English Court Rejects Contempt Application Calling It Personal Vengeance

In Navigator Equities Ltd & Anor v Deripaska [2020] EWHC 1798 (Comm), the High Court of England and Wales, on 17th July 2020, held that the claimant’s contempt application was an abuse of process as being primarily motivated by personal animosity against the counterparty. 

In this large-value dispute emerging from Russia, the judge emphasized that filing contempt motion in a heavy-handed, aggressively partisan fashion constituted in itself an affront to the court.

The judge sent out a clear message that a party should act dispassionately when seeking contempt order and must present the facts fairly to assist the court in making a fair “quasi-criminal” judgment.

The case serves as a timely reminder that civil contempt applicants bear unique duties and responsibilities in light of the quasi-criminal nature of the contempt proceedings. The court has the power and authority to sanction for disobedience to the rules and orders of a court, this case, however, serves as an example when the party sought contempt order in a highly disruptive and prejudicial manner. 

Factual Matrix and Procedural Posture

In 2001, Oleg Deripaska, a Russian oligarch and industrialist, and Vladimir Chernukhin, a former Deputy Minister of Finance of Russia, entered into an agreement to set up a joint venture to purchase a controlling interest in a textile company. Wishing to keep his involvement in the entrepreneurial activities under wraps, Mr Chernukhin proposed Mr Deripaska to be the public face of the venture and appointed an affiliated person to run the business.

Subsequently, the parties recorded the terms of their joint venture to acquire the shares within the textile company via a Cyprus registered company, Navio Holdings Ltd, in a shareholder agreement. Mr Chernukhin, however, did not sign the shareholder agreement, and the latter did not make any express reference to him.  

In 2009, after a prolonged disagreement over the management and alleged forcible takeover of the company, Mr Chernukhin initiated arbitral proceedings against Mr Deripaska under an arbitration clause in the shareholder agreement. The defendant’s team, for their part, contested the jurisdiction of the tribunal on the basis that Mr Chernukhin was not a party to the shareholder agreement.

An LCIA arbitral tribunal rendered an award in Mr Chernukhin’s favour which ordered Mr Deripaska to buy out Mr Chernukhin’s interest in Navio Holdings Ltd, which was later upheld by the court.

The Court of Appeals affirmed the English law principle that a disclosed principal has standing to sue on a contract made on his behalf by an agent acting within the scope of his authority. The court noted that whilst the shareholder agreement did not directly name Mr Chernukhin, primarily due to the constraints of his public office, he was, nevertheless, a party to the agreement as a disclosed and identified principal. As such, the Court of Appeals upheld the LCIA arbitral award and reaffirmed that a non-signatory principal could rely on an arbitration agreement entered into by its agent.

It is in that connection that Mr Deripaska gave undertakings that certain shares in En+ company would remain available for enforcement of the arbitral award. At the same time, the Office of Foreign Assets Control of the U.S. Department of the Treasury imposed sanctions on Mr Deripaska and a number of his companies, including En+. In order to free the company from the sanctions, En+’s shareholders approved the re-domiciliation of the company from Cyprus to Russia.

Contempt Application in Pursuit of the Personal Animosity Towards the Opposing Party

Claimant sought an order to commit Mr Deripaska to prison on the basis that the redomiciliation of En+ company constituted a breach of the undertakings. It is worth noting that, by the time Mr Chernukhin initiated the contempt proceedings for breach of the undertakings, the entirety of the arbitral award, which the undertakings were intended to support, had been paid.

Mr Deripaska’s response to the contempt application focused on the claimants’ awareness of the pursuit by En+ of a continuance to Russia. As a result, the judge struck out an application for committal for contempt of court on the basis that the application was an abuse of process of the court. In so doing, the court held that Mr Deripaska committed no breaches of the given undertakings and found that the contempt application was presented in a clumsy, heavy-handed, aggressively partisan fashion that was inappropriate, vexatious and unfair to Mr Deripaska.

The judge sharply criticized the way in which the party brought the committal proceedings and the manner of presentation of evidence. In the decision, the judge emphasized that it is incumbent on the moving party to prosecute the contempt application dispassionately as guardians of the public interest. In the case at hand, the judge found that the claimant pursued the contempt application out of the deep-rooted personal animosity towards the defendant rather than because of any serious misconduct.

Contempt proceedings, as the court had pointed out, have the quasi-criminal character as they bear several important hallmarks of criminal proceedings. The character of the process has several important consequences: quasi-prosecutorial role of the applicant in pursuing a contempt charge means its proper function is to act dispassionately, to present the fact of the case fairly, and assist the court in making a fair quasi-criminal judgment.

The judge noted that the contempt applications ought to be prosecuted impartially, objectively and even-handedly as an application brought solely in the public interest and not to serve any partisan agenda of the moving party. In the case at hand, however, as the judge observed, the party filed contempt application on a “tit-for-tat” basis, as an attempted act of revenge against Mr Deripaska.

When a private litigant applies to the court for a charge of contempt against the other side, especially when requesting criminal charges and imprisonment, a higher standard of conduct, the court held, is not merely desirable, it is essential to the fairness and the appearance of fairness of the process. What the claimant has done in the present case, as aptly put by the judge, was loading the dice against the counterparty, but it blew back on it in the end.

Concluding Remarks

This case highlights the fundamental functions fulfilled by the legal institution of the contempt of court and reminds of conventional wisdom that a legal representative has a duty of candour to the court. In its decision, the judge noted a significant general increase in hostility and aggressiveness in the conduct of disputes. Certain hardball litigation tactics are unethical and could backfire by severely hampering the client’s case.

As such, lawyers must not allow the court to be misled by false statements of law, fact or evidence that they know to be false. A lawyer should use the law’s procedures only for legitimate purposes and not to harass or intimidate others. While a lawyer must provide zealous advocacy for the client, it is also essential to remember his primary responsibility as an officer of the court. Aggressive, partisan presentation of the contempt application in the case at hand had led the judge to conclude that it constituted an abuse of the process.

About the Author:

Rinat Gareev is a US-qualified attorney (admitted in New York), holds civil and common law degrees. In his current role of a Legal Consultant at a New York based law firm, Rinat represents domestic and international entities on a variety of general corporate matters and cross-border transactions, as well as assisting clients in navigating complex compliance issues. Prior to returning to legal consulting, Rinat has gained experience by working and training in leading arbitral institutions in Malaysia, South Korea, Russia, international organizations (UNCITRAL) and law firms. Through Rinat's professional and educational experience, he has developed expertise in trade law, aviation law, arbitration and cross-border dispute resolution. He has published several papers in international and local journals on issues relating to cross-border dispute resolution and also provides expert opinions on various domestic and international law-related issues. Rinat is HKIAC-accredited tribunal secretary.

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