Spiridonov v Stepanov
[2020] NZHC 3271
•10 December 2020
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2018-441-82
[2020] NZHC 3271
BETWEEN ANDREI IVANOVICH SPIRIDONOV
Plaintiff
AND
IGOR VIKTOROVICH STEPANOV
Defendant
Hearing: 2 December 2020 Appearances:
G J Beresford for the Plaintiff S A Keall for the Defendant
Judgment:
10 December 2020
JUDGMENT OF COOKE J
[1] On 27 February 2020 the Krasnogorsk City Court of the Moscow Region gave judgment in favour of the plaintiff against the defendant in the amount of RUB 2,956,000, together with interest of RUB 1,058,000 and costs of RUB 28,270.1 The judgment related to a loan made to the defendant by the plaintiff on 6 November 2015 that was allegedly not repaid. Both parties are citizens of the Russian Federation, but the defendant is also a New Zealand citizen who has been present in New Zealand at material times.
[2] In these proceedings the plaintiff seeks to enforce the Russian judgment. The defendant resists enforcement on the grounds the judgment was obtained in breach of the principles of natural justice. The proceedings were first advanced by way of summary judgment, but that application was subsequently discontinued, and the proceedings now proceed before the Court as an ordinary proceeding in reliance on
1 Case No 2-863/2020.
SPIRIDONOV v STEPANOV [2020] NZHC 3271 [10 December 2020]
the Court’s inherent jurisdiction. It was agreed, however, that the evidence would be received by the Court by way of affidavit without cross-examination from either party.
[3] I also record that at the commencement of the hearing Mr Keall sought to pursue a security for costs application on behalf of the defendant. It had earlier been noted by the Associate Judge that the defendant might do so. I declined to award security or consider the application in a full way. It would have led to the proceeding being further adjourned if security had been awarded, and assessing whether security for costs should be awarded would inevitably involve considering the underlying merits of the claim. Both these factors suggested that dealing with security for costs at that late stage was not an efficient way to deal with the proceeding.
Factual background
[4]The relevant facts are largely not in dispute.
[5] Whilst the defendant acquired New Zealand citizenship in 2002 he was resident in Russia in 2015 and on 6 November 2015 entered into a loan agreement with the plaintiff in the amount of USD 40,000 and RUB 400,000 repayable on 6 November 2016. Interest was payable at 36 per cent.
[6] The defendant says that he repaid USD 24,000 to the plaintiff. The plaintiff denies that. The plaintiff accepts that payments were made to him by the defendant totalling this amount, but says that these related to other matters, and not this loan.
[7] In late 2016 the defendant left Russia and arrived in Auckland in November 2016 at around the same time as the loan was repayable. The plaintiff says he was unable to locate the defendant in Russia, and that he brought proceedings serving them on the defendant’s last known Russian address. On 30 January 2017 the Krasnogorsk Municipal Court for the Moscow Region granted the plaintiff judgment by default for a total of RUB 4,042,270 covering principal, interest and costs.
[8] These enforcement proceedings were then commenced by the plaintiff by statement of claim dated 21 August 2018. This was some one year and six months after the default judgment had been granted in Russia.
[9] Approximately one year later, on 15 August 2019, the defendant applied to the Krasnogorsk City Court to have the default judgment set aside. The defendant’s application stated that he had not been present when default judgment was entered, and that he had not been properly served. He also said:2
In addition, I am able to inform the court of circumstances that were not investigated by the court and that could have significantly impact on the content of a decision.
The plaintiff concealed the fact that I had returned to him the greater part of the debt, which is confirmed by receipts. Taking advantage of the fact that I had not received a writ of summons, the plaintiff misled the court, in the certain knowledge that I would not appear, and would not submit evidence of return of the funds.
And since I was not present at the court hearing, I was not able to make an application for the introduction of the said receipts. Following the revocation of the decision by default and renewal of the proceedings in the case I intend to make such an application and submit all the receipts.
[10] On 23 September 2019 the Krasnogorsk City Court upheld the defendant’s application and set aside the default judgment. The Court recorded that the plaintiff had not appeared at the hearing, but that the defendant’s representative, A A Kiselev appeared and “supported the request for cancellation of the decision given in absentia”. Judge Belova held:
Having regard to the fact that the defendant has provided evidence indicating the genuine nature of the reasons for his non-appearance at the session of the court and has also submitted evidence that may impact on the content of the decision, the court considers the decision given in absentia should be cancelled.
[11]The Court went on to hold that:
The proceedings in the case are to be resumed, with a session of the court set down for 30 October 2019 at 3.50 pm.
[12] At the hearing on 30 October neither the defendant nor his representative appeared. The court adjourned the matter to 23 December 2019. But the defendant and his representative failed to appear on that date as well. The Court then adjourned the matter once again to 20 February 2020.
2 The quotes from the Russian proceedings are translations.
[13] On 20 February 2020 at the hearing, again the defendant did not appear, and neither did his legal representative. On 27 February the Court gave the plaintiff judgment against the defendant. This is the judgment that the plaintiff seeks to now enforce in New Zealand. Judge Belova held:
The plaintiff and his representative E A Grigoryeva arrived at the court session and supported the stated claims.
The defendant did not appear at the court session; was duly notified about time and venue of case trial.
Having listened to any explanations of the plaintiff and his representative and investigated evidence presented in case papers, the court considers that stated claims must be satisfied.
[14]It is relevant that the Judge stated amongst the reasons given:
As the Court ascertained, the Defendant failed to repay borrowed money within the stipulated term. The Court does not perceive copies of receipts furnished by the Defendant to case papers as evidence in the case because originals of the said receipts were not furnished to the court. According to Para 7, Art 67 of the Russian Code of Civil Procedure, the court cannot regard as proven circumstances evidenced only by a copy of a document or in other written evidence if the original document was lost and not handed over to the court.
[15] On 13 March 2020 the defendant filed an appeal to the Moscow Regional Court on the basis that the decision was “unlawful, unjustified, taken in breach of substantive and procedural law and subject to a cancellation”. The defendant also contended that “the decision was made in my absence and in the absence of my representative”.
[16] On 14 August 2020 Judge Kaverina examined the appeal and “returned” it, which I take to mean that the appeal was dismissed. The short ruling records that the appeal was left without action, and that on 18 March a period was set to “rectify drawbacks” until 17 April. On 25 May that was further extended to 10 July. The judgment then records that the instructions had not been performed which formed the basis for its “return” in accordance with Article 324 Part 1 Para 1 of the Russian Code of Civil Procedure.
Relevant principles
[17]The relevant principles to be applied by the Court are largely not in dispute.
As was summarised by the Court of Appeal in Eilenberg v Gutierrez:3
[35] … enforcement of foreign judgments as debts due in this country is an important part of the High Court’s inherent jurisdiction as a superior court of general and original jurisdiction. Subject to the settled exceptions, the approach developed by the common law recognises the transnational reality of private obligations which are thus enforceable against persons and property in New Zealand. …
[18] To be so enforceable the foreign court must have had jurisdiction to give judgment, it must be for a definitive sum of money, and the foreign judgment must be final and conclusive.4 The fact that the foreign judgment is subject to a pending appeal does not necessarily mean it is not final and conclusive.5
[19]There are exceptions to the court recognising a foreign judgment if:6
(a)the judgment was obtained by fraud;
(b)enforcement will be contrary to public policy; or
(c)the proceedings in which the foreign judgment was obtained involved a breach of natural justice.
Parties’ submissions
[20] Whilst a number of potential grounds of defence are pleaded in the defendant’s statement of defence to the third amended statement of claim dated 23 October 2020, Mr Keall focused on one key point in advancing the defendant’s defence. He argued that the judgment entered by the Russian Court had been entered in contravention of the principles of natural justice.
3 Eilenberg v Gutierrez [2017] NZCA 270, [2017] NZFLR 471.
4 At [30], citing Kemp v Kemp [1996] 2 NZLR 454 (HC) at 458.
5 Inada v Wilson Neill Ltd (1993) 7 PRNZ 246 (HC).
6 Eilenberg v Gutierrez, above n 3, at [30]; Reeves v One World Challenge LLC [2006] 2 NZLR 184 (CA) at [37]; Ross v Ross [2010] NZCA 447, [2011] NZAR 30 at [12]–[14].
[21] Mr Keall accepted that the defendant had not appeared before the Russian Court. Neither is it suggested that the defendant did not have notice of when the relevant hearings of that Court were to take place. But natural justice is still said to have been breached because the defendant had placed before the Russian Court evidence in the form of receipts that showed that he had partially repaid the debt in question, but the Russian Court had not addressed whether that was so or not. It did so on the basis that only copies of the receipts had been put before the Court and that copies were not admissible under Russian law. Mr Keall argued that whether or not the copies were admissible is a matter of the Russian Code of Civil Procedure and its rules of evidence, but nevertheless a breach of natural justice is to be assessed from a New Zealand perspective. The fact that the defendant had raised the point that he had repaid a substantial portion of the debt meant that it was a breach of the rules of natural justice for the Court to enter judgment for the full amount without investigating that question.
[22] Mr Keall relied on the decision of the English and Welsh Court of Appeal in Adams v Cape Industries Plc.7 There a breach of the principles of natural justice had been recognised even though the relevant defendant had been given notice of the hearing of the foreign court and had been able to exercise a right to be heard. The Court held that the defendant could still expect the foreign court’s decision to be assessed judicially. That had not occurred in that case because the foreign court’s award of damages was arbitrary, not based on evidence, and not related to the individual entitlements of the various plaintiffs. Mr Keall invited me to consider natural justice in a broader way in the present case. He argued that notwithstanding the defendant had been given notice of the hearing of the Russian court, and had not appeared, he could still expect the court to proceed judicially by assessing the evidence filed showing he had partly repaid the debt. The Russian court had not considered that argument on its merits. It dispensed with any assessment of that issue by deciding that the copies of the receipts placed before the court were inadmissible —they were copies, and not the originals, and accordingly inadmissible in Russian law. Mr Keall accepted that this was the effect of the Russian Code of Civil Procedure. This was confirmed by expert evidence on the law of the Russian Federation filed by the
7 Adams v Cape Industries Plc [1990] 1 Ch 433 (CA).
defendant. But he emphasised that whether there was a breach of natural justice had to be considered through New Zealand eyes, and that the failure to assess the defendant’s argument on its merits involved a breach of natural justice from that perspective.
[23] In responding to this argument Mr Beresford referred to the observation by the English and Welsh Court of Appeal in Adams v Cape Industries Plc that giving due notice and an opportunity to be heard would mean, in the majority of cases, that the requirements of natural justice were met.8
[24] Mr Beresford also referred to authorities indicating that the court will not enforce a foreign judgment if the judgment was procured in a manner “contrary to substantial justice”.9 This may be an alternative formulation of the natural justice ground, although it is not necessary for me to resolve how the relevant principles apply, or overlap. Mr Beresford argued that the public interest exception has been given a narrow application given the comity of nations principle, and contended that the court should adopt the same approach to the natural justice ground.10 He argued that there had not been a breach in the present case.
Analysis
[25] It is axiomatic that how the rules of natural justice apply, or what they require, varies with the circumstances. When a New Zealand court is faced with an argument that a foreign court has failed to follow the principles of natural justice so that its judgment should not be enforced, the breach must be clear and significant. It must reach the point that it would be inconsistent with fundamental concepts of justice to give effect to the foreign order. The principle of comity of nations means that a degree of latitude must be given to allow foreign courts to follow their own procedures.
[26] Whilst it is possible that there will be more refined breaches of natural justice of a kind identified by the English and Wales Court of Appeal in Adams v Cape Industries Plc which will qualify, as the English and Welsh Court of Appeal itself said
8 At 563, per Slade LJ.
9 See for example Emajor v Emajor [2016] NZHC 2022, (2016) 23 PRNZ 338 at [94]–[100].
10 See Reeves v One World Challenge LLC, above n 6, at [50]–[51] and [56].
most cases will turn on whether the defendant has been given a proper opportunity to participate. If the defendant has been given that opportunity, but elected not to participate, the prospect of persuading a New Zealand court there has been a breach of natural justice under this principle will be significantly diminished. But there will still be cases where to give effect to the foreign judgment will offend against basic concepts of justice recognised by the New Zealand court even if there has been an opportunity to participate in the hearings.
[27] I accept Mr Beresford’s argument that the defendant cannot make out such an argument here. I do not accept there was any breach of natural justice. Indeed the Russian court has followed an approach that is consistent with how a New Zealand court would have dealt with this case as a matter of procedural fairness. This was a straightforward case of debt recovery. The Russian court originally gave judgment by default. When the defendant appeared and said he had not been served and that he had a defence, the Russian court set aside the judgment by default, and set the matter down for substantive determination. There is no dispute the defendant knew this. But he elected not to further participate.
[28] The defendant has said how difficult it would have been to return to Russia, and how his financial circumstances effectively precluded him taking that step. But he has not explained why he could not have instructed lawyers in Russia to make appearances in the Russian proceeding. He has found the resources to instruct counsel in New Zealand and has filed evidence from a Russian lawyer in these proceedings. I have no information to explain why it would have been more difficult for him to take those steps in Russia. Moreover, the defendant then lodged an appeal in Russia, but did not pursue it.
[29] Mr Keall argued that it was still a breach of natural justice for the Russian court to not address the defendant’s defence on its merits. But I have no information explaining whether, and how that defence was actually before the Russian court. Mr Keall invites me to infer from the record that there must have been something filed by the defendant which put forward the proposition that he had paid the amounts attaching the receipts as evidence. Evidence that the defendant took such steps has
not been put before me, however. It is apparent that the Russian court must have had copies of the receipts, but how that happened has not been explained.
[30] The existence of copies of receipts on the court file, together with an assertion in documents on the court file that the defendant has paid at least part of the loan do not go very far in mounting such a defence. At the very least the defendant would need to provide evidence that he had duly paid those amounts. I have no information that he put such evidence before the Russian court.
[31] Had this been a matter before the New Zealand court it seems to me that it is likely to have led to the same outcome. If a defendant had successfully applied to set aside a default judgment, and the matter was then set down to be dealt with substantively but the defendant failed to appear, judgment is likely to have been entered again. It may be that that would have occurred after a hearing by way of formal proof, but if a defendant wanted to contend he had repaid a loan, even in part, he would need to put forward some evidence. The existence of documents on the court file in which the defendant asserted he did so, even if it attached receipts, would not by itself mean that judgment should not be entered. It might be that a Judge dealing with a formal proof hearing would expect a plaintiff to address that issue, or the Judge might even ask that question themselves. But it would not be a breach of natural justice for the Court to enter judgment when the defendant had elected not to appear to advance such a defence.
[32] It is also significant to reflect on what the defendant was seeking to do here. He ultimately did not participate in the Russian proceedings, and judgment was entered against him. After the plaintiff tracked him down in New Zealand he sought to avoid enforcement in New Zealand on the basis that his argument was not addressed by the Russian court. If this Court were to deny enforcing the Russian court order on that basis, the plaintiff would be left completely without a remedy. The plaintiff could not go back to Russia as he already has judgment there. There is nothing more that the plaintiff could do in New Zealand. So by this technique the defendant would have avoided meeting an obligation that a court has found to exist. This would be inconsistent with the rationale for the Court exercising the inherent jurisdiction to enforce foreign judgments.
[33] The defendant contends that he had partly repaid the debt. But he has not demonstrated that he presented evidence for that argument to any court in Russia or New Zealand. It is not appropriate for this court to address that argument, and neither is it suggested it should do so. It is accepted that the Russian court had the jurisdiction to deal with this matter. This was a Russian loan between two Russian citizens advanced in Russia. It was appropriately dealt with by the Russian court. The fact the defendant elected not to participate in the Russian proceedings does not mean that it was a breach of natural justice for the Russian court to have dealt with the matter in the way that it has.
Conclusion
[34] Accordingly the plaintiff’s claim is upheld. Leave is reserved to the plaintiff to identify the precise form of the judgment to be sealed. The plaintiff is also entitled to costs. If costs cannot be resolved the plaintiff may file and serve a memorandum, which is to be responded to by the defendant filing and serving a memorandum within 10 working days.
Cooke J
Solicitors:
Kennedys, Auckland for the Plaintiff
Lunn & Associates, Napier for the Defendant
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