High Court Orders Stay Of English Proceedings Brought By Bank On Grounds Of Forum Non Conveniens

• Published date: 07 June 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Contracts and Commercial Law, Trials & Appeals & Compensation, Shareholders
• Law Firm: Herbert Smith Freehills
• Author: Ms Anna Pertoldi, Maura McIntosh and Nihar Lovell

The High Court has ordered a stay of English proceedings brought by a bank against several shareholders of a company for deceit and unlawful means conspiracy on the grounds of forum non conveniens: Abu Dhabi Commercial Bank Pjsc v Shetty & Ors [2022] EWHC 529 (Comm).

This decision will be of interest to financial institutions seeking to bring a fraud claim in the English courts in relation to financial services provided to a UK customer and its foreign subsidiaries. It highlights that, where a non-contractual claim is brought against those standing behind the customer, the governing law of that claim may not be English law, even if the contractual documentation with the customer contains a choice of English law. If that is the case, and particularly if the claim raises disputed issues of foreign law, the courts may be more inclined to conclude that the relevant foreign jurisdiction is the appropriate forum for the trial of a claim - though this factor may of course be outweighed if there are other substantial connections with England.

In the present case, the court found that the governing law of the dispute was United Arab Emirates (UAE) law rather than English law. This was due to the fact that the loss which the bank sought to recover from the shareholders was suffered in the UAE where the credit facilities were drawn down by UAE domiciled entities. In other words, the direct loss occurred where the facility was drawn down, not where the contract to make the facility available was entered into - and only direct damage is sufficient for these purposes. The damage could not, therefore, be said to have occurred in England.

In contrast, for the purposes of the tort gateway for service of proceedings out of the jurisdiction, the Supreme Court held in FS Cairo (Nile Plaza) LLC v Brownlie [2021] UKSC 45 (considered here) that it is sufficient if the claimant has suffered any actionable damage within the jurisdiction, whether direct or indirect. However, the court will decline to exercise jurisdiction if another forum is clearly and distinctly the more appropriate forum for the claim (unless justice requires that the claim be tried in England). On the facts of this case, the court was satisfied that Abu Dhabi was the more appropriate forum, including (among other factors) because of the court's conclusion that UAE law applied.

We consider the decision in more detail below.

Background

Prior to 2019, the claimant bank (the Bank) extended credit facilities to a UK company (the Company), its main UAE subsidiary, and its other subsidiaries (together, the Group). In April 2020, the Company was placed into administration, and the existence and scale of a fraud within the Group become apparent. This fraud allegedly led to undisclosed debt within the Group totalling almost USD 5 billion.

The Bank brought a claim in the English court against the Company's controlling shareholders for deceit and unlawful means conspiracy in relation to certain credit facilities made available by the Bank to the Company and its subsidiaries. The Bank's case was that the shareholders had conceived or carried into effect a scheme by which false financial statements were created for the Company, which gave a false impression of the Company's financial strength by concealing the losses it had accumulated within its subsidiaries as a result of massive dishonest misappropriation. It was alleged that these statements were...