Sibir Energy Plc Appellant v [1] Gregory Trading S.A. [2] Richard Enterprises S.A. [3] Ferenco Investment & Serviceslimited [4] Shaw Invest & Finance Corporation [5] Carroll Trading S.A. [6] Tranquillo Trading S.A. [7] OJSC Siberian Oil Company [8] Roman Abramovich Respondents

• Jurisdiction: British Virgin Islands
• Judge: BARROW, J.A.
• Judgment Date: 18 September 2006
• Neutral Citation: VG 2006 CA 7
• Judgment citation (vLex): [2006] ECSC J0918-10
• Docket Number: CIVIL APPEAL NO.26 OF 2005
• Court: Court of Appeal (British Virgin Islands)
• Date: 18 September 2006

[2006] ECSC J0918-10

IN THE COURT OF APPEAL

Before:

The Hon. Mr. Brian Alleyne, SC Chief Justice [Ag.]

The Hon. Mr. Michael Gordon, QC Justice of Appeal

The Hon. Mr. Denys Barrow, SC Justice of Appeal

CIVIL APPEAL NO.26 OF 2005

Between:

Sibir Energy PLC

Appellant

and

[1] Gregory Trading S.A.

[2] Richard Enterprises S.A.

[3] Ferenco Investment & Serviceslimited

[4] Shaw Invest & Finance Corp.

[5] Carroll Trading S.A.

[6] Tranquillo Trading S.A.

[7] OJSC Siberian Oil Company

[8] Roman Abramovich

Respondents

Appearances:

Mr. Guy Phillips, QC and Mr. Sa'ad Hossain for the Appellant

Mr. Mark Howard, QC and Mr. Daniel Jowell for the Respondents

BARROW, J.A.

1 The appellant asserts that the proper law of the claim that it brought against four companies incorporated in the British Virgin Islands, 1 to account for property on the basis of their 'knowing receipt' that the property was obtained in breach of a fiduciary duty, is the law of the forum. It is accepted by the appellant that apart from the British Virgin Islands (the BVI) being the place of

incorporation of those defendants (the BVI defendants) there is nothing that connects the claim with the BVI and that every other connecting factor is with Russia

The basis of the claim

2 The basis of the claim that the appellant brought, as helpfully summarized in the skeleton arguments for the appellant from which I borrow and sometimes quote, is that pursuant to a joint venture agreement (the JV Agreement) between the appellant and the 7 ^th defendant a power was conferred upon the 7 ^th Defendant whereby it was in a position to control the affairs of a subsidiary of the appellant, named Yugraneft.

3 "The conferral of that power imposed obligations upon the 7 ^th defendant not to abuse the power and not to exercise it in such a way as to benefit itself. Those obligations would be regarded by the BVI Court as fiduciary in nature.

4 "In breach of the fiduciary obligations owed by it to the Claimant [the appellant], the 7 ^th defendant exercised the power conferred upon it so as to cause its own beneficial interest in a company called Sibneft-Yugra to be increased from 50% to more than 99% (and Yugraneft's beneficial interest in that company to be correspondingly reduced from 50% to less than 1%).

5 "The 7 ^th Defendant was at all times liable to account to the Claimant as a constructive trustee of the more than 49% interest in Sibneft-Yugra acquired by it in breach of the fiduciary obligations owed by it to the Claimant.

6 "The 7 ^th Defendant caused the interest in Sibneft-Yugra acquired by it in breach of the fiduciary obligations owed by it to the [appellant] to be transferred, first to ( inter alios) the 4 ^th and 5 ^th Defendants, and then to ( inter alios) the 1 ^st and 2 ^nd Defendants.

7 "Each of those Defendants (the BVI Defendants) acquired the interest so transferred to it with actual knowledge that the interest it was receiving was traceable to the 7 ^th Defendant's breach of fiduciary obligations owed by it to the Claimant, and was thus an interest of which the Claimant was the beneficiary under a constructive trust. That being so, it is unconscionable for the BVI Defendants to retain the benefit of that receipt as against the Claimant, and each of the BVI Defendants is also liable to account to the Claimant as a constructive trustee of the value of the interest received by it."

8 The appellant emphasizes that its claim against the BVI defendants is not based on any relationship, whether fiduciary or otherwise, between the BVI defendants and the appellant; that there was no pre-existing relationship between these defendants and the appellant. Rather, the appellant asserts, the BVI defendants are liable in equity solely because of their knowledge of the circumstances in which they came to receive the assets.

9 According to the appellant's skeleton argument, in reliance upon Rule 200(2) of Dicey & Morris, The Conflict of Laws (13 ^th edition, 2000) Hariprashad-Charles J held that the proper law of the obligation of the BVI defendants to account to the appellant as constructive trustees is Russian law. The appellant says the judge held that Russian law was to be chosen as being either the law of the place of the receipt of the benefit for which the appellant claims the defendants must account or the law of the place of incorporation of the company in which the participation interests 2 were obtained and hence were located. In this case Russian law was the law of both the place of receipt and the place where the property (the participation interests) was located.

10 In the judge's view it followed from that determination that the appellant's claim against the BVI defendants must fail because, as the appellant accepts, the appellant has no cause of action against the BVI defendants under Russian law. Accordingly, the judge summarily dismissed the claims against the BVI defendants.

The law which judges conscience

11 The appellant contends that the judge was wrong to hold that the law applicable to the obligation of the BVI defendants to account as constructive trustee is Russian law. The appellant argues that the judge should have held that the applicable law is BVI law under which the court will pay regard to Russian law in arriving at its decision on unconscionability. The appellant's thesis is that the court should choose, as the proper law, the law which judges the culpability of the defendants' knowledge because a mental state is always to be judged by the law of the forum.

12 The appellant accepts as correct the general principle stated in Rule 200 in Dicey and Morris that the obligation to restore the benefit of an enrichment obtained at another's expense is governed by the proper law of the obligation. However, the appellant rejects the suggestion contained in the second part of the rule as to how the proper law is to be determined. Rule 200 states:

"(1) The obligation to restore the benefit of an enrichment obtained at another person's expense is governed by the proper law of the obligation.

"(2) The proper law of the obligation is (semble) determined as follows:

• (a) If the obligation arises in connection with a contract, its proper law is the law applicable to the contract.

• (b) If it arises in connection with a transaction concerning an immovable (land), its proper law is the law of the country where the immovable is situated (lex situs);

• (c) If it arises in any other circumstances, its proper law is the law of the country where the enrichment occurs."

13 The starting point of the appellant's submissions is that the second part of the rule, by its use of the word "semble", is a tentative formulation. The appellant observes that in Barros Mattos Junior v Macdaniels Ltd3 Lawrence Collins J, who is the General Editor of Dicey and Morris, pointed out that Rule 200(2)(c) has not been approved by the Court of Appeal and remains a "tentative formulation". The appellant claims that in the Fourth Supplement (2004) to the 13 ^th edition of Dicey and Morris the editors have had to alter their views, in light of recent cases, with regard to at least one category of equitable claims for restitution, namely, those founded on the defendant's dishonest assistance in a fiduciary's breach of duty. In such cases, the appellant argued, the authorities show that where the defendant is alleged to be liable to account in equity as a constructive trustee the governing law is not the law of the place of enrichment or the law of the place where the assistance was rendered but rather the governing law is English law, although English law will take note of the law of the place of enrichment when determining the issue of dishonesty. In its written submissions the appellant considers a number of decisions in which it says this approach was adopted, including Arab Monetary Fund v Hashim4, Dubai Aluminium Co. Ltd v Salaam5, Grupo Torras SA v Al-Sabah6 and Kuwait Oil Tanker SAK v Al Bader.7

14 In response the respondents say that the cases on dishonest assistance are irrelevant because none of the claims brought against the BVI defendants is brought in dishonest assistance; they are all brought in knowing receipt. The causes of action are different because knowing receipt is a form of restitutionary claim for unjust enrichment, whereas dishonest assistance is an allegation of wrongdoing for participation in a fraud for which compensation is sought. The respondents contend that different choices of law rules apply to these two different claims and so the cases on dishonest assistance are of no help in identifying the applicable law for a claim in knowing receipt. In any event, the respondents submit, the appellant is wrong in its submission that the applicable law to a claim in dishonest assistance is the lex fori.

15 The appellant accepts that the two causes of action are different and does not urge this court to apply the choice of law rule for the one to the other. Rather, what the appellant argues is that in applying the law of the forum to a claim in knowing receipt, just as it does in a claim for dishonest assistance, the court will still take account of how the impugned action would be regarded by the relevant foreign law, that is, the law of the place of the enrichment. One of the objects of this submission, as I understand it, is to draw the force away from any criticism that the law of the forum is imposing the notions of conscience of the forum (the BVI) on a transaction that has taken place entirely in a foreign jurisdiction and that such notions may be alien to the law of the foreign jurisdiction. In that light I simply note the object of the appellant's reliance on the cases on dishonest assistance and pass on.

The law of the obligation to account

16 As stated before, the appellant accepts that a claim to an obligation to restore a benefit is governed by the proper law of the obligation....