Jersey Unreported Judgments

Companies - application for summary judgment for further monies and leave to enforce summary judgment dated 25 April 2012.

[2013]JRC207

Royal Court

(Samedi)

25 October 2013

Before     :

W. J. Bailhache, Q.C., Deputy Bailiff, sitting alone.

 

Advocate W. A. F. Redgrave for the Plaintiff.

Advocate K. M. Purkis for the First and Third Defendants.

judgment

the deputy bailiff:

1.        The first defendant is a Russian businessman.  A Russian Court has ordered him to pay debts of over US$40 million to the plaintiff.  These debts arose from loans made by a Russian Bank to a Russian property business which was owned and run by the first defendant.  The plaintiff's claim against the first defendant was brought in Russia under a personal guarantee of those loans given by him, which was called when the loans were not repaid. 

2.        The first Russian judgments were on 26^th May, 2010, in the sum of US$44,342,706.71 plus 80,000 Russian rubles.  The Russian judgments were unsuccessfully appealed in September and November 2010.  The first defendant asserts that further reviews were likewise dismissed on 27^th November, 2012, and 14^th February, 2013.  There does not seem to be any real doubt that the judgments are final and conclusive on the merits. 

3.        The plaintiff asserts that it has obtained a further judgment in Russia against the first defendant in the sum of US$5 million, the monies claimed to be due arising from contractual penalties for late payment of the same debts.  The first defendant admits that this judgment was given on 31^st January, 2012.  The first defendant however contends that it would be contrary to Jersey public policy to give effect of this judgment because the judgment is based on penalties, and further or alternatively, the penalties are unduly onerous and excessive.  By way of alternative, the first defendant also denies the plaintiff's entitlement to enforce any of the judgments on various grounds to which I will shortly come. 

4.        On 25^th April, 2012, the Court gave summary judgment in favour of the plaintiff against the first defendant for the sum of US$44,342,706.71 plus 80,000 Russian rubles.  The Court ordered that its judgment could not be enforced either in Jersey or elsewhere without further leave of the Court.  The reasons for the further order were that firstly there was a dispute about the actual sum due, which appeared to be a reducing balance from time to time, and secondly because it was unclear whether the Russian judgments included a judgment for a fine or penalty contrary to the rules of private international law which the Royal Court would normally expect to apply. 

5.        The plaintiff now brings an application for summary judgment for the further sum of US$5 million, based upon the Russian judgment obtained on 31^st January, 2012.  The plaintiff has also brought an application for leave to enforce the summary judgment given on 25^th April, 2012, in Jersey.  Both applications raise the issue of whether the Court should give judgment or allow the enforcement of the judgment in respect of a foreign judgment based on penalties, if it is, and both applications also raise the question as to the amount which is actually due by the first defendant to the plaintiff at the present time.  The directions hearing was held on 14^th October, 2013, in order to consider what directions needed to be given for the purposes of bringing these matters on for trial. 

The claim for further summary judgment

6.        The issue as to whether the Royal Court of Jersey should assist a plaintiff who is suing upon a foreign judgment for contractual penalties is one which, so it seems to me, could be ventilated at either the application for summary judgment itself or, if judgment is given but leave to enforce is required before any further steps can be taken upon it, when the application for leave to enforce is determined.  In the case of the Russian judgment in the sum of US$5 million given to the plaintiff on 31^st January, 2012, the first defendant asks the issue of penalties to be adjudicated upon at the time of the application for summary judgment in Jersey.  The argument is going to proceed on the basis of mixed fact and law, and will require the participation of the Jurats.  Although I was initially under the impression that all the evidence upon which reliance would be placed was already in the Court bundles, I am advised by Advocate Purkis that that is not so and that the first defendant wishes to advance further evidence.  Advocate Redgrave confirms that the plaintiff too wishes to file an affidavit in support of the application for summary judgment. 

7.        In the circumstances directions were given that evidence is to be filed by the plaintiff by 21^st October, 2013.  The first defendant must file evidence upon which he wishes to rely by 31^st October, 2013.  The plaintiff may file any evidence upon which it wishes to rely in rebuttal of the first defendant's evidence by 22^nd November, 2013. 

8.        Skeleton arguments are to be filed by the plaintiff by 22^nd November, 2013, and by the first defendant by 29^th November, 2013.  The hearing of this summons will take place at 10:00am on 5^th December, 2013. 

9.        Quantum arguments will not be determined on this application.  They will be considered if it is necessary to consider them, on any application for leave to enforce the summary judgment, if the plaintiff obtains it. 

The claim for leave to enforce

10.      It is clear from the judgment of this Court on 25^th April, 2012, that the question of penalties was raised as a reason for not giving leave to enforce the summary judgment given at that time.  It follows that the decision of the Court in relation to the question of penalties on the application for the further summary judgment will be relevant to this part of the argument on the application for leave to enforce the summary judgment already given.  My understanding is that no further evidence will be advanced by the parties in relation to this question than has been advanced in relation to the claim for summary judgment on the Russian judgment for US$5 million.  If that is not correct, the parties should seek to agree a timetable for filing of further evidence, and in default of the agreement I will sit at short notice to deal with that narrow point. 

11.      The second question, however, in relation to the application for leave to enforce lies in the quantum of debt currently outstanding.  This is a matter with which the Court is legitimately concerned, because it is in the interests of justice that this Court ensures that its orders do not give rise to the possibility of double recovery by the plaintiff, which has had judgments in both Russia and Jersey and is taking enforcement process in both jurisdictions.  Advocate Redgrave submitted that the plaintiff would not of course seek double recovery and would ensure that none took place.  I do not think that is sufficient for the purposes of doing justice in Jersey.  It is for the Court to ensure that it does not give a judgment for a sum of money which is not due, or if such judgment has been given, that it does not permit its enforcement processes to be used for the same result.  Normally the latter issue is left to the Viscount as the Court's executive officer.  In this case, given the two jurisdictions in which the enforcement is attempted and the other issues raised, the matter is reserved here. 

12.      In its re-amended pleading in July 2013, the plaintiff contends that the sum outstanding at that date under the earlier of the Russian judgments was US$15,073,515.96.  The reductions in the amount due by the first defendant to the plaintiff under these earlier judgments had been achieved by the distraint in Russia on the personal assets of the first defendant, and by an attachment until 7^th March, 2013, of 50% of the first defendant's salary.  The major reduction in the amount due, however, had been achieved by direct action taken in Russia enforcing the debt of the first defendant against real estate owned by Russian companies at the bottom of the structure chart which has been referred to in previous decisions of this Court - essentially, the second defendant owns 100% of the fourth defendant, which owns a raft of companies incorporated in the British Virgin Islands, which respectively own a large number of companies incorporated in Cyprus, which respectively own the Russian companies which own the Russian real estate.  Although neither the plaintiff nor the first defendant in the early stages of the litigation in Jersey thought it was possible to enforce the Russian judgments directly against the Russian land, Russian law apparently not recognising any differences between legal and beneficial ownership, subsequent decisions in the Russian Courts have been given which have permitted the sale of this estate and the application of the net sale proceeds to reduce the debt due by the first defendant to the plaintiff. 

13.      It is against that background therefore that the first defendant makes these points:-

(i)        He has not received any form of statement from the plaintiff as to what credits have been received for application against the judgment debt, on what date and in what currency, and what conversion rate has been applied to those receipts.  He is therefore missing the most basic information for the purposes of conducting any audit of the amounts remaining due. 

(ii)       The Russian real estate has, so the first defendant contends, been realised at substantial undervalues.  As a result, the debt due has not been reduced at the rate that should have been the case.  He contends that the reason that such gross undervalues were obtained lies in defects in the auction process, which led to inadequate advertisement and insufficient publication of the opportunity to purchase, and hence to a position where there was no competition for the properties sold.  The first defendant however also goes further.  At present, he stops short of an actual contention of fraud on the part of the plaintiff, but he points to a number of apparent connections between the ultimate purchasers of the real estate and Alfa Bank, the original lender and the beneficial owner of the plaintiff, which he contends adds to the picture that the entire auction process in relation to the Russian real estate was rigged to the plaintiff's advantage in two ways - firstly because the properties have been sold to those having connections or associations with the plaintiff at an undervalue, and secondly because the debt thereby is kept alive and other properties beneficially owned by the first defendant are thus also being put up for sale by auction.  The first defendant does not actually assert fraud because Advocate Purkis contends the burden of proof lies on the plaintiff to establish the amount which is due and therefore it is for the plaintiff to satisfy the Court that the amounts credited against the debt due by the first defendant to the plaintiff are the proper amounts. 

14.      It is upon that basis that Advocate Purkis contends that directions ought to be given as follows:-

(i)        The plaintiff should provide disclosure within 4 weeks of all documents, in whatever form, in the possession custody or power of themselves or Alfa Bank relating to:-

(a)       Any or all of the six properties sold for the benefit of the plaintiff as part of the Russian enforcement proceedings flowing from case 2-1427/2012 at auction on 17th and 29th December;

(b)       The companies Rimatek, Vertafinans and Gloria LLC, their directors and those who own them both immediately and indirectly, in particular evidence in the relationship (if any) between those companies and the plaintiff and/or Alfa Bank; and

(c)       Any onward sales by those companies of any of the properties, within such timetable as the Court should direct. 

(ii)       The plaintiff should file and serve any evidence upon which it wishes to reply to support its claim to an entitlement to leave to enforce and to summary judgement (the latter to evidence the current alleged debt by way of a detailed running account from 26th May, 2010,) also within the same period. 

(iii)      The first defendant should file and serve the evidence of fact upon which he relies in answer to both summonses and be given permission to file and serve expert evidence upon which he relies in answer to the summons for leave to enforce, within four weeks of the receipt of the disclosure and evidence in (1) and (2) above. 

(iv)      The plaintiff should file and serve any evidence in reply within three weeks thereafter. 

(v)       The parties should take all reasonable steps to agree appropriate arrangements for cross examination of the deponents on their affidavits and all other interlocutory matters, with a further directions hearing listed for half a day in the week commencing 6th January at which all outstanding interlocutory matters should be determined. 

(vi)      Skeleton arguments should be lodged and exchanged no later than seven days before the date fixed for hearing and any supplemental skeleton arguments should be lodged and exchanged no later than two days before the hearing. 

15.      In support of these contentions, Advocate Purkis submitted that the Royal Court should monitor the extent of the Russian enforcement process as part of its obligations to ensure that there is no double recovery.  In the same way that the Court had a scrutiny jurisdiction over what the Viscount does or does not do as the Enforcement Officer of the Royal Court, it should in effect exercise a scrutiny jurisdiction over what is being done in the Russian Courts to enforce the judgments there, because the basis of the summary judgments given in Jersey which the plaintiff now seeks to enforce is the Russian judgments themselves.  She submitted, on instructions, that it was not possible to challenge the realised value from the sales of real estate in Russia, and that was why the first defendant had not done so there.  The criticisms therefore that there had been forced sales at an undervalue, and that the whole process appeared to have been rigged in favour of the plaintiff could not be raised in Russia.  She said that it was correct that the first defendant was not in a position to assert directly at the present time that there had been fraud.  There was only smoke.  Nonetheless, in her contention, there is no smoke without fire.  It was a difficult matter to prove in Russia because, on instructions, she said that Russian rules required direct evidence and not circumstantial evidence.  She contended that if there was said to be a presumption of regularity in the Russian process, that should be disregarded because a review of two decisions of the Russian Courts in relation to the auction process showed that, although the land auctioned was different, the criticisms of process were the same, yet nonetheless the judicial outcome had been inconsistent.  It followed in her submission that the Royal Court could not take comfort that the auction process was, at least in those respects, capable of review by a Russian Court. 

16.      Advocate Redgrave submitted that if there was an issue over the realisation process, it should be litigated in Russia, where the parties are, where the land is, and where the realisation process has arisen as a result of the Russian judgments.  He contended that Jersey would not be an appropriate forum for a complaint of this kind.  The Court should not risk giving offence to the Russian Courts by enquiring into their enforcement procedures, and he asserted that the Royal Court would be offended if it found the Russian Courts were examining the process by which the Viscount realised property in Jersey. 

17.      I am conscious of the difficulty that, on this directions hearing, I am at risk of rejecting substantive arguments which the first defendant may wish to raise in the context of this defence of the summons to leave to enforce but to some degree this is inevitable if one is to set a proper framework for the plaintiff's application to proceed to a hearing.  I have not, unfortunately, been supplied with any authorities or substantive law on the process which should be adopted.  In the event, I have given the following directions:-

(i)        The plaintiff should provide disclosure within four weeks of all documents, in whatever form, in its possession custody or power, or in the possession custody or power of Alfa Bank relating to any or all of the six properties sold for its benefit as part of the Russian enforcement proceedings at auction on 17th and 29th December, 2012. 

(ii)       The plaintiff should file a statement of account showing monies in and out in respect of the debt alleged to be due by the first defendant, which should show what the receipts and payments represent, the dates of credits and debits, with relevant currency conversion rates, and this statement should be produced within the next 14 days. 

(iii)      If the first defendant wishes to challenge the auction processes, he should do so in the Russian Courts.  If there is some Russian law problem which prevents him doing so, then he should apply for leave to challenge the auction processes in Jersey.  That application must be made by 31st October, 2013, and supported by evidence of Russian law which he contends establishes the impossibility of a practical challenge to the auction processes in Russia. 

(iv)      The plaintiff will have 3 weeks to respond to any such application with its evidence of Russian law. 

(v)       The argument as to whether the first defendant has leave to bring such claims in Jersey will be heard, if there is time, on 5th December, and if not completed on that day, on 12th December.  At that time, further directions can then be given depending upon the outcome of that application, either for taking that issue forward for hearing, if that be the order, or setting a date to hear the plaintiff's application for leave to enforce.  If there are any other issues which arise from the plaintiff's statement of account, the first defendant is to identify those at the hearings on 5th and 12th December so that further directions can be considered as appropriate. 

Reasons for Decision

18.      My reasons for giving these directions are as follows. 

19.      The plaintiff brings its claim in Jersey upon the basis of judgments obtained in Russia.  Those judgments imposed a duty on the first defendant to pay the sums for which judgment was given, and the Royal Court should enforce the performance of that duty unless there is something which either removes the duty or provides a legal excuse for not performing it.  Payment in full of the foreign judgment would be one such reason.  Another way of looking at that question is that the foreign judgment would be impeachable on the grounds that its enforcement would be contrary to public policy in Jersey if it had been fully satisfied.  It is for this reason that I accept the broad premise that, on seeking summary judgment and/or leave to enforce in Jersey, the plaintiff is obliged to provide a detailed statement of account showing the results of the enforcement processes which it has been successfully achieving in the home jurisdiction.  This thinking explains the first and second directions. 

20.      I recognise in theory that enforcement processes might be criticised on the grounds of fraud, negligence or failure to follow statutory provisions.  Accordingly, I accept the contention that the Royal Court can be asked to scrutinise the enforcement processes of the Viscount, who is its Executive Officer.  My working assumption is that the Russian Courts are also able to scrutinise the enforcement procedures of those tasked with enforcing judgments.  It is, to me, counter intuitive to suggest that the Russian Courts have no interest in how the judgments which they have given are enforced, or indeed whether they are enforced.  Such is a legitimate interest which forms part of the rules making up what we would describe as the rule of law. 

21.      It is no surprise, therefore, to see that in this case there have been challenges in the Russian Courts to auction processes which have taken place so far.  I have been shown a copy of a judgment with reasons published on 29^th April, 2013, by the City of Moscow commercial court, that court being constituted by Judge Yu. L. Bykova.  It appears the application before the Court was to declare void the results of a tender for sale of non-residential property on 29^th December, 2012, being number 49 Architektor Vlasov Street, Moscow, with a land plot area of 12,470 square metres.  The claimant was IGK Holding LLC, which is one of the companies in the group structure at the head of which is the second defendant in these proceedings.  To justify its claims for a declaration that the tender was void, the claimant referred to a breach of the procedure for the holding of auctions, in that the tender organiser was alleged not to have posted information about the tender on the official Russian Federation website or in the printed publication of the Moscow Government.  The judgment of the Moscow Court appears to have considered relevant issues of Russian law, and contains reasoning which appears to justify its conclusion that the claimant's assertions should be dismissed.  I note that the judgment was capable of being appealed to the 9^th Commercial Appeals Court within a month of it being handed down but I have not been informed that any such appeal has taken place. 

22.      I have also been shown a judgment of the City of Moscow Commercial Court with reasons published on 27^th May, 2013, the Court in that case being constituted by Judge N. V. Deina, sitting alone, where the judge heard an application by M S P K to challenge the results of a sale of rights in respect of a land plot with a total area of 5,750 square metres at 41, Prospekt Vernadskogo, Moscow.  The main submission made by the claimant was that there had been a failure to comply with the principle of publicity which led to a breach of the rights of the property owner and the parties to the enforcement proceedings.  Complaint was made to the fact that the newspaper Kvartirniy Ryad, in which information about the tender was published, did not correspond to the nature of the property being sold or the number of parties objectively interested in it.  The contention by the claimant was that the newspaper in question was published in order to provide the public with complete information about the housing policy of the Moscow executive authorities, the implementation of priority municipal programmes in the housing sphere, and the reform of housing and public utilities.  It is clear from its judgment that the Court accepted the claimant's submissions that the newspaper in question was not a specialist publication capable of informing potential buyers of a large and expensive land plot, located in a prestigious site in the centre of Moscow, and intended for the construction and subsequent operation of a multi-purpose business centre.  For that and other reasons, the Court concluded that the tender was held in breach of the relevant Russian codes, and the results of the tender were declared void.  Once again, the judgment was expressed to be capable of appeal to the 9^th Commercial Appeals Court within 1 month of the date it was handed down, but I have not been informed that any such appeal has been brought. 

23.      It is not obvious to me that these two judgments are mutually inconsistent, as Advocate Purkis contended, but even if they are, I am not convinced that this helps Advocate Purkis in the submissions which she makes.  Different courts at first instance do sometimes give decisions which are not consistent with each other.  What is clear, however, is that the Russian court system permits the enforcement process - the sales by public auction - to be challenged.  It does not make obvious sense to me that it is possible to challenge the sales by public auction for breach of some technical requirements such as publication on a government website, but not possible, as Advocate Purkis submitted on instructions, to challenge the sales for realising property at an undervalue, or for fraud. 

24.      I consider that the appropriate forum in which to bring any challenges to the realisation process is in the Russian Courts.  Those Courts will understand the requirements of Russian law and procedure, and from the two judgments I have been shown clearly have jurisdiction to set aside the results of a sale if satisfied it is appropriate to do so.  I entirely appreciate that Advocate Purkis was making her submissions to me on Russian law on the instructions which she had been given.  In my judgment, there is a presumption of regularity as to the process adopted in the Russian Courts, and there is a requirement that if the first defendant is not satisfied with the way in which the Russian enforcement processes have worked, then it is in the Russian Courts that he should take action or procure action can be taken to challenge the results of those processes.  There was no dispute before me that no such challenges as are now contemplated by Advocate Purkis have been brought in the Russian Courts so far. 

25.      Forced sales of properties often do not provide the same return as a sale of property by private treaty.  The fact that a sale of public auction attracts a lower price than might have been achieved by private negotiation is of itself unsurprising.  The notion that the Royal Court should conduct an exercise which requires valuation evidence of Russian land to be gathered and compared with the amounts actually realised by the Russian enforcement processes, and/or to investigate why auctioneers acted in the way that they did; and/or enquire into onward sales of the same properties at different prices and as to whether any secret profits were made by the plaintiff or its associates as a result is to assist the plaintiff in the enforcement of Russian judgments is not one which I find at all attractive.  The first defendant should bring such challenges in Russia. 

26.      Even if fraud is a ground for refusal of recognition or enforcement of a foreign judgment, it appears in practice to be very difficult to run such an argument.  I note that in Interdesco SA-v-Mullifire Limited [1992] 1 Lloyd's Rep 180, it was held that enforcement of a French judgment would not be refused even though there was an alleged fraud, and even though there might be newly discovered evidence, as long as the judgment debtor has a remedy in the French courts.  This seems to justify the instinctive view that the public policy ground to refuse recognition ought to operate only in exceptional circumstances.  I do, however, consider that the caveat in the Interdesco decision is important, namely that the debtor should have a remedy in the foreign court.  For my part as I have said, I would find it surprising if Russian law permitted a debtor to challenge the sale of property on the grounds of some technical default, but did not permit any challenge on the grounds of fraud or a wrongful sale at an undervalue.  Nonetheless, recognising that, in the absence of evidence of foreign law this is conceivably possible, and that Advocate Purkis asserts on instruction that it is so, I consider the right solution is to direct the first defendant to bring the challenge if he is so minded, in the Russian Courts, assuming he can, but if he can show that such challenges are not possible, then it may be that leave to bring the challenge as a defence to the enforcement application of the plaintiff in Jersey might be given.  This is because the Royal Court must have an ability to delay enforcement or to refuse recognition if it is in the interests of justice to do so and an allegation that there has been a fraud or wrongful sales at an undervalue which affects the quantum of the debt sought to be enforced could be a matter which might raise such considerations. 

27.      In summary, I consider the first defendant should have sufficient time to challenge the processes in Russia, if so advised, but equally the plaintiff should not be prevented indefinitely from enforcement in Jersey.  I do not see the hardship to the first defendant in the plaintiff making use of the justice system which it selected to obtain recovery of its debt, particularly where this forum contains the courts of the country where both the plaintiff and first defendant have their business.  It is only if the first defendant cannot challenge the realisation process in Russia that justice would require that he be permitted to seek leave to challenge it in Jersey.  The burden of showing that the presumption of regularity in relation to the process of the Russian Courts does not apply rests with the first defendant as does the burden of showing that it is impossible for him to challenge the realisation processes in Russia. 

28.      These are the reasons for the timetabling and other directions which I have given above. 

Authorities

Interdesco SA-v-Mullifire Limited [1992] 1 Lloyd's Rep 180.