To Babanaft or not to Bananaft – the extra jurisdictional effect of an anti-suit injunction (Renaissance Securities (Cyprus) Ltd v Chlodwig Enterprises Ltd)

Mini-summary

The court was considering the appropriate form of order continuing an anti-suit injunction (previously made without notice).

The key issue before the court was whether to continue to include express reference to the ultimate beneficial owners of the defendant companies, a Mr and Mrs Guryev, in the penal notice to the order effecting the anti-suit injunction.

The court decide that Mr and Mrs Guryev should not be separately named and should only be included in generic terms, by reference to the warning addressed to third parties more generally not to “help or permit” the named respondents to breach the injunction.

However, an important subsidiary issue was whether the Court should also include a Babanaft provision to make it express that the order was not intended to restrain the acts of third parties who were entirely and unquestionably outside of the jurisdiction of the English Courts.  Such a provision is routinely included in worldwide freezing injunctions and the question was whether it was appropriate in an anti-suit injunction.

There were other issues as to the need to serve Mr and Mrs Guryev, as the ultimate beneficial owners, with the Order.  The Court, finding this was not necessary, but expedient, was prepared to dispense with personal service on the basis that such permissive service would not, without more, change the jurisdictional position in respect of the Guryevs.  The jurisdictional issue, along with any Babanaft principle, therefore could be argued if it arose on another occasion.

Renaissance Securities (Cyprus) Ltd v Chlodwig Enterprises Ltd and other companies [2023] EWHC 3160 (Comm)

What are the practical implications of this case?

The case is interesting in the context of international disputes where anti-suit issues arise.  The case concerned the extra-jurisdictional effect of an anti-suit injunction made in protection of an agreement by parties to submit to a London based arbitration.

On one hand, if the anti-suit injunction purported to bind third parties who were not ordinarily or otherwise subject to the English jurisdiction, the Court might be accused of accruing to itself an  “altogether exorbitant, extraterritorial jurisdiction”.

On the other hand, if significant actors in corporations, which had agreed to abide the English jurisdiction, were free to ignore an anti-suit injunction, its efficacy would be greatly undermined.

Mr and Mrs Guryev, as the ultimate beneficial owners of the defendant corporations, sought to include a Babanaft provision, and the Court refused it.

The Court left undecided whether a Babanaft provision of this type was appropriate in an anti-suit injunction and indeed the scope of the protection arguably afforded by the ultimate beneficial owners by the principle (whether set out in an order or otherwise).  Perhaps the most significant aspect of the Judgment was the Judge (after reviewing the authorities) leaving open to argument that the principle may not afford any significant protection to the ultimate beneficial owners on the facts of this case – especially, where the beneficially owned corporations had agreed to submit to arbitration in the English jurisdiction.

The Court decided in essence that the important question of the applicability of the Babanaft principle and the scope of the protection it afforded should be argued on another occasion.

It remains to be seen whether this issue will arise in this or another case in the future where the court is obliged to decide whether the Babanaft principle has any application to company insiders who are not otherwise resident or subject to the jurisdiction of the English Courts but where the companies they own or control are within jursdiction.

What was the background?

The claimants had obtained, without notice, an anti-suit injunction against the defendant corporations, to protect an agreement between the parties to submit to an English arbitration in London.

An injunction was made initially without notice and it was continued without objection from the defendant corporations at a return date.  The only issue for argument was the treatment in the order providing for the injunction of Mr and Mrs Guryev, as the ultimate beneficial owners of the defendant corporations.

Although the claimants reserved their position as to whether Mr and Mrs Guryev were de facto directors, it was common ground that otherwise the Guryevs had no formal roles or positions within the defendant companies.

The naming of the Guryevs in the original without notice order created the impression that the Guryev owed duties under the order that were separable and distinct from the obligations imposed on the respondent companies.

The court had to decide the extent to which that was appropriate.

What did the court decide?

The court decided that the Guryevs owed no separate obligations under the anti-suit injunction to those imposed on the respondent companies.   The only additional obligation was a general one, applying to all third parties not to “help or permit” the named respondents to breach the injunction.

To separately name the Guryevs or even to refer to a broader class of person associated with the respondent companies, than the classic formulation of “director or officer”, the court found risked causing confusion as to the true effect of the injunction order.

The warning to third parties, though cast in generic terms, was sufficient to warn all third parties including the Guryevs of the effect of the injunction and their obligations in respect of it.

The Guryevs invited the court to make a Babanaft principle proviso which would make it clear that the injunction did not seek to bind those who were outside of the Court’s jurisdiction.

As the court noted that principle provided that (at paragraph 22(1)):

“That it is wrong in principle for the English court to grant an injunction which might be understood to have some coercive effect over persons resident abroad and not subject to the court’s jurisdiction.”

However, that broad principle had mostly applied to institutions such as banks and had been contained in worldwide freezing injunctions.  Thus, the principle applied to genuine third parties who were independent to the respondents to the injunction and where it might be thought that such a third party might have competing obligations as to whether to comply with the English injunction or comply with domestic legal obligations.

As the Judge noted (at paragraph 23):

“… as far as the Claimant had been able to ascertain, there was no authority in which a Babanaft proviso had been contained in an order for an anti-suit injunction, or indeed in any type of order other than a worldwide freezing order.”

The court had already noted the case of Dar Al Arkan Real Estate Development Co v Refai [2015] 1 WLR 135, where the Court of Appeal recognised the distinction, in relation to persons abroad, between those who are answerable for the breaches of an order by a corporate party, under what may be described as the Body Corporate Provision, and others, stating:

 “This is a very different situation to that considered in the Derby & Co Ltd v Weldon litigation. That involved the exercise of the contempt jurisdiction over foreigners with no pre-existing connection with those proceedings. In this case, the director is the director of companies which are subject to the jurisdiction of the English court because they have instituted proceedings here and those companies are in contempt of this court because of their breach of an order of the court in the exercise of that jurisdiction.”

Clearly, there were competing considerations and at a minimum it might appear open to argument that where those closely involved in a corporate defendant are in breach of the terms of an anti-suit injunction, a jurisdictional defence may not be an answer to liability for contempt of court.

Neither party having been able to cite a precedent for a Babanaft provision in an anti-suit injunction and considering that insufficient authority had been cited in argument, the Judge stated:

“It may thus be sufficient to say that I do not consider that it is appropriate to extend the circumstances in which a Babanaft proviso should be inserted in an order to an anti-suit injunction.”

Therefore, the applicability of the Babanaft principle – potentially important in the context of a world increasingly divided – will have to wait for a more appropriate fixture to be determined.

Case details

• Court: King’s Bench Division (Commercial Court)
• Judge: The Hon Mr Justice Butcher
• Date of judgment: 08/12/2023

Article by Lauren Godfrey – first published by LexisNexis