UKPC 7
Privy Council Appeal Nos 0064 - 0067 of 2009
AK Investment CJSC (Appellant) v Kyrgyz Mobil Tel Limited and Others (Respondents)
Altimo Holdings and Investment Limited and Others (Appellants) v Kyrgyz Mobil Tel Limited and Others (Respondents)
CP-Crédit Privé SA (Appellants) v Kyrgyz Mobil Tel Limited and Others (Respondents)
Fellowes International Holdings Limited (Appellant) v Kyrgyz Mobil Tel Limited and Others (Respondents)
From the High Court of Justice of the Isle of Man (Staff of Government Division)
JUDGMENT DELIVERED BY
10 March 2011
Heard 30 November 2010 – 7 December 2010
(Instructed by Steptoe & Johnson)
Graham Dunning QC
(Instructed by Squire Saunders & Dempsey)
Stephen Smith QC
(Instructed by Lovells LLP)
Bankim Thanki QC
(Instructed by DLA Piper UK LLP)
Guy Phillips QC
(Instructed by White & Case LLP)
II The facts
The Transfer Agreement between the KFG Companies and IPOC/KMIC
April 2005 Judgment
Injunctions in England and BVI
Altimo BVI lodges $20.5 million and is registered as owner of BITEL
BVI court appoints receiver over Fellowes and grants injunction and declaration/Commercial Court final injunction and declaration
"The starting point in considering all these issues is….. the circumstance that the defendants have obtained judgment in Kyrgyzstan when they should not have done. The basis upon which they did that was to claim to be party to the transfer agreement and to claim specific performance of it whilst ignoring the arbitration provisions within that agreement. The fact that it is accepted on all sides that they are not party to the transfer agreement as a matter of English law, and not party to the arbitration agreement as such, merely emphasises the vexatious and oppressive nature of their action".
KFG Companies seek to quash Bishkek order/Fellowes opposes/Receiver re-appointed in BVI/Receiver revokes any authority of Fellowes to oppose/appointment discharged in BVI but continued pending appeal
Alleged sale of the shares in BITEL to Reservespetsmet (allegedly in May 2005 without knowledge of Fellowes)
Registration of shares in name of Reservespetsmet/proceedings by Reservespetsmet
April 2005 judgment nullified/orders against BITEL's officers and December 2005 Judgment
Changes in the ownership of BITEL since December 2005
The April 2006 Judgment
Transfer to AK Investment
The transfer of BITEL's assets to Sky Mobile
The KFG Companies' claims of collusive behaviour
i) CP-Crédit was involved in the production of the documents purportedly evidencing the supposed sale of BITEL by Fellowes to Reservespetsmet in May 2005.
ii) The person purportedly appointed by Fellowes' shareholders (including Altimo BVI) to act on behalf of Fellowes in relation to appointment of Lovianco as Fellowes' agent in relation to the supposed May sale, and who subsequently signed both the supposed agency agreement and the notice of termination of that agreement, was Mr Valery Tutykhin. The KFG Companies say that Mr Tutykhin is CP-Crédit's manager for Russian projects, and that he has extensive experience of corrupt practices in the context of corporate raiding.
iii) The Alfa group exercised de facto control over BITEL at all material times after Reservespetsmet had seized control of the company in December 2005.
iv) The same key personnel who were appointed by Reservespetsmet continued to exercise control over BITEL after December 2005 despite the later ostensible changes of ownership. In particular, Mr Sadyrov, who conducted the litigation on behalf of Reservespetsmet whilst collaborating with Altimo executives in the production of Reservespetsmet's electronic press releases, was subsequently appointed by each of CP-Crédit and AK Investment in turn as their representative in relation to their shareholdings in BITEL.
v) No explanation has been given by any party as to who is behind Energia Light, why it became a shareholder in December 2005, how it acquired its interest, what it paid for that interest, or how it came to sell that interest to CP-Crédit at what appears to have been a substantial undervalue.
vi) There are strong grounds for concluding that the transaction under which CP-Crédit acquired its interest in BITEL in February 2006 was not a genuine arm's length transaction on commercial terms as claimed, but was a collusive transaction which did not result in any change to the underlying ownership of BITEL.
vii) The effect of the evidence of Denis Shershnev, the general director of BITEL appointed by Reservespetsmet in December 2005, is that he understood Reservespetsmet to have remained the owner of BITEL until the transfer of the shares to AK Investment. In particular, Mr Shershnev states that he consulted with Miss Ignatova (not CP-Crédit) in relation to the sale of the shares in BITEL to AK Investment and that the terms of the sale to AK Investment were subsequently handled between lawyers for AK Investment and lawyers for Reservespetsmet.
viii) The price of $21.7m at which CP-Crédit claims to have acquired its interest was a fraction of the market value of the shares in BITEL in early 2006. MTS had paid $150m for a 51% indirect interest in BITEL two months earlier and a valuation report prepared four months later valued the company as a whole at approximately $150m. No evidence has been filed on behalf of any party to explain how or why the price of $21.7m was agreed. Nor has any explanation been given as to why the purchase price was not paid until several weeks after the shares had been transferred to CP-Crédit.
ix) AK Investment was registered as the new owner of the shares on July 5, 2006 before the price of $45m was agreed on July 10, 2006. The price was a fraction of the true value of the shares in July 2006.
x) The terms of the almost simultaneous sale of BITEL's assets to Sky Mobile, which is admittedly owned by the Altimo Companies, were such that AK Investment on its own evidence made a vast windfall profit within a matter of weeks, since the price paid by Sky Mobile for BITEL's "property complex" alone was $45m and Mr Sherbakov states that AK Investment also received a further $40m for its brand name and intellectual property rights. No sensible explanation has been given for the fact that CP-Crédit (or its client Mr Lebowitz) was willing to sell the shares in BITEL to AK Investment for $45m, rather than reaping the windfall profit itself.
The crucial points
(1) The Transfer Agreement was between the KFG Companies and IPOC, and IPOC had a right to transfer its interest to KMIC.
(2) The Transfer Agreement was governed by English law and included an arbitration agreement, providing for LCIA arbitration.
(3) Fellowes was not a party to the Transfer Agreement.
(4) From March 2004 there were arbitral proceedings between KMIC and the KFG Companies under the Transfer Agreement.
(5) In the proceedings which led to the April 2005 Judgment Fellowes falsely claimed to be a party to the Transfer Agreement.
(6) The April 2005 Judgment decided that Fellowes had signed the Transfer Agreement, and ignored the arbitration agreement.
(7) The English and BVI courts granted injunctions restraining Fellowes from bringing any proceedings to enforce rights under the Transfer Agreement except by way of LCIA arbitration in London, or enforcing the April 2005 Judgment.
(8) The English court (and the BVI court) made a declaration that no contract existed between the KFG Companies and Fellowes since Fellowes was not a party to the Transfer Agreement, and that the proceedings brought by Fellowes in Kyrgyzstan were vexatious and oppressive.
(9) The Receiver informed the Kyrgyz court that he had revoked all authority granted by Fellowes to its lawyers to represent it in the Kyrgyz proceedings.
(10) Fellowes sought and obtained an order from the BVI court discharging the appointment of the Receiver, but the order was stayed pending appeal.
(11) In October 2005 the BVI court granted an injunction restraining Fellowes from transferring the BITEL shares.
(12) Reservespetsmet obtained an order for registration of the BITEL shares in its name on the basis that it had purchased the BITEL shares from Fellowes in May 2005. Fellowes claimed that the sale of its interest in BITEL had been effected by an agent on its behalf but with its knowledge.
(13) There is strong evidence that Reservespetsmet's press releases about its acquisition of the shares came from the Altimo computer gateway.
(14) In breach of the injunction and the receivership order Fellowes sought re-instatement of the April 2005 Judgment. Its lawyers falsely told the Supreme Court of Kyrgyzstan that the Receiver had been discharged.
(15) The December 2005 Judgment confirmed the April 2005 Judgment on the basis that Fellowes was a party to the Transfer Agreement but held that because Fellowes had not signed the Transfer Agreement it was not bound by the arbitration clause. The Court also held that because the arbitration clause did not provide for the name of the arbitration forum to which the parties had agreed to refer disputes, the arbitration agreement was invalid.
(16) Shortly thereafter BITEL's offices were seized.
(17) The April 2006 Judgment was founded on the fact that BITEL was owned by Reservespetsmet (by reason of the April and December 2005 Judgments and the alleged sale to Reservespetsmet on behalf of Fellowes in May 2005), not by the KFG Companies. The Court directed that the judgment could be enforced against the sum of US$20.5 million held for the KFG Companies in the deposit account of the Kyrgyz Ministry of Justice pursuant to the April 2005 Judgment.
(18) The consequence of all of this was that (i) the KFG Companies were deprived of their shares in BITEL; (ii) the deposit of $20.5 million placed by Fellowes and intended for the KFG Companies was taken by BITEL; and (iii) the business of BITEL was transferred to Sky Mobile, an Alfa group company.
III The Isle of Man proceedings
(1) Fellowes, Reservespetsmet, Energia Light, CP-Crédit and AK Investment have been unjustly enriched at the KFG Companies' expense as a result of the wrongful misappropriation of the shares in BITEL and are liable to return the shares to the KFG Companies (together with compensation for any diminution in the value of the shares since they were misappropriated) and/or to account for the benefit they have derived from them.
(2) Fellowes, Mr Varenko, Mr Orynbaev, Altimo BVI, Altimo Russia, Reservespetsmet, Miss Ignatova, Lovianco and Pravo have jointly caused the wrongful misappropriation of the shares in BITEL from the KFG Companies and are jointly and severally liable to compensate the KFG Companies for the loss which they have suffered as a result.
(3) Fellowes and Reservespetsmet have abused their rights to bring proceedings before the Kyrgyz Courts and/or to enforce in Kyrgyzstan the judgments which they obtained there, and are liable to compensate the KFG Companies for the loss which they have suffered as a result.
(4) BITEL has wrongfully obtained the April 2006 Judgment and is liable to compensate the KFG Companies for the loss which they have suffered as a result.
(5) BITEL, Sky Mobile and Altimo Russia have jointly caused the wrongful transfer of BITEL's assets to Sky Mobile and are jointly and severally liable to compensate the KFG Companies for the loss which they have suffered as a result.
IV The basis of jurisdiction and the decisions of the Deemster and the Staff of Government Division
Necessary and proper parties and the Manx High Court Rules
"any person out of the jurisdiction is a necessary or proper party to an action properly brought against some other person duly served within the jurisdiction."
"I do not think it is part of the function of the court, in considering whether an action is 'properly brought' against a party within the jurisdiction, to arrive at a conclusion as to whether the plaintiff will or will not succeed against that party. It is enough if the court is satisfied that there is a real issue between the plaintiff and that party which the plaintiff may reasonably ask the court to try."
"A claim is made against a person ('the defendant') on whom the claim form has been or will be served (otherwise than in reliance on this paragraph) and (a) there is between the claimant and the defendant a real issue which it is reasonable for the court to try; and (b) the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim."
"The width of [Ord. 6, r. 1(h)] is such that the courts should be careful to see that it is not abused but it can be used legitimately in a proper case to ensure that justice is not defeated and that there are no holes in which wrongdoers can attempt to hide from judgment day. In each case there must be a substantial connection with this jurisdiction to justify granting leave for service out of the jurisdiction."
The decisions of the Deemster and the Staff of Government Division
V Legal principles
The necessary or proper party head of jurisdiction
"I agree … that caution must always be exercised in bringing foreign defendants within our jurisdiction under O.11 r.1(1)(c). It must never become the practice to bring foreign defendants here as a matter of course, on the ground that the only alternative requires more than one suit in more than one different jurisdiction."
"Properly brought" and "proper party"
The motive in suing the anchor defendant
"Bound to fail"
"Bound to fail"/"Serious issue to be tried" and questions of law
"One investigation"/ "closely bound up"
The exercise of discretion
Justice in the foreign jurisdiction
"But faced with a stark choice between one jurisdiction, albeit not the most appropriate in which there could in fact be a trial, and another jurisdiction, the most appropriate in which there never could, in my judgment, the interests of justice would tend to weigh, and weigh strongly in favour of that forum in which the plaintiff could assert his rights".
"Moreover, there are powerful policy considerations which militate against Australian courts sitting in judgment upon the ability or willingness of the courts of another country to accord justice to the plaintiff in the particular case. Those policy considerations are not dissimilar to those which lie behind the principle of 'judicial restraint or abstention', which ordinarily precludes the courts of this country from passing upon 'the provisions for the public order of another State': see generally Attorney-General (United.Kingdom) v Heinemann Publishers Australia Pty Ltd [(1988) 165 CLR 30, 40-44]…."
VI Application of the principles to the appeal
A Bound to fail/no serious issue to be tried
(2) Fraud and foreign judgments: the principle in Abouloff v Oppenheimer & Co
(3) Damages claim against BITEL, Sky Mobile and Altimo Russia for wrongful transfer of BITEL's assets
(4) Declaratory relief
B Was the Counterclaim "properly brought" against BITEL for the purposes of MHCR Order 6, r. 1(g)?
C Are the Appellants "proper parties" to the counterclaim against BITEL? The "single investigation"/ "closely bound up" point
D Forum conveniens and discretion