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Enforcement of overseas judgments in England: Commercial Court provides new guidance

21/07/2014

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United Kingdom

There are many countries with whom England has no reciprocal arrangements for the recognition and enforcement of their judgments in England . The Russian Federation is one.

There are many countries with whom England has no reciprocal arrangements for the recognition and enforcement of their judgments in England . The Russian Federation is one. Instead, a creditor with the benefit a judgment from a non-English court enforces it in England by the common law remedy of what is called an "action of the judgment". This involves the creditor commencing English court proceedings against the debtor where the cause of action is the unpaid foreign judgment debt. Normally, the court proceedings are simple and do not require a re-hearing of allegations made in the original litigation: provided that Russian judgment is for a definite amount which is final and conclusive on the merits, then generally that judgment is enforceable and the debtor is unable to challenge it for error of either law or fact.

But as is always the case with a general rule, there are exceptions to it, designed to ensure that the English court is not simply engaged in a "rubber stamping" exercise and it is when a defendant argues that one or more of these exceptions applies that the proceedings become more complex. The four main exceptions are that (i) the judgment must not have been obtained by fraud (either by the creditor or by the court that gave the judgment), (ii) enforcement must not be contrary to public policy, (iii) the proceedings in which the judgment was obtained must not have been conducted in a way which was contrary to natural justice, and finally that (iv) the judgment must not be for the recovery of a fine or penalty. In each case where an overseas judgment is sought to be enforced in England, the English court will require evidence that none of these four exceptions apply.

In the recent case of JSC VTB Bank v Pavel Skurikhin, the English Commercial court was invited by Mr Skurikhin's lawyers to accept all of these four exceptions applied such that the English court should refuse to recognise and enforce sixteen judgment which VTB had obtained against Mr Skurikhin in Russia totalling around £13m under various loan agreements and guarantees. Supported by expert Russian law evidence, Mr Skurikhin argued that:

  • VTB's Russian judgments were obtained by fraud. Mr Skurikhin did not genuinely owe VTB anything, Mr Skurikhin had offered to repay VTB in full, VTB had refused to sell pledged assets to enable any debt to be repaid, and VTB's real purpose was not to secure repayment but rather to take control of Mr Skurikhin's business at a substantial undervalue, a so called "systema raid" under which VTB would acquire secured assets at an undervalue

  • Enforcement of the Russian judgments was contrary to English public policy. This was because Mr Skurikhin's had not been able to raise his various defences in the Russian proceedings, and it would be an affront to justice if  the English court refused to allow those defences to be heard now. Mr Skurikhin had not done this because VTB was a State owned entity, and by running his defences in Russia he would expose himself to substantial "extra judicial" risks.

  • The Russian proceedings were contrary to natural justice. VTB made false and dishonest representations to the Russian court that it was acting in good faith, was seeking to enforce a genuine liability, and that (wrongly) Mr Skurikhin had no defence

  • Slightly over 20% of the value of the judgments comprised "penalties", ( described in the agreements as "default interest" or "penalties") and did not represent any actual or genuine pre-estimate of VTB's loss, and in effect was an obligation incurred simply for being in default of a payment obligation under the various agreements.

With one exception, the Judge rejected Mr Skurikhin's arguments and decided that they "lacked all reality", and were an "artificial construct erected to avoid the consequences of the true position". That true position was that there was inadequate evidence that VTB had misled the Russian court or that it was engaged in a "systema raid", Mr Skurikhin's explanation about why he had not defended the Russian proceedings was neither consistent nor coherent so it was not contrary to natural justice that he should not now, in the English proceedings, be given a "second chance" to do so.

However, the Judge refused to award VTB the amounts it claimed for penalties. This was because even though Mr Skurikhin argued the same point, but failed, in the Russian proceedings he had an argument that these amounts were punitive in nature – the law on this point was not to be decided on the Judge's view of the appropriate rate of interest, but rather on whether the approach of the Russian court to the question ran contrary to English law public policy.

The message from this case is clear - if a non-English creditor wants to enforce its foreign court debt in England otherwise through a Convention or judgment recognition Treaty, consideration needs to be given at the outset of the foreign proceedings of the tests the English court will later apply before it will recognise and enforce that judgment.

Simon Moore frequently advises non English clients on the enforcement of overseas judgments in England      

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