High Court declines jurisdiction over VTB’s claims against Sberbank

02/07/21

VTB v Sberbank and others [2021] EWHC 1758 (Comm)

Cockerill J held today that the Court has no jurisdiction to permit VTB, the claimant in an arbitration claim under CPR Part 62, to bring additional claims under CPR Part 20 against Sberbank, Russia’s largest bank. The Judge held that in any event Russia, not England, is the proper forum for the parties’ dispute. The decision contains a detailed discussion of when a party is to be regarded as “claimant” or “defendant” in different procedural situations. The Judge also considered, without deciding, the important unsettled issue of whether there is jurisdiction to add defendants or to permit Part 20 proceedings in respect of an arbitration claim.

The dispute arises from the insolvency of one of Russia’s largest oil refineries (“Antipinsky”). Sberbank is Antipinsky’s largest creditor, VTB its second largest.

The procedural background is complex. VTB issued proceedings in support of six London-seated arbitrations in which it is the claimant and Antipinsky the defendant. Relying on section 44 of the Arbitration Act 1996, VTB obtained a Worldwide Freezing Order (the “WFO”) and a mandatory injunction requiring Antipinsky to deliver a particular cargo of vacuum gas oil (“VGO”) to VTB (the “Cargo Injunction”). VTB obtained this interim relief pending determination of its claims for final injunctions in the arbitrations.  One of Antipinsky’s other creditors, a Swiss oil trading company named Petraco, applied to vary the orders on the basis that it said it was entitled to the relevant cargo. Petraco sought damages under VTB’s cross-undertakings in the amount of the cargo’s market value and cost of demurrage. Subsequently, Phillips LJ (sitting as a judge of the Commercial Court) set aside the Cargo Injunction and varied the WFO so as to remove a prohibition on Antipinsky delivering VGO to third parties.

Meanwhile, before Phillips LJ’s order, Sir William Blair ordered the sale of the cargo to VTB’s sub-buyers in exchange for VTB fortifying its cross-undertaking by paying into court US$30 million, the estimated value of Petraco’s claim. Sir William Blair also gave directions for an expedited trial of the dispute between VTB and Petraco (the “Cargo Trial”), including for pleadings, disclosure, witness statements, expert evidence and a 3-day trial.

VTB later filed Particulars of Additional Claim under Part 20 against Sberbank and another third party, MachinoImport, by which it tried to introduce significantly wider allegations of wrongdoing and conspiracy within the Cargo Trial and to claim over US$300 million in damages from Sberbank and MachinoImport.

By today’s decision, Sberbank and MachinoImport have successfully challenged the English Court’s jurisdiction over the claims against them.

Cockerill J held that VTB is not to be regarded as the defendant and therefore the Court has no jurisdiction to allow it to bring the Part 20 claims. The Judge considered in detail the case-law on when a party is to be regarded as “claimant” or “defendant” in different procedural situations, including her own recent decision on a security for costs application, JSC Karat-1 v Tugushev [2021] EWHC 743 (Comm) [2021] 4 W.L.R. 66 (see our summary here).

The Judge held that in any event the Court should not exercise its discretion to permit VTB to issue Part 20 proceedings based on a number of factors including that the Court is only seised of the matter in its limited capacity as a supervisory court for the London-seated arbitrations. As an overarching matter, Cockerill J questioned whether there is jurisdiction to add defendants or to permit Part 20 proceedings in respect of an arbitration claim. This is an important issue, which the Judge did not decide but as to which she expressed “considerable doubts”.

Finally, the Judge held that even if she had concluded differently on jurisdiction and discretion, she would have found that VTB failed to discharge the burden of establishing that England was “clearly and distinctly” the most appropriate forum for the dispute between Sberbank and VTB. The Judge found that the overlap between the issues raised in the Cargo Trial and those raised in the additional claims was limited and therefore, although the Cargo Trial was a relevant factor, it was not a “trump card”. Upon examining the connecting factors between the dispute and the jurisdictions in which it could be litigated, the Judge held that the factors in favour of Russia are “so heavy” that “the answer could only be that Russia is the forum conveniens.”

The judgment is here.