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Jessica Joel, trainee solicitor at CMS, considers the case of JSC BTA Bank v Khrapunov:

Background

In 2015, JSC BTA Bank brought proceedings against Mr Khrapunov, as second defendant, as it considered he had assisted his father-in-law, Mr Ablyazov to hide or dissipate his assets, in breach of a worldwide freezing order and a supporting receivership order.

To establish the English court’s jurisdiction, the bank had to show it had a good arguable case in the tort of conspiracy to injure by unlawful means against Mr Khrapunov. The issue to be determined was whether a breach of a freezing order or receivership order was capable, as a matter of law, of qualifying as the unlawful means necessary to establish the tort.

In addition, as neither Mr Ablyazov nor Mr Khrapunov were domiciled in England and Wales when these proceedings were brought, whether the English court had jurisdiction against Mr Khrapunov depended on the interpretation of article 5 of the Lugano Convention relating to tort claims.

Court of Appeal

The case was heard in the Court of Appeal on 19 December 2016, with judgment given on 2 February 2017.

Determination of unlawful means

The bank argued that there was a good arguable case against Mr Khrapunov, and that unlawful means by breaching a freezing and receivership order could be established as damages were recoverable for a breach of a court order. Mr Khrapunov argued, in contrast, that damages can never be awarded where a necessary element of the cause of action is a breach of a court order (as is the case in the tort of conspiracy by unlawful means).

The court rejected the bank’s argument, on the basis that a breach of a court order does not itself constitute a cause of action in private law and as such, damages are not recoverable for such a breach. Lord Justice Sales, who delivered the main judgment, was guided by the reasoning of the House of Lords in Customs and Excise Commissioners v Barclays Bank plc [2006] UKHL 28, which determined that a defendant’s duty of compliance is owed to the court, of which the remedy for non-compliance is punishment for contempt, not civil damages.

The court similarly rejected Mr Khrapunov’s argument, relying on cases which held that aiding or abetting a breach of a court order, in circumstances giving rise to liability for contempt of court, can constitute unlawful means for the purposes of the tort in question, see: Acrow (Automation) Ltd v Rex Chainbelt Inc. [1971] 1 WLR 1676.

On applying general principles from the House of Lords case of Revenue and Customs Commissioners v Total Network SL [2008] UKHL 19, the court held there can be a cause of action in unlawful means conspiracy cases where the unlawful means consists only of deliberate breaches of court orders. Consequently, the bank had a good arguable case against Mr Khrapunov as a matter of law.

Jurisdictional gateway under the Lugano Convention

Article 5(3) of the Lugano Convention provides that a person domiciled in another Member State may have a tortious claim brought against them “in the courts for the place where the harmful event occurred.”

Applying the principles set out by the Court of Appeal in AMT Futures Ltd v Marzillier [2015] QB 699, the place where the harmful event occurred is the place where the event gives rise to direct damage.

Relying on Domicrest Ltd v Swiss Bank Corporation [1999] QB 548, the court considered that it is the initial event that sets the tort in motion, and gives rise to the damage in question. In the present case, the relevant event which put the tort in motion was the alleged agreement to conspire between Mr Ablyazov and Mr Khrapunov, made in England in 2009. The Court of Appeal considered this to provide the English courts with jurisdiction under article 5(3) of the Lugano Convention with respect to all events following the agreement to conspire.

Mr Khrapunov appealed the Court of Appeal decision in relation to both the determination of the meaning of unlawful means and the terms of the jurisdictional gateway.

The Supreme Court

On 24 January 2018, Lord Mance, Lord Sumption, Lord Hodge, Lord Lloyd-Jones and Lord Briggs heard the appeal in the Supreme Court. The appeal was dismissed in full, with judgment given on 21 March 2018.

Determination of unlawful means

The court determined that the unlawful means used to carry out the conspiracy did not depend on it being actionable as a private tort. Referring to the principles in Total Network, the court determined that as the tort is a tort of primary liability, the real test is whether there is a just cause or excuse for combining to use unlawful means.

In unlawful means conspiracy, there can be no just cause or excuse for harming the economic interests of others where the intention is to injure the claimant. As such, the court found the contempt in which Mr Khrapunov was complicit was “unlawful”. Neither Mr Khrapunov nor Mr Ablyzov had any right to, or legitimate interest in, the proceeds of assets that were concealed from the bank. In addition, the benefit they gleaned from their concealment was not merely incidental but “exactly concomitant” with the detriment to the bank.

The “preclusionary rule” of public policy

Mr Khrapunov argued there was a “preclusionary rule” of public policy that individuals in contempt of court should not be exposed to any penalty other than criminal penalties at the discretion of the court. The court referred to Barclays Bank, which indicated that the criminal penalty for contempt provided sufficient protection to the innocent party and no private law right is engaged. The court stated that as no “preclusionary rule” existed, it did not need to resolve the broader question of whether the law of contempt provided sufficient protection in cases of contempt.

Jurisdictional gateway under the Lugano Convention

The court determined the “place where the harmful event occurred” required autonomous interpretation in order to ensure uniform application. Considering Shevill v Presse Alliance SA (Case C-68/93) [1995] 2 AC 18, the ECJ had emphasised that the object of article 5(3) was to allocate jurisdiction by reference to the place where an event considered harmful occurred. In Shevill this was the place of publication of a libellous newspaper rather than each of the jurisdictions in which it was read. Article 5(3) did not specify the circumstances upon which the event may be considered harmful to the victim, which is a matter for the relevant national court to apply.

The court also approved the reasoning of Rix J in Domicrest, and held that the agreement between Mr Ablyazov and Mr Khrapunov was the harmful event giving rise to the damage and therefore determined the jurisdiction of the English court.

Comment

The decision is authority for the English court potentially having jurisdiction over a conspiracy claim, where the conspirators made their agreement in the jurisdiction but the damage occurred outside the jurisdiction. The court stated clearly that “the place of the event which gives rise to and is at the origin of the damage” is determinative as it is the event which “set the tort in motion”. This case may therefore enable judgment creditors to obtain compensation when a judgment debtor has moved its assets between jurisdictions in an effort to avoid enforcement. It will require the judgment creditor to show a good arguable case that a third party has unlawfully agreed to assist the judgment debtor in doing so. If a good arguable case can be established, then the relevant event for determining jurisdiction is when the unlawful agreement was made. Accordingly, parties who assist in breaching court orders should take note that they could be liable for damages in conspiracy.