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

The Court of Appeal allowed the defendants' appeal and set aside the permission previously granted to serve the proceedings out of the jurisdiction. The court held that the judge below had erred in his approach to the jurisdictional gateways in paragraph 3.1 of Practice Direction 6B to the Civil Procedure Rules, in particular gateways 3.1(3), 3.1(9) and 3.1(20). Key principles applied included the Altimo framework for service out (serious issue to be tried; good arguable gateway; appropriate forum), the rule that a creditor who proves in a foreign insolvency submits to that court’s jurisdiction (as explained in New Cap and affirmed in Shell), and the requirement under Rome II Article 4 to identify the place where damage occurs for choice of law. The court concluded that (i) the judge had adopted the wrong approach when assessing whether it was reasonable for the English court to try issues between the claimant and the anchor defendants under PD6B paragraph 3.1(3); (ii) the alleged tortious damage was not properly characterised as damage sustained within England for PD6B paragraph 3.1(9) given the contractual place of payment; and (iii) the Bank could not show a serious issue to be tried under section 423 Insolvency Act 1986 in the absence of a sufficient connection with England. On overall forum conveniens analysis Russia, not England, was the clearly appropriate forum for the claims.

This appeal concerned permission to serve proceedings on two foreign defendants (D3 and D5) in relation to claims by an English-based lender (Erste Group Bank AG, London Branch) arising out of a US$80 million loan to a Russian borrower and a related English‑law guarantee and facility agreement. The lender’s pleaded case included contractual debt claims, a conspiracy/unlawful means tort claim, and a claim under section 423 of the Insolvency Act 1986 to set aside or protect against alleged fraudulent transfers. The Loan Agreement and Guarantee were governed by English law and contained London arbitration/English jurisdiction clauses; the payments under those documents were, however, contractually repayable in New York with the facility agent passing on funds to the Bank’s London account.

The proceedings were issued in England and, after Cooke J granted permission to serve out of the jurisdiction, D3 and D5 challenged that permission under CPR Part 11 and PD6B. The High Court (Flaux J) had refused the defendants’ applications and upheld permission. On appeal the Court of Appeal reviewed the three-stage Altimo test for service out: (i) serious issue to be tried; (ii) good arguable case that the claim fits a PD6B gateway; and (iii) that England is clearly or distinctly the appropriate forum.

• Nature of the application: permission to serve proceedings out of the jurisdiction and related applications to set aside service; defendants sought to challenge jurisdiction and set aside service on the basis of forum/connections with Russia.
• Principal issues: (i) whether the Bank had demonstrated that claims against the anchor defendants (the borrower and guarantor) were a real issue which it was reasonable for the English court to try under PD6B para.3.1(3); (ii) whether the tort claims satisfied PD6B para.3.1(9) (damage sustained within the jurisdiction); (iii) whether the Bank had a serious issue under s.423 Insolvency Act 1986 such that PD6B para.3.1(20) applied; (iv) whether England was the clearly appropriate forum and whether permission to serve out should be exercised in the Bank’s favour.
• Court’s reasoning: The Court of Appeal held that the judge below adopted an incorrect and over-simplified approach to PD6B paragraph 3.1(3)(a) and failed to treat properly the effect of the Bank’s active participation in Russian insolvency proceedings. The court applied the authorities (notably New Cap and the Privy Council in Shell) to conclude that a creditor who proves in foreign insolvency proceedings submits to that forum for matters central to the insolvency, so it was not reasonable for the English court to try the same issues in this case. On choice of law under Rome II, the court concluded that the primary place of damage was New York (the contractual place of payment) and, more broadly, that the tort and the events were manifestly connected with Russia. Because the factual focus and remedy-seeking were primarily Russian (including prior Russian judicial determinations of the impugned transactions), the Bank could not show a sufficient connection to England to sustain its s.423 claim and England was not the clearly appropriate forum for the dispute.

The court therefore allowed the appeal, set aside the permission to serve out on D3 and D5 and remitted nothing further: the English court would not permit service under the relied gateways.

The appeal was allowed. The Court of Appeal held that Flaux J erred in his application of the PD6B gateways and the forum conveniens analysis. The judge had misapplied the test in paragraph 3.1(3) by failing to treat properly whether it was reasonable for the English court to try issues between the Bank and the anchor defendants given the Bank’s submission to Russian insolvency proceedings; he was wrong to treat the alleged damage as sustained within England for paragraph 3.1(9); and the Bank could not show a serious issue under section 423 in the absence of a sufficient connection with England. On an overall evaluative assessment Russia was the clearly appropriate forum, so permission to serve out was set aside.

Appeal from the High Court of Justice, Queen's Bench Division, Commercial Court (Flaux J), 2012 Folio 1136. Permission to serve out was originally granted by Cooke J (24 October 2012). Summary judgment against the first and second defendants was entered by HHJ Mackie QC (14 December 2012). This judgment is the Court of Appeal’s determination allowing the defendants’ appeals and setting aside the permission to serve out ([2015] EWCA Civ 379).