Alliance Bank JSC v Aquanta Corporation & Ors

A claimant seeking permission to serve proceedings outside the jurisdiction must have a sustainable cause of action and must identify expressly each cause of action and jurisdictional gateway relied upon. A reversible or disputed payment does not permit the payer to enforce extinguished rights by subrogation in its own name without binding the original creditor.

A non-contractual claim does not fall within the contract gateway merely because a contract formed part of its factual background. The required legal connection is particularly difficult to establish where the foreign defendant was not a party to the contract. English-law instruments used incidentally in a foreign fraud do not, without more, make England clearly and distinctly the appropriate forum.

A Kazakh bank alleged that its former chairman, associated individuals and offshore companies had conspired to misappropriate assets worth approximately US$1.1 billion. The scheme allegedly used loan agreements, guarantees and charges governed by English law. The bank claimed in contract, tort, equity, unjust enrichment and under Kazakh law.

Burton J, in [2011] EWHC 3281 (Comm), found serious issues to be tried and applicable service-out gateways, but held that Kazakhstan was the appropriate forum. He set aside permission to serve outside the jurisdiction and the worldwide freezing order. The bank appealed; the active defendants cross-appealed against findings supporting jurisdiction.

The central questions were whether the bank could enforce the lenders’ rights by subrogation, whether its implied-contract and non-contractual claims passed the service-out gateways, and whether England was clearly and distinctly the appropriate forum.

1. Appeal dismissed unanimously. The defendants’ cross-appeals succeeded to the extent that the judge had accepted the subrogated claims and the contract gateway. The setting aside of permission to serve outside the jurisdiction and of the worldwide freezing order was upheld.

2. Alliance could not enforce the lenders’ rights against the offshore borrowers in its own name. It disputed the validity and efficacy of the guarantees under which its securities had been appropriated and reserved the right to recover from the lender. The payment was therefore not an irrevocable, out-and-out discharge supporting extinguished-rights subrogation. At the least, the borrowers could be protected against inconsistent liabilities only if the original creditor were bound by the proceedings. A conditional undertaking offered during the appeal could not retrospectively complete the cause of action or validate service.

3. Permission to serve abroad extends only to the causes of action identified as satisfying CPR 6.37 and Practice Direction 6B. Explicit identification is required. The original application had not sought permission for the pleaded implied contracts of indemnity. Such an indemnity against liabilities incurred at a debtor’s request would ordinarily be governed by the law expressly chosen for the requested guarantee, because the indemnity is collateral to it. That reasoning was potentially available against the third and fourth defendants, but not against the first and second defendants on the evidence.

4. The non-contractual claims did not satisfy Practice Direction 6B paragraph 3.1(6). A merely factual relationship with an English-law contract is insufficient. Ordinarily, the claimant must assert a contractual right or a right arising from non-performance. The connection is especially difficult where the intended defendant was not a party to the contract. The loan agreements and guarantees were only instruments or incidental products of the alleged conspiracy.

5. Under paragraph 3.1(3), an anchor defendant may be served outside the jurisdiction under another gateway. The words “otherwise than in reliance on this paragraph” prevent successive chains of defendants being added through the necessary-or-proper-party gateway itself. Although several defendants would potentially have been proper parties because the claims required a common investigation, no effective anchor remained.

6. The judge was entitled to leave the governing law of the non-contractual obligations unresolved pending fuller findings. Nevertheless, Kazakhstan was the dispute’s centre of gravity. The parties, alleged dishonesty, witnesses, documents and prior investigation were overwhelmingly connected with Kazakhstan. The incidental use of English-law instruments, possible enforcement advantages and the Kazakh filing fee did not establish England as clearly and distinctly the appropriate forum.

1. Court of Appeal (Civil Division): In [2012] EWCA Civ 1588 , unanimously dismissed the bank’s appeal. It accepted material parts of the defendants’ cross-appeals but upheld the orders setting aside service outside the jurisdiction and the worldwide freezing order.
2. High Court, Commercial Court: Burton J, in [2011] EWHC 3281 (Comm) , held that serious issues and jurisdictional gateways existed but that England was not clearly and distinctly the appropriate forum. He set aside permission to serve abroad, service on the active defendants and the worldwide freezing order.