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April 10 2018
The Supreme Court recently held that the location of the incident from which damage arose in the context of a claim alleging the tort of conspiracy to injure by unlawful means was where a conspiratorial agreement was agreed. In this case, that location was England and the English courts therefore had jurisdiction.
This decision arose from ongoing litigation between JSC BTA Bank and its former chairman, Mukhtar Ablyazov.(1) Ablyazov was the chair and controlling shareholder of the bank between 2005 and 2009. It was alleged that during this period, he had embezzled approximately $6 billion of the bank's funds. In February 2009 the bank was nationalised and Ablyazov fled to England. In August 2009 the bank began proceedings against him in the Commercial Court, alleging misappropriation of its funds.
The bank obtained a disclosure order requiring Ablyazov to identify and disclose the whereabouts of his assets and a worldwide freezing order preventing him from dealing with them. However, in 2010 a large number of undisclosed assets and a network of undisclosed companies through which Ablyazov had sought to put them out of the bank's reach were revealed.
These proceedings were commenced in July 2015 and the defendants were Ablyazov and his son-in-law Mr Khrapunov, who was domiciled in Switzerland. The appeal before the Supreme Court was concerned only with the position of Khrapunov. The bank's case against him was that he had at all times been aware of the freezing order and a related receivership order, and that around 2009 he entered into a combination or understanding with Ablyazov to assist him in dissipating and concealing his assets. There was sufficient evidence to assume that they had entered into this understanding in England, where Ablyazov was then living.
It was alleged that Khrapunov had actively participated in the agreed scheme, both on Ablyazov's instructions and on his own initiative. He was said to have been instrumental in extensive dealings in the assets of companies controlled by Ablyazov and in laying a trail of false documents to conceal what had become of them. This is relied on as constituting the tort of conspiracy to cause financial loss to the bank by unlawful means.
The Court of Appeal had held that:
The Court of Appeal had decided on this basis that the English court had jurisdiction.
The appeal before the Supreme Court arose from an application by Khrapunov contesting the jurisdiction of the English court on two grounds:
Cause of action
The court began by establishing that the tort of conspiracy takes two forms:
As a criminal matter, conspiracy is the agreement or understanding that the parties will act unlawfully, whether or not it is implemented. The acts done pursuant to the agreement are relevant to the extent that they serve as evidence of that previous agreement. It is sometimes suggested that the position in tort is different and that the civil tort, unlike the crime, consists not of agreement but of concerted action pursuant to that agreement. The court stated that there was more to it than that, since:
It was decided that a crucial way of understanding what makes a conspiracy actionable is the "absence of a just cause or excuse". A person has a right to advance their own interests by lawful means, even if the consequence is to damage the interests of others. The existence of that right affords a just cause or excuse. On the other hand, where a person seeks to advance their interests by unlawful means, they have no such right.
The position is the same where the means used are lawful but the defendant's predominant intention was to injure the claimant rather than to further some legitimate interest of his or her own. This is because in that case, it cannot be an answer to say that the person was simply exercising a legal right. The defendant had no interest recognised by the law in exercising his or her legal right for the predominant purpose not of advancing his or her own interests, but of injuring the claimant. In either case, there is no just cause or excuse for the combination.
Therefore, as a tort of primary liability, the test for what constitute unlawful means is whether there is a just cause or excuse for combining to use unlawful means. This depends on:
The Appellate Committee in Total Network(2) held that a criminal offence could be a sufficient unlawful means for the purpose of the law of conspiracy, provided that it was objectively directed against the claimant, even if the predominant purpose was not to injure him.
It was concluded in the present case that the unlawful means relied on was criminal contempt of court (albeit that the offence is punishable in civil proceedings). The bank contended that the predominant purpose was to further Ablyazov's financial interests. Damage to the bank was not just incidental – it was absolutely the intention. The object of the conspiracy and the overt acts done pursuant to it was to prevent the bank from enforcing its judgments against Ablyazov, and the benefit to him was to the direct detriment of the bank (as both defendants would have appreciated). In principle, therefore, the Supreme Court concluded that the cause of action in conspiracy to injure the bank by unlawful means had been made out.
However, it was argued for Khrapunov that there was no right of action for contempt of court and that the absence of such a cause of action reflected a principle of public policy that persons in contempt of court should not be exposed to anything other than criminal penalties. This was referred to as the 'preclusionary rule'. Counsel for Khrapunov argued that if a non-actionable crime could in principle constitute unlawful means for the purpose of the law of conspiracy, a claim for civil damages founded on a contempt of court was contrary to public policy.
The court rejected this argument, drawing a distinction between the present case and rules of law relating to the conduct of legal proceedings which are based on a public policy precluding claims. The example given was of a witness who is immune from civil liability for things said in evidence; the court determined that the same principles could not apply to the present case. It was argued for Khrapunov that the principles on which the law of contempt was founded required the court to have control over the consequences of any such contempt. They argued it would not have if a right of action existed. The court rejected this assertion and stated that it was commonplace in the law that the same act may give rise to criminal and civil liability. It necessarily followed that in such cases, the sentence for the crime would be discretionary but the civil consequences would not.
The court concluded that the bank's pleaded allegations disclosed a good case of action for conspiracy to injure it by unlawful means.
The court established that Article 5 of the Lugano Convention provided for 'special jurisdiction', such that a person domiciled in a member state (ie, Switzerland) could be sued in another member state (ie, England) in matters relating to tort if that member state was the place where the harmful event had occurred or may occur. This is substantially identical to equivalent provisions in the Brussels Convention, the Brussels Regulation and the Brussels I Regulation.
This provision in respect of jurisdiction has been interpreted as giving a claimant the option of suing in the courts of either:
It was noted that "place where the harmful event occurred" in Article 5(3) required an autonomous interpretation to ensure its effectiveness and uniform application – that is, not by reference to national rules of non-contractual liability, as this would be contrary to the convention which is supposed to provide certain and clear jurisdiction. However, this requirement does not mean that the component elements of the cause of action in domestic law are irrelevant; they have a vital role in defining the legally relevant conduct and thus identifying the acts which fall to be located for the purposes of Article 5(3).
Various decisions of the of the European Court of Justice and the English courts were considered. In Shevill v Presse Alliance SA it was concluded that in the case of a libel by a newspaper article distributed in several contracting states, the place of the event giving rise to the damage could only be the place where the publisher of the newspaper in question was established, "since that is the place where the harmful event originated and from which the libel was issued and put in circulation".(3) In Domicrest Ltd v Swiss Bank Corpn(4) the claimant, an English company, alleged negligent misstatement as to the effect of a payment order made by the defendant bank in Switzerland to the claimant which was received and relied on in England. It was held that the place of the event giving rise to the damage was Switzerland, where the statement originated. This reasoning and conclusion has been expressly approved by the Court of Appeal.
On this basis, the Supreme Court concluded that the Court of Appeal had correctly identified the place where the conspiratorial agreement was made as the place of the event which gave rise to and was at the origin of the damage. In their view, therefore, the making of the agreement in England should be regarded as the harmful event which set the tort in motion.
With this decision, the Supreme Court has made clear that the test for liability in the tort of conspiracy will be whether there is a just cause or excuse for the defendants combining with each other to use unlawful means. Whether that is the case depends upon the nature of the unlawfulness and its relationship with the resultant damage. Any determination of unlawful means in this context is likely to be decided by reference to this test. Finally, this case further underlines that when seeking to determine the place of the event giving rise to damage, the court will consider the originating acts from which the tort arose.
For further information on this topic please contact Sarah Shaul or Simon Hart at RPC by telephone (+44 20 3060 6000) or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
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