Joint Stock Company 'Aeroflot-Russian Airlines' v Berezovsky & Ors, Court of Appeal - Civil Division, July 02, 2013, [2013] EWCA Civ 784

Resolution Date:July 02, 2013
Issuing Organization:Civil Division
Actores:Joint Stock Company 'Aeroflot-Russian Airlines' v Berezovsky & Ors
 
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Case No: A3/2012/1708 & 1720Neutral Citation Number: [2013] EWCA Civ 784IN THE COURT OF APPEAL (CIVIL DIVISION)ON APPEAL FROM THE HIGH COURT OF JUSTICECHANCERY DIVISIONMR JUSTICE FLOYD[2012] EWHC 1610 (Ch)Royal Courts of JusticeStrand, London, WC2A 2LLDate: 02/07/2013Before :LORD JUSTICE LAWSLORD JUSTICE AIKENSandMR JUSTICE MANN- - - - - - - - - - - - - - - - - - - - -Between :- - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - -Francis Tregar QC & Alex Pelling (instructed by Streathers Solicitors LLP) for the AppellantPhilip Marshall QC & Justin Higgo (instructed by Pinsent Masons LLP) for the RespondentsHearing dates : 20-21 March 2013- - - - - - - - - - - - - - - - - - - - -JudgmentLord Justice Aikens : I. The Story so far in outline1. This is another appeal in which the jurisdiction of the English court is questioned in litigation where the parties are a Russian state controlled company, Russian-born individuals and various companies said to have been created or controlled by those individuals. In this case the claimant is the 51% state-owned Russian airline, which I will call ``Aeroflot''. It has alleged that in the years 1996-8 a fraud was perpetrated on it by the activities of the late Mr Boris Berezovsky and Mr Nikolay Glushkov through seven companies allegedly controlled by them. As is well-known, Mr Berezovsky left Russia some years ago and settled in the UK, where he lived until his death on 24 March 2013, very shortly after the hearing of this appeal. Mr Glushkov, a business associate of Mr Berezovsky, currently lives in the UK. I will refer to these two defendants, who took no part in the appeal before us, as ``the individual defendants''. Aeroflot began the present proceedings in early 2011. It served them on the individual defendants in England, that being their state of domicile. 2. The arguments on jurisdiction concern the third to fifth and seventh defendants. They are all companies in the same group, known as the Forus Group, and, Aeroflot asserts, were at the time of the relevant events all controlled by Mr Berezovsky and Mr Glushkov. Those companies are respectively domiciled in Luxembourg, Cyprus, Switzerland and the British Virgin Islands. I will refer to them, as Floyd J did in the judgment appealed, as follows: first, the third defendant, which is the Luxembourg parent company, I will refer to as ``Holdings''. It was formed by Mr Beresovsky in 1992. He and Mr Glushkov were directors of Holdings for some time, although Mr Berezovsky's case is that he resigned in November 1996. Secondly, Holdings' subsidiaries, which are, respectively, the fourth, fifth and seventh defendants, will be referred to as ``Cyprus'', ``Services'' and ``Finance''. The sixth defendant, which I shall call ``Leasing'', is also domiciled in Switzerland. It took no part in the applications before Floyd J or on the appeal. I will call the corporate defendants generally ``the Forus companies''.3. Aeroflot's claim is that the individual defendants have, through their creatures, the Forus companies, defrauded Aeroflot of over US$ 99 million. Aeroflot asserts that the mechanism for siphoning off funds that belonged to Aeroflot was, briefly, as follows: Mr Berezovsky, who was an important and influential man in Russian business, politics and government in the 1990s, was the representative of a Russian/Italian joint venture company called AvtoVAZ, which manufactured and sold Lada cars. Holdings was formed in 1992 to assist AvtoVAZ. Aeroflot asserts that Mr Glushkov was a director of Holdings, but he says that he gave all his interests in the Forus companies to Mr Berezovsky in July 1995 and ceased to be a director or attend board meetings from mid-1996. Aeroflot alleges that Mr Berezovsky used his influence with Aeroflot's then Director General, Marshal Shaposhnikov, to ``insert'' Mr Glushkov as Deputy Director General of Aeroflot, with responsibility for economic and financial affairs, and also to infiltrate a LogoVAZ team in strategic places in Aeroflot. Mr Berezovsky and Mr Glushkov deny this. They say that Marshal Shaposhnikov recruited Mr Glashov, in particular to undertake an examination of the financial situation of Aeroflot. 4. Aeroflot asserts that Mr Glushkov then obtained the appointment of the previously incorporated Services to act as advisor to Aeroflot, pursuant to a recommendation Mr Glushkov made to Aeroflot in December 1995 that Aeroflot ought to obtain the assistance of the Forus Group to advise it on the management of Aeroflot's finances abroad. Aeroflot says that this recommendation was made by Mr Glushkov without disclosing his and Mr Berezovsky's interest in Forus. The appointment of Services as advisor was set out in the ``Advisory Mandate'' dated 19 December 1995 between Aeroflot and Services. Under this contract Services would advise Aeroflot on selecting foreign partners to participate in investment projects and in the management of those projects. Services would get a fee of up to US$30,000 per annum and a 1% fee on any financing achieved by Aeroflot. The Advisory Mandate contract is governed by Swiss law and contains a Lausanne jurisdiction clause. 5. Aeroflot asserts that Services and Aeroflot, at the instigation of Mr Glushkov, then entered into a series of financial agreements which he and Mr Berezovsky had planned and which they knew had no proper commercial justification. Aeroflot asserts that through these contracts over US$90 million odd which (Aeroflot says) should have gone to Aeroflot was passed to the Forus companies and then on to Mr Berezovsky and Mr Glushkov. The initial contract was the First Credit Agreement (``FCA'') between Aeroflot and Services which was dated 3 April 1996. That has an exclusive jurisdiction clause in favour of Lausanne in it and is governed by Swiss law. The FCA was amended by the Amendment Agreement of 27 May 1997, which, amongst other things, substituted a Swiss ICC arbitration clause for the jurisdiction clause. It is the amended FCA (``AFCA'') which is relevant for the purposes of this appeal. 6. The second contract was the Second Credit Agreement dated 24 November 1997 (``SCA''), which was between Aeroflot and Services. That was amended on 25 June 1998 so that Cyprus was substituted for Services. Again, it is the Amended SCA (``ASCA'') which is relevant. The ASCA has a Zurich ICC arbitration clause in it and is also governed by Swiss law. 7. Pursuant to these agreements, monies were loaned by the relevant Forus company to Aeroflot in return for fees and, more importantly, in return for an assignment of payments due to Aeroflot from non-Russian airlines for permission to ``overfly'' Russian airspace. It is said that the Forus companies received these fees knowing that Mr Glushkov was acting in breach of his duty as an officer of Aeroflot and knowing that each of the payments made to the Forus companies was made as a result of the breach of duty by Mr Glushkov and/or Services (with whom Aeroflot had concluded the Advisory Mandate), so that each of the Forus companies has acted in bad faith. Aeroflot asserts that the fees have either been retained by the Forus companies or have been passed on to Mr Berezovsky or Mr Glushkov.8. The claims are pleaded primarily on the basis of breaches of Russian law. It is alleged that the Forus defendants are liable to compensate Aeroflot under various articles of the Russian Civil Code. The claim in respect of the diverted monies from airlines is currently put at US$90.3 million and the fees paid in respect of the unnecessary advice are valued at US$9 million. Paras 81 and 80 respectively of the Amended Particulars of Claim. In the alternative, claims are made under Swiss law against Cyprus and Leasing.9. Aeroflot says that it only became possible to issue proceedings in December 2010 because, since 2001, all of Aeroflot's papers and records had been taken into the custody of the Russian authorities, as a result of an audit of Aeroflot which (Aeroflot alleges) revealed that large sums had been improperly paid out to the Forus group. There followed an investigation by the Russian prosecuting authorities, so Aeroflot says it had no access to its papers and records again until September 2010. 10. Aeroflot obtained leave to serve Finance (a British Virgin Isles - BVI - company) out of the jurisdiction on the basis that it was a ``necessary and proper party'' to those proceedings within CPR Pt 6.36 and Practice Direction 6B paragraph 3.1(3). No leave was needed to serve Holdings and Cyprus because the rules governing jurisdiction for claims against them are contained in Council Regulation (EC) 44/2001 (``the Judgments Regulation'') and so CPR Pt 6.33 applies. Similarly, no leave was needed to serve proceedings on Services and Leasing (Swiss companies) because the rules for jurisdiction in their cases is governed by the revised Lugano Convention (2007) The revised Lugano Convention came into force in England and Wales on 1 January 2010 and was ratified by Switzerland with effect from 1 January 2011. The transitional provisions at Art 63 of the revised Convention states that it ``shall apply only to legal proceedings instituted...after its entry into force in the state of origin...''. As Aeroflot issued the present claim against Services and Leasing on 15 December 2010 and the revised Convention had come into force in England and Wales on 1 December 2010, it is agreed that it is the revised Convention that applies to these proceedings. and so also by CPR Pt 6.33. In respect of the claims against each of these Forus companies, Aeroflot has said that the claims are ``...so closely connected that it is expedient to hear and determine the claims together to avoid the risk of irreconcilable judgments resulting from separate proceedings''. This is the...

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