Legal

Wealthy Shop Around For Jurisdiction Of Choice

Steven Francis Reynolds Porter Chamberlain Partner 24 November 2008

Wealthy Shop Around For Jurisdiction Of Choice

For those with great wealth, national boundaries present no real obstacle. But when legal disputes arise, they will invariably have an international dimension, leaving the individual exposed to "forum shopping".

For those with great wealth, national boundaries present no real obstacle. They can travel frequently and widely, own property in a number of countries and use foreign companies to hold, and perhaps conceal, their wealth.

One possible disadvantage to such a lifestyle is that, when legal disputes arise, they will invariably have an international dimension, leaving the individual exposed to "forum shopping" – the practice of litigating disputes in a country that, for political or legal reasons, is reckoned to give the claimant the best chance of success.

The venue of the dispute might be hugely important. Some countries are generous in the financial awards they make, some, for example, awarding non-compensatory losses: others adopt a conservative approach. Some countries' courts will grant pre-trial remedies such as injunctions whereas others find such measures draconian. In some countries lawyers will share the risk of bad outcomes through "no-win-no-fee" arrangements. In other countries access to lawyers is reserved for the wealthy.

Recent cases involving two well known and wealthy Russians, Roman Abramovich and Oleg Deripaska, shed light on UK courts' attitudes to international disputes.

The case involving Mr Abramovich is complicated - the judgment is 136 pages long. It concerns allegations that Mr Abramovich defrauded a Russian company out of billions of pounds, being its share of a Russian joint venture set up to exploit the South Priobskoye & Palyanovske oil fields in the Khanty Mansiysk region of Siberia. It is alleged that Mr Abramovich did this in part though nominee companies operating variously in Russia, the UK, Cyprus and the British Virgin Islands.


The Abramovich case addresses an issue which commonly arises in litigation with an international element. Whose law applies?  In order to assess whether Mr Abramovich should pay compensation or return property that he'd allegedly appropriated, should an English court apply English law or Russian law?

The claimants argued for the application of a doctrine known to lawyers as lex fori. This means that the law of the country hearing the dispute applies: i.e. English law.  It suited the claimant to argue this because, was Russian law to apply, the claimant would lose. Russian law set a date by which proceedings should be started and, to put it simply, the claimant had started its case too late.

The defendants argued that the lex fori should not be the applicable law and that the court should ask, with whose law did the case have its closest and most real connection? The court agreed that this was the proper test and had little doubt that the strongest connecting factors were with Russia. Russia is where the claimant suffered its loss, Russia is the place of business of the claimant, Russia is where the key relationships existed and Russia is where the physical operations of the JV were conducted.

The court then applied Russian law and decided that in Russian law the claimant's claims were time barred. On the other hand, English courts will in certain circumstances apply the law of a foreign country in an English court with the assistance of expert evidence.

In English law, legal proceedings are started by the issue and service of a claim form. The form was duly delivered to Mr Abramovich's flat in London. But for that to constitute proper service, Mr Abramovich needed to be domiciled in England when the form was delivered. This is a crucial issue. If Mr Abramovich was domiciled in England when served, the claimant would rely on a European Court judgment to the effect that if a defendant is domiciled in a Member State of the European Union, the court has no power to stop proceedings against him. It can do so on the grounds that there is an alternative more appropriate place where the trial should take place.  The test applied by the court was: what was Mr Abramovich's settled or usual place of abode when the claim form was served on him?

In assessing this point the judge referred to earlier litigation involving another well known Russian, Oleg Deripaska. In that case, the judge there commented on how difficult it is to apply the test of residence to "a modern phenomena" such as Mr Deripaska, and this characterisation applies with equal force to Mr Abramovich. Both are international businessmen who jet around the world on frequent and brief meetings. For both the costs of travel are insignificant. As was said in the Deripaska case: "it hardly rings true to say of Mr. Deripaska that he was resident for (say) last Tuesday afternoon or next Thursday morning. It would be a misuse of language."  The "quality" of the time spent in England and other places needed to be considered as well as the "quantity" of time.

In Mr Abramovich's case it was noted that he is a Russian citizen and speaker but he is not fluent in English. In 2007, he spent only 57 full days in England, all in connection with football matches. He is not treated as resident in the UK for tax purposes. It was said on Mr Abramovich's behalf that no inferences should be drawn from his ownership of Chelsea which was simply part of a growing phenomenon of wealthy foreigners acquiring English football clubs.

Mr Abramovich's £30 million property in England was said to represent less than 0.5 per cent of his net wealth. On the facts of the case the trial judge decided that in 2007 Mr Abramovich was resident in Russia and not in England. He had not been validly served.

As one would expect, Messrs Abramovich and Deripaska both had top-drawer legal teams. It is crucial to take advice early on these issues. If arguments about forum and choice of law are not raised, a person might find himself litigating in front of an unsympathetic tribunal whose law, customs and language he barely understands. 


Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes