Merchant International v Naftogaz International  EWCA Civ 196 – read judgment
The Court of Appeal has ruled that domestic courts may refuse to recognise a judgment of another Convention country on the basis that it failed to respect the fair trial principles in Article 6.
In this case the Ukraine Supreme Court was said to have “flagrantly” disregarded the principle of legal certainty. Whilst the English court should apply a strong presumption that the procedures of other Convention States complied with Article 6, it was not wrong for an English court to consider whether a judgment of a court of a Convention State contravened the Convention.
The complicated series of transactions leading to this ruling may be briefly summarised. The respondent company Merchant, which was resisting the set aside of a default judgment, had claimed to be an assignee of a debt owed by the appellant company Naftogaz. But it had not been able to enforce the Ukranian judgment because of a local law that had suspended the enforcement of certain judgments, so Merchant commenced proceeedings in England instead. When Naftogaz failed to serve a defence, Merchant entered judgment in default.
In the Ukraine in the meanwhile Naftogaz had applied to set aside the local judgment in favour of Merchant because of circumstances that had apparently come to light, in that Merchant allegedly lacked capacity to enter into the original debt assignment. Merchant opposed that application, arguing that the new material did not satisfy the requirement of Ukrainian procedural law that it could not have been known to Naftogaz at the time of the original hearing, and that it could be shown that any lack of standing only arose after the assignment was executed. The Supreme Commercial Court of Ukraine nevertheless set aside the judgment.
In these proceedings, Naftogaz argued that since the Ukrainian judgment had been set aside and a new trial had been ordered, there was no foreign judgment which could be recognised or enforced in England so that the proceedings should be set aside under the Civil Procedure Rules r.13.3. Merchant contended that the judge had been right to disregard the Ukrainian Supreme Court judgment and to continue to give effect to the earlier judgment in its favour because the latter ruling involved a breach of not only of Article 6 but of Article Protocol 1 of the Convention. Applying the Strasbourg Court’s ruling in Agrokompleks v Ukraine (23465/03), October 6, 2011, it was clear that both the previous Ukrainian judgment in the respondent’s favour and the English judgment were “possessions” protected by the Protocol, requiring the English court to recognise the continued existence of the debt.
The appellant’s application was refused. The Court held that the Ukraine judgment involved a clear disregard of the principle of legal certainty because it allowed the entire case to be reopened by reference solely to circumstances which had not prevailed at the earlier hearing. Furthermore, it would be contrary to public policy and the court’s duty under Section 6 of the Human Rights Act 1998 to recognise such a judgment. The appellant had had no defence to Merchant’s claim when the English default judgment was entered; the basis of its application to set aside was that it had subsequently obtained a judgment from the Ukraine Supreme Court setting aside the previously final judgment. It had been proper for the judge to consider whether the Ukrainian judgment violated the respondent’s Convention rights and the principles of substantial or natural justice as understood by the English courts.
The Court’s reasoning
This was not a question of ignoring the “strong presumption” that the procedures of other Convention States complied with Article 6, as indicated by Lindberg v Sweden (Admissibility) (48198/99) (2004) 38 E.H.R.R. CD239. That admissibility decision did not lay down a broad rule that the courts of a Convention State should never concern themselves with the question whether there had been a breach of a party’s Convention rights in another Convention State but should regard that question as a matter exclusively for the other Convention State and the Strasbourg court. The Court preferred to rely on its own approach in 2002 in Maronier v Larmer, a case concerning the procedural shortcomings of a Dutch judgment, in which the English Court did not accept that it must apply an “irrebuttable presumption” that a judgment given in another Member State cannot have resulted from a violation of Article 6:
There is … a distinction in principle between a decision that resolves an issue of substantive law and a decision reached by a procedure that violates the fundamental human right to a fair trial.
..It is thus clear that, in an exceptional case where the procedure of the court first seised has resulted in a defendant being prevented from putting his case to the court, Article 27(1) of the Brussels Convention can justify a refusal to enforce the resultant judgment on grounds of public policy.
Although Maronier dealt with a slightly different version of comity between nations, as governed by the Brussels Convention on the enforcement of foreign judgments, it was strong authority in the instant case for acting on the basis that there had been a breach of Article 6 in the Ukraine. Not only is legal certainty regarded as a “fundamental principle” of English law, and an integral principle of Article 6, but in exercising its discretion under the Civil Procedure Rules to set aside a judgment, the court had to consider the question of what was just. In this case the judgment had been properly obtained, and to set it aside on the basis of a later proceeding which involved a fundamental denial of legal certainty and fair process. The judge below had been correct in refusing to do so.
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