English Court of Appeal Ruling Emphasises Need for Care When Launching Proceedings as Part of an International Litigation Strategy

August 17, 2018

Commercial court litigation is often seen as a tactical weapon that provides a means to a greater end, in an international context the end perhaps being the securing of an English judgment that might then assist parallel proceedings in other jurisdictions. 

The recent Court of Appeal decision in Anatolie Stati, Gabriel Stati, Ascom Group S.A., Terra Raf Trans Traiding Limited v The Republic of Kazakhstan serves to reinforce that careful thought is needed before embarking on litigation – whether for tactical reasons or otherwise – given two particular risks that can present themselves: 

  1. The first risk is that the English court may decline to entertain the claim if it appears that the claimant has no legitimate interest in the proceedings. Simply because a party desires to have a matter heard – even to determine serious issues such as fraud – will typically not be enough for the court to permit proceedings to continue if there is no “live” issue before the English court. 

  2. The second risk arises if the proceedings reach a stage where the claimant wishes to discontinue them. Whilst it might be assumed that discontinuance is always an option (though with the painful consequence of having to pay the other side’s legal costs), that will not always be the case. 

Background of the Case 

The claimants obtained an arbitral award against the State of Kazakhstan (the State) in Sweden to pay damages in excess of $500 million. The claimants successfully sought permission to enforce the arbitral award in England, as well as seeking permission in several other jurisdictions. The State applied to have the enforcement order set aside, in part on the ground that enforcement would be contrary to public policy because it was said that nearly $200 million of the award was procured from a fraudulent valuation of an asset to which the award related. 

Eventually, the claimants served a notice of discontinuance of the enforcement proceedings under CPR Part 38.2. The State's response was to issue an application to proceed with its fraud claim or alternatively for the notice of discontinuance to be set aside. At first instance, the court set aside the notice of discontinuance and provided directions for the State’s fraud claim to proceed to trial. The claimants appealed this decision to the Court of Appeal, and we address some of the key issues that arose below. 

Legitimate Interest 

The court held that the State did not have a legitimate interest in the proceedings continuing. Richards LJ was categorical that the jurisdiction of the English courts is invoked “only for the purpose, of obtaining relief in the form of orders of the court, including where appropriate declarations. It is not the function of our courts to hear cases which have no relevant result.” The claimants had brought the proceedings in England to enforce the arbitral award. The State had raised allegations of fraud in order to defeat the enforcement proceedings. Given that the claimants had now chosen to withdraw the enforcement proceedings, hearing a trial on the allegations of fraud would serve no real purpose. The limited resources of London’s Commercial Court were clearly a factor in determining that the continuation of the case was not justified. 

Even though the issue of fraud remained “a question that the [State] would wish to be answered,” the mere desire of a party to have an issue tried did not justify the continuation of proceedings in these circumstances. 

Use of English Judgments in Foreign Proceedings 

The court conceded that English proceedings could continue in these circumstances if there was a “very strong case for a continuing interest” and acknowledged the possibility of there being “exceptional circumstances” to justify the continuation of such proceedings even where their immediate purpose had ceased. For example, if a finding of fraud by the English court would create an issue estoppel in other countries where enforcement proceedings were pending, that might justify the continuation of proceedings; but that was not the case here. 

The English courts are generally disinclined to give advisory rulings on issues for the benefit of foreign courts. Occasionally it is appropriate to do so, for example where rulings on issues of English law arise or may arise in foreign proceedings, but again that was not in issue in this case. 

Takeaways for Prospective Litigants 

This case provides a useful reminder that parties should think carefully before issuing proceedings in England as part of a broader international strategy, as:

  1. It may not always be possible to discontinue them (if for whatever reason that later appears to be the most desirable thing to do). 

  2. A failure to show a legitimate interest in seeing the claim through to trial renders the claim liable to being struck out. 

Whilst this case did not require the court to exercise its case management powers to strike out a claim on the basis that there was no legitimate interest in pursuing it, the court certainly has the power to do so, and this decision makes clear that it will exercise that function when appropriate.

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