JSC BTA BANK V ABLYAZOV [2018] UKSC 19

21st March 2018

JSC BTA Bank v Ablyazov [2018] UKSC 19 (Lords Mance, Sumption, Hodge, Lloyd-Jones and Briggs) is an important judgment in the fields of conspiracy, contempt and conflict of laws.

In particular:

• Lords Sumption and Lloyd-Jones provide an illuminating overview of the economic torts in general and the rationale for the unlawful means conspiracy tort in particular.

• The Supreme Court confirms that contempt of court can constitute unlawful means for the purposes of the conspiracy tort.

• The Supreme Court suggests that the law may develop to enable damages to be awarded for contempt without a claimant having to rely upon unlawful means conspiracy or any other recognised cause of action.

• The Supreme Court confirms that the English court has Lugano Convention jurisdiction over a conspiracy claim where the conspiracy was hatched here, even if all other elements of the tort take place abroad.

(1) The economic torts and conspiracy

Economic torts—conspiracy, intimidation, procuring breach of contract and unlawful interference—are problematic. If evidence were needed, see the House of Lords’ decisions in OBG Ltd v Allan [2008] AC 1 (330 paragraphs) and Revenue and Customs Comrs v Total Network SL [2008] 1 AC 1174 (231 paragraphs).

The joint speech of Lords Sumption and Lloyd-Jones (with whom the rest of the Court agreed) helps to explain why:

“… the economic torts are a major exception to the general rule that there is no duty in tort to avoid causing a purely economic loss unless it is parasitic upon some injury to person or property. The reason for the general rule is that, contract apart, common law duties to avoid causing pure economic loss tend to cut across the ordinary incidents of competitive business, one of which is that one man’s gain may be another man’s loss. The successful pursuit of commercial self-interest necessarily entails the risk of damaging the commercial interests of others. Identifying the point at which it transgresses legitimate bounds is therefore a task of exceptional delicacy. …” (at [6])

It is well known that the tort of conspiracy comes in two forms: lawful and unlawful means conspiracy. The Supreme Court found this to be a more satisfactory distinction than that of “conspiracy to use unlawful means” and “conspiracy to injure”, because all actionable conspiracies are conspiracies to injure (at [8]).

Both forms of conspiracy require a claimant to prove that a combination between the defendants has caused him loss. In the lawful means tort, the claimant must also prove that the defendants’ predominant intention was to injure him (whereas, in the unlawful means form of the tort, the intention to injure need not be predominant).

But why is conspiracy actionable at all? Lords Sumption and Lloyd-Jones answer this question at [10]: the tort responds to loss that has been inflicted without “just cause or excuse”. A person who seeks to advance his own interests by acting unlawfully acts without just cause or excuse. So too does a person who acts lawfully but with a predominant intention to injure: he has “no interest recognised by the law in exercising his legal right for the predominant purpose not of advancing his own interests but of injuring the claimant” (at [10]).

(2) Contempt is unlawful means

The Court of Appeal had held that contempt was sufficiently unlawful to constitute unlawful means for the purposes of the conspiracy tort. As Sales LJ put it, contempt ranks “… in the scale of reprehensibility below some crimes but rather above others, and above simple torts and breaches of contract” ([2017] QB 853 at [49]). The Supreme Court agreed with that decision.

Mr Khrapunov also argued that there existed a “preclusionary rule” of public policy which prevented JSC BTA Bank from relying upon a contempt of court as part of a private law cause of action. His argument, in summary, was that the principles upon which the law of contempt is founded require the Court to have control over the consequences of a contempt, which it would not have if a right of action in conspiracy existed.

The Supreme Court was unmoved:

“It is a commonplace of the law that the same act may give rise to criminal and civil liability. It necessarily follows that in such cases the sentence for the crime will be discretionary but the civil consequences will not. Thus a person may be given immunity in a criminal trial for burglary, for example because he agrees to give evidence against others involved, but that will not protect him against civil liability to the owner of the goods stolen. …” (at [23])

The Supreme Court therefore concluded, at [24], that the Bank’s pleaded allegations disclosed a good cause of action for conspiracy to injure it by unlawful means.

(3) Compensation may be available for simple contempt

The Supreme Court declined to give a firm answer to the Bank’s submission that damages for contempt should be available without having to rely upon any other cause of action (referred to hereafter as ‘simple contempt’).

There is certainly a good deal of old authority to demonstrate that a claimant whose case is lost or adjourned, when a witness who has been served with a summons fails to appear, can recover damages from the recalcitrant witness: see, eg, Couling v Coxe (1848) 6 CB 703. Other authorities which support the notion that damages can be obtained for simple contempt are referred to at [19] of the Supreme Court’s decision.

On the other hand, obiter observations of the House of Lords in Customs and Excise Comrs v Barclays Bank plc [2007] 1 AC 181 suggest that damages cannot be recovered for simple contempt.

In a modern fraud context, a claim for damages for simple contempt might be important where:

• A person served with a search order (eg the principal defendant’s spouse or employee) conceals or destroys important material in breach.

• A person served with a Norwich Pharmacal or Bankers Trust disclosure order (eg the principal defendant’s accountant or financial adviser) fails to comply.

• A Chabra defendant (eg a trustee holding assets for the principal defendant) breaches the terms of a freezing order.

In these cases, the claimant may be unable to (i) prove his case against the principal defendant (or be put to additional expense in proving his case) or (ii) freeze or enforce against (some of) the principal defendant’s assets. Further, the existence of a separate cause of action for simple contempt may be critical because the third party may act without first entering into a combination with the principal defendant.

The Supreme Court saw some force in the argument that damages should be available for simple contempt. Lords Sumption and Lloyd-Jones observed as follows: “we do not think that the last word has necessarily been said on this subject in this court”, and seemingly endorsed the view that a claim for damages for simple contempt is at least arguable (at [19] and [22]).

(4) Jurisdiction

The remainder of the appeal concerned whether the Bank could bring its conspiracy claim in England.

To explain how this arose, some further facts are needed: the Bank’s case is that Mr Ablyazov (the judgment debtor, subject to a worldwide freezing order) and his son-in-law Ilyas Khrapunov (the third party) hatched a conspiracy in the jurisdiction in about 2009. But it could not show that Mr Khrapunov had taken any steps in England, pursuant to the conspiracy, to deal with frozen Swiss, Belizean and Russian assets.

By the time its claim was commenced, Mr Ablyazov had fled the jurisdiction (Mr Khrapunov had always been domiciled in Switzerland). The Bank therefore relied upon Article 5(3) of the Lugano Convention, viz.:

“A person … may … be sued … in matters relating to tort … in the courts for the place where the harmful event occurred ….”

This provision has been widely construed: in the Bier case ([1978] QB 708), the ECJ held that Article 5(3) must be understood to include both (a) the place where the damage occurred and (b) the place of the event giving rise to it.

The question for the Supreme Court was whether the hatching of a conspiracy in England was the place of the event giving rise to damage, even though all of the steps taken to implement the conspiracy took place overseas.

They concluded that the answer was ‘yes’. Looking at the question from the point of view of the European authorities, Lords Sumption and Lloyd-Jones pointed out that from an early stage the ECJ “emphasised the notion of the originating event” (at [34]). And from a domestic perspective, Rix J’s statement in Domicrest Ltd v Swiss Bank Corpn [1999] QB 548 that the search was for the event which “sets the tort in motion” correctly stated the effect of the European jurisprudence (at [38]).

The Supreme Court clarified one further conflicts point. The need for a unified approach throughout EU Member States to the application of the Lugano and other similar European conventions does not mean that the component elements of the cause of action in domestic law are irrelevant:

“On the contrary they have a vital role in defining the legally relevant conduct and thus identifying the acts which fall to be located for the purposes of article 5(3). In particular, whether an event is harmful is determined by national law. To take an example raised during the hearing of the appeal, if a firearm is manufactured in State A and fired in State B the place of the event giving rise to the damage within article 5(3) is likely to differ depending on whether the basis of the complaint in national law is negligent manufacture of the firearm, or its negligent handling by the gunman.” (at [32])

Conclusions

In summary, the Supreme Court’s latest decision in the JSC BTA Bank litigation adds to the civil fraud litigator’s toolkit: he can now raise a claim in conspiracy founded on contempts of court; he may be able to bring a damages claim for simple contempt; and he can sue in England where there is a good arguable case that a conspiracy has been hatched here.

Stephen Smith QC instructed by Hogan Lovells partner Richard Lewis, appeared for JSC BTA Bank.