VTB Capital v Malofeev

• Jurisdiction: Cayman Islands
• Judge: (Chadwick, P., Mottley and Campbell, JJ.A.)
• Judgment Date: 30 November 2011
• Court: Court of Appeal (Cayman Islands)
• Date: 30 November 2011

Court of Appeal

(Chadwick, P., Mottley and Campbell, JJ.A.)

VTB CAPITAL PLC

and

MALOFEEV, UNIVERSAL TELECOM MANAGEMENT and UNIVERSAL TELECOM INVESTMENT STRATEGIES FUND SPC

N. Meeson, Q.C., for the appellant;

The first defendant did not appear and was not represented.

Cases cited:

(1) Black Swan Inv. I.S.A. v. Harvest View Ltd., BVI Commercial Ct., Case No. BVI HCV (Com) 2009/399, March 23rd, 2010, considered.

(2) de Lasala v. de Lasala, [1980] A.C. 546, referred to.

(3) Felderhof v. Deloitte & Touche Inc., 2011 (2) CILR 35, referred to.

(4) Gillies-Smith v. Smith, Grand Ct., Civil Div., May 10th, 2011, unreported, not followed.

(5) Krohn G.m.b.H. v. Varna Shipyard, 1997 JLR 194, considered.

(6) Mercedes Benz A.G. v. Leiduck, [1996] A.C. 284; [1995] 3 W.L.R. 718; [1995] 3 All E.R. 929; [1995] 2 Lloyd”s Rep. 417; [1995] UKPC 31, applied.

(7) Secilpar S.L., In re, 2003–05 MLR 352, referred to.

(8) Siskina v. Distos Cia. Naviera S.A., The Siskina, [1979] A.C. 210;

[1977] 3 W.L.R. 818; [1977] 3 All E.R. 803; sub nom. Shanker (Ibrahim) & Co. v. Distos Cia. Naviera S.A., [1978] 1 Lloyd”s Rep. 1, considered.

(9) Solvalub Ltd. v. Match Invs. Ltd, 1996 JLR 361, considered.

(10) State of Qatar v. Al Thani, 1999 JLR 118, considered.

(11) Telesystem Intl. Wireless Inc. v. CVC/Opportunity Equity Partners L.P., 2002 CILR N[22], considered.

(12) Yachia v. LeviUNK(1998), 2 O.F.L.R. 88, considered.

Legislation construed:

Grand Court Rules 1995, O.11, r.1(1): The relevant terms of this paragraph are set out at para. 7.

Civil Procedure-service of process-service out of jurisdiction-no service out of application for freezing injunction under Grand Court Rules, O.11, r.1(1)(b)-purpose of O.11, r.1 to authorize extra-territorial service where proposed action will decide upon and give effect to rights; application for freezing injunction not of this nature-reform, if desirable, to be left to rule-making body or legislature

The plaintiff/appellant sought freezing injunctions from the Grand Court against the defendants and leave to serve the first defendant outside the jurisdiction.

The plaintiff was a bank with its registered office in London. The first defendant was a Russian citizen based in Moscow. The second and third defendants (‘the Cayman defendants’) were companies incorporated in the Cayman Islands. Against the first defendant, the plaintiff sought a freezing injunction restraining him, until the final determination of proceedings between the parties in the English Chancery Division, from removing from the Cayman Islands or in any way diminishing the value of any of his Cayman assets, including any shareholding in the Cayman defendants, up to a value of US$200m. Against the Cayman defendants, it sought an injunction, until the final determination of the English proceedings, preventing them from dealing with or diminishing the value of any shares they held in a Russian telecommunications entity, Rostelecom, up to the value of US$200m.

The Grand Court (Cresswell, J.) refused the application to serve the first defendant outside the jurisdiction but gave leave to appeal. The court made no freezing order in relation to the first defendant, but did make such orders in relation to the Cayman defendants. It held that (i) it had the power to grant injunctions to restrain the defendants from disposing of their Cayman assets pending the decision of the claim in the foreign court, but (ii) on the basis of Privy Council authority dealing with a rule in similar terms to GCR, O.11, r.1(1)(b), it had no jurisdiction to serve the first defendant outside the jurisdiction-especially since r.1(1)(b)

expressly excluded the jurisdiction in respect of applications for interlocutory injunctions (into which category an application for a freezing order fell).

On appeal, the plaintiff sought a declaration that the Grand Court had jurisdiction under O.11, r.1(1)(b) to permit service on the first defendant outside the jurisdiction. It submitted that the court should depart from the Privy Council authority since it created a position that was no longer satisfactory-as an offshore financial centre it was important for the Cayman courts to be able to support foreign proceedings by serving freezing injunctions on foreign defendants. The position in England and Wales and other common law jurisdictions had moved on and the Cayman Islands should do the same.

Held, dismissing the appeal:

(1) Although Cayman law had developed so as to allow the courts to grant freezing injunctions in support of foreign proceedings, there was no basis for granting leave to serve such an application outside the jurisdiction. As the Privy Council had held, the purpose of O.11, r.1 was to authorize the extra-territorial service of a document which required the recipient to submit to the adjudication of a claim based on a legal right advanced in an action commenced by that document. Such a claim would be for defined relief and would compel the defendant to enter upon the proceedings or suffer judgment in default. An application for a freezing injunction was not of this nature: when ruled upon, it decided no rights and called into existence no process by which rights would be decided. It merely ensured that once the mechanisms of enforcement were set in motion, the assets of the foreign defendant would be available for seizure to satisfy another liability (para. 14; para. 26).

(2) While the court acknowledged that it might be desirable on grounds of commercial public policy to extend the jurisdiction under O.11, r.1(1)(b) to cover applications for freezing injunctions, this was a step which should be taken by the rule-making body or the legislature (paras. 26–27).

1 CHADWICK, P.: These proceedings were commenced by the issue of a generally endorsed writ on August 11th, 2011. The plaintiff (VTB Capital PLC) is a bank having its registered office in London. The first named defendant, Konstantin Malofeev, is a Russian citizen based, it is said, in Moscow. The second and third named defendants, respectively Universal Telecom Management and Universal Telecom Investment Strategies Fund SPC, are companies incorporated in the Cayman Islands. The third named defendant, as its name suggests, is a segregated portfolio company. The second named defendant is an exempted company.

2 The writ is endorsed with a claim against Mr. Malofeev for an injunction restraining him-

‘. . . until the final determination of proceedings between the plaintiff and the defendant before the High Court of Justice, Chancery Division, in London, England, which have been assigned Claim No. HC10C04611 (“the English proceedings”), from removing from the Cayman Islands or in any way disposing of or dealing with or diminishing the value of any of his assets which are in the Cayman Islands whether in his own name or not and whether solely or jointly owned up to a value of US$200m. including but not limited to any shareholding in the second defendant and/or the third defendant.’

Save for ancillary orders as to disclosure and costs, that is the only claim made against Mr. Malofeev in these proceedings. The claims against the second and third named defendants (‘the Cayman defendants’) are for an injunction, until the final determination of the English proceedings, from dealing with or diminishing the value of any shares they hold in a Russian telecommunications entity, Rostelecom, up to the value of US$200m.

3 On the same day, the plaintiff issued a summons in the Financial Services Division of the Grand Court seeking freezing injunctions against

all three defendants in the terms of the draft order which was attached to the summons, and seeking leave to serve the injunction (but not, in terms, the writ) on Mr. Malofeev out of the jurisdiction.

4 The application came before Cresswell, J. on August 19th, 2011. It was heard ex parte, although it seems that Mr. Malofeev and the other defendants were probably aware of it. The judge treated the summons as including an application to serve the writ on Mr. Malofeev outside the jurisdiction. He refused that application. He gave the plaintiff leave to appeal to this court from that decision. He made no freezing order in relation to Mr. Malofeev; but he did make freezing orders in relation to the two Cayman defendants.

5 The plaintiff filed notice of appeal, dated September 2nd, 2011. As filed, the notice sought leave to serve the writ on Mr. Malofeev out of the jurisdiction, at an address in Moscow or elsewhere that he might be found; an extension of the injunction granted on August 19th, 2011 to include Mr. Malofeev; and leave to effect substituted service of the writ and the injunction as so extended upon him by...