Anchoring to the jurisdiction – Court of Appeal supports the use of anchor defendants

PJSC Commercial Bank Privatbank v Kolomoisky [2019] EWCA Civ 1708

In this recent decision concerning Article 6(1) of the Lugano Convention, the Court of Appeal has supported the use of anchor defendants to sue foreign parties domiciled in convention states. That applies even where the sole reason for suing the anchor defendant is to draw a foreign party into English proceedings who would otherwise not be subject to the English court's jurisdiction.

The decision brings into focus the strategic use of anchor defendants in order to facilitate proceedings being brought against connected foreign parties. Those parties might include individual shareholders, UBOs or parent organisations based abroad who might otherwise not consider themselves subject to the jurisdiction of the English courts.

This case confirms that foreign parties are not necessarily immune from litigation in England simply by reason of their domicile.

The case

The claimant, PJSC Commercial Bank Privatbank (Privatbank), started a substantial claim against a number of defendants in relation to an alleged $1.91 billion fraud.

The first two named defendants in the proceedings were two Ukrainian billionaire businessmen: Igor Kolomoisky and Gennadiy Bogolyubov. Both were the former majority shareholders and board members of Privatbank and, importantly, domiciled in Switzerland. The third to fifth defendants were companies incorporated in England and the sixth to eighth defendants were companies incorporated in the British Virgin Islands.

The two oligarch defendants sought to challenge the English court's jurisdiction. They argued that the English court had no jurisdiction – because they were domiciled in Switzerland that is where they should have been sued.

Under Article 6(1) of the Lugano Convention (to which the UK and Switzerland are both parties) a foreign party domiciled in a convention state can be sued in the state of another defendant to litigation where there are closely connected claims and there is a risk of irreconcilable judgments.

Both defendants argued that this provision did not apply in this case. They argued that the provision should not apply if it is being misused only for the purpose of securing jurisdiction where jurisdiction would otherwise not exist. It was said that the English defendants were only being used to anchor the claims in England and in these circumstances Article 6(1) should not be capable of being used to establish jurisdiction over them.

The defendants submitted that, properly construed, Article 6(1) should be subject to a "sole object" test so that foreign parties cannot unwittingly be sucked into English proceedings if an anchor defendant is used for the "sole object" of removing the foreign defendant from the jurisdiction of his domicile.

The court of first instance agreed. Privatbank appealed.

The Court of Appeal's decision

The issue put to the Court of Appeal was whether Article 6(1) was subject to a sole object test. This required an analysis of the European cases. As the court confirmed, there was no single earlier judgment which was capable of providing a conclusive answer. Accordingly, the court needed to carry out a review of the cases which considered Article 6(1) and its other equivalent provisions, to try and identify the applicable principles.

The court began by considering Kalfelis v Bankhaus Schröder (case 189/87) [1988] ECR 5565, [1989] ECC 407 (Kalfelis). There it was held that the Article 6(1) exception must be interpreted so as not to call in to question the existence of the primary principle that a defendant should be tried in their domicile jurisdiction. The court considered that this may be the case where the sole object scenario arose.

However, the court went on to observe (in line with the Opinion of the Advocate General) that the issue posed by the sole object scenario could be overcome by imposing an objective requirement that for Article 6(1) to be invoked, a close connection must exist between the actions against each defendant.

An objective close connection test was considered to be preferable to one which was subjective. This would promote legal certainty and avoid issues inherent in trying to look behind a party's subjective thinking.

The decision in Kalfelis was supported by the decision in Freeport plc v Arnoldsson (case C-98/06) [2008] QB 634 (Freeport). There the court confirmed the requirement that all the claimant needed to show was that the claims against the defendants were connected when proceedings are instituted and nothing more.

Freeport was thought to have settled the matter; however, in 2015 the question arose again in Cartel Damage Claims (CDC) Hydrogen Peroxide SA v Akzo Nobel NV (case C-352/13) [2015] QB 906 (Cartel Damage). In Cartel Damage, the court considered whether Article 6(1) would be available where, as was alleged, a defendant (ie the anchor defendant) had purposely delayed settling with the claimant in order that another foreign defendant be made a party to the proceedings.

In that case, the court held that there were limitations on the applicable scope of Article 6(1), but unless it was found that at the time that the proceedings were instituted, "the applicant and the defendant had colluded to artificially fulfil, or prolong the fulfilment of, that provisions applicability", Article 6(1) could still be engaged.

These cases were considered by the Court of Appeal in Privatbank and the majority ruled that Article 6(1) was not subject to a "sole object" test.

What does this mean going forward?

The following overlapping principles can be identified from the decision.

First, the primary position, that a defendant has to be sued in their jurisdiction of domicile, can be displaced by Article 6(1) if there are claims against the foreign defendant which are closely connected to the claims to be brought against another defendant (ie the anchor defendant). The question of whether there is a close connection is one which must be assessed objectively.

Second, the court's jurisdiction can be exercised pursuant to Article 6(1) if:

• the claim against the anchor defendant is sustainable, and
• the claim is one which the claimant intends to pursue to judgment.

Third, there are only limited circumstances in which Article 6(1) will not apply. These are in cases where there has been an abuse of law. They include:

• cases where there has been collusion between a claimant and an anchor defendant aimed at concealing a settlement so that the jurisdictional gateway to suing the foreign defendant in England remains open
• commencing proceedings against a fictitious person as the anchor defendant, or
• starting proceedings against an anchor defendant knowing that those claims are inadmissible.

While the case itself might appear as though it only concerns Article 6(1) of the Lugano Convention, this provision is mirrored in the Recast Brussels Regulation and features with broadly similar effect in English common law. As such, the case has potentially wider application.

The ruling serves as a warning to those domiciled in a foreign country that they are not immune to being drawn into English litigation simply by reason of their domicile. Conversely, the ruling can give claimants confidence that foreign parties can be sued in England if an appropriate anchor defendant can be found.

Nick Storrs and Miles Harmsworth