Knowledge

The BVI Court of Appeal in this case set aside recognition of a US$30 million Russian judgment due to unsafe analysis of foreign law and inadequate service.

This case revolves around the recognition and enforcement of a foreign judgment from Russia in the BVI. The appellant, Mr Taruta, along with his co-defendant Mr Katunin, faced a claim by VTB Bank for a breach of a guarantee related to loans to Enieseiksy Plywood Mill Limited.

The Russian court ruled in favour of VTB Bank, but Mr Taruta argued that he was never properly notified of the proceedings, claiming a breach of natural justice.

The central issue in the appeal focused on whether the judge erred in determining that the breach of natural justice was cured by subsequent proceedings in the Russian Appeal Court. The initial ruling found that Mr Taruta had not been served with the originating process as required, which constituted a breach of natural justice, as he was unable to defend himself adequately. The judge further evaluated whether this breach was material and if the processes following the initial ruling provided "substantial justice", a key principle under English law regarding the enforcement of foreign judgments.

In delivering its judgment, the BVI Court of Appeal emphasised the need for courts to adhere to principles of natural justice, especially where foreign judgments were being recognised and enforced. The failure of the trial judge to seek independent expert guidance on Russian law further complicated the issue, as it undermined the legitimacy of the conclusions drawn regarding the curative effects of the Russian appellate process.

This highlighted a potential gap in ensuring that courts have the appropriate expertise to interpret foreign legal frameworks effectively, which was held to be crucial in cases involving international judgments.

Conclusion

In conclusion, the BVI Court of Appeal ultimately allowed Mr Taruta's appeal in part, dismissing the counter appeal from VTB Bank and setting aside the enforcement order of the Russian judgment. The injunction was lifted and costs were awarded to Mr Taruta, and VTB Bank was ordered to repay sums paid under the enforcement.

The decision underscores the significance of procedural fairness and the right to a proper defence in judicial proceedings, reaffirming that breaches of natural justice cannot be overlooked, regardless of the jurisdiction.

Key takeaways

This case emphasises that:

• breach of natural justice is fatal and that a foreign judgment obtained without proper service violates common law notions of substantial justice and cannot be enforced;
• proper proof of foreign law is required. Where foreign law is crucial, independent expert evidence is mandatory. Judges should not interpret non-common-law foreign statutes unaided;
• the possibility that an appellate process might fix a defective original trial must be properly pleaded, evidenced, and proven - the burden is on the judgment creditor; andf
• when a breach of natural justice is established, courts should not second-guess the merits. The focus is on procedural fairness, not the substance of the original claim.

The practical implications of this case are as follows:

• cross-border enforcement: this case reinforces the high threshold for enforcing foreign default judgments in common law jurisdictions when service or notice is disputed;
• due diligence: judgment creditors must ensure robust service records and be prepared to produce qualified foreign law experts; and
• strategic consideration: even where a debtor has lost an appeal in the foreign jurisdiction, the original breach may still bar recognition if the appeal did not fairly cure the defect.