Communicated on 3 December 2015
FIRST SECTION
Application no. 62976/12
NAK NAFTOGAZ UKRAINY
against the United Kingdom
lodged on 1 October 2012
STATEMENT OF FACTS
The applicant, NAK Naftogaz Ukrainy, is an open joint-stock company which was incorporated and registered in Ukraine on 2 June 1998. Its registered office is in Kiev. It is wholly owned by the State of Ukraine. It is represented before the Court by Lawrence Graham LLP, a law firm based in London, and Mr P. Gardner, a barrister practising in London.
A. The circumstances of the case
The facts of the case, as submitted by the applicant, may be summarised as follows.
1. The background facts
On 31 December 1997 Ukrgazprom entered into an agreement for the supply of gas with Gazprom, a Russian oil and gas company (“the 1997 Agreement”). As part of the contractual arrangements, Ukrgazprom agreed to pay sums owing under the contract to Serverstudstroy, another Russian company, to offset debts owed to that company by a Gazprom subsidiary.
On 21 December 1998 Ukrgazprom and Serverstudstroy entered into an agreement as to the procedure, terms and conditions for payments due under the 1997 Agreement (“the 1998 Agreement”). Gazprom was not a party to the 1998 Agreement.
On 28 December 1998 Serverstudstroy entered into an agreement assigning its rights under the 1998 Agreement to Merchant International Company Limited (“MIC”) (“the Assignment Agreement”).
In 1999 the rights and obligations of Ukgazprom were assigned to the applicant.
2. The Ukrainian proceedings
(a) The first set of proceedings
In January 2002 MIC brought a claim against the applicant in the Commercial Court of Kiev alleging non-payment of sums due under the 1997 Agreement. The main point of contention was the validity of the 1998 Agreement.
On 14 March 2002 the Commercial Court rejected the claim. It found the 1998 Agreement to be invalid. MIC appealed, first to the Kiev Commercial Court of Appeal, which dismissed the appeal on 24 September 2002; then to the Supreme Commercial Court of Ukraine, which dismissed the appeal on 1 April 2003. MIC lodged a further appeal with the Supreme Court of Ukraine. On 14 October 2003 the Supreme Court remitted the claim to the Commercial Court.
(b) The second set of proceedings
The Commercial Court re-examined the case. On 10 February 2004 it held that both the 1998 Agreement and the Assignment Agreement were invalid. On 29 April 2004 and 29 April 2005 respectively, the Commercial Court of Appeal and the Supreme Commercial Court dismissed the appeals lodged by MIC. MIC lodged a further appeal with the Supreme Court which, on 9 August 2005, again remitted the case to the Commercial Court.
(c) The third set of proceedings
The Commercial Court re-examined the case for a second time. On 21 April 2006 it found in favour of MIC and awarded damages. The applicant appealed to the Supreme Commercial Court.
In a judgment of 29 June 2006 (“the 2006 judgment”) the Supreme Commercial Court affirmed the decision of the Commercial Court but reduced the damages payable. It ordered the applicant to pay to MIC 24,719,564.70 US dollars (“USD”) in damages and USD 5,050 in costs.
On 29 September 2006 an order for the compulsory enforcement of the 2006 judgment was issued.
3. The enforcement proceedings
(a) Enforcement attempt in Ukraine
On 7 August 2009 MIC sought to enforce the 2006 judgment in Ukraine. It was prevented from doing so because of a law, enacted in July 2005, which suspended execution of court judgments against energy companies. The enforcement officer issued a decree terminating the enforcement proceedings on 1 December 2009.
(b) Steps to enforce in England
On 13 April 2010 MIC issued a claim form and a without notice application in England for a freezing order against the applicant’s five per cent shareholding in JKX Oil and Gas plc, a company listed on the London Stock Exchange. It also sought permission to serve the applicant out of the jurisdiction.
On 15 April 2010 the High Court granted the freezing order and granted permission to serve out of jurisdiction. Service was effected in Ukraine in September 2010.
The applicant sought to set aside service on the ground that the exercise by the English Court of jurisdiction over the claim would circumvent the domestic law suspending enforcement in Ukraine. The application was heard and dismissed by the High Court on 28 January 2011.
The applicant subsequently stated an intention to defend but no defence was served.
On 28 February 2011 the High Court handed down a default judgment in favour of MIC in the sum of USD 24,719,564.70.
On 10 March 2011 and interim charging order was made in respect of the applicant’s five per cent shareholding in JKX Oil and Gas plc, a company listed on the London Stock Exchange.
4. The review in Ukraine
Meanwhile, on 11 February 2011, the applicant lodged a petition in the Supreme Commercial Court of Ukraine under Article 112 of the Commercial Procedure Code (see “Relevant domestic law and practice”, below) for a review of the 2006 judgment on the basis of newly discovered circumstances. The newly discovered circumstances were that MIC had lacked legal standing or capacity to enter into the Assignment Agreement. On 22 February 2011 the applicant supplemented its grounds for review by reference to further newly discovered circumstances, namely that the 1997 Agreement had not been signed by Ukrgazprom’s authorised signatory.
On 23 February 2011 the Supreme Commercial Court accepted the applicant’s petition and suspended the enforcement of the 2006 judgment. It listed a hearing to take place on 23 March 2011. That hearing was subsequently postponed and a hearing was set for 7 April 2011.
In a judgment of 7 April 2011 (“the 2011 judgment”) the Supreme Court granted the applicant’s petition as regards the alleged lack of capacity of MIC, quashed the 2006 judgment and remitted the claim to the Commercial Court for a retrial. It found that there were newly discovered circumstances in respect of MIC’s standing which were material to the resolution of the dispute. It considered that the applicant had provided evidence as to how and when it had become aware of these circumstances and held that this evidence showed that the circumstances were unknown to the applicant and the Supreme Commercial Court in 2006; that the evidence did not postdate the 2006 judgment; and that the newly discovered circumstances were made the subject of a timeous application under Article 112 of the Commercial Procedure Code.
On 26 April 2011 MIC applied to the Supreme Commercial Court for a review of its judgment. The request was rejected on 31 May 2011.
On 1 June 2011 MIC lodged a petition with the Supreme Commercial Court under Article 112 of the Commercial Procedure Code requesting a review of the 2011 judgment on the basis of newly discovered circumstances, namely that the applicant had misled the court.
On 22 June 2011 the Commercial Court of Kiev stayed the remitted proceedings pending the outcome of MIC’s petition.
MIC’s petition was refused on 3 August 2011.
5. The application in England to set aside the default judgment
(a) The High Court
On 14 April 2011, shortly after the 2011 judgment by the Supreme Commercial Court of Ukraine had been handed down, the applicant applied to the High Court to have the default judgment set aside. It relied on the 2011 judgment of the Supreme Commercial Court in Ukraine. It argued that there was now no foreign judgment which could be recognised or enforced in England. It contended that the court could only refuse to recognise a foreign judgment in the event of a flagrant breach of Article 6, and that no such breach had occurred in respect of the 2011 judgment.
MIC’s position was that the High Court should not recognise the 2011 judgment. It complained that the decision did not respect the principle of legal certainty and the finality of judgments because the Supreme Commercial Court of Ukraine had simply responded to the applicant’s bare assertion that there were newly discovered facts and had not ruled on whether the evidence was credible and decisive or whether it could have been discovered by due diligence at the time of the original trial. MIC invoked Article 6 of the Convention and Article 1 of Protocol No. 1.
On 14 July 2011, while the request by MIC for a review of 2011 judgment was outstanding before the Supreme Commercial Court of Ukraine, the High Court ruled on the application to set aside the default judgment. The judge summarised the recent proceedings in Ukraine and observed that the question was “whether in those circumstances the fact that the Ukrainian judgment has been set aside should be ignored by this court”. He observed that the issue was “not so much the enforcement of the original judgment but the recognition of the judgment setting it aside”, explaining that if the latter judgment lacked due process then the default judgment would stand. In this respect, he referred to the well-established principle that where recognition of a judgment would be contrary to public policy it would be refused. This included, he said, where recognition would be contrary to the Convention.
The judge accepted that the court was required to approach the question whether the 2011 judgment fell short of the guarantees of a fair trial with “considerable caution”. The presumption was that the procedures in Ukraine were compliant. However, the judge accepted that the presumption was displaced here, explaining:
“32. ... There is no escaping the fact that the order of the Supreme Commercial Court involved a clear disregard of the principles of legal certainty.”
The judge found that the Supreme Commercial Court had allowed the entire case to be reopened by reference solely to the issue of the capacity of MIC to enter into the agreement. This would permit the applicant to raise the issue of whether the signatory of Ukrgazprom was authorised, even though this point was not expressly mentioned in the order. As regards the capacity issue, no finding had been made as to its evidential significance nor as to the extent to which the material could, with reasonable diligence, have been available at the earlier hearing. The judge considered that the requirement that a breach be “flagrant” before he could refuse to enforce a foreign judgment arose in respect of decisions of the courts in non-Convention countries only. He added that even if the applicant were right and any breach of Article 6 had to be “flagrant” before the court could refuse to enforce a foreign judgment, the 2011 order did indeed “flow from a glaring shortfall from compliance with principle”.
The judge therefore concluded that the recognition should not be accorded to the 2011 judgment and that, in consequence, the application to set aside the default judgment should be dismissed. He noted:
“36. My overall conclusion that recognition should not be accorded to the judgment of the Supreme Commercial Court is fortified by two further considerations:
a) The original (and final) judgment has been in existence for five years. The proceedings to enforce it in England began over a year ago. It was only shortly after the failure to set aside service that any challenge to the original judgment was first mooted. Such a challenge should accordingly be approached with some caution if not scepticism.
b) The observations of the ECHR in both Pravednaya [v. Russia, no. 69529/01, 18 November 2004] and Lizanets [v. Ukraine, no. 6725/03, 31 May 2007] call for the requirements of Article 6 to be approached with particular sensitivity where, as here, the outcome of the proceedings favoured a State-owned entity.”
The applicant was granted permission to appeal the judgment.
(b) The Court of Appeal
Before the Court of Appeal, the applicant argued that the High Court judge had asked himself the wrong question. Instead of considering whether he ought to recognise the 2011 judgment, he should have asked himself whether, at the time the matter was pending before him, MIC had a Ukrainian judgment which it could call on an English court to enforce. Since at the time of the High Court decision the 2006 judgment had been set aside, there was no final judgment to be enforced.
The applicant further contended, relying on Linberg v. Sweden (dec.), no. 48198/99, 15 January 2004, that the judge had been wrong to entertain the question whether the 2011 judgment breached the Convention, since it was not for the courts of one Convention State to judge whether there had been a breach of the Convention in another Convention State.
MIC contended that the 2011 judgment had breached its rights under Article 6 of the Convention. It considered the High Court judgment to be an example of the well-known principle that an English court would not give force to a judgment of a foreign court in circumstances where to do so would be contrary to public policy.
On 8 February 2012 the Court of Appeal refused the appeal. Lord Justice Toulson, delivering the lead judgment, began by emphasising that the applicant had had no defence to the claim in February 2011, when the default judgment was entered. Its failure to serve a defence was not through oversight, he said, but because it had at that time no defence that it could plead. MIC therefore had a judgment in its favour which was conclusive within the meaning of that term under English law. It was therefore proper that the High Court had proceeded by examining whether the 2011 judgment setting aside that conclusive judgment violated the principles of substantial or natural justice and MIC’s Convention rights. He rejected the contention that Linberg was authority for the wide principle that the courts of a Convention State should never concern themselves with the question whether there had been a breach of a party’s Convention rights in another Convention State.
As to whether there had been a breach of legal certainty by the making of the 2011 judgment, the judge considered that the factual basis for such a conclusion was “very strong”. He continued:
“72. ... There was no credible basis for suggesting that Naftogaz could not have investigated the status of MIC at the time of the assignment during the original litigation and it does not appear that any was put forward. The assertion that MIC lacked legal capacity to enter into the assignment was based on a partial record obtained from the Delaware Corporation Registry, which was corrected by the fuller version produced by MIC prior to the order dated 7 April 2011. It could not on any threshold examination have been described as decisive evidence not previously available through the exercise of due diligence (applying the test in Pravednaya). If, as it seems, the [Supreme Commercial Court’s] rules prevented it from making that threshold assessment, an order setting aside the judgment and directing a retrial without such an assessment was a negation of the principle of legal certainty.”
The judge commented that it was clear from the 2011 judgment that the Supreme Commercial Court had carried out no assessment of whether there had been newly discovered circumstances of a decisive nature which could not have been ascertained with due diligence at the time of the original proceedings.
The judge then turned to examine the “critical question” whether, in light of the facts that the applicant had had no defence when the default enforcement judgment had been obtained and that the 2011 judgment offended again the principle of legal certainty, the High Court had been properly entitled to refuse to set aside the default judgment. He answered this question in the affirmative. He noted that Rule 13.3 of the Civil Procedure Rules (“CPR” – see “relevant domestic law and practice”, below) provided that the fact that a defendant would now have an arguable defence to the claim if the judgment were set aside was not a mandatory ground for setting aside the judgment: the court retained a discretion. Many factors might be relevant. The judge observed that an English judgment was a form of property and that to set it aside was to deprive the judgment creditor of an asset. In deciding whether to exercise its discretion under CPR 13.3, the court had to consider the question of what was just. He concluded:
“79. ... In this case the court was being asked to set aside a judgment, which had been properly obtained, on the basis of a later proceeding which involved a fundamental denial of legal certainty and fair process. The judge’s refusal to do so was just.”
On 27 March 2012 the applicant applied for leave to appeal to the Supreme Court. It argued that in light of the 2011 judgment there was no longer a valid foreign judgment for the courts of England to enforce; that MIC could not establish a flagrant denial of justice in Ukraine; and that in any event the English courts, in refusing to set aside the default judgment, had acted incompatibly with the applicant’s rights under Article 1 of Protocol No. 1 to the Convention because the debt was not “provided for by the law” under the domestic law of Ukraine.
On 26 July 2012 the Supreme Court refused leave to appeal because the application did not raise an arguable point of law of general public importance for consideration by that court at that time, bearing in mind that it had already been the subject of judicial decision and reviewed on appeal, and because the appeal would have no prospect of success.
On 2 October 2012 the interim charging order on the JKX shares was made final in the sum of the amount arising from the default judgment plus interest, namely USD 28,718,464.29 and daily interest of USD 5,5584.53.
6. The retrial in Ukraine
Meanwhile, on 1 September 2011 the Commercial Court of Kiev resumed its examination of the remitted claim lodged by MIC.
On 3 November 2011 it dismissed MIC’s claim. It accepted that the documents before it showed that at the relevant time MIC had had full legal capacity and was not restricted in the execution of any transactions. However, it found that the 1997 Agreement was governed by Russian law and that it was partly void because it had not been signed by the correct signatory on behalf of Ukrgazprom. The debt supposedly assigned to MIC was therefore not a valid debt. The court accepted that the argument had already been advanced by the applicant in March 2002 and had been rejected in earlier proceedings but considered this to be immaterial, explaining:
“... the court may not renounce the consideration of all circumstances of the case in their entirety, guided by the law, only for the reasons that the case has been considered by the courts on repeated occasions and over a long period of time, and the arguments adduced by the parties had already been considered at the trial of this and other cases ... Under the procedural rules, the Commercial Court shall assess the evidence in accordance with its own convictions and, therefore, the court may not base its decision on any conclusions reached by some other courts, because the opposite would result in a violation of the requirement for the court to examine all circumstances of the case at first hand.”
It said that it could see no legal grounds for limiting the fresh trial of the case only to the verification of how the newly-discovered circumstances affected the merits of the decisions, which had already been set aside. It continued:
“In so far as recovery of money from the respondent in favour of the claimant does not meet the requirements of laws and would lead to their violation, not their enforcement, that recovery cannot be deemed to be a consequence of a fair hearing to ensure humanity and fairness. It is therefore impossible to conclude that a claim must be allowed out of consideration for ensuring legal certainty, i.e. for the sake of protecting one aspect of the principle of the supremacy of the law (legal certainty) at the cost of ignoring another aspect (legality).”
MIC’s appeal to the Commercial Court of Appeal was refused on 27 January 2012. Its further appeal to the Supreme Commercial Court was refused on 24 July 2012.
On 30 August 2012 the applicant petitioned the Commercial Court of Kiev for an order to cease recovery under the 2006 judgment. On 6 September 2012 the Commercial Court ruled that recovery based on the 2006 judgment was terminated.
B. Relevant domestic law and practice
1. Ukraine
(a) Reconsideration of judgments based on newly discovered facts
Article 112 of the Commercial Procedure Code provides that where newly discovered facts have materialised, the Supreme Court of Ukraine has jurisdiction to reconsider a previous judgement of the same court. There are several circumstances in which such reconsideration can take place, one being where the newly discovered facts in question relate to circumstances that are material to the case, and which were not or could not have been known to the applicant at the time of the original proceedings.
Pursuant to Article 113 of the CPC, the parties have one month from the date of discovery of the newly discovered facts to file an application for reconsideration.
Article 114 governs the procedure that is implemented in cases involving reconsideration of a court decision on the basis that new facts have emerged. It provides that resolutions and rulings of appellate and cassation courts, which change or reverse the decision of a trial court, are to be reconsidered, by the court of the same instance that changed or adopted the new decision. In addition, in the event that an original decision is reversed following this process, the case is retried by the commercial court in Ukraine.
(b) Enforcement of judgments
Article 5.2 of Law no. 2711-IV was enacted on 23 June 2005 in order to protect against consequences of the crisis in energy supplies in Ukraine. It suspended execution of judgments against energy companies.
2. England
The relevant provisions of the Civil Procedure Rules on default judgments are in Parts 12 and 13.
Part 12 sets out when and how a default judgment may be obtained.
Part 13 sets out the grounds for setting aside a default judgment. CPR 13.2 lists the grounds on which the court must set aside a default judgment. The applicant does not suggest that any of the grounds applied in the present case. CPR 13.3.1 sets out discretionary grounds for setting aside a judgment. It provides:
“In any other case, the court may set aside or vary a judgment entered under Part 12 if–
(a) the defendant has a real prospect of successfully defending the claim; or
(b) it appears to the court that there is some other good reason why–
(i) the judgment should be set aside or varied; or
(ii) the defendant should be allowed to defend the claim.”
CPR 13.3.2 provides that in considering whether to set aside or vary a judgment, the matters to which the court must have regard include whether the person seeking to set aside the judgment made an application to do so promptly.
COMPLAINT
The applicant complains under Article 1 of Protocol No. 1 that the English courts’ refusal to set aside the default judgment constituted a violation of its right to “the peaceful enjoyment of [its] possessions”, on the basis that the decision was contrary to the “lawfulness” requirement inherent in that Article.
QUESTIONS TO THE PARTIES
1. Has the applicant exhausted all effective domestic remedies, as required by Article 35 § 1 of the Convention? In particular, did the applicant invoke before the national authorities, at least in substance, and in accordance with applicable procedural requirements, its arguments concerning the alleged breach of the “lawfulness” requirement inherent in Article 1 of Protocol No. 1?
2. Has there been an interference with the applicant’s peaceful enjoyment of possessions, within the meaning of Article 1 of Protocol No. 1, and, if so, what was the nature of that interference?
3. Did any such interference satisfy the “lawfulness” requirement inherent in Article 1 of Protocol No. 1?
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