Kreditanstalt Fur Wiederaufbau v Azov-Don Shipping Company JSC

On summary judgment, a defendant must show a realistic, rather than fanciful, prospect of success. The court may decide the issue where it has the evidence necessary for proper determination and no likely further evidence would affect the outcome.

Where a company succeeds to another company’s rights and liabilities by universal succession under the law of incorporation, it may become bound by the predecessor’s guarantee without a fresh authority to execute the guarantee. A transaction allegedly entered into without shareholder approval is not necessarily invalid unless and until invalidity is established by a court. An unauthorised transaction may also be ratified under its governing law where the ratifier had knowledge of all material facts.

The claimant sought summary judgment for sums due under a guarantee originally given by Volgo-Don Shipping Company. Volgo-Don later merged with the defendant, Azov-Don Shipping Company JSC, which signed an accession letter, the original guarantee and a supplemental loan agreement.

The defendant contended that it was not bound by the guarantee. It relied on the alleged absence of shareholder approval and on the lack of actual, ostensible or ratified authority. It also sought permission to adduce Russian-law evidence and to amend its Defence. The central issues were whether succession under Article 58(2) of the Russian Civil Code bound the defendant and whether the proposed authority-based defences had realistic prospects of success.

1. Summary judgment. The court applied the principles summarised in Easy Air Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch). It had to determine whether the proposed defences were realistic, avoid a mini-trial, and consider evidence reasonably expected to be available at trial. The same realistic-prospect test applied to the proposed amendment.
2. Accession. The unchallenged Russian-law evidence established that, on the merger, the defendant became the universal successor to the predecessor’s rights and obligations under Article 58(2) of the Russian Civil Code. The contemporary documents, including the Accession Letter and the defendant’s conduct, were consistent with that conclusion. The absence of the accession agreement or transfer deed did not create a realistic prospect of a different result.
3. Actual authority. Even assuming that the defendant was not already bound by accession, the alleged absence of shareholder approval did not provide an arguable defence. The evidence was that a major transaction was voidable, rather than automatically invalid, and that no Russian court had invalidated the relevant documents. Any applicable limitation period also appeared to have expired.
4. Ratification. Ratification was governed by English law because that was the law chosen for the Guarantee and Accession Letter. The shareholder resolution approving the supplemental agreement, which depended on the defendant’s accession to all liabilities under the Guarantee, clearly adopted or recognised the accession arrangement. The court accepted that ratification required knowledge of all material facts, but found no evidential basis for concluding that the sole shareholder lacked that knowledge.
5. Addendum and disposal. The Addendum did not alter the result. It deferred enforcement and was in any event apparently favourable to the defendant. Summary judgment was entered for the claimant for €9,742,663.46. Permission to adduce Russian-law evidence was granted, but permission to amend the Defence was refused because the proposed amendments disclosed no defence with a realistic prospect of success.