Challenging jurisdiction in complex international fraud claims

In the recent case of Re Harrington and Charles Trading Co Ltd (in Liquidation) [2023] EWHC 307 [Ch], the High Court had to grapple with the Defendants' challenge to the English Court's jurisdiction in an alleged billion-dollar fraud spanning multiple jurisdictions and a complex web of entities.

In so doing, the judgment provides a detailed insight into the Court's approach to such challenges and the issues upon which an application challenging the English Court's jurisdiction might turn.

The Facts

The case was one of extraordinary complexity. It begins with two Indian companies ("W" and "FP") which entered into "Precious Metal Facility" agreements with eight banks in 2008 (the "Bullion Banks"), which were essentially loan credit facilities for the banks to supply bullion when drawn down by W and FP, which were repayable within 270 days. In turn, in 2009, those drawdowns of bullion were securitised by a consortium of Indian banks via a joint working capital consortium agreement ("JWCC") (the "Consortium Banks") pursuant to which the Consortium Banks provided standby letters of credit to W and FP. When the bullion drawdowns were paid to W and FP, they were transferred on to a number of distributor companies in the UAE and then, on the Claimant's case, on to others including six companies registered in England and Wales. In 2013, W and FP defaulted on their payment obligations to both the Bullion Banks and the Consortium Banks. By this time W and FP had drawn down almost $1billion of bullion.

The Consortium Banks immediately began pursuing W and FP in civil proceedings in India to recoup their substantial losses, but were only able to recover a fraction of the sum owed. The six English companies were suspected of being one 'layer' of corporate entities through which the proceeds of the alleged fraud flowed. One of the Consortium Banks, SCB India, was able to appoint liquidators in respect of each of the six companies (the "Claimant Companies") and to commence proceedings in England and Wales against the five Defendants, who were each individuals accused of having orchestrated the fraud and laundering the drawn-down bullion into companies under their ultimate control (the "Alleged Fraud").

The Jurisdiction Applications

Three of the Five Defendants responded to these proceedings by applying to challenge the English Court's jurisdiction, arguing that in fact India was the more appropriate forum to hear the dispute, on the following basis:

1. The case was an Indian dispute, involving an attempt by an Indian bank to recover losses on behalf of itself and other Consortium Banks, in respect of which it had already taken substantial steps in India. The JWCC agreement was also governed by Indian law. For those reasons, the proper law to be applied was Indian law;
2. The Defendants had given undertakings that they would submit to the jurisdiction of the Indian Court;
3. Most of the witnesses to the relevant events would be located in India; and
4. Most of the relevant documents would be located in India.

The Claimants disputed this, observing inter alia that:

1. These were claims brought on behalf of English companies by their English insolvency officeholders and the Indian proceedings were entirely separate to the present proceedings;
2. Four of the five Defendants were resident in the United Kingdom and had been since before the orchestration of the fraud;
3. India was not an available forum to hear the dispute since it was not clear that English liquidators would be recognised as having authority and standing to bring the claims in India as a matter of Indian law; and
4. There was also a moratorium in India on commencing any new proceedings against the First Defendant, which might affect the liquidators' ability to pursue the First Defendant for debts in India.

The Judgment

Judge Edwin Johnson turned first to the test set down in the case of Spiliada Maritime Corporation v Cansulex Ltd [1987] AC 460. For a challenge to the English Court's jurisdiction to be successful, the applicant must persuade the Court that there is "some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of the action, i.e. in which case may be tried more suitably for the interests of the parties and the ends of justice." [476C, quoted at 55]

The Judge considered the key principle which should inform the questions of "availability" and "appropriateness" in the Spiliada test - the need to "identify the true dispute between the parties" [69]. In so doing, he considered the Defendants' characterisation of the dispute as essentially Indian, but concluded that "the Consortium Banks are not the claimants in this action. The Claimants are the claimants" [86] and:

"The matters to be tried, if boiled right down, can conveniently be divided into two broad matters. First…whether the Alleged Fraud…occurred… Second…whether, in all the circumstances of the Alleged Fraud, the Claimant Companies and/or the Liquidators have their own claims against the Defendants." [91]

In considering whether India was an "available" forum, the Judge turned to the arguments made by the Claimants that the authority of English liquidators might not be recognised as a matter of Indian law, but expressed dismay that neither the Claimants nor Defendants had adduced any expert evidence as to Indian law on this point. For that reason, he was not entitled to assume that this would be a barrier to the claims in India. Whilst he also agreed that the moratorium conceivably might prevent the commencement of certain claims against the Defendants in India, that was a point which did not concern the availability of the jurisdiction in India, but rather suggested that India might be a less favourable forum, which went to the question of appropriateness. For that reason, the Judge concluded that India was an available forum for this dispute, so the first limb was satisfied.

The second limb is the question of whether India would be a "more appropriate" forum to hear the dispute. The Judge observed that the Claimant Companies are all English registered companies subject to an insolvency process governed by English law, the liquidators reside in England and all of the Defendants who challenged jurisdiction, whilst having previously lived in India, were now permanently resident in England.  The Judge particularly noted that "By the time of the operation of the Alleged Fraud all of the Defendants, with the possible exception of the First Defendant, had left India." [143] England could therefore be said to be the location from which the fraud was principally orchestrated, although there were a number of possible alternative jurisdictions which could have been said to have been more appropriate, as the Judge noted:

"There are factors pointing to various jurisdictions. The Alleged Fraud, if it occurred, was an international fraud and…various jurisdictions were involved. The Claimant Companies, who were used as vehicles for the Alleged Fraud, are English companies…The orchestration of the passing of the funds through the Layers of companies appears to have been administered from various parts of the world, including England. The Alleged Fraud had its inception in India…The dispute is substantially concerned with the governance and direction of English companies." [149]

Finally, the Judge considered the correct law to be applied and concluded that "Given that the Claimant companies were and are English-registered companies, and are now subject to the English insolvency process, I find it hard to see how the Claimants' claims can be said to be governed by Indian law." [172] The Judge was unpersuaded that the location of witnesses and documents was sufficient to render Indian the 'more appropriate' forum for the dispute to be heard, given all of the above.

For that reason, the Defendants' challenges to jurisdiction were dismissed.

Conclusion

This case shows the frequent complexities with which the English Court is faced in reaching a concluded position as to the most appropriate forum to hear claims involving an elaborate web of fraudulent transactions which may touch a number of different jurisdictions. The Court is nevertheless well equipped to address such disputes in order to reach a common sense outcome which observes the interests of justice for all parties.

A salient lesson for a defendant challenging jurisdiction is that it should carefully consider whether it should be armed with expert evidence on whether its desired forum is 'available' as per the relevant test. Similarly, if either the claimant or defendant believes they would not receive a fair trial in a foreign jurisdiction, they must put forward cogent evidence that this would be a real risk. Such evidence might include a witness statement from a lawyer or political expert in the particular foreign jurisdiction.

As international fraud becomes ever more complex, it will be interesting to see how the principles applied by the English Courts in jurisdiction challenges evolve over time to better suit claims of this magnitude and complexity.