AK Investment CJSC v Kyrgyz Mobil Tel Limited and others (Isle of Man)

Permission to serve a foreign defendant outside the jurisdiction requires a serious issue to be tried, a good arguable case within the relevant jurisdictional gateway, and proof that the local court is clearly the appropriate forum.

Under the necessary or proper party gateway, the foreign defendant is a proper party where the claims against that defendant and the anchor defendant require one investigation or are closely bound together. A claimant's motive for suing the anchor defendant ordinarily affects discretion rather than whether the action was properly brought.

A natural foreign forum may nevertheless be rejected where cogent evidence establishes a real risk that substantial justice will not be obtained there. Comity demands caution but does not prevent examination of alleged corruption, lack of independence or serious procedural injustice in a foreign judicial system.

BITEL sought to enforce in the Isle of Man the unpaid balance of a Kyrgyz judgment against three Manx companies. Those companies counterclaimed, alleging that the judgment and earlier Kyrgyz judgments formed part of a fraudulent scheme through which their shares and the business of a Kyrgyz telecommunications company were misappropriated. They obtained permission to join and serve several foreign defendants outside the jurisdiction.

The Deemster set aside the service orders because Kyrgyzstan was the natural forum and the counterclaimants had not established that substantial justice would be unavailable there. The Staff of Government Division reversed that decision. The foreign defendants appealed to the Privy Council.

The principal issues were whether the counterclaims disclosed serious issues, whether the appellants were proper parties under the Manx service-out rules, and whether the Isle of Man was clearly the appropriate forum despite the dispute's closer factual connection with Kyrgyzstan.

1. Appeal dismissed. The Staff of Government Division was entitled to reverse the Deemster and uphold service outside the jurisdiction. The appellants were proper parties to the counterclaim under Manx High Court Rules, Ord. 6, r. 1(g).

2. A claimant seeking permission to serve a foreign defendant must establish a serious issue to be tried, a good arguable case within a jurisdictional gateway and that the local court is clearly the appropriate forum. The serious-issue and bound-to-fail formulations impose substantially the same merits threshold as summary judgment. Difficult and developing questions of law should not ordinarily be resolved summarily on hypothetical or incomplete facts.

3. The claims against BITEL and the appellants required one investigation and were closely bound together. Their resolution depended on the same inquiry into the procurement of the Kyrgyz judgments, the alleged sham transfer of the shares, the seizure of the business, the subsequent share transfers and the transfer of the business to another company. The later involvement of particular appellants did not remove them from the alleged overall scheme.

4. The Board declined to determine summarily whether the long-standing fraud rule in Abouloff v Oppenheimer & Co (1882) 10 QBD 295 should continue to apply in the Isle of Man. That issue involved important questions of policy and required fuller evidence and mature consideration. A claimant may in principle answer a foreign judgment relied on as a defence by showing that it is impeachable on a ground recognised at common law. The substantive or procedural character of the relevant Kyrgyz rule likewise raised a serious issue requiring fuller expert evidence.

5. Kyrgyzstan was the natural forum, but natural forum was not decisive. The correct inquiry was whether there was a real risk that substantial justice would not be obtained there. Comity required cogent evidence before criticising a foreign court or judicial system, but neither act of state nor judicial restraint prohibited that inquiry. The irregular procedures, irrational conclusions and disregard of the arbitration agreement in the Kyrgyz proceedings provided substantially more than a mere risk of injustice.

6. Practical justice strongly favoured the Isle of Man. Without a Manx trial there would realistically be no trial anywhere, because the civil claims in Kyrgyzstan depended on first securing a criminal conviction and setting aside the earlier judgments. The Staff of Government Division therefore exercised its discretion on correct principles. The appeal was dismissed, with written submissions on costs to follow.

1. Privy Council: Dismissed the appeal and upheld the decision permitting service outside the jurisdiction. [2011] UKPC 7

2. Staff of Government Division of the High Court of Justice of the Isle of Man: Allowed the counterclaimants' appeal, holding that the appellants were proper parties and that the discretion should be exercised in favour of service outside the jurisdiction.

3. Deemster: Set aside the service orders because the counterclaimants had not established that the Isle of Man was clearly the appropriate forum.