Fiona Trust & Holding Corporation & Ors v Skarga & Ors [2013] EWCA Civ 275

Case No A3/2011/0935 & 0936[2013] EWCA Civ 275
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEENS BENCH DIVISION, COMMERCIAL COURT
MR JUSTICE ANDREW SMITH
2005 FOLIO 534 and 2009 FOLIO 191
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 26/03/2013
Before
LORD JUSTICE LONGMORELORD JUSTICE RIMERLORD JUSTICE TOMLINSON
Between
FIONA TRUST & HOLDING CORPORATION & ORSAppellant
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Michael Brindle QC, Dominic Dowley QC and Justin Higgo (instructed by Ince & Co) for AppellantsGraham Dunning QC, Susannah Jones and Louis Flannery (instructed by Stephenson Harwood LLP) for First RespondentSteven Berry QC and Nathan Pillow (instructed by Lax & Co) for Second to Twentieth RespondentsHearing Hearing dates: 4 th and 5 th March 2013
Judgment
[1]As Lord Templeman observed in AG for Hong Kong v Reid [1994] 1 AC 324, 330H “Bribery is an evil practice which threatens the foundations of any civilised society”. In English law remedies for bribery are extensive and draconian. Thus English law will permit a claimant employer or principal whose employee or agent has been bribed to recover: i) the amount of the bribe from both the person bribed and the briber, regardless of the question whether any loss has been suffered by the claimant; ii) the amount of any loss following the bribe, it being (probably) presumed both that loss has occurred in at least the amount of the bribe and that any subsequent transaction created by the employee or agent was caused by the bribe; and iii) (perhaps more controversially) where the employee or agent is a fiduciary, the amount of any relevant profit made and received as a result of any such transaction following the bribery, causation from the bribery again being presumed. It is no defence to any of these claims for either the briber or the person bribed to say that the bribery was not dishonest or that they did not think that the bribery was wrong.[2]These claims have all been held to be claims in tort, even though some of them can also be categorised as contractual (if against the employee or agent) or restitutionary or perhaps (in relation to iii) above) an equitable claim for breach or dishonest assistance in breach of fiduciary duty. Authority for the above propositions can be found in Mahesan S/O Thambiah v Malaysia Housing Society [1979] AC 374, Bowstead and Reynolds, Agency (19th ed. 2010) Article 49 and Novoship (UK) Ltd v Mikhaylyuk [2012] EWHC 3586 paras. 512-526, in which an appeal is apparently pending and which the above brief summary is not intended to prejudice.[3]Russian law is less draconian. A claimant can recover any loss caused to him by the bribe from either the briber or the person bribed. The bribe itself is not recoverable if no loss has been suffered. There seems to be no principle of accounting for any profit. It also may be a defence that the defendant did not act dishonestly, whatever that may precisely mean.[4]At a trial which took 76 days before Andrew Smith J there were bribery allegations which were pleaded as claims in tort and were only part of a much more substantial claim mounted by numerous claimants (including the leading Russian shipping companies Sovcomflot and Novorossiysk Shipping Co (“NSC”) and various of their subsidiary companies) against Mr Yuri Nikitin and a number of companies which he controlled. That claim included allegations that Mr Nikitin had dishonestly conspired with the Director-General of Sovcomflot, Mr Dimitry Skarga, and the President of NSC, Mr Tagir Izmaylov, to enrich themselves by entering into highly profitable contracts with the claimants. Those contracts included purchases of vessels, sale and leaseback arrangements and time charterparties. Almost all of these numerous contracts had provisions for English law and/or English jurisdiction. There were also claims for knowing receipt of sums properly belonging to the claimants and claims for dishonestly procuring or assisting in breaches of trust or fiduciary duty on the part of Mr Skarga and Mr. Izmaylov, who were also sued in their own right. Those claims failed because the judge held that there was no conspiracy or relevant dishonesty and because the transactions, entered into with the claimants, were not caused by any relevant breach of duty and were all entered into at market rates so that the claimants had, in the event, suffered no relevant loss. Those findings are not now challenged but the result is that the bribery claims, which were also made, have assumed a greater prominence on appeal than they had perhaps at trial.[5]The judge found two instances of bribery of Mr Skarga by Mr Nikitin. These were(1) payment for holidays enjoyed by Mr Skarga and his family (often in the company of Mr Nikitin) and(2) payment of sums due on a credit card which Mr Nikitin allowed Mr Skarga to use. The worth of these bribes was less than $350,000. It is also said that there was a third instance of bribery which the judge ought to have found but failed to find, namely the payment of about $100,000 towards the purchase of a dacha by Mrs Skarga. The judge’s findings were the subject of challenge but this judgment means that that is something which we do not need to decide.[6]The claimants could, no doubt, have claimed the amount of these bribes in an action in restitution against both Mr Nikitin and Mr Skarga and, indeed, the other defendants. They did not do that but they did claim that they had suffered loss and the amount of the bribes was part of that loss. They also claimed that, by reason of the bribes, both Mr Nikitin and Mr Skarga must account for all the profit that Mr Nikitin and his companies made from various transactions entered into between them and the claimants.[7]In these circumstances it becomes crucial to determine whether the torts relied on are governed by English law or Russian law. The Judge has found that the relevant transactions were not entered into as a result of the bribes, and that the claimants have in fact suffered no loss as a result of the bribes. If Russian law is applicable, the bribery claims must fail. If English law is applicable it is said that there is an irrebuttable presumption that the transactions were entered into as a result of the bribes and a further irrebuttable presumption that there is loss in, at least, the amount of the bribes. The judge, holding that Russian law was applicable, dismissed the bribery claim.[8]The relevant law to be applied for determining issues relating to tort is set out in sections 11 and 12 of the Private International Law (Miscellaneous Provisions) Act 1998 (“the Act”). Section 11 states the “general rule” as follows:- “(1) The general rule is that the applicable law is the law of the country in which the events constituting the tort or delict in question occur.(2) Where elements of those events occur in different countries, the applicable law under the general rule is to be taken as being— (a) for a cause of action in respect of personal injury caused to an individual or death resulting from personal injury, the law of the country where the individual was when he sustained the injury; (b) for a cause of action in respect of damage to property, the law of the country where the property was when it was damaged; and (c) in any other case, the law of the country in which the most significant element or elements of those events occurred.” Section 12 states a secondary rule that may displace the general rule:
“If it appears, in all the circumstances, from a comparison of— (a) the significance of the factors which connect a tort or delict with the country whose law would be the applicable law under the general rule; and (b) the significance of any factors connecting the tort or delict with another country, that it is substantially more appropriate for the applicable law for determining the issues arising in the case, or any of those issues, to be the law of the other country, the general rule is displaced and the applicable law for determining those issues or that issue (as the case may be) is the law of that other country. (2) The factors that may be taken into account as connecting a tort or delict with a country for the purposes of this section include, in particular, factors relating to the parties, to any of the events which constitute the tort or delict in question or to any of the circumstances or consequences of those events.” (2) Where elements of those events occur in different countries, the applicable law under the general rule is to be taken as being— (a) for a cause of action in respect of personal injury caused to an individual or death resulting from personal injury, the law of the country where the individual was when he sustained the injury; (b) for a cause of action in respect of damage to property, the law of the country where the property was when it was damaged; and (c) in any other case, the law of the country in which the most significant element or elements of those events occurred.” “If it appears, in all the circumstances, from a comparison of— (a) the significance of the factors which connect a tort or delict with the country whose law would be the applicable law under the general rule; and (b) the significance of any factors connecting the tort or delict with another country, that it is substantially more appropriate for the applicable law for determining the issues arising in the case, or any of those issues, to be the law of the other country, the general rule is displaced and the applicable law for determining those issues or that issue (as the case may be) is the law of that other country. (2) The factors that may be taken into account as connecting a tort or delict with a country for the purposes of this section include, in particular, factors relating to the parties, to any of the events which constitute the tort or delict in question or to any of the circumstances or consequences of those events.”
[9]There is thus a two stage process when it is necessary to determine the applicable law of “issues relating to tort” to use the phrase in section 9(1) of the Act. First one has to decide in which country the events constituting the tort in question occurred which, in a case other than that of personal injury or damage to property, is to be the country in which the most significant element or elements of the tort occurred. The general rule is that the law of that country is to be the applicable law. If, however, it appears from a comparison of the significance of the factors connecting a tort with that country and the significance of any factors connecting the tort with another country that it is substantially more appropriate for the applicable law to be the law of that other country, the general rule is displaced. The applicable law is then that of the other country. Section 11[10]For the purpose of section 11, therefore, the focus is on the events constituting the tort of bribery. The Judge (para 70) adopted the definition of bribery given by Slade J in Industries & General Mortgage Co v Lewis [1949] 2 AER 573 at page 575G saying:- “English law takes a broad view of what constitutes a bribe for the purposes of civil claims. It considers that a bribe (or “secret commission” or “surreptitious payment”) has been paid where “(i) … the person making the payment makes it to the agent of another person with whom he is dealing; (ii) … he makes it to that person knowing that that person is acting as the agent of the other person with whom he is dealing; and (iii) … he fails to disclose to the other person with whom he is dealing that he has made that payment to the person whom he knows to be the other person’s agent.” This was accepted by the parties as the correct definition of the events constituting the tort of bribery subject only to the rider (also accepted by the judge (para 178)) that bribery includes the promise of payment or benefits as well as the performance of that promise.[11]In VTB Capital Plc v Nutritek International Corp [2012] EWCA Civ 808 [2012] 2 Lloyds Rep.

(c) of the Act as follows:

“(1) Section 11 of the 1995 Act sets out the general rule for ascertaining the applicable law of a tort. It adopts a geographical approach to that question. (2) Where the elements of the events constituting the tort or delict occur in different countries and the cause of action relates to something other than personal injury or damage to property, then section 11(2)(c) requires an analysis of all the elements of the events constituting the tort in question. (3) In carrying out that exercise, it is the English law constituents of the tort that matter. (4) The analysis requires examination of the ‘instrinsic nature’ of the elements of the events constituting the tort. It does not, at this stage, involve an examination of the nature or closeness of any tie between the element and the country where that element was involved or took place. This latter exercise is only relevant if section 12 is invoked. (5) Once the different elements of the events and the country in which they occurred have been identified, the court has to make a ‘value judgment’ regarding the ‘significance’ of each of those ‘elements’. ‘Significance’ means the significance of the element in relation to the tort in question, rather than trying to judge which involves the most elaborate factual investigation. (6) Under section 11(2)(c), (i.e. in relation to causes of action other than in respect of personal injury or damage to property where the elements of the events constituting the tort occur in different countries) the applicable law of the tort in question will be that of the country where the significance of one element or several elements of events outweighs or outweigh the significance of any element or elements found in any other country.”
[12]Those propositions were derived from this court’s own consideration of the statute and from four previous decisions one of which was Andrew Smith J’s judgment in the present case. VTB later went to the Supreme Court where Lord Clarke of Stone-Cum-Ebony JSC (with the express concurrence of Lord Neuberger PSC and Lords Wilson and Reed JJSC) endorsed these propositions as correct [2013] UKSC 5; [2013] 2 WLR 398 para 199.[13]It seems, therefore, that at least in general terms Andrew Smith J’s approach to the applicable law pursuant to section 11(2)(c) has already been approved by both this court and the Supreme Court before the appeal has come to be argued. The judge considered the claim in conspiracy before he considered the bribery claim. He held that the events relating to conspiracy almost all took place in Russia and that the most significant elements of that tort therefore occurred in Russia. When it came to bribery he recorded (para 178) that the benefits which the claimants had identified were:
“holidays in various countries other than either Russia or England, an educational visit to England for one of Mr Skarga’s children, payments to discharge a credit card account made in Switzerland and a payment said to relate to Russian land purchased by Mrs Skarga, which was made into an account in Cyprus.”
He said that the nature of the bribery allegations strengthened the defendants’ contention that Russian law applied, since bribery included the promise of payment or the provision of benefits, as well as the actual performance of that promise. He then said that if Mr Skarga received significant bribes from Mr Nikitin it was likely that they were arranged and promised in Russia. The judge, when asked to expand on this part of his judgment, said in para 14 of a second judgment:- “This finding covers the arrangements for and promises of the holidays and the credit card. It would also have covered, had I found that there were bribes of these kinds, the payment in relation to the land at Donino and any payment or reward deriving from the SLB transactions. I qualify my conclusion by referring to “significant” bribes because, for example, small benefits incidental to the holidays might have been added by Mr Nikitin during them when he and Mr Skarga were outside Russia… incidental arrangements might have been made outside Russia (for example, Mr Nikitin might have arranged a private jet for the return journey from a holiday): there is not sufficient evidence to show whether they were.”[14]In the light of these findings, Mr Brindle QC for the appellants could only argue very faintly that the law applicable to the tort of bribery pursuant to section 11 of the Act was not Russian law. The provision, or arrangements, for the bribes were all made in Russia; the performance of promises or arrangements were made in the places where the holidays occurred (mainly Finland or Italy, the only exception being the summer school on one occasion for Mr Skarga’s son in England) or Switzerland where the payments in respect of the credit card were made or Russia (if payment for the dacha were to be proved). Similarly the failure to disclose to Mr Skarga’s employer was a failure in Russia. None of the events constituting the tort occurred in England. Mr Brindle was reduced to the proposition that the applicable law was that of Finland or Switzerland but that was not remotely persuasive. Not surprisingly, the thrust of Mr Brindle’s submission was that the law of Russia (if applicable pursuant to Section 11, as it is) was displaced pursuant to Section 12.

Section 12

[15]This court also set out the correct approach to section 12 in the case of VTB and this was again approved in the Supreme Court at paras 149 and 203 of the respective judgments:- “(7) The exercise to be conducted under section 12 is carried out after the court has determined the significance of the factors which connect a tort or delict to the country whose law would therefore be the applicable law under the general rule. (8) At this stage there has to be a comparison between the significance of those factors with the other country. The question is whether, on that comparison, it is ‘substantially more appropriate’ for the applicable law to be the law of the other country so as to displace the applicable law as determined under the ‘general rule’. (9) The factors which may be taken into account as connecting a tort or delict with a country other than that determined as being the country of the applicable law under the general rule are potentially much wider than the ‘elements of the events constituting the tort’ in section 11. They can include factors relating to the parties’ connections with another country, the connections with another country of any of the events which constitute the tort or delict in question or the connection with another country of any of the circumstances or consequences of those events which constitute the tort or delict. (10) In particular the factors can include:(a) a pre-existing relationship of the parties, whether contractual or otherwise;(b) any applicable law expressly or impliedly chosen by the parties to apply to that relationship, and(c) whether the pre-existing relationship is connected with the events which constitute the relevant tort or delict.”[16]Lord Clarke described the discussion of section 12 in the current (15th) edition of Dicey, Morris and Collins, The Conflict of Laws at para 35-148 as illuminating and then said this at para 205 of his judgment: - “The editors note that the general rule has been displaced on very few occasions. They further observe that, although section 12 applies in all cases to which section 11 applies, it would seem that the case for displacement is likely to be most difficult to establish in the case of section 11(2)(c) because the application of that provision itself requires the court to identify the country in which the most significant element or elements of the tort are located. Importantly they stress the use of the word “substantially”, which they describe as the key word, and conclude that the general rule should not be dislodged easily, lest it be emasculated. The party seeking to displace the law which applies under section 11 must show a clear preponderance of factors declared relevant by section 12(2) which point to the law of the other country.”[17]Mr Brindle’s submissions focused on the concluding words in section 12(2) “the circumstances or consequences of those events”. Relying on the third principle emunciated in VTB that it is the English law constituents of the tort which matter, he submitted:-(1) the bribery is presumed to have induced the contracts made between the claimant companies and Mr Nikitin’s companies;(2) those contracts were thus the “consequence” of the bribes;(3) almost all those contracts were agreed to be subject to English law or English jurisdiction or both;(4) bribery in any event has an international aspect and gives rise to international concerns;(5) Mr Skarga and Mr Nikitin and thus the companies that made the contracts had deliberately avoided the application of Russian law to those contracts; they had, indeed, ensured that the subsidiaries of Sovcomflot making the contracts were Liberian or Cypriot shipping companies on the one hand while the Respondent companies (the counterparties to those contracts) were mainly (if not exclusively) British Virgin Islands companies on the other hand.(6) it was unjust for Mr Nikitin and his companies to abjure Russian law in the contracts made as a result of the bribery and yet to rely on Russian law to escape the consequences of the English law which they had expressly chosen in those contracts.(7) accordingly even if, pursuant to the general rule set out in section 11 of the Act, one began with the application of Russian law, that law was displaced by section 12 in favour of English law.[18]Referring to the 10th principle set out by the court in VTB that a relevant factor can be a pre-existing contractual relationship between the parties governed by a particular law such as had been the case in Trafigura Beheer BV v Kookmin Bank Co [2006] 2 Lloyds Rep. 455, Mr Brindle submitted that a contractual relationship, which came into existence after and as a result of the tort being committed, was a powerful factor tending to displace the law applicable under section 11. In Trafigura Aikens J had been much impressed by the fact that the claim in tort made against a bank which had opened a letter of credit in favour of the claimant was brought in the context of that letter of credit which was governed by English law, although most of the events constituting the tort had occurred in Singapore. It does not appear from the report of the case how English law differed from the law of Singapore but it does appear that Aikens J thought that English law should displace Singapore law because it was already the governing law of the critical relationship between the parties.[19]It is less obvious that a subsequent choice of law will make it “substantially more appropriate” for the law applicable to the antecedent tort to be that of the law so chosen. But Mr Brindle was able to rely on the decision in Kingspan Environmental Ltd v Borealis A/S [2012] EWHC 1147 as an instance of that happening. In that case English companies had purchased a polymer known as Borecene from a Danish supplier pursuant to a contract governed by Danish law. The Borecene was used to rotomould static tanks to hold bulk liquids such as kerosene but the tanks, so rotomoulded, failed with disastrous consequences. The buyers claimed that the Borecene was unfit for its purpose and that the losses were attributable to breaches of the contract of sale and to misrepresentations which induced that contract. To the extent that the misrepresentations were said to be negligent, it was relevant to ascertain the law applicable to the tort of negligent misrepresentation. Christopher Clarke J held (para 597) that the general rule set out in section 11 would make English law the applicable law but he held (para 611) that the general rule was displaced in favour of Danish law (which was the law of the resulting contract) because factual statements inducing the contract, contractual terms and collateral undertakings were the product of the same process leading to the eventual contract. In view of the closeness of the connection between a claim for misrepresentation and a claim for breach of the resulting contract that is, with respect, an understandable and, no doubt, correct conclusion. That is far removed from a case of bribery brought as a free standing tort claim unassociated with any claim for breach of any resulting contract.[20]Despite the attractive and forceful way in which Mr Brindle formulated his submissions, I am unable to accept them.[21]First, it cannot be said that the judge overlooked the fact that the subsequent contracts were almost all governed by English law. He dealt with the contention in relation to the conspiracy claim in paras 173-4 in the following way:
“173. …The secondary rule is applied only if it indicates that another law is substantially more appropriate. In my judgment, the considerations identified by the claimants, including the terms of the contracts implementing the schemes, are not sufficient to displace the general rule so as to have any issues relating to the conspiracy claims in the Fiona actions determined by English law. On the contrary, when the secondary rule is considered, the defendants for their part are entitled to invoke “factors relating to the parties” (see section 12(2) of the 1995 Act), and so they rely upon the facts that Sovcomflot is the parent company of a nationalised Russian group of strategic importance and that the defendants are for the most part Russian individuals or companies said to be owned or controlled by Russians. These factors seem to me of more importance than the terms of the agreements with third parties through which the schemes were implemented, and, had I not concluded that the general rule requires the application of Russian law, I would have accepted the defendants’ submission that the secondary rule applies and that English or any other law is displaced in favour of Russian law. 174. It is true that the schemes said to have been devised by the conspirators were played out on the international stage. They implemented their schemes in different countries according to the business and activity involved. They used companies incorporated in the BVI and elsewhere. They carried on their banking and conducted their financial dealings through Swiss banks. They dealt with sales and purchases of ships and ship financing transactions through London. Sovcomflot dealt with charters in Switzerland. Because many of the schemes concerned sales and purchases and ship financing, much of the business about which the claimants complain was done through London. Because the schemes concerned shipping, the contractual arrangements by which they were conducted were governed by English law, as is commonly chosen by the parties to contracts of this kind. However, the focus of the conspiracy remained Russian and the collusion was based in Russia although the schemes were played out elsewhere.”
He then made clear (para 177) that the same considerations applied to the bribery claims.[22]This conclusion of the judge is entirely unexceptionable. Although the judge had, as stated by Mance LJ in Morin v Bonhams and Brooks Ltd [2004] 1 Lloyds Rep 702, to make an evaluative judgment, it is a judgment which should not be reversed by this court unless the court is satisfied that it is wrong. Indeed in Dornoch Ltd v Mauritius Union Assurance Co [2006] 2 Lloyds Rep 475 at para 47 Tuckey LJ said that the assessment was “quintessentially” for the judge to make, a comment echoed by Lord Clarke at paragraph 199 of VTB; so far from being satisfied that the judge was wrong, I am satisfied that the judge was right both to hold that the general rule required Russian law to govern the tort of bribery and that Russian law was not displaced by English law.[23]Mr Brindle complained that the Judge had not, properly or at all, considered his fifth and sixth points that the parties had avoided Russian law and that it was unjust for the defendants to rely on a law which they had deliberately eschewed. I am far from convinced that the judge did not have this in mind; it is (after all) in many ways the complement of the points he expressly considered in para 174. Moreover, he made no finding that there was a deliberate avoidance of Russia law. Rather, he said correctly that, because the transactions made following the bribes were almost entirely shipping transactions, English law was chosen, as it often is, by maritime parties as a law familiar with maritime transactions. Even if the judge did underplay any avoidance of Russian law by the parties, that cannot to my mind be so significant as to make English law substantially more appropriate for the tort of any bribery.[24]Moreover, as Mr Dunning QC (who undertook the burden of the argument for the Respondents on this point) submitted, other factors mentioned in subsection 2 of section 12 of the Act include factors relating to the parties. The parties to the bribery were Russian and that was itself a matter which the judge was entitled to take into account, as he did in para. 173 of his judgment.[25]Now that this court and the Supreme Court have laid down the correct approach to section 11 and 12, I cannot see that this appeal raises any further question of principle; still less can I see that the judge has made any error of principle in his evaluation of and decision in relation to the applicable law. There is just no “clear preponderance of factors” pointing to English law sufficient to displace Russian law as the applicable law and the appellants cannot therefore bring themselves within that requirement as stated in para. 205 of Lord Clarke’s judgment in VTB.[26]In the light of this conclusion about the applicable law, none of the other matters relied on in the lengthy grounds of appeal arise. We were told that a further 4 days of argument would be required for those matters. We decided that it would not be a proportional use of the time of the court, dealing (as it does) with many appeals and applications, to embark on the relevant inquiries and indicated that position at the conclusion of the oral argument, saying that we would give our written reasons later.[27]The above are my reasons for concluding that the judge was right to hold that Russian law is the applicable law. I would dismiss the appeal.[28]I agree.[29]I also agree.

Cited in 8 later judgments