29/04/2021

High Court deliberates modified universalism and the Brussels Recast Regulation in the context of Ukrainian insolvency proceedings

WWRT Limited v Tyshchenko & Tyshchenko [2021] EWHC 939 (Ch)

Judgment date: 21 April 2021 (Bacon J)

 

Overview

The High Court considered the interplay between the Brussels Recast Regulation (“BRR”) and the approach of modified universalism to international insolvency proceedings in the course of continuing a worldwide freezing injunction, dismissing a jurisdiction challenge and ordering further disclosure and cross-examination in support of the worldwide freezing injunction. Although this will be one of the last ever cases concerning the BRR, it is an important reminder of the effect Owusu v Jackson [2005] QB 801, when a finding of domicile is made and would be of particular significance should the United Kingdom accede to the Lugano Convention.

Facts

WWRT Limited (“WWRT”) had obtained, ex parte, a worldwide freezing order (“the WFO”) against Mr Serhiy Tyshchenko (“ST”) and his ex-wife Mrs Olena Tyshchenko (“OT”). The WFO was in support of WWRT’s claim founded on what was alleged to be an extensive fraud on JSC Fortuna Bank, a Ukrainian Bank, and the underlying claim was based on Article 1166 of the Ukrainian Civil Code.  Both ST and OT were served with proceedings in the jurisdiction. ST (but not OT) challenged the jurisdiction of the court on two grounds. First, it was said, as a result of ST being subject to Ukrainian insolvency proceedings, that WWRT’s claims could only be adjudicated within the Ukrainian insolvency process insofar as they related to ST under the principle of modified universalism; alternatively, there should be a stay by way of analogy under Article 34 of the BRR. ST also claimed he was not resident (and accordingly not domiciled) within England and Wales such that in the alternative there should be a stay on forum non conveniens grounds.  WWRT applied to continue the WFO. In addition to challenging the continuation on jurisdiction, ST raised points of alleged material non-disclosure at the ex parte hearing. WWRT also issued an application for cross-examination of ST and OT, and further disclosure of their assets to police the WFO.

Judgment

Jurisdiction

The court found that ST was resident in the UK (and accordingly domiciled in the UK). The evidence of ST was that he visited his children (who lived with OT in England) on weekends around twice a month. He remained in England during the first national Covid lockdown and although he previously stayed in hotels he would subsequently stay at OT’s home in England. The court accepted that this was a “settled pattern” of visits to England and the “centre of his relationship with his children is in England” which was sufficient to find that ST was resident in England ([44]). Bacon J confirmed that his residence was not undermined by the fact ST spent “substantial periods of time outside the UK” and England did not need to be regarded as his “principal place of residence” for the purpose of the test ([49]).

The court then considered the effect of the Ukrainian insolvency proceedings. The issue of law was whether, as a result of ST being domiciled in the UK, the court could stay the claim in favour of insolvency proceedings (using the principle of modified universalism) notwithstanding the decision of Owusu. Bacon J reviewed the decision in Owusu and confirmed that its reasoning applied when a stay was sought on grounds of modified universalism ([57]). The judge relied on the fact that insolvency proceedings are excluded from the scope of the BRR ([58]) and held that “where the proceedings do fall within the scope of the BRR, Article 4 must be regarded as mandatory save for the express exceptions set out elsewhere in the BRR” ([59]). She accepted the court retained a discretion to temporarily stay on case management grounds but that it would require “rare and compelling circumstances” and should not be used to undermine the scheme of the BRR: [60]-[61].  Even if a stay was technically permissible within the scope of the BRR, it was further held (following Mazur Media Ltd v Mazur Media GmbH [2004] 1 WLR 2966 – a pre Owusu decision) that such a stay should only be in “exceptional circumstances” or where there are “exceptionally strong grounds”: [62]. In considering this (and finding that such grounds had not been made out), the judge considered the scheme of Ukrainian Insolvency law, and found that ST did not have grounds for a stay ([66]-[73]). Further, in circumstances where an English bankruptcy petition had been presented against ST and the Ukrainian insolvency manager had applied for recognition in England, the effect of any possible stay as a result of the English bankruptcy proceedings or recognition was a matter to be resolved in those proceedings. Bacon J considered their existence to be a factor against a stay in the instant proceedings: [77].  Bacon J also rejected an argument for any reflexive effect of Article 34. She explained that the issue in the current case was very different from the supposed lacuna in the old Brussels Regulation (and Lugano Convention) where it had been held that a reflexive effect of a stay of proceedings that are ongoing in third states was available. Moreover, the court followed the decision in BB Energy v Al Amoudi [2018] EWHC 2595 (Comm), which held that arguments for reflexive effect were no longer available since Article 34 was designed to resolve that issue: [89]-[97].  Finally, in the alternative, Bacon J ruled that she would have refused a stay on forum non conveniens grounds, accepting that despite the clear links to Ukraine it did not mean that it was “‘clearly or distinctly’ the more appropriate forum” given the stage of the current proceedings and, in particular, the fact that OT was undoubtedly domiciled in the jurisdiction which remained a “very significant factor”, notwithstanding the decision in Vedanta Resources v Lungowe where such a factor was held to be no longer a “trump card”: [98]-[101].  The jurisdiction application was accordingly dismissed.

WFO and cross-examination application

The court continued the WFO. In particular, the court issued a reminder that the duty of full and frank disclosure only required parties “to identify arguments which it is reasonably anticipated that the absent party might wish to make, rather than to attempt an exhaustive trawl through every possible legal objection that might be taken” [122]. The court also ordered there to be a cross-examination on the defendants’ assets and for further disclosure to be provided in support of the WFO.

Representation

Andrew Ayres QC, leading Thomas Munby and James Mitchell of Maitland Chambers, was instructed by Georgina Squire and Hannah Sharp of Rosling King LLP on behalf of WWRT.

 

Read the full judgment