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Category: Published Judgments

  • Case Study: Resisting cross-border enforcement through contempt of court

    Case Study: Resisting cross-border enforcement through contempt of court

    The Joint Trustees of Mr Kei’s bankrupt estate in Hong Kong, Bruno Arboit and Li Kin Long Kenny of Kroll (HK) Limited (the “Joint Trustees”), made an application pursuant to the UNICTRAL Model Law on Cross-Border Insolvency (the “Model Law”) as set out in Schedule 1 to the Cross-Border Insolvency Regulations 2006 (the “CBIR”) on 24 June 2024.

    The relief sought by the Joint Trustees was two-fold. First, the Joint Trustees sought an order recognising the Hong Kong bankruptcy proceedings as foreign main proceedings pursuant to Articles 15 and 17 of the Model Law (the “Recognition Application”). Second, the Joint Trustees sought an order pursuant to Articles 21(1) and (2) of the Model Law, entrusting the Joint Trustees with the administration, realisation and distribution of all of Mr Kei’s assets in Great Britain (the “Article 21 Application”) (together the “CBIR Application”)

    The CBIR Application was resisted by Mr Kei on the basis that the application was premised on information that was provided to the Joint Trustees in breach of undertakings and restrictions contained within the freezing injunction of Mr Justice Foxton dated 7 July 2023 (the “Foxton Order”). The Foxton Order was granted in separate commercial court proceedings following an application brought by one of Mr Kei’s creditors in bankruptcy. It was provided subject to an undertaking that the creditor would not, without the permission of the court, use any information obtained as a result of the order, for any civil or criminal proceedings, either in England and Wales or in any other jurisdiction. Whilst Mr Justice Foxton had granted permission to use information disclosed pursuant to the Foxton Order in enforcement proceedings, permission was not granted for use in the Hong Kong bankruptcy proceedings.

    The matter came before Chief ICC Judge Briggs, first for a standard directions hearing (which is typical in these kinds of cases) on 30 October 2024 and then for a substantive hearing on 18 November 2024.

    The Law on Cross-Border Recognition & Enforcement

    The CBIR were introduced to give effect to the Model Law in Great Britain. The CBIR, by adopting the Model Law, provide a uniform framework under which the British courts would be willing to assist foreign representatives in cross-border insolvency proceedings. There are a variety of reasons why a foreign representative may seek the assistance of British courts, however, the most common is in circumstances where the debtor is said to have valuable assets in this jurisdiction.

    In order for insolvency proceedings initiated in another jurisdiction (in this case Hong Kong), to be recognised as foreign main proceedings in Great Britain four conditions generally need to be met under Article 17 of the Model Law. These conditions include (inter alia) demonstrating that the proceedings meet the definition of a “foreign proceeding” i.e. that they are collective judicial or administrative proceedings in a foreign State to administer the reorganisation of a debtor’s assets; and that they are made by an individual meeting the definition of a “foreign representative” i.e. a person or individual appointed on an interim basis and authorised to administer the reorganisation of a debtor’s affairs. Upon recognition of a foreign proceeding, the court may, at the request of the foreign representative, grant any appropriate relief necessary to protect the assets of the debtor or the interests of the creditors. This may include entrusting the administration and realisation of all or part of the debtor’s assets located in Great Britain to the foreign representative.

    Whilst the burden is on the foreign representative seeking recognition to satisfy the English courts that the conditions are met, the conditions can generally be easily established by documentary evidence in circumstances where the foreign insolvency proceedings are similar to those adopted by the English courts.  In the circumstances, many Respondents to a cross-border recognition application may feel they have limited options in what could appear to be a ‘tick-boxing’ exercise.

    Whilst the Court may readily give recognition of foreign insolvency proceedings, it is trite law that the Court is not to be considered a ‘rubber stamp’ and the Court should be fully appraised of all relevant matters when considering applications of this nature. This approach is reflected in the public policy exception contained within Article 6 of the Model Law, which provides that the Court may refuse to take an action governed by the Model Law “if the action would be manifestly contrary to the public policy of Great Britain or any part of it”.

    In the present case, it was argued that the public policy exception was engaged where there was a genuine basis for considering that the Joint Trustees may have acted in contempt of court.

    The Law on Contempt

    Contempt is a quasi-criminal jurisdiction operating in civil courts and generally refers to behaviour that takes place during, or in connection with, legal proceedings that prejudice or impede the administration of justice. Although there are many different forms that contempt of court can take, that which is of primary relevance to the facts of this case, is contempt for breach of a court order or undertaking.

    The general principle underlying this type of contempt is that if a person (i) is required by a judgment or order to do an act does not do it within the time fixed by the judgment or order; or (ii) disobeys a judgment or order not to do an act, then the judgment or order may be enforced by an order for committal.

    In the context of freezing injunctions, many may associate contempt proceedings with a breach of the terms of the freezing injunction by the defendant, through by way of example, dissipating assets. However, the importance of complying with the undertakings provided in consideration for the freezing injunction should not be overlooked. It is established law that an undertaking given by a litigant to and accepted by a court has the same legal significance as an injunction or order in like terms. It follows that a breach of an undertaking given to the court by or on behalf of a party to civil proceedings, is tantamount to a breach of an injunction.

    Further, it is not only parties to the proceedings that need to be cautious of contempt proceedings. Although an order directed at, or an undertaking provided by, a named person is generally only binding on that person, a non-party may nonetheless be guilty of contempt if the non-party knowingly aids and abets a breach of the order, or intentionally frustrates the achievement or the purpose of the order. Importantly, the courts have held that a non-party can be guilty of contempt even when there is no conduct on the part of the named person which could amount to a breach of the order or contempt of court. Intentional frustration of, or interference with, the achievement of the purpose of the order would be sufficient.

    In the present case, whilst the Court was not asked to make any findings of contempt, it was still required to consider the underlying principles of contempt for breach of a court undertaking by a non-party, in order to determine whether there was a genuine concern that the Joint Trustees may have acted in contempt of court by using information in a manner that was contrary to the undertakings and restrictions contained within the Foxton Order.

    The Judgment

    The primary question the Court was required to consider was whether it should decline to act on the basis of the public policy exception contained within Article 6 of the Model Law, in circumstances where the CBIR Application was premised on information that appeared to be deployed in contempt of court.

    In his judgment addressing this question, Chief ICC Judge Briggs had regard to the decision of Mr Justice Snowden (as he then was) in Nordic Trustee A.S.A v OGX Petróleo e Gás S.A. which provided guidance on the obligations of full and frank disclosure in applications for recognition of a foreign insolvency proceeding. In his decision, Snowden J found that “notwithstanding the clear intention that the public policy exception in Article 6 should be interpreted restrictively… it is strongly arguable that the court must have a residual discretion to refuse recognition if satisfied that the applicant is abusing the process for an illegitimate purpose”. Whilst Chief ICC Judge Briggs found that the information used by the Joint Trustees was being used for a legitimate purpose, he found that the information obtained and deployed to persuade the court that a recognition order should be made, should not have been made available and should not have been deployed.

    In considering whether to exercise his residual discretion within Article 6, Chief ICC Judge Briggs considered the factors which favoured the granting of a recognition order. In this regard, Chief ICC Judge Briggs considered the aims of the CBIR, namely the cooperation between courts and competent authorities to achieve a fair and efficient administration of cross-border insolvencies that (i) protects the interests of all creditors and other interested persons, including the debtor; and (ii) protects and maximises the value of the debtor’s assets. Because a recognition order may have been granted without the Joint Trustees relying on the embargoed information and the fact that the recognition would grant a stay of certain proceedings in this jurisdiction thereby preserving assets, Chief ICC Judge Briggs granted the Recognition Application.

    However, in so far as the Article 21 Application was concerned, in light of the concerns regarding the use of information in breach of a court undertaking, Chief ICC Judge Briggs ordered that the relief sought in the Article 21 Application should not be granted until such time as the Joint Trustees made an application in the commercial court, for permission to use the information relied upon and where necessary, to purge the contempt.

    Conclusion

    The judgment handed down is interesting given that Chief ICC Judge Briggs reached an almost hybrid conclusion by granting the Recognition Application but refusing to grant the Article 21 Application.

    The judgment demonstrates the importance of parties ensuring that the Court is fully appraised of all matters when considering applications for recognition of a foreign insolvency proceeding. Whilst recognition orders are frequently granted where there are similarities between the insolvency proceedings of the foreign jurisdiction and those in England and Wales, a recognition application should not be treated as a rubber stamp exercise. In the present case, whilst English courts had previously granted recognition orders concerning Hong Kong bankruptcy proceedings, the Court still exercised its residual discretion under Article 6 of the Model Law and refused to grant the relief sought in the Article 21 Application.

    Finally, the judgment emphasises the importance of both parties and non-parties complying with court orders and undertakings. For more, please read a recent case that Eldwick acted on where we prosecuted a contempt action sending the contemnor to prison for 15 months.

    A copy of the full judgment in Arboit v Hung [2024] EWHC 3399 (Ch) can be found here and a copy of the WestLaw Case Digest can be found here.

  • Court Grants Anti-Suit Injunction To Stop Sanctioned Entities Bringing Russian Proceedings

    Court Grants Anti-Suit Injunction To Stop Sanctioned Entities Bringing Russian Proceedings

    In 2020, the Russian legislative body made amendments to the Russian Arbitrazh (Commercial) Procedural Code (APC) to establish the exclusive jurisdiction of Russian Arbitrazh Courts in cases involving individuals and entities subject to sanctions. According to the newly introduced Article 248.1 of the APC, Russian courts would exercise exclusive jurisdiction over disputes involving sanctioned individuals and entities; unless there exists an agreement between the parties stating otherwise. The exclusive jurisdiction of Russian courts under Article 248.1(4) is triggered if:

    • The dispute resolution clause states that a dispute must be resolved in an overseas court or through arbitration.
    • The clause becomes inoperative due to sanctions against a party, creating obstacles to access to justice for that party.

    If proceedings are either pending or about to commence in a foreign court or arbitration, the sanctioned individual has the option to petition the Russian court to issue an anti-suit injunction against the opposing party, as outlined in Article 248.2 of the APC.

    In the recent case of Renaissance Securities (Cyprus) Ltd v Chlodwig Enterprises Ltd & Others [2023] EWHC 2816 (Comm), the English High Court granted an anti-suit injunction (ASI) and an anti-anti-suit injunction (AASI) to a company for the purposes of preventing the defendants in the case, who were subject to UK and US sanctions, from bringing proceedings in Russia under Article 248 of the APC.

    Background to the decision

    Renaissance Securities (Cyprus) Limited (RenSec), an investment services company, executed Investment Services Agreements (ISAs) with the defendants, who included companies under the control of a Russian person designated as a sanctioned person by OFSI in the UK as well as a person subject to US OFAC sanctions. These companies were designated as holding assets for trusts benefiting sanctioned persons. In the case of a dispute, the ISAs, subject to English law, stipulated for LCIA arbitration with a seat in London.

    RenSec managed substantial sums and securities for each defendant. When the defendants requested the transfer of assets held by RenSec, blocked due to sanctions, to Russian bank accounts, RenSec declined, citing potential breaches of US, EU, and/or UK sanctions. In response, the defendants threatened legal action in the ‘appropriate forum.’

    Shortly thereafter, RenSec discovered that the defendants had initiated proceedings in the Russian courts, seeking damages equivalent to its blocked assets in Russia. Subsequently, RenSec applied for an ASI and an AASI in the English Court.

    The application was conducted without notifying the defendants and in private, as there was a genuine concern that the defendants might seek their own ASI and/or AASI if informed. Such actions, along with potential publicity, would undermine the purpose of the application.

    What are the legal principles (England and Wales) regarding anti-suit injunctions?

    By issuing proceedings in a foreign court in situations where an Arbitration Agreement provides for arbitration to be conducted in England and Wales, the defendants were in breach of contract, and English courts can therefore grant an ASI preventing a party from bringing a claim in another jurisdiction. In The Angelic Grace [1995] 1 Lloyd’s Rep 87, Lord Millet robustly stated (at page 96):

    “There is no good reason for diffidence in granting an injunction to restrain foreign proceedings on the clear and simple ground that the defendant has promised not to bring them.”

    An AASI is designed to guarantee that actions taken by an applicant to safeguard and uphold its contractual rights, including the implementation of an ASI, are not made ineffective or futile by pre-emptive measures or counteractions taken by the respondent. The principles governing the issuance of an AASI closely mirror those applied to an ASI. In cases where foreign proceedings have been brought despite a clear Arbitration Agreement, the courts in England and Wales have granted an AASI to force the respondent to bring any commenced proceedings to a halt.

    What did the High Court decide in Renaissance Securities?

    After examining the evidence, Mrs Justice Dias ruled that the Russian proceedings were brought in “flagrant” breach of the Arbitration Agreement. Furthermore, this was a deliberate choice on the part of the defendants as they were under no legal obligation to bring proceedings under Article 248 of the APC. It was therefore just and convenient for the Court to grant the ASI because if the application in Russia was allowed to carry on, a ruling in the defendants favour could allow them to bypass the sanctions regime by obtaining judgment in Russia and then enforcing it against RenSec’s assets which were currently frozen in that jurisdiction.

    In addition, Mrs Justice Dias observed that:

    “…evidence is that the Russian courts are unlikely to consider foreign sanctions a legitimate excuse for RenSec’s failure to comply with the Defendants’ instructions. Indeed, this is entirely plausible given that the rationale for the introduction of Article 248 in the first place seems to have been to permit Russian entities to bypass the effects of sanctions. Accordingly, RenSec is unlikely to be able to rely on the imposition of sanctions as a defence to the Defendants’ claims in Russia, whereas this is a matter which an LCIA tribunal would no doubt at least take into account in considering whether RenSec was in breach of contract or not.”

    Given that the evidence showed it was likely that the defendants would try and obtain ASIs in the Russian courts in breach of the English court’s exclusive jurisdiction over any arbitration proceedings, Mrs Justice Dias granted an AASI to prevent the defendants from taking any such action.

    Concluding comments

    Due to the ASI and AASI being granted, the defendants will have no choice but to terminate any Russian proceedings under Article 248 of the APC. Failing to do so means that they risk contempt of court in England and Wales. This case illustrates that where an Arbitration Agreement is in place, an ASI and AASI provides a tactical tool for ensuring the terms of the agreement are upheld and can prevent sanctioned entities from circumventing the agreement via Article 248. In addition, Mrs Justice Dias’s decisions shows that the English High Court will grant an ASI and AASI to protect the interests of a non-sanctioned party who has assets in Russia which are vulnerable to enforcement of a Russian judgment granted in favour of a sanctioned entity.

    To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

    Note: The points in this article reflect sanctions in place at the time of writing, 30 November 2023. This article does not constitute legal advice. For further information, please contact our London office.

  • The Court of Appeal Decision in Jet2 Holidays Limited v Hughes & Hughes [2019] on Contempt of Court Jurisdiction – A Year On.

    The Court of Appeal Decision in Jet2 Holidays Limited v Hughes & Hughes [2019] on Contempt of Court Jurisdiction – A Year On.

    Subject: The impact of the findings in the Jet2 Holidays Limited v Hughes & Hughes [2019] EWCA Civ 1858 on the development of the Pre-Action Protocol, as considered by the Civil Justice Council.

    Late last year the Court of Appeal handed down a landmark ruling confirming that the High Court did have jurisdiction to commit the respondents in the Jet2 Holidays Limited v Hughes & Hughes [2019] EWCA Civ 1858 for contempt of court for submitting false statements of truth at the pre-action protocol stage. A year on, the Civil Justice Council is considering the effects of the findings of Sir Terence Etherton MR, Hamblen LJ (now Lord Hamblen, Justice of the UKSC), and Flaux LJ in the context of Pre-Action Protocol Review. 

    In the Jet2 Holidays Limited, the respondents booked an all-inclusive package holiday with the appellant. The respondents later gave notice to the appellant of a claim for damages for holiday sickness – they alleged that they had contracted food poisoning as a result of eating contaminated food or drink at the hotel. In purported compliance with the Personal Injury Claims Pre-Action Protocol (PAP) each respondent provided the appellant with witness statements describing how they believed their sickness was caused as a result of the undercooked food and unhygienic conditions in the Spanish hotel. Each respondent signed a statement of truth contained within their respective witness statements. 

    The appellant subsequently obtained various images, videos and comments posted by the respondents on social media during their holiday on which both respondents and their children appeared physically well and seemed to be having an enjoyable stay at the hotel. The appellants rejected the respondents’ potential claim, and the respondents decided not to pursue their claim for damages further. As a result, the proceedings were never issued against the appellant. 

    In turn, the appellant sought permission to commence committal proceedings against the respondents for the contempt of court under CPR Part 81 on the basis that the allegedly false witness statements were made by the respondents, verified by a statement of truth, contrary to CPR r.32.14. HHJ Godsmark QC, sitting as Deputy High Court Judge, granted permission and listed the committal proceedings for a CCMC. However, at the CCMC hearing, which was listed before a different judge, a question arose as to whether or not the High Court had jurisdiction to commit in the light of the fact that no proceedings had ever been issued. Eventually, HHJ Robert Owen QC concluded that the High Court did not have such jurisdiction and struck out the application.

    On the appeal from that decision the Court of Appeal unanimously held that the High Court did in fact have jurisdiction to commit for contempt of court even though no claim for damages had been issued. It was held that it was sufficient that the false statements, endorsed by the statements of truth, were used during the pre-action protocol stage. In the words of the Lords Justices: 

    “36. A dishonest witness statement served in purported compliance with a PAP is capable of interfering with the due administration of justice for the purposes of engaging the jurisdiction to commit for contempt because PAPs are now an integral and highly important part of litigation architecture.”

    The decision has had a significant impact on the law around contempt and how the parties view pre-action correspondence. Firstly, CPR r.32.14 has been amended to reflect the Jet2 Holidays Limited v Hughes decision. 

    Secondly, the rules around bringing contempt proceedings have been simplified by the introduction of an updated version of CPR Part 81, which came into in force on 1 October 2020. The new version of Part 81 has reduced the number of rules from 38 to 10, which lay out a clear procedure for the commencement of contempt of court proceedings. The new approach for punishment in contempt proceedings was considered by the High Court in the recent decision in Oliver v Shaikh [2020] EWHC 2658 (QB).

    Thirdly, the Civil Justice Council (CJC) has launched a review of the Pre-action Protocols. The CJC is currently running a survey inviting anyone with experience of, or an interest in, Civil Procedure Rules to express their views on Pre-action Protocols. The survey will be open until Friday 18 December 2020. 

  • Case Study: Energie Direct Franchising Limited v Star Gym Limited

    Case Study: Energie Direct Franchising Limited v Star Gym Limited

    Case Background

    The background to the claim is that the Defendant, Mr Nabi (a franchisee of Energie) was unhappy with the service being provided by energie Fit4Less, in particular their in-house software system called “Elan”. Mr Nabi was a vocal critic within the Energie franchisee network and felt that he was being bullied and intimated by Energie’s chief executive Mr Jan Spaticchia for voicing his concerns.

    There was then a significant deterioration in the relationship between Mr Spaticchia and Mr Nabi. Energie eventually terminated their Franchise Agreement with Mr Nabi on 28 April 2017. Under clause 25.3 of that Franchise Agreement, Energie exercised its option to take over the lease of the club, to purchase its assets including fitness equipment and to have assigned or novated to it any other contracts.

    Energie appointed three surveyors to provide opinions on the open market value of the lease. All three surveyors opined that the lease had little value and produced an “average-of-averages figure of £8,344” which was offered to Mr Nabi as the value of the lease. Mr Nabi rejected the valuations on the basis that Energie’s valuers were biased and the valuations were therefore not independent. This then led to a period where Mr Nabi continued to operate the club, even though the Franchise Agreement had been terminated (the “Interim Arrangement”). During the Interim Arrangement, Energie unilaterally ceased making payments received by Star Gym’s members, “purportedly so that it could if and when necessary pay for the Club’s staff, members and landlord.” After several months of negotiations, whilst Energie continued to withhold Mr Nabi’s payments, the club was closed down and Mr Nabi “flipped the signs” and handed the club to a company called HRPMoon Limited, of which Mr Nabi’s wife was the sole director.

    Energie Fit4Less brought a claim for breach of the Franchise Agreement, breach of confidence, procuring breaches of contract and unlawful means conspiracy. They also sought an injunction for specific performance, springboard injunctions against HRPMoon Limited, delivery up of confidential data, database, contact details and unquantified damages.

    Mr Murray Rosen QC (sitting as a Judge in the High Court) heard evidence from Mr Nabi, Mr Spattichia, Mr Simon Horner of GCW Retail Property Consultants (Energie’s appointed surveyor), Mr David Waugh of Elan (and Energie’s Systems and Technology Director) and other Energie representatives.

    The Judge’s Comments

    “I am bound to record that neither Mr Spaticchia nor Mr Horner impressed me as reliable witnesses, especially in attempting to minimise the relationship between Energie and GCW and explain Mr Horner’s role.”

    “Mr Spaticchia also seemed to me readily prepared to assume and hypothesise, if not invent, to make up for gaps in his recollection. I do not accept that he had a sufficient grasp of the details of his dealings with the Defendants to gainsay the documentary evidence and obvious inferences therefrom.

    As for Mr Nabi, whilst many aspects of his evidence seemed consistent with the documents or otherwise plausible – especially as regards the attempts to dominate the Defendants as franchisees by Energie – his account of how HRPMoon came to operate the Club – under his wife’s independent initiative, and with “accidental” access to the Member Information on his laptop – was incredible. This necessarily cast doubt over other controversial aspects of his testimony.”

    After a trial of 7 days, Mr Rosen QC dismissed Energie’s claims for specific performance and for damages (save as to nominal damages).