Erste Group Bank AG (London Branch) v JSC "VMZ Red October"

On an application to set aside service out of the jurisdiction, the claimant must show a serious issue to be tried, a good arguable case that a jurisdictional gateway is satisfied, and that England is clearly the appropriate forum.

The first threshold is low and must not become a mini-trial. A good arguable case means that the claimant has the better argument, not that it has proved the gateway on the balance of probabilities. A claim under Insolvency Act 1986, section 423, is statutory relief rather than a tort and may have extra-territorial effect. Foreign insolvency proceedings do not automatically prevent English proceedings where there has been no recognition application and the claimant has not submitted the merits to the foreign court.

Erste, a London branch of an Austrian bank, participated in a syndicated loan to a Russian steel company. After default, it alleged that the borrower, its guarantor and related Russian entities, controlled by the Third Defendant, had conspired to strip assets from the borrower and guarantor and manipulate Russian insolvency proceedings.

The Third and Fifth Defendants applied to set aside service of the proceedings in Russia. The issues included whether Erste had shown serious issues to be tried, satisfied the jurisdictional gateways, submitted to the jurisdiction of the Russian insolvency courts, and established that England was clearly the appropriate forum.

Applications dismissed. The Court held that Erste had established serious issues to be tried, had the better of the argument on three jurisdictional gateways, and had shown that England was the appropriate forum.

1. The serious-issue threshold is substantially the same as the real prospect of success test under summary judgment and strike-out principles. It is a relatively low threshold, and the court must avoid a mini-trial. The good arguable case test for a jurisdictional gateway requires the claimant to have a much better argument than the foreign defendant, but does not require proof on the balance of probabilities. The approach in VTB Capital v Nutritek International [2012] EWCA Civ 808 and Swiss Reinsurance Company Ltd v United India Insurance Company [2002] EWHC 741 (Comm) was applied.
2. There was an arguable conspiracy involving asset transfers, sham or commercially inexplicable transactions, creditor voting arrangements and insolvency measures. A party may join a conspiracy while its tortious plan is being executed and may be liable even if it did not itself commit every unlawful act. It cannot, however, be liable for loss caused before it joined. The approach in Kuwait Oil Tanker Co SAK v Al Bader [2000] 2 All ER (Comm) 271 was applied.
3. The claim under section 423 of the Insolvency Act 1986 was statutory, not tortious. The section could therefore be invoked notwithstanding the provisional argument that the tort claims were governed by Russian law. Its extra-territorial operation and the sufficient-connection question concerned the court’s discretion, not a threshold jurisdictional bar.
4. Erste had the better argument that the other defendants were necessary or proper parties because the claims involved one investigation and were closely bound up. The claims also fell within the tort gateway where damage was sustained in England, since payment was to be received in London. The domestic gateway was not to be construed as identical to article 5(3) of the Brussels regime.
5. Erste had not submitted the merits of its claims to the Russian courts. Its proof of debt in the Russian insolvency proceedings was provisional, and its challenges to the Russian courts’ jurisdiction concerning the guarantee were inconsistent with submission. The reasoning in New Cap Reinsurance Corporation (in liquidation) v Grant [2012] UKSC 46 was distinguished. England was clearly the appropriate forum because the English-law contracts and jurisdiction clauses were central, the Russian courts had applied the wrong governing law to the guarantee, and parallel proceedings risked inconsistent findings. There was no cogent evidence of a real risk that Erste would not receive justice in Russia, but that was not necessary to the result.

High Court (Commercial Court): Cooke J granted permission to serve the Third to Eighth Defendants outside the jurisdiction on 24 October 2012. HHJ Mackie QC later entered summary judgment on the contractual claims; there was no appeal. The present applications by the Third and Fifth Defendants to set aside service were dismissed.