Sticking to home ground

Jennifer Thompson examines the English High Court's reluctance to interfere with foreign proceedings

The case of Mamidoil-Jetoil Greek Petroleum Company v OKTA Crude Oil Refinery, which was recently heard in the Commercial Court in London, illustrates the English High Court's continued unwillingness to grant injunctions with extra-territorial effect so as to interfere with proceedings held in other jurisdictions.

The case involved the recently privatised Macedonian oil refinery, OKTA, and a ten-year manipulation of oil contract it had with the Greek company, Jetoil.

Proceedings were brought in England in June 2001 by Jetoil against OKTA for breach of the contract.

The contract contained an English law and London arbitration provision.

However, at an early injunction hearing in the High Court in December 1999, both parties had agreed to waive arbitration rights in relation to any dispute arising under or in connection with the contract.

Proceedings in Macedonia

Following a preliminary issues decision in Jetoil's favour in the English Court of Appeal in March 2001 regarding the construction of the contract, OKTA's parent company, ELPET, decided to bring proceedings in the former Yugoslavian Republic of Macedonia (FYROM) court to challenge the validity of the contract.

The basis of the action was that the managing director of ELPET was also the managing director of OKTA.

The proceedings were commenced on advice from ELPET's lawyer in Greece that there was an argument that, according to Macedonian Law, the contract was not valid.

The proceedings were brought by ELPET on 12 July 2001 against Jetoil and OKTA.

ELPET sought a permanent declaration that the contract was non-existent and of no legal effect, and a temporary prohibition on OKTA from complying with any order involving OKTA paying Jetoil damages in relation to the contract.

After hearing a challenge by Jetoil regarding the jurisdiction of ELPET's claim, the FYROM court concluded that it did have jurisdiction to hear it for three reasons: ELPET was not bound by any jurisdiction agreement in the contract; OKTA, a defendant in the proceedings was resident in the FYROM; the issue before the FYROM court concerned the validity of the contract.

This issue was not before the English court, and in any event ELPET was not a party to the English proceedings - therefore, the issue was not res judicata.

The FYROM court went on to consider the merits of ELPET's case and granted the prohibitions that ELPET sought.

English proceedings

In July 2002, the English Commercial Court considered the breach of contract claim brought by Jetoil against OKTA.

ELPET was not a party to these proceedings.

As part of this claim Jetoil sought three injunctions: restraining OKTA from prosecuting proceedings against Jetoil in the FYROM court; restraining OKTA from relying on any judgment given by the FYROM court which would prevent OKTA from paying damages awarded by the English court against OKTA and in favour of Jetoil; and ordering OKTA to discontinue the proceedings in the FYROM court and to set aside any judgment, decision or order granted in those proceedings.

Jetoil's arguments in support of the injunctions being granted included a claim that OKTA was using ELPET to bring the proceedings in the FYROM to circumnavigate its agreement with Jetoil to litigate any disputes regarding the contract in the English courts.

Jetoil claimed that such action was unconscionable and that the English court should try to prevent it by granting an extra-territorial order.

Mr Justice Aikens recognised that so far as the English courts were concerned, ELPET could be estopped from denying the validity and binding nature of the contract.

He reasoned that there was a sufficient identity of interest between OKTA and ELPET, because of ELPET's majority shareholding in OKTA, to conclude that ELPET was OKTA's 'privy'.

Accordingly, the Commercial Court ruled that its decision that the contract was valid and effective was also binding on ELPET in England.

However, Mr Justice Aikens went on to hold that it was not an appropriate case for the English court to grant an injunction restraining OKTA from prosecuting proceedings in the FYROM court.

This was because OKTA had not initiated the proceedings in the FYROM; it had only failed to oppose them actively.

Accordingly, it was not logical for an injunction to be granted against OKTA refraining it from doing something it had not, in fact, been doing.

The judge also held that it was not appropriate to grant an injunction restraining OKTA from relying on a judgment or order given in Macedonia which prevents OKTA from paying Jetoil any damages.

The court indicated that while it had the power to grant such an injunction it should only do so with extreme caution and that, as a matter of comity, it should not grant an injunction preventing OKTA relying on a FYROM judgment to resist enforcement of an English judgment.

Finally, Mr Justice Aikens ruled that it was not appropriate to grant an injunction ordering OKTA to discontinue the FYROM proceedings and to set aside any judgment of the FYROM court.

The court recognised that such an order would amount to a mandatory injunction to take positive steps in a case in which OKTA was a defendant rather than a claimant.

In such circumstances, the court held that it would not be prepared to interfere directly with the Macedonian proceedings.

Extra-territorial injunctions

In reaching his judgment, Mr Justice Aikens gave weight to the impossible situation that the company officers of OKTA would be in if the injunctions were granted.

If the injunctions were granted OKTA's officers would be in contempt of the English court if it obeyed the FYROM court's ruling that no damages should be paid to Jetoil in connection with the contract.

However, if OKTA acted on an English court ruling that OKTA owed damages to Jetoil under the contract then its officers would be in contempt (or the FYROM equivalent) of the FYROM court.

In such circumstances where the Brussels/Lugano Convention, now encompassed in EC Regulation 44/2001, does not apply it seems that the English court is still not willing to interfere with the foreign court's decision whether to recognise the English judgment or not.

Litigators with commercial disputes in the English High Court involving enforcement outside the ambit of EC Regulation 44/2001 should be aware of the English court's continued reluctance to make extra-territorial orders.

While this could potentially create enforcement difficulties for claimants, such knowledge will be of particular comfort to defendants and those acting for them in such cases.

Jennifer Thompson is a solicitor in the dispute resolution and litigation department at City-based law firm Bird & Bird, which acted in the litigation for OKTA