English court would not stay "unsustainable" claim to allow it to be tried by a foreign court

Out-Law News | 07 Aug 2014 | 10:38 am | 3 min. read

English courts would not 'stay' legal proceedings involving foreign parties to enable those proceedings to be brought in a court in another country in circumstances where those proceedings are unsustainable, the Court of Appeal has ruled.

Giving judgment in a dispute between two wealthy Russian nationals, the Court of Appeal ruled that there was "no point" in suspending legal action in the English courts to allow the person who brought the case, Elena Baturina, to have the dispute heard in Russia. In this case, the claim was governed by English law and appeared to be unsustainable, the judge said.

"We should not export to a foreign jurisdiction – on the supposed footing that it is a clearly more appropriate forum – a claim which, to English eyes, is (a) governed by English law in relation to both tort and contract; and (b) appears in English law to be unsustainable," said Lord Justice Clarke. "For such a claim there is no natural forum, not because several factors point to different jurisdictions but because the claim itself is bad."

Dispute resolution expert Richard Dickman of Pinsent Masons, the law firm behind Out-Law.com, said that the case highlighted the "complex issues" that can arise where there is a mismatch between the applicable law and the court which had the jurisdiction to rule on the dispute.

"The fundamental problem for Baturina in this case was that her claim was based on the principle of 'reflexive loss'; that she was seeking to recover as a shareholder a loss which had been suffered by a company," he said. "Such a claim was only possible where the company had suffered the loss but had no right to bring a claim. That was not the case here because although the company had no claim it had also suffered no loss, having received full value for the loans involved."

"In those circumstances, the careful balancing of the relative convenience of hearing the dispute in England or Russia became irrelevant. The Court of Appeal held that the claim as pleaded was unsustainable and it was therefore pointless to grant a stay," he said.

The English courts frequently have to deal with international disputes involving foreign parties, in many cases because the parties have previously agreed that the English courts have jurisdiction over any disputes and that these disputes will be governed by English law. However, in the absence of agreement, the court may need to rule on jurisdiction and governing law issues before it can deal with the substance of the claim. Questions of jurisdiction and governing law are distinct: there is no difficulty in principle with the English courts deciding a dispute under foreign law or a foreign court deciding the dispute under English law.

Foreign parties that object to the English courts taking jurisdiction can ask the court to 'stay' the proceedings in favour of a foreign court which would also have jurisdiction. If that foreign court is outside the EU, as in this case, the English court will need to decide whether that foreign court is clearly and distinctly a more appropriate forum to hear the dispute than the English court and, if so, whether the case should nevertheless be heard in England. Factors that the court can take into account include convenience and expense; where the parties reside or carry on business; and the law applicable to the dispute.

Baturina, a Russian national living in London, had loaned money through a company that she controlled to a company controlled by Alexander Chistyakov, also a Russian national. The loan was part of an agreement regarding property development in Morocco. After discovering that a significant proportion of the loans had been used for other purposes Baturina had the loans assigned to herself for their full value. She then brought proceedings to cancel the agreement and obtain repayment of the loans, as well as for damages for breach of the agreement and for deceit. The agreement provided that English law applied to any dispute but did not deal with jurisdiction.

After Baturina began proceedings in the English courts Chistyakov applied to stay the proceedings in favour of the Russian courts. The original judge agreed because the choice of English law was only one factor, outweighed by the relative convenience of having the dispute heard in Russia where most of the witnesses and documents were and because most of the documents were in Russian. In addition, the judge said that the Russian court would be able to apply the relevant English law principles to the contractual dispute, while the misrepresentation claim was already subject to Russian law. The Court of Appeal disagreed with this point in its own judgment, although this was less relevant than the difficulties with the claim overall.

The case can now return to the commercial court, the Court of Appeal said. It is likely that Baturina will amend her claim, in which case those arguments would be decided on their merits, the judge said. Otherwise, Chistyakov would likely be able to apply to strike out the "unsustainable" claim, he said.