Ukranian judgment 'flagrantly' in breach of ECHR
19 April 2012
A novel feature in the case of In Merchant International Co Ltd v Natsionalna Aktsionerna Kompaniya Naftogaz Ukrayiny  EWCA Civ 196, 29 February 2012 is that both the UK and the Ukraine are parties to the ECHR. However, this did not prevent the English court from assessing the Ukrainian court’s compliance with Article 6 in deciding whether or not the Ukrainian judgment could be used to set aside an English judgment.
Naftogaz, an Ukrainian stated owned energy company, appealed against a default judgment enforcing a 2006 judgment of the Supreme Commercial Court of the Ukraine (the SCC) in favour of the respondent, Merchant International Co Ltd (MIC).
Naftogaz did not enter a defence in the English enforcement proceedings and default judgment was given in MIC’s favour on 28 February 2011. Shortly before this, Naftogaz applied to the SCC to set aside the 2006 judgment in light of "newly discovered circumstances", namely issues concerning MIC’s status and its standing as claimant in the Ukrainian proceedings. The SCC subsequently set aside the 2006 judgment on the grounds put forward by Naftogaz and ordered that the entire case be remitted for retrial. The SCC also ruled that the lower court would be entitled to consider any matters, whether argued before or otherwise (in the event, upon retrial the Kiev court found in favour of Naftogaz on grounds unconnected with MIC’s status or standing).
On the grounds that the 2006 Ukrainian judgment had been set aside by the SCC and a new trial had been ordered, Naftogaz brought proceedings in England to set aside the default judgment. Steel J refused to do so and held that the 2011 judgment of the SCC involved a flagrant breach of the principle of legal certainty inherent in Article 6 of the European Convention of Human Rights (the ECHR or Convention) and so should not be given effect in England.
Arguments on the appeal
Naftogaz had two key lines of argument:
- MIC no longer had a Ukrainian judgment capable of enforcement because, following the 2011 SCC decision, the 2006 judgment simply did not exist; and
- the English courts could not consider whether the 2011 SCC judgment breached Article 6 as the courts of one Convention state could not assess another Convention state’s ECHR compliance (relying on Lindberg v Sweden, application No 48198/00). Naftogaz further argued that in any event, there was no breach.
In response, MIC submitted that this was an example of the English law principle that a foreign judgment would not be enforced where to do so would be contrary to public policy. Arguing that Naftogaz could have investigated MIC’s status at the time of the original Ukrainian litigation and further that the "newly discovered circumstances" did not amount to decisive evidence which was not previously available through the exercise of due diligence, the respondents submitted that the 2011 SCC judgment offended against fundamental requirements of substantial or natural justice as a matter of English public policy, which was also an established part of Strasbourg jurisprudence (citing Brumarescu v Romania, application No 28342/95, Pravednaya v Russia, Lizanets v Ukraine and Agrokompleks v Ukraine, application No 23465/03 to support this proposition).
Conservative approach to the development of the law
Concerned about developing the interrelationship of human rights law with private international law "one step at a time", the English Court of Appeal also decided not to overturn the English judgment, but on narrower grounds than those adopted by Steel J at first instance. MIC’s main argument, with which Steel J had agreed, was that the court should give effect to the 2006, and not the 2011, Ukrainian judgment. Although the Master of the Rolls admitted that "it is very tempting to resolve [the] difficult issue" whether, in light of the 2011 SCC decision, there was no foreign judgment to enforce, the court considered it wiser to base its decision on CPR 13.3 (cases where the court may set aside a judgment). The Court of Appeal concluded that the 2011 judgment, which was flagrantly in breach of Article 6, could not be used to set aside an English judgment under CPR 13.3 which was "properly obtained and regular, indeed unassailable".
The common heritage of the ECHR and English law
The court observed the similarity between the English law concept of legal certainty and that concept in European human rights law, ie, that no party is entitled to seek a review of a final and binding judgment merely for the purpose of a rehearing and a fresh decision. Following the earlier Court of Appeal decision in Maronier v Larmer  QB 620, it was considered appropriate to assess whether the SCC’s judgment violated these principles. While there is a "strong presumption" that the procedures of another Convention state complied with Article 6, in the present case this presumption was displaced by a very strong factual basis for concluding that there was a breach of legal certainty.
Considerations of justice
In deciding whether to exercise the court’s discretion under CPR 13.3 to set aside the judgment, the court had to consider what was just. It was found Steel J’s refusal to do so was just as the court was being asked to set aside a properly obtained judgment on the basis of later proceedings which involved a fundamental denial of legal certainty and fair process. Importance was also placed on the value of an English judgment as a form of property, which may deprive the judgment creditor of an asset if set aside.
As the Ukraine is neither an EU member state nor a party to any agreement with the UK facilitating enforcement, enforcement of the Ukrainian judgment was governed by the common law. For a foreign judgment to be enforced at common law it must be final and conclusive in the court which pronounced it, and it must have been given by a competent court. As MIC noted, an established exception to this rule is that a judgment will not be entitled to recognition if it can be shown that the foreign court breached the rules of natural justice, or that recognition would be contrary to public policy.
The European Court of Human Rights in Lindberg v Sweden noted that previous cases had examined the position relating to complaints about the enforcement of a Convention state judgment in the court of a non-Convention state and in such cases decisive weight was placed on whether there had been a "flagrant denial of justice", however the court did not consider the standard to be adopted where both states were party to the ECHR. That both states involved were signatories of the ECHR was a particular novelty of the present case but the Court of Appeal shied away from issues surrounding enforcement. Although one can appreciate why it was tempting to reject the appeal on the narrower grounds adopted by the court, Toulson LJ acknowledged that the judgment gave rise to uncertainties. The "undesirability" of having conflicting decisions of different Convention states was noted but his Lordship thought that this might be a factor relevant to the exercise of the English court’s discretion on the facts of a particular case.
However, as their Lordships were clear that an English court could consider whether the courts of a fellow signatory of the ECHR had contravened the Convention, the judgment could be seen as one (small) step towards the point where an English court might expressly refuse to give effect to a foreign judgment in breach of the ECHR (as Steel J purported to do at first instance). The fact that Hooper LJ would have been prepared to agree with the first instance decision in its entirety also lends weight to this view. Unfortunately, as the court offered little guidance on this issue, it is unclear whether in fact there is now a greater risk of such judgments being found to be unenforceable in England because of ECHR breaches.
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