Applying to commit an opposing party for contempt of court can sound like a great idea. But it can also go wrong. Chernukhin v Deripaska [2020] EWHC 1798 (Comm) is a salutary lesson for all those involved in high-stakes, no-holds-barred litigation that objectivity must be maintained.
In a judgment handed down on 17 July 2020, Andrew Baker J gave his reasons for striking out Vladimir Chernukhin’s committal application against Oleg Deripaska as an abuse of process. In so doing he emphasised that applicants in a contempt application owe duties as quasi-prosecutors.
Context
The parties were involved in a long-running dispute concerning valuable real property in Central Moscow owned through a joint venture vehicle, Navio Holdings Ltd (“Navio”) The main issue between them was whether Mr Chernukhin was party to a shareholder agreement relating to Navio that was concluded between Mr Deripaska and his company Filatona Trading Ltd (“Filatona”), on the one hand, and Ms Lolita Danilina and Navigator Equities Ltd, on the other hand. An arbitration award was entered in Mr Chernukhin’s favour which ordered Mr Deripaska and Filatona to buy out Mr Chernukhin’s interest in Navio, which was upheld by the Commercial Court (the “Award”).
It was in this context that Mr Deripaska gave undertakings to the broad effect that certain shares in a Jersey company called En+ Plc (“En+”) would remain available for enforcement of the Award (the “Shares” and the “Undertakings”).
The Chronology
At this point the chronology becomes important.
In April 2018, the US Treasury imposed sanctions on Mr Deripaska and a number of his companies, including En+ (the “US Sanctions”).
The US Sanctions had a profound economic impact: the value of En+’s shares halved within days, and the worldwide price of aluminium increased by 22% (En+ held a majority stake in Rusal, one of the world’s largest aluminium producers, which was sanctioned separately from En+).
The Undertakings were given in June 2018, in lieu of a worldwide freezing order which had been granted the previous month. By the time the Undertakings were signed, Mr Chernukhin knew that as part of a package of measures designed to have En+ released from the US Sanctions, it was proposed that En+ would effect a corporate redomiciliation and move from Jersey to Russia (the “Redomiciliation”).
In November 2018, En+’s board approved the proposed Redomiciliation. This was followed, in December 2018, by an affirmative vote of En+’s shareholders approving the Redomiciliation (the “Vote”).
Again, Mr Chernukhin knew that the Vote was going to take place but did nothing to suggest that it was a breach of the Undertakings or that it would prejudice his position. But it was the Vote, which Mr Chernukhin alleged had been procured by Mr Deripaska, that formed the centrepiece of the committal application.
In February 2019, the Award was upheld by the Commercial Court. In May 2019, Mr Deripaska started a private prosecution against Mr Chernukhin on the alleged basis that he had conspired to pervert the course of justice in relation to the doctoring of a declaration of trust. In July-August 2019, the Redomiciliation took effect. And in September-October 2019, Mr Deripaska paid the entirety of the sums due under the Award.
The Contempt Application
The contempt application was issued in November 2019 (the “Contempt Application”). It sought an order that Mr Deripaska be committed to prison on the basis that the Vote was procured by Mr Deripaska, who indirectly held a majority of En+’s shares, and constituted a breach of the Undertakings. And it was instituted even though the entirety of the Award, which the Undertakings were intended to support, had been paid.
The Abuse Application
Mr Deripaska’s response was three-fold. First, to answer the allegations of contempt (which Andrew Baker J concluded were ill-founded). Second, to seek to extract from Mr Chernukhin information as to when he learned of the Redomiciliation. And, third, to apply to strike out the Application for abuse of process (the “Abuse Application”).
As the Judge explained at [28], the Abuse Application had a number of limbs. They included that:
- Mr Chernukhin was not seeking to enforce compliance with any order (because the Award had been paid in full).
- There was an improper purpose behind the application, namely the personal animus of Mr Chernukhin towards Mr Deripaska.
- The Contempt Application had not been prosecuted even-handedly by Mr Chernukhin as a quasi-prosecutor, as part of which Mr Chernukhin had suppressed documents and given false evidence as to his knowledge of the Redomiciliation.
Trial
At a CMC held in February 2020, Cockerill J directed that the Abuse Application should be determined at a trial fixed for early June 2020. The trial judge, Andrew Baker J, in turn directed that it be determined after Mr Chernukhin’s sole witness, his legal representative, gave evidence. In the event, Andrew Baker J allowed the Abuse Application and struck out the Contempt Application at the start of the trial’s third day. His detailed reasons for so doing were handed down on 17 July 2020.
The Judgment: law
Over the past decade or so, a number of Judges have commented on the increasing use of contempt applications as a stick with which to beat an opponent: see, e.g., the decision of Briggs J in Sectorguard v Dienne [2009] EWHC 2693 (Ch).
Andrew Baker J’s judgment reasoned as follows:
- Contempt proceedings can be struck out as abusive if they are brought otherwise than for the legitimate motives of (i) seeking to enforce an injunction or undertaking or (ii) seeking to bring serious misconduct to the Court’s attention [138].
- Contempt proceedings have a particular and distinctive character: because they can result in a term of imprisonment (i) they are aptly described as ‘quasi-criminal’ in nature [141] and (ii) they have a particular capacity to be used vexatiously by applicants [142].
- A consequence of the quasi-criminal character of contempt applications is that a claimant/applicant pursues such an application in two capacities: as a quasi-prosecutor and to further his own private interests [143].
- Such an applicant should act dispassionately, present the facts fairly and with balance, and let those facts speak for themselves – assisting the court to make a fair quasi-criminal judgment [143] [144].
The Judgment: facts
Andrew Baker J concluded that the Contempt Application was abusive for four connected reasons.
First, Mr Chernukhin, even at the committal trial, “refused to be open with Mr Deripaska or with the court as to the extent of [his] awareness of the Redomiciliation from time to time …” [155].
Second, that Mr Chernukhin’s evidence in support of the Contempt Application “was in material respects misleading or not the whole truth, or both of those together” [156].
Third, the Contempt Application was motivated by personal animosity (in particular as a “tit-for-tat” [103] act of revenge against Mr Deripaska for having commenced a private prosecution against Mr Chernukhin). As the Judge observed at [157]:
“Mr Chernukhin having refused to offer for himself any explanation for the contempt application, let alone be willing to be tested on it where there was a substantial basis for cross-examination, in my judgment it is right to draw against him the adverse inference that revenge and personal animosity towards Mr Deripaska was the real reason for the contempt application, not any public-minded desire to bring matters to the court’s attention for it to consider the issue of breach and, if relevant, sanction. …”
Fourth, that the Contempt Application was “presented to the court in a heavy-handed, aggressively partisan fashion, that was inappropriate, vexatious and unfair to Mr Deripaska” [158].
Lessons for litigators
We suggest that litigators should take five lessons from Andrew Baker J’s decision.
#1 Think carefully before launching contempt proceedings
Making a contempt application is the litigation equivalent of pushing the nuclear button. Scrutinise the decision carefully: is it being made to procure compliance with an order or undertaking? Is the alleged contempt serious enough to justify the court’s intervention? Or is the application being used to put pressure on the other side?
#2 Get a second opinion
There is a danger in long-running litigation of a team adopting ‘group-speak’ or becoming an echo chamber. Indeed, there is a danger in assuming that previous successes in a balance of probabilities civil context will be repeated in a beyond reasonable doubt contempt context when a respondent has a number of procedural protections. So it is wise to get a second, independent, opinion.
As Andrew Baker J observed at [163]:
“I commend RPC for setting up separate representation [for Mr Deripaska’s private prosecution of Mr Chernukhin]. It would have been better if [Mr Chernukhin’s representatives] had done the same for the contempt application, assuming the claimants did not want to use a different firm with no prior involvement. I do not say that it is a legal or procedural requirement, but that course having not been taken it was hugely important that judgments to be made on how to prosecute the contempt charge not be clouded by the prior conduct of the dispute, the huge animosity between the lay clients, and the claimants’ prior successes in securing damning findings about Mr Deripaska. With regret … it was and is my clear view that quasi-prosecutorial judgment here was clouded in just that way ….”
#3 Let the admissible facts speak for themselves
If you decide to push the button, draft the affidavit in support of the committal application carefully. Ask yourself: what is admissible? What do I need to prove? And strip out anything included for reasons of advocacy, commentary, prejudice or poison. You are, after all, asking the court to consider sending someone to jail for up to two years. And you are likely to end up being cross-examined on what you say.
#4 Consider your disclosure obligations and present the case fairly
One of the particular criticisms made of the Contempt Application was that Mr Chernukhin’s knowledge of the Redomiciliation was not fairly presented in the evidence in support; and the true position had not even been revealed by the time of trial. So think hard about what should be disclosed. And remember that a disclosure order can be made against an applicant in committal proceedings (as it was in this case).
#5 Learn to say ‘no’
If a client insists, contrary to your advice, that a contempt application should be pursued, you need to say ‘no’. It will not be in your client’s interests and, if it goes wrong, it is your reputation that is at risk.
Nathan Pillow QC, Tim Akkouh and Freddie Popplewell acted for Mr Deripaska, instructed by RPC partners Rupert Boswall, Andy McGregor and Dan Wyatt.
