High Court refuses to stay proceedings against English domiciled defendant in light of pending Ukrainian insolvency proceedings

The High Court has rejected a challenge to its jurisdiction brought by a defendant who was found to be domiciled in England, and who was also a party to ongoing Ukrainian insolvency proceedings: WWRT Ltd v Tyshchenko [2021] EWHC 939 (Ch).

The court found that, since the court had jurisdiction based on the defendant's domicile under Article 4 of the Brussels Regulation (Recast) ("BRR"), it did not have power to stay its proceedings based on the principle of "modified universalism" (ie the requirement that the English courts should generally co-operate with the courts in the country of the principal liquidation), or by analogy with Article 34 of the BRR, or by applying the principle of forum non conveniens.

In dismissing the challenge, the court provided guidance on the availability of a stay of English proceedings in connection with foreign insolvency proceedings, which will be of particular interest in relation to transitional cases subject to the BRR (ie where proceedings were started before the end of the Brexit transition period at the end of 2020), and if the UK ultimately accedes to the Lugano Convention (as to which see this blog post). The decision is, however, also relevant in post-Brexit cases in which questions of jurisdiction are governed by the common law rules.

The court in this case held, unsurprisingly, that a stay under the common law grounds of modified universalism will only be available where it does not undermine express rules governing jurisdiction. In this context, due to the mandatory nature of Article 4 of the BRR, and the nature of the claims brought in England, the analysis was relatively brief – a stay would have cut across Article 4 of the BRR, and so was not available.

However, the common law rules for establishing jurisdiction are less prescriptive than the BRR, allowing a defendant to challenge jurisdiction on the basis that there is a more appropriate forum (whether or not the defendant is domiciled within the jurisdiction). Accordingly, those aspects of the judgment concerned with whether the court should exercise its discretion to grant a stay in favour of foreign proceedings  – that discretion arising from the English Court's inherent discretion to stay proceedings and being entirely unrelated to the BRR – will be relevant in challenging jurisdiction as established by the common law rules.

Background

The claimant ("WWRT") commenced a claim against Mr Serhiy Tyshchenko and his ex-wife, Mrs Olena Tyshchenko, in which WWRT alleged the defendants had carried out an extensive fraud on a Ukrainian Bank, JSC Fortuna Bank ("Fortuna Bank"). Following the alleged fraud Fortuna Bank was declared insolvent and was liquidated, and disputed loans extended by Fortuna Bank said to be at the centre of the alleged fraud were sold to a Ukrainian company (Star Investment One LLC ("Star")). Star sold those assets to WWRT, which argued that it had acquired the rights to bring the claim against the defendants.

Following the grant of a worldwide freezing order in connection with the claim, Mr Tyshchenko challenged the jurisdiction of the court. This summary focuses on the aspects of the court's judgment relating to that challenge.

The following parallel proceedings involving the defendants in both Ukraine and England were relevant to the court's reasoning:

• Personal bankruptcy proceedings of Mr Tyshchenko in the Ukrainian courts, in which Star applied unsuccessfully to be recognised as a creditor. The judgment dismissing the application (the "Star Judgment") was relied on by the defendants in these proceedings.
• A bankruptcy petition in respect of Mr Tyshchenko in the English courts, brought by a judgment creditor. The manager of the Ukrainian bankruptcy proceedings applied for recognition in these proceedings, and Mr Tyshchenko applied to strike them out; both of those applications were pending at the time of judgment.

Decision

The High Court (Bacon J) dismissed Mr Tyshchenko's application to challenge the court's jurisdiction.

The judge found, as a matter of fact, that at the time the proceedings were issued Mr Tyshchenko was domiciled in England for the purposes of Article 4 of the BRR. She then went on to consider whether, despite jurisdiction having been established based on domicile for the purposes of Article 4, a stay of the English proceedings should be granted at common law, to assist the pending Ukrainian insolvency proceedings.

It was accepted that jurisdiction under Article 4 excluded any challenge on forum non conveniens grounds, following the judgment of the CJEU in Owusu v Jackson EU:C:2005:210, [2005] QB 801. The defendant argued, however, that this did not preclude a stay in favour of foreign insolvency proceedings either:

1. Under the common law principle of Modified Universalism; or
2. By analogy with Article 34 of the BRR.

Modified Universalism

Bacon J noted that modified universalism is the requirement that the English courts should "so far as is consistent with justice and UK public policy, co-operate with the courts in the country of the principal liquidation to ensure that all the company’s assets are distributed to its creditors under a single system of distribution" (quoting Lord Hoffman in In re HIH Casualty and General Insurance [2008] 1 WLR 852). The principle generally supports the grant of a stay to prevent claimants from effectively side-stepping foreign insolvency proceedings by launching domestic proceedings.

The question before Bacon J was whether this principle could be deployed to justify a stay of the English proceedings in favour of the pending Ukrainian insolvency proceedings, notwithstanding that jurisdiction in England had been established under Article 4 on the basis of Mr Tyshchenko's domicile in England.

In commencing her analysis, Bacon J noted the considerations underlying the CJEU's decision in Owusu, in particular the mandatory nature of Article 4 (or rather its predecessor under the Brussels Convention, which applied in Owusu) and respect for the principle of legal certainty, both of which would be undermined by the exercise of a wide discretion to stay proceedings on grounds of forum non conveniens.

In principle, she said, those considerations would apply equally to a discretionary stay on the grounds of the principle of modified universalism. The question was whether the particular nature of insolvency proceedings requires a different approach.

Bacon J acknowledged that the "peculiarities" of bankruptcy require special rules relating to jurisdiction and recognition, which is why Article 1 of the BRR specifically excludes bankruptcy/insolvency proceedings from the scope of the BRR. A similar approach is reflected in the Recast Insolvency Regulation (EU) 2015/848 and the UNCITRAL Model Law on cross-border insolvency. The particular nature of insolvency proceedings was therefore addressed by taking such proceedings out of the scope of the BRR altogether. That, she said, indicated that in a case where the proceedings do fall within the scope of the BRR, Article 4 must be regarded as mandatory (subject to the express exceptions set out in the BRR). In the present case, it was common ground that the English proceedings (which are comprised of claims in tort under the Ukrainian Civil Code) did not fall within the bankruptcy/insolvency exclusion to Article 4 of the BRR. Thus, while implying that a discretionary stay could be available if the claims brought in England were of a different nature, Bacon J's view was that jurisdiction in the present case could not be avoided by a common law stay of the English proceedings on the basis of modified universalism.

The court then considered, for the sake of argument, if it had come to the conclusion that a stay was available, whether it should exercise its discretion to grant a stay in these circumstances. The relevant standard is whether there are "exceptional circumstances" or "exceptionally strong grounds" to do so. In brief, the court concluded that such grounds were not demonstrated, on the basis that (inter alia) there was no risk of potential inconsistency with the Ukrainian insolvency proceedings as the English proceedings were brought in tort (which would have to be tried outside the insolvency process in Ukraine).

Article 34

The court considered an argument raised in oral submissions that a stay could be granted "by analogy" with Article 34 of the BRR, which provides for a discretion to grant a stay in favour of actions pending in a third state (ie outside the EU) if certain criteria are satisfied (including a risk of irreconcilable judgments resulting from the separate proceedings).

The argument was roundly rejected by Bacon J – even if Article 34 could be extended in this way (which she found it could not), a stay could not be justified as there was no risk of irreconcilable judgments between the Ukrainian insolvency proceedings and the English proceedings (the latter being concerned with a civil claim in damages not at issue in the former).

Forum non conveniens

Lastly, and while acknowledging that its findings on domicile under Article 4 of the BRR rendered the issue irrelevant, the court rejected the prospect of a stay on forum non conveniens grounds.

This followed from the same considerations which led the court to conclude that a discretionary stay would not be appropriate under modified universalism, even if a stay on such grounds were available. Further, despite the central issues turning on Ukrainian law, Ukraine was not "clearly or distinctly" the more appropriate forum for the dispute (adopting the standard in The Spiliada [1987] AC 460). In addition, the fact that a co-defendant of Mr Tyshchenko was "undoubtedly domiciled" in the jurisdiction militated against a forum non conveniens stay.

Note: The Court of Appeal has refused permission to appeal against this decision.