European Bank for Reconstruction and Development v Tatiana Vysokova & Ors

A default judgment is not a judgment on the merits. Where the claim includes non-monetary relief, the court must nevertheless consider whether the claimant is entitled to the relief pleaded and must tailor any injunction to the cause of action.

A final injunction will ordinarily enforce a negative covenant where there is a real risk of further breach. Relief may be refused only where it would be unjust or unconscionable. The practical effect of an order determines whether it is prohibitory or mandatory in substance. An English court may also order a party to do something which may be contrary to foreign law.

The claimant, a shareholder in a Russian bank, applied for default judgment under the Civil Procedure Rules 1998 because the defendants had not acknowledged service or filed a defence. The claim arose from alleged breaches of a shareholder agreement requiring the claimant’s consent before the company’s share capital could be increased and protecting the claimant against dilution.

The defendants had proposed, postponed and eventually cancelled shareholder meetings intended to consider a substantial share-capital increase. The claimant sought a final injunction restraining further proposals, votes and implementation without its consent. The central issues were whether the formal requirements for default judgment were met and whether injunctive relief remained appropriate despite cancellation of the latest meeting.

1. Default judgment. The court was satisfied that the claim form had been validly served, that the time for acknowledging service had expired, and that no acknowledgment, defence or admission had been filed. The requirements of CPR 12.12(6) were therefore met. Under CPR 12.12(1), judgment could be given as the claimant was entitled to on its statement of case. Default judgment did not require the court to determine the merits beyond that necessary to assess the pleaded relief.
2. Breach and continuing risk. Proposing the share-capital resolution without the claimant’s consent breached section 3.02(a) of the shareholder agreement. Passing or implementing the resolution would give rise to further breaches of sections 3.02(a), 3.11(g) and 4.01(d). Cancellation of the meeting did not remove the real risk of renewed breaches, because the defendants had repeatedly threatened the same conduct and gave no assurance that it would not recur.
3. Final injunction. The court had jurisdiction under section 37(1) of the Senior Courts Act 1981. A final injunction was appropriate to enforce the negative covenants and prevent irredeemable dilution. Such relief should ordinarily be granted unless it would be unjust or unconscionable. The order’s mandatory elements merely required the defendants to undo earlier breaches or comply with contractual voting obligations.
4. The distinction between prohibitory and mandatory relief depended on the practical consequences of the order. The defendants’ unsubstantiated assertions that compliance would breach Russian law or a Russian court order did not make the injunction oppressive. In any event, an English court could order conduct which was or might be contrary to foreign law.
5. The final injunction was granted in the requested terms. The claimant was awarded its costs, summarily assessed at £68,550 on the standard basis.