Merchant International Company Ltd v Natsionalna Aktsionerna Kompaniia Naftogaz

Under CPR 13.3, a real prospect of defending a claim does not require the court to set aside a regularly obtained default judgment. The power remains discretionary and must be exercised according to what is just.

A court may refuse relief where the proposed defence depends on a later foreign decision obtained through a fundamental denial of legal certainty and fair process. A judgment is a valuable form of property, so its loss and the interests of the judgment creditor and affected third parties are material considerations.

English courts may examine whether proceedings in another Convention state complied with article 6, although they should strongly presume that the procedures of another Convention state are compliant.

MIC obtained final Ukrainian judgments for a debt and then secured an English judgment in default of defence. Afterwards, Naftogaz persuaded the Supreme Commercial Court of Ukraine to reopen the Ukrainian proceedings for newly discovered circumstances and to remit the claim for a new trial. The retrial resulted in dismissal of MIC's claim.

David Steel J refused to set aside the English judgment, holding that the reopening of the Ukrainian litigation flagrantly breached the principle of legal certainty protected by article 6. His decision was reported at [2011] EWHC 1820 (Comm).

The central issue was whether the later Ukrainian decisions necessarily removed the basis of the English judgment or whether, under CPR 13.3, the English court could retain that regularly obtained judgment because the foreign reopening process fundamentally denied legal certainty and fair process.

1. Appeal dismissed unanimously. Toulson LJ gave the principal judgment. Hooper LJ and the Master of the Rolls agreed that the appeal should be dismissed for his reasons.

2. When the English default judgment was entered, Naftogaz had no defence. The Ukrainian judgment was then final and conclusive, and the failure to serve a defence was deliberate rather than an oversight. The subsequent foreign decision setting aside that judgment did not retrospectively make the English judgment irregular.

3. It was proper for the English court to examine whether the later Ukrainian proceedings violated substantial or natural justice and MIC's Convention rights. The English conception of legal certainty did not differ in substance from the principle inherent in article 6. Lindberg v Sweden did not establish that a Convention state's courts must never consider a Convention breach occurring in another Convention state. Maronier v Larmer [2003] QB 620 confirmed that such consideration was permissible, subject to a strong presumption of compliance.

4. The reopening of the Ukrainian litigation fundamentally denied legal certainty. The asserted evidence about MIC's capacity was neither shown to have been unavailable through due diligence nor capable, on the material before the Ukrainian court, of satisfying the required threshold of decisiveness. The retrial court then disregarded all findings from the original proceedings without assessing whether genuinely new and decisive circumstances existed.

5. Under CPR 13.3, an arguable defence is not a mandatory ground for setting aside a default judgment. The court retains a judicial discretion directed to what is just. A judgment is a form of property and may be a valuable asset on which the creditor or third parties rely. Setting aside a regularly obtained judgment therefore may cause real injustice.

6. The judge was entitled to refuse relief because Naftogaz sought to remove a properly obtained English judgment by relying on a later process which fundamentally denied legal certainty and fair process. The Court did not base its decision on Yukos v Rosneft because that case concerned the materially different framework of the New York Convention.

7. The Master of the Rolls considered that there was force in recognising the original Ukrainian judgment while disregarding the later decisions, but left that broader issue undecided. The appeal was determined on the narrower ground of the discretion under CPR 13.3.

1. Court of Appeal (Civil Division): In [2012] EWCA Civ 196, the court unanimously dismissed Naftogaz's appeal. It upheld the refusal to set aside the English default judgment on the narrower ground that relief was properly refused under CPR 13.3.
2. High Court, Queen's Bench Division, Commercial Court: David Steel J refused to set aside the default judgment in [2011] EWHC 1820 (Comm). He held that recognising the later Ukrainian decision would offend public policy and section 6(1) of the Human Rights Act 1998 because the foreign reopening process flagrantly breached article 6.