company, by selling them in small parcels of US$15 million each;
iv) a draft report concerning the Nutritek group of companies prepared by Ernst & Young (CIS) BV dated 26 February 2010 ("the E&Y 2010 Report"), a copy of which VTB had obtained, was said to provide "strong evidence that Mr Malofeev and others have operated a web of companies both in Russia and offshore through which they have concealed the true financial position of the Nutritek Group to investors and creditors and which they have used to misappropriate monies of the Nutritek Group";
v) the fact that Mr Malofeev's business activities were attracting increasing adverse publicity in Russia, which was said to provide an incentive for him to liquidate his assets and secret them in jurisdictions around the world.
"In considering whether there has been relevant non-disclosure and what consequence the court should attach to any failure to comply with the duty to make full and frank disclosure, the principles relevant to the issues in these appeals appear to me to include the following. (1) The duty of the applicant is to make 'a full and fair disclosure of all the material facts:' see Rex v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac  1 K.B. 486, 514, per Scrutton L.J.
(2) The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers: see Rex v. Kensington Income Tax Commissioners, per Lord Cozens-Hardy M.R., at p. 504, citing Dalglish v. Jarvie (1850) 2 Mac. & G. 231 , 238, and Browne-Wilkinson J. in Thermax Ltd. v. Schott Industrial Glass Ltd.  F.S.R. 289, 295.
(3) The applicant must make proper inquiries before making the application: see Bank Mellat v. Nikpour  F.S.R. 87. The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries.
(4) The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant: see, for example, the examination by Scott J. of the possible effect of an Anton Piller order in Columbia Picture Industries Inc. v. Robinson  Ch 38 ; and (c) the degree of legitimate urgency and the time available for the making of inquiries: see per Slade L.J. in Bank Mellat v. Nikpour  F.S.R. 87, 92–93.
(5) If material non-disclosure is established the court will be 'astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure … is deprived of any advantage he may have derived by that breach of duty:' see per Donaldson L.J. in Bank Mellat v. Nikpour, at p. 91, citing Warrington L.J. in the Kensington Income Tax Commissioners' case  1 K.B. 486, 509.
(6) Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty on the applicant to make all proper inquiries and to give careful consideration to the case being presented.
(7) Finally, it 'is not for every omission that the injunction will be automatically discharged. A locus poenitentiae may sometimes be afforded:' per Lord Denning M.R. in Bank Mellat v. Nikpour  F.S.R. 87, 90. The court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms. 'when the whole of the facts, including that of the original non-disclosure, are before [the court, it] may well grant … a second injunction if the original non-disclosure was innocent and if an injunction could properly be granted even had the facts been disclosed:' per Glidewell L.J. in Lloyds Bowmaker Ltd. v. Britannia Arrow Holdings Plc., ante, pp. 1343H–1344A."
"By their very nature, ex parte applications usually necessitate the giving and taking of instructions and the preparation of the requisite drafts in some haste. Particularly in heavy commercial cases, the borderline between material facts and non-material facts may be a somewhat uncertain one. While in no way discounting the heavy duty of candour and care which falls on persons making ex parte applications, I do not think the application of the principle should be carried to extreme lengths. In one or two recent cases coming before this court, I have suspected signs of a growing tendency on the part of some litigants against whom ex parte injunctions have been granted, or of their legal advisers, to rush to the Rex v Kensington Income Tax Commissioners  1 KB 486 principle as a tabula in naufragio, alleging material non-disclosure on sometimes rather slender grounds, as representing substantially the only hope of obtaining the discharge of injunctions in cases where there is little hope of doing so on the substantial merits of the case or on the balance of convenience."
"(1) If the court finds that there have been breaches of the duty of full and fair disclosure on the ex parte application, the general rule is that it should discharge the order obtained in breach and refuse to renew the order until trial.
(2) Notwithstanding that general rule, the court has jurisdiction to continue or re-grant the order.
(3) That jurisdiction should be exercised sparingly, and should take account of the need to protect the administration of justice and uphold the public interest in requiring full and fair disclosure.
(4) The court should assess the degree and extent of the culpability with regard to non-disclosure. It is relevant that the breach was innocent, but there is no general rule that an innocent breach will not attract the sanction of discharge of the order. Equally, there is no general rule that a deliberate breach will attract that sanction.
(5) The court should assess the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the court. In making this assessment, the fact that the judge might have made the order anyway is of little if any importance.
(6) The court can weigh the merits of the plaintiff's claim, but should not conduct a simple balancing exercise in which the strength of the plaintiff's case is allowed to undermine the policy objective of the principle.
(7) The application of the principle should not be carried to extreme lengths or be allowed to become the instrument of injustice.
(8) The jurisdiction is penal in nature and the court should therefore have regard to the proportionality between the punishment and the offence.
(9) There are no hard and fast rules as to whether the discretion to continue or re-grant the order should be exercised, and the court should take into account all relevant circumstances."
"The reason why there was no explicit reference to the payment to Dalford was because, as the payment raised issues of tax optimisation, this was a sensitive issue and therefore embarrassing to raise before the Court. This form of arrangement is common. VTB did not intend to mislead, and did not believe that it was misleading, the Court. VTB apologises to the Court for not bringing the matter to its attention."
Thus Mr Chernenko admits that the role of Dalford was deliberately concealed from the court because VTB did not want to reveal the fact that VTB Moscow had entered into a sham contract in order to avoid tax. I do not understand his suggestion that this form of arrangement is common. If it was common, there would be no need to hide it.
i) I shall refuse VTB permission to amend the Particulars of Claim;
ii) I shall set aside the order of Chief Master Winegarten and refuse VTB permission to serve the proceedings outside the jurisdiction;
iii) even if I were willing to give VTB permission to serve the proceedings outside the jurisdiction, I would not continue the WFO until trial;
iv) even if I were otherwise prepared to continue the WFO, I would discharge the WFO for material non-disclosure by VTB.