The Rights of Sanctioned Litigants to access to the Court: Court of Appeal issues Key Decision in the BVI

Summary of the proceedings and the appeal

In the underlying proceedings before the courts of the British Virgin Islands, the Bank alleges that it was induced by fraudulent misrepresentations to advance US$140 million to finance the acquisition of a Russian mining company pursuant to a conspiracy involving persons including Kipford, which indirectly received approximately US$48.34 million of the loan proceeds. The Bank’s claim relies on (among other laws) Articles 1064 and 1080 of the Russian Civil Code, alleging that Kipford is a joint tortfeasor in respect of the fraud on the Bank.

At first instance, Mangatal J dismissed the Bank’s application for a worldwide freezing injunction, holding that there was no good arguable case of Kipford’s joint liability in tort, and stayed the claim until further order. The Judge’s decisions were founded on her findings about the merits of the Bank’s claim and also that (i) sanctions affecting the Bank meant that any judgment in the Bank’s favour would not be enforceable and (ii) there was uncertainty over the licensing of adverse costs payments by the Bank. The Judge also ordered substantial interim payments on account of costs. The Bank obtained an interim freezing injunction from the Court of Appeal pending its appeal against the Judge’s decision.

The Court of Appeal held that the judge had erred in law and in the exercise of her discretion. It identified two central issues: first, whether the indefinite stay and costs orders unlawfully denied the Bank access to justice; and secondly, whether the judge had been entitled, at an interlocutory stage, to conclude that the Bank had no good arguable case under Russian law: [51]-[52]. Given the Court’s conclusions on these issues, it was not necessary to consider the Bank’s other grounds of appeal, including those founded on allegations of procedural unfairness: [76]-[77].

Access to justice and sanctions

The Court held that the common law and constitutional right of access to the courts of the British Virgin Islands is not confined to commencing proceedings: it includes the right to have a civil claim adjudicated from the interlocutory stage through to judgment: [53]. An indefinite stay imposed at an interlocutory stage, which stifled the proceedings until sanctions were revoked or the Bank ceased to be designated, was therefore an impermissible intrusion on that right: [58]-[60].

Applying Mints v PJSC National Bank Trust [2023] EWCA Civ 1132, the Court rejected the Judge’s finding that sanctions rendered a judgment in the Bank’s favour unenforceable. Regulation 58(5) of the Russia (Sanctions) (EU Exit) Regulations 2019 was properly construed as permitting payment into a frozen account of a judgment sum relating to a pre-designation obligation: [56]-[57], [61]-[64]. The Court also held that the Judge had misunderstood the applicable sanctions law in other respects, finding that (i) the loss of freezing relief which would otherwise be in place would be clearly an impediment to the right to access to have an effective judicial remedy, and (ii) the payment of adverse costs was licensable: [63]-[64]. The sanctions regime therefore did not justify either the indefinite stay or the associated costs orders: [65]. The Judge’s exercise of discretion on the freezing injunction application was also erroneous because it was based on her failure properly to apply the principles identified above: [66].

Good arguable case

The Court reaffirmed the principles governing the treatment of interlocutory evidence when determining whether a freezing injunction application has surmounted the applicable merits threshold, before going on to hold that the Judge had been wrong to find that “there is no good arguable case of Kipford having joint liability in tort…In sum there is no sufficient evidence to tilt the balance…to an inference of dishonesty…the necessary inference regarding the fund movement…is absent”: [67]-[73]. In deciding that the Judge had erred in making this “central and fundamental finding”, the Court referred to (among other things): (i) the Bank’s draft Amended Statement of Claim, noting in particular a plea as to the applicable test for joint tortfeasor liability under Russian law, (ii) the evidence adduced by the Bank in support of its allegations of fraud, (iii) the parties’ expert evidence on issues of Russian law, and (iv) a table which had been put before the Judge identifying the areas where there was potential disagreement between the parties’ foreign law experts: [70]-[71].

Orders

The Court set aside the dismissal of the freezing application, the stay, the interim payment orders and an order admitting further evidence. Exercising its own discretion, the Court granted an interim worldwide freezing injunction restraining dealings with Kipford’s assets up to US$142 million, required updated asset disclosure within 21 days, and directed an expedited trial before another Commercial Court judge. Kipford was ordered to pay the Bank’s costs of the appeal and the proceedings below, subject to assessment if not agreed.

Counsel

Andrew Willins, KC  and Tamara Cameron of Appleby (BVI), acted for the Bank, instructing Paul Lowenstein KC of Twenty Essex and James Gardner of One Essex Court.