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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Base Metal Trading Ltd v Shamurin [2001] EWHC 512 (Comm) (21 November 2001) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2001/512.html Cite as: [2001] EWHC 512 (Comm)

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Case No: 2000 Folio No. 362

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 21^st November 2001

B e f o r e : THE HONOURABLE MR JUSTICE MOORE-BICK - - - - - - - - - - - - - - - - - - - - -

	BASE METAL TRADING LIMITED	Claimant
	- and -
	RUSLAN BORISOVICH SHAMURIN	Defendant

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Mr. Edmund Broadbent (instructed by Holman Fenwick & Willan) for the claimant Mr. Adrian Briggs (instructed by Vizard Oldham) for the defendant - - - - - - - - - - - - - - - - - - - - - JUDGMENT

Pursuant to the Practice Statement issued by the Master of the Rolls on 9th July 1990 I hereby certify that the attached text records my judgment in this matter and direct that no further record or transcript of the same need be made.

The Hon. Mr. Justice Moore-Bick

Mr Justice Moore-Bick:

1. This matter comes before the court by way of an application by the defendant for summary judgment under Part 24 of the Civil Procedure Rules. The claimant is a company incorporated in Guernsey in December 1992 which was established as the vehicle for a business enterprise involving the defendant, Mr. Shamurin, Mr. Yuri Zhivilo and, so the defendant says, his brother, Mr. Michael Zhivilo. The object of the venture was to trade in metals, principally aluminium, both in Russia and abroad. From the date of its incorporation until some time in 1996 the company had two directors, Mr. Shamurin and Mr. Yuri Zhivilo, each of whom held one of the only two shares in the company which were issued during that period. At some time in 1996 (the precise date does not matter for present purposes) control of the company passed to the two Zhivilo brothers, Mr. Michael Zhivilo taking the place of Mr. Shamurin both as director and shareholder. This has given rise to a dispute between Mr. Shamurin and the Zhivilo brothers which is currently the subject of litigation in Guernsey.
2. During 1993 and 1994 the company’s business consisted primarily of buying metal in Russia and selling it abroad. Mr. Yuri Zhivilo was responsible for purchasing stocks of metal within Russia; Mr. Shamurin usually dealt with non-Russian buyers to arrange the physical sales of metals. Part of his function was to enter into hedging contracts on the London Metal Exchange to protect the company’s position in relation to contracts made through Mr. Zhivilo for the purchase of metals for future delivery. In this action the company is seeking to recover damages from Mr. Shamurin for negligence and breach of duty in entering into certain contracts on the London Metal Exchange during 1993 and 1994. In a nutshell, the company says that during that period Mr. Shamurin entered into a number of speculative contracts as a result of which it suffered losses of more than US$7 million. Mr. Shamurin has raised a number of matters in his defence, one of which has given rise to this application. He maintains that his relationship with the company is governed entirely by Russian law and that as a result the action is bound to fail. It is common ground, for reasons which I need not go into, that if all relevant aspects of his relationship with the company are governed by Russian law, this action is indeed bound to fail.
3. For the purposes of this application witnesses statements have been filed by Mr. Shamurin, by Mr. Keith Michel of Holman Fenwick & Willan on behalf of Mr. Zhivilo and by Mr. Zhivilo himself. It is apparent from these that the facts underlying this claim are in many respects hotly disputed. Despite that, Mr. Briggs submitted that this is a case in which judgment should be entered for the defendant now because it can be seen on careful analysis that none of the disputed facts is relevant to the determination of the issue that lies at the heart of the defence, namely, whether the defendant’s relationship with the company is governed by Russian law.
4. Rule 24.2 provides that the court may give summary judgment against a claimant if it considers that he “has no real prospect of succeeding on the claim and there is no other compelling reason why the case should be disposed of at a trial”. In view of the position taken by the defendant in this case, it is perhaps particularly important to remind myself that the jurisdiction is one which it is only appropriate to exercise in a clear case: see Three Rivers District Council v Bank of England [2000] 2 WLR 15 and Swain v Hillman [2001] 1 All ER 91. Insofar as the witnesses statements contain contradictory accounts of the facts, therefore, I shall assume for the purposes of this application that if the matter were to go to trial, the claimant would succeed in establishing the account of events set out in the statements filed on its behalf.

The nature of the claimant’s case

5. Although the facts on which the claimant relies are the same in each case, it seeks to formulate its claim in three rather different ways: as a claim for damages for breach by Mr. Shamurin of his contract of employment; as a claim for damages for breach by Mr. Shamurin of a duty of care owed to the claimant under the general law; and as a claim for equitable compensation for breach by Mr. Shamurin of a duty which he owed to the claimant in his capacity as a director. On the face of it, these different ways of formulating the claim reflect different aspects of the relationship between Mr. Shamurin and the company. If that is the correct approach it is necessary to examine each way of putting the claim separately because it is common ground that Mr. Shamurin can only succeed at this stage if he can show that the claimant has no real prospect at trial of satisfying the court that any of them is governed by a law other than Russian law. However, Mr. Briggs submitted that there was really only one obligation supporting this claim, namely, an obligation on the part of Mr. Shamurin to exercise reasonable skill and care in his conduct of trading operations on behalf of the company, and that however one looks at it, that obligation can only be governed by one system of law. Building on that submission he relied on the provisions of the Rome Convention as enacted in the Contracts (Applicable Law) Act 1990 as establishing the proper law of Mr. Shamurin’s contract of employment and thereby the only relevant law for the purpose of determining the existence and nature of any liability he might have to the company. In the present case, he submitted, that law was Russian law.
6. The notion that, in cases where a person is employed to act on behalf of another in commercial matters of this kind, there is a single obligation to exercise reasonable skill and care undoubtedly has certain attractions, but it is not one that has commended itself to English law. The question arose for consideration in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 where the House of Lords was concerned with the nature of the relationship between a Lloyd’s Name and his managing agent. It was common ground that where the agent was in contractual relations with the Name he was under an obligation to conduct underwriting business on behalf of the Name with reasonable skill and care. One question for the House was whether he also owed the Name a duty of care under the general law. Their Lordships held that the agent owed the Name separate and concurrent duties of care both in contract and under the general law, enabling him to sue in tort even though his claim in contract was time-barred.
7. The question whether Mr. Shamurin owed the company one duty or three concurrent duties is one which in these proceedings falls to be judged by English law. In the light of the decision in Henderson v Merrett the submission that the law recognises only one duty must be rejected. Despite that, Mr. Briggs submitted that the Rome Convention itself leads to a different conclusion in cases where there is a contractual relationship between the parties. This is because by Article 1.1 the rules of the Convention apply as a matter of law to contractual obligations. If the facts giving rise to a claim in contract were recognised as giving rise also to a claim in tort, the operation of the Convention would be undermined if it were possible for the claim in tort to be determined by reference to any law other than the proper law of the contract. The only way to avoid that, Mr. Briggs submitted, is to construe the phrase “contractual obligations” in Article 1.1 as extending to obligations sounding concurrently both in contract and in tort. In support of that broad approach to the construction of the Convention he referred me to Article 18 and to the decision of the European Court in Kalfelis v Bankhaus Schröder [1988] ECR 5565.
8. I fully accept that when considering the meaning of the Rome Convention it is necessary to pay proper regard to its international character and to adopt an approach that will ensure as far as possible that there is uniformity of construction. I am confident that that would be the approach of the court even if the principle were not enshrined in Article 18. I also accept that the expression “contractual obligations” in Article 1.1 cannot be construed purely in accordance with national laws but is an autonomous concept which may embrace obligations arising under arrangements which, for one reason or another, would not be regarded as contracts in the full sense under English law: see Dicey & Morris, The Conflict of Laws, 13^th ed. paragraph 32-022. The essence of contract, however, is agreement and in my view a contractual obligation is one which is assumed voluntarily by agreement between two or more parties: see The European Contracts Convention, (Plender), 2^nd ed., paragraph 3.10. There is a fundamental distinction, therefore, between obligations imposed by the general law, which usually have as their source the existence of a relationship between the parties, and obligations assumed voluntarily by agreement.
9. The editors of Dicey & Morris point out in paragraph 32-025 that the forum may allow alternative claims in contract and tort and express the view that there is no reason to suppose that the Convention should be interpreted as excluding the application of conflicts rules relating to torts in the case of concurrent claims. I would respectfully agree. I can find nothing in Article 1.1 or elsewhere in the Convention to support Mr. Briggs’s argument. The Convention does not set out to establish rules for identifying a system of law governing relationships in any general sense; nor does it seek to grapple with the problem of cumulative obligations. It simply sets out to establish rules for identifying the system of law which governs any particular contractual obligation. I do not think that it seeks to address the problem which Mr. Briggs identified, but I doubt whether the problem is as serious as he suggested. If the relationship between the parties which gives rise to a duty of care under the general law has been brought into existence by contract, it will often be the case that the law which governs their contract will also govern duties arising out of their relationship: see, for example, Johnson v Coventry Churchill International Ltd [1992] 3 All E.R. 14 to which I shall have to refer again at a later stage. I do not think that Mr. Briggs gains any support for his argument from the Kalfelis case in which the court was concerned with the construction of Articles 5(1) and 5(3) of the Brussels Convention which deal with special grounds of jurisdiction. That case seems to me to raise quite different considerations.
10. In these circumstances it is necessary to give separate consideration to each of the ways in which the company puts its claim because it is common ground that Mr. Shamurin cannot succeed at this stage unless he can show that, however the claim is put, any liability he may have is to be determined in accordance with Russian law.

Liability as a director

11. It appears to be common ground that the first step that Mr. Shamurin and Mr. Yuri Zhivilo took to implement their business plans was to establish the claimant company. This provided an important part of the background against which their subsequent arrangements were made, so I shall begin by considering the claim based on Mr. Shamurin’s position as a director of the company.
12. The company was incorporated in Guernsey. There is evidence from Mr. Zhivilo that he and Mr. Shamurin were under the impression that Guernsey was part of the United Kingdom and that English law applied there. Mr. Shamurin disputes that, but I cannot reach any conclusion on that question at this stage. There is some evidence, therefore, that the parties intended the company to be constituted under English law, but matters relating to the constitution and internal government of a company are normally governed by the law of the place of its incorporation, so whatever their intention, there must be a strong likelihood that in fact the law governing the constitution of the company is the law of Guernsey. However, I do not have to reach any decision on the point at this stage. It is enough for Mr. Broadbent’s purposes that there is at least a good argument that it is not the law of Russia.
13. It was not disputed that under English law a person owes a duty of care to a company of which he is a director. Nor was it suggested that there is any significant difference in this respect between the law of Guernsey and the law of England. The precise nature and extent of that duty, however, is a matter to be determined by reference to the law governing the internal affairs of the company. Whether a director who is employed by the company to carry out commercial functions on its behalf, as Mr. Shamurin was in this case, can be held accountable to the company in his capacity as a director for the way in which he carries out his work must, I think, depend on the law governing the relationship between the company and its directors.

Liability as an employee

14. It is common ground that Mr. Shamurin was employed by the company to act as its metal trader, primarily from its office in Moscow. Mr. Briggs submitted that the correct application of the Rome Convention leads inexorably to the conclusion that his contract of employment was governed by Russian law.
15. Article 6 of the Convention (so far as material) provides as follows:

“2. Notwithstanding the provisions of Article 4, a contract of employment shall, in the absence of choice in accordance with Article 3, be governed

(a) by the law of the country in which the employee habitually carries out his work in performance of the contract, even if he is temporarily employed in another country; or

(b) if the employee does not habitually carry out his work in any one country, by the law of the country in which the place of business through which he was engaged is situated;

unless it appears from the circumstances as a whole that the contract is more closely connected with another country, in which case the contract shall be governed by the law of that country.”

16. Mr Briggs submitted that there is no evidence in this case that the parties made any choice of law to govern Mr. Shamurin’s contract of employment with the result that Article 6 operates in accordance with its terms. Although it is common ground that there was a contract of employment between the company and Mr. Shamurin, there is little evidence of its terms or even of the circumstances in which it was made. If the claimant had engaged a local person to act as its trader for a salary in the ordinary way, I have little doubt that in the absence of any other choice of law his contract of employment would have been governed by the law of Russia. That would that be the effect of Article 6 and it would be surprising if the position were otherwise.
17. The contract of employment between the company and Mr. Shamurin, however, was not quite like that. There is evidence that Mr. Shamurin and the Zhivilo brothers became employees of the company for the purposes of carrying out different aspects of its business and some indications that the salaries they were to receive may in reality have been payments on account of profits. This was not, therefore, in all respects a conventional contract of employment. Mr. Broadbent submitted that the circumstances surrounding the incorporation of the claimant company, in particular the parties’ choice of Guernsey as a stable jurisdiction outside Russia, is sufficient evidence of a choice of law other than Russian law to govern all aspects of their relationship, including these original contracts of employment. On that basis, he submitted, there is sufficient evidence of a choice of law to satisfy Article 3.1 of the Convention. If that is not right, however, this is a case in which the contract is more closely connected with another country, namely England or Guernsey, so as to bring it within the last part of Article 6.1.
18. I think it may be difficult for the company in the present case to show that there was a distinct choice of proper law to govern the contracts of employment made between itself and the parties to the venture, but I hesitate to rule out the possibility altogether in circumstances where there is so little evidence of the circumstances in which the contracts were made and the terms in which agreement was reached. It is fair to say, however, that there is nothing in the evidence which would lend much support to the suggestion that Mr. Shamurin and Mr. Zhivilo consciously directed their minds to the question. However, the circumstances in which these contracts were made were unusual and there is in my view a possibility that after hearing the evidence in full the court might conclude that the contract is more closely connected with the country of the company’s incorporation, i.e. Guernsey, than with Russia. In other words, I think that this might be one of those cases to which the last paragraph of Article 6 of the Rome Convention applies.

The claim in tort

19. I come finally to the claim in tort. It was common ground that under English law Mr. Shamurin owed the company a duty to act with reasonable skill and care when acting as a metal trader on its behalf and that a breach of this duty would sound in tort. Mr. Broadbent submitted, however, that for conflicts of laws purposes questions concerning the nature and extent of a director’s duties to the company and any breach of those duties should be characterised as aspects of the internal management of the company rather than simply as issues of tort. I can see some attraction in that approach, but I do not need to decide the question on this application.
20. The acts and omissions on which the claimant relies all occurred during 1993 and 1994 and the losses that it claims to have suffered as a result all occurred at much the same time. It was common ground, therefore, that the Private International Law (Miscellaneous Provisions) Act 1995 has no application in this case and that issues relating to Mr. Shamurin’s liability in tort are governed by the rules of common law, including what is known as the “double actionability” rule. This applies in cases where the act or omission said to constitute a tort was committed abroad. It is conveniently summarised in Dicey & Morris, The Conflict of Laws, 12th ed. (1993) page 1487 in the following terms:

“ Rule 203 - (1) As a general rule, an act done in a foreign country is a tort and actionable as such in England, only if it is both

(a) actionable as a tort according to English law, or in other words, is an act which, if done in England, would be a tort; and

(b) actionable according to the law of the foreign country where it was done.

(2) But a particular issue between the parties may be governed by the law of the country which, with respect to that issue, has the most significant relationship with the occurrence and the parties.”

This formulation was approved by the Privy Council in Red Sea Insurance v. Bouygues S.A [1995] 1 A.C. 190.

21. In Metall & Rohstoff A.G. v Donaldson Lufkin & Jenrette [1990] 1 Q.B. 391 the Court of Appeal considered how the court should set about deciding whether a tort had been committed in this country or abroad in those cases where it has allegedly been committed as a result of events occurring in more than one country ("double locality cases"). Having considered the line of authority which includes Distillers Co. Biochemicals Ltd v Thompson [1971] AC 458 and Diamond v Bank of London and Montreal Ltd [1979] Q.B. 333, Slade L.J. delivering the judgment of the court said at page 443F

“In our judgment, two points thus emerge fairly clearly from those cases. First, in deciding whether an alleged tort has been committed in this country or in some other country, our courts will look back over the series of events constituting it and ask themselves "Where in substance did this cause of action arise?" Secondly, in answering this question, the courts will apply exclusively English law.”

And a little later at page 446C he said

“In our judgment, in double locality cases our courts should first consider whether, by reference exclusively to English law, it can properly be said that a tort has been committed within the jurisdiction of our courts. In answering this question, they should apply the now well familiar "substance" test previously applied in such cases as Distillers Co. (Biochemicals) Ltd v Thompson [1971] AC 458, Castree v E.R. Squibb & Sons Ltd [1980] 1 W.L.R. 1248 and Cordoba Shipping Co. Ltd v National State Bank, Elizabeth, New Jersey [1984] 2 Lloyd's Rep. 91.”

22. Most of the trading that Mr. Shamurin did on behalf of the claimant was carried out by telephone from the office in Moscow, though a number of orders were placed in this country while he was visiting London or other countries outside Russia. In the case of most of the disputed contracts this is, therefore, what Slade L.J. described as a ‘double locality’ case. Mr. Briggs submitted that any tort committed by Mr. Shamurin in the present case was in substance committed in Russia because it was in Russia that Mr. Shamurin took most of his decisions and where the obligation to exercise reasonable skill and care fell to be performed. It is common ground that the acts and omissions complained of are not actionable in Russia and therefore a claim in tort is bound to fail under the double actionability rule. Insofar as the tort was not substantially committed in Russia, he submitted, this was a case in which the law of Russia had the most significant relationship with the occurrence and the parties so as to justify invoking the exception to the primary rule in favour of Russian law. In support of that submission he relied on the decision in Johnson v Coventry Churchill International Ltd [1992] 3 All E.R. 14 where the court applied English law to determine liability in tort for acts committed wholly within Germany on the grounds that the contract under which the relationship giving rise to the duty of care arose was made between two English parties in England and was governed by English law.
23. Mr. Broadbent, however, drew my attention to the passage at page 447C of the judgment of the Court of Appeal in Metall & Rohstoff A.G. v Donaldson Lufkin & Jenrette and submitted that even in those cases where Mr. Shamurin gave trading instructions from Moscow the tort was in substance committed in England. He pointed to the fact that Mr. Shamurin gave instructions to brokers in this country by telephone, that the liabilities which the company incurred as a result were incurred in this country and that the losses suffered by the claimant were effectively suffered in this country where it maintained its main bank account for trading purposes. In those circumstances, he submitted, no question of actionability in Russia arises. He also pointed to the fact that a number of contracts were made while Mr. Shamurin was in London or elsewhere outside Russia and that although they might represent only a small proportion of the total in numerical terms, the losses attributable to them are quite substantial. Mr. Broadbent submitted that each time Mr. Shamurin entered into a contract on behalf of the company without exercising due skill and care he committed an independent wrong against it and therefore a certain number of torts were committed wholly in this country. There was no question, he submitted, of Russian law having any relevance in these cases. However, if necessary he too submitted that the law of another country, namely the law of England or the law of Guernsey, had a more significant relationship with the occurrence and the parties because in acting as the company’s trader Mr. Shamurin was furthering the enterprise which the parties had deliberately established under a foreign law.
24. Applying the principles set out in Metall & Rohstoff A.G. v Donaldson Lufkin & Jenrette, I think it is by no means unarguable that if Mr. Shamurin failed to exercise due skill and care as a trader on behalf of the company, he committed a series of separate torts and that some, if not all, of them were in substance committed in this country. Whether this is a case in which it would be appropriate to invoke the exception to the general rule formulated in rule 203(2) of Dicey & Morris is a matter which can only be decided after hearing the evidence. However, even if this were such a case, I do not think that that would necessarily lead to the conclusion that the issue is governed by Russian law. One would, in effect, be thrown back on the same questions as those which arise in relation to Mr. Shamurin’s contract of employment and his relationship with the company generally.
25. For Mr. Shamurin to succeed on this application he has to satisfy me that there is no real prospect that the judge at trial might hold that the question of his liability to the claimant is to be determined otherwise than in accordance with Russian law. This is a heavy burden in a case where the parties deliberately established the vehicle for their venture in a jurisdiction outside Russia and where the particular circumstances giving rise to the claim have as much connection with England as with Russia. It will be open to the parties to argue the position fully at trial in the light of the evidence. However, for the reasons I have given I am not persuaded that this is a case in which the claimant has no real prospect of success. Mr. Shamurin has failed to discharge the burden on him at this stage and therefore this application must fail.