We are pleased to present our fourth quarter case review of 2011 which contains summaries of selected cases which will impact on the way in which parties conduct litigation and their business dealings.
In this review we consider recently decided cases on a wide range of issues including applications for freezing injunctions, alleged negligent mis-selling by a bank, privilege and service out of the jurisdiction.
We also cover an application to remove an arbitrator who was instructed by one side's solicitors in another case and a case on whether bank employees' names could be redacted during a disclosure exercise.
Arbitration
A & Ors v B & Anor [2011] EWHC 2345 (Comm)
Application to remove an arbitrator who is instructed by one party's solicitors in another case
In 2009, the claimant's solicitors suggested a QC to act as a sole arbitrator (in a LCIA arbitration between the claimant and the defendant) and his appointment was agreed by the defendant's solicitors. Almost two years later, the arbitrator informed the claimant that he was acting for the defendant's solicitors in an entirely separate (ongoing) case (which did not involve the defendant) in the Commercial Court (having first been instructed in that matter in 2004). The claimant then applied under section 24 of the Arbitration Act 1996 for the removal of the arbitrator on the ground that there were "justifiable doubts as to his impartiality" (and to challenge a partial award for serious irregularity under section 68 of the Act). Flaux J highlighted three aspects of the common law "apparent bias" test:
- The test is objective and does not depend on the characteristics (eg nationality) of the parties. It did not matter th t a foreign national might consider it odd that a member of the English Bar can be instructed in one case by firm of solicitors whilst acting as an arbitrator in another case where the same firm of solicitors acts for one of the parties
- When deciding whether an impartial observer would have concluded that there was a real possibility of bias, that impartial observer must be "fair-minded" and "informed" - i.e. in possession of all the facts which bear on the question
- Although the impartial observer is not to be regarded as a lawyer, he is expected to be aware of the way in which the legal profession in this country operates in practice
Flaux J accepted that where the arbitrator has an "actual predisposition" towards a particular firm of solicitors because "he is actually considering his relationship with the firm and wishing to foster that relationship", that would amount to actual bias. A difficult "halfway house" might arise where a barrister arbitrator receives a very substantial proportion (say 60%) of his instructions as counsel from one of the firms acting in the arbitration: "It may well be, not just that that is a matter which would have to be disclosed by the arbitrator at the outset, but that (at least where there was no waiver by the parties) there might be a real possibility of apparent bias". However, that was not the case here. The Commercial Court case was only the second set of instructions which the QC had received from the defendant's solicitors.
Nor was there any ground for saying that the arbitrator had "particular confidence" in the defendant's solicitors. As an analogy: "It is a fact that judges of the Commercial Court ...build up a picture of the strengths and weaknesses of particular firms of solicitors... Accordingly they will have more confidence in some firms... than in others. No-one could sensibly suggest that a judge should have to recuse him or herself in such situations. Were that so, there would be no judges sitting". Nor was Flaux J persuaded that the IBA Guidelines should alter his conclusion that there was no unconscious bias here.
The judge also rejected the argument that the failure by the QC to disclose his involvement in the Commercial Court litigation for over a year was in itself a serious irregularity within the meaning of section 68 of the Arbitration Act which justified setting the award aside. Article 5.3 of the LCIA Rules provides that the arbitrator "must sign a declaration to the effect that there are no circumstances known to him likely to give rise to any justified doubts as to his impartiality or independence". In this case, there was no "real possibility" of apparent bias and hence the arbitrator did not need to make any disclosure. Even if disclosure should have been made, the fact that disclosure was late was not a serious irregularity within the meaning of section 68, because there was no apparent bias here. Furthermore, "at best [the claimant]...lost the opportunity to have another impartial arbitrator instead, which by no stretch of the imagination is a substantial injustice".
COMMENT: This is an interesting decision because there is often a narrow field of potential candidates when an arbitration clause requires, say, a QC with specialism in a particular field of law, to act as an arbitrator. It is therefore relatively commonplace for such QCs to have been instructed by the same set firm of solicitors (for one or more of the parties) in other litigation or arbitration matters. This decision will give such arbitrators some comfort that they can act without fear that they will be found to be partial (especially since a party who is simply unhappy with a partial or final award from the arbitrator might otherwise be tempted to argue impartiality). However, it should be noted that each case will be fact-specific and the dividing line between a QC who has an "actual predisposition" towards a certain firm of solicitors, and one who does not, may be difficult to define in practice.
Banking
Shah & Anor v HSBC Private Bank [2011] EWCA Civ 1154
Whether bank employees' names could be redacted as part of disclosure exercise
The claimants sought damages for the defendant bank's delay in executing certain transactions. It is the defendant's case that it suspected money laundering and it was therefore obliged, instead, to make a number of authorised disclosures to the Serious Organised Crime Agency ("SOCA"). The main issue in the case was therefore whether the bank could prove that, at the relevant time, it had a genuine suspicion that the claimants were involved in money laundering.
The bank disclosed its internal reports and its reports to SOCA. However, save for the identification of the employee who was in charge of their money laundering reporting office, it redacted the names of all other employees involved in the reporting process. The claimants sought an order permitting those redactions. Coulson J held that the bank's obligation to make standard disclosure required it to reveal the names of the individual employees but that on the ground of public interest immunity it could maintain the employees' anonymity. The Court of Appeal has now held as follows:
1. The judge had not quite asked the right question when he considered whether the names of the employees were relevant. Whilst it is convenient to use the word "relevant" that does not appear in the rule relating to standard disclosure. Instead, the question was: "is this material either material which adversely affects the bank's case or material which supports the claimants' case?"
2. The the claimants were not putting forward a "case" (they were instead asking the bank to prove its suspicions) the issue was whether the redacted information adversely affects the bank's case.
3. In answering that test, the Peruvian Guano test (ie that the material may lead to a train of inquiry which may adversely affect the bank's case) is inapplicable
Pill LJ added that he thought the test is whether the party "suffers no litigious disadvantage by not seeing [the document] and will gain no litigious advantage by seeing it." (see Taylor v Anderton [1995]). Lewison LJ did not agree with that though, preferring to look at the express words of the CPR rule instead. Munby LJ agreed that it was generally dangerous to have regard to pre-CPR cases but, in this case, it was appropriate to look at Taylor v Anderton, although now, advantage and disadvantage had to be assessed not by reference to the Peruvian Guano test but by reference to the requirements of the CPR.
4. The Court of Appeal concluded that, in this case, disclosure of the individuals' names was a "fishing expedition" and, though disclosure might have been appropriate under the Peruvian Guano test, it did not meet the more stringent requirements of standard disclosure under the CPR.
Injunctions
Parbulk II v PT Humpuss [2011] EWHC 3143 (Comm)
Whether court has jurisdiction to grant worldwide freezing order against foreign third party
The claimant sought (and obtained) a worldwide freezing order against a third party (the case of TSB v Chabra [1992] provides that such an order can be made where there is good reason to suppose that the assets in question really belong to the defendant). The issue in this case though was whether it would be appropriate for the court to make such an order where both the third party and the debt were situated outside England and the third party had no assets in England (and/or there was no relevant service "gateway" under PD 6B). Gloster J held as follows:
1. There was a strong suggestion here that the third party company was assisting its subsidiary company (the defendant to the action) in making that subsidiary judgment-proof. The judge's preliminary view was therefore that there was sufficient justification for granting the freezing order. The Chabra-type jurisdiction is not limited to cases where the third party holds, or has received, assets beneficially belonging to the principal defendant. Where the defendant has a debt or other receivable owing to it by the third party, the English court has jurisdiction to grant a freezing order against the third party to restrain it from dissipating its own assets (up to the amount of the debt).
2. PD 6B para 3.1(3) provides that service out of the jurisdiction can be made where the claimant is suing a defendant and "the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim" and para 3.1(10) provides that service out can be made where "a claim is made to enforce any judgment or arbitral award". Gloster J said that there are conflicting decisions on whether paras 3.1(3) and 3.1(10) could be relied upon where both the third party's assets and the debt it owes to the defendant are situated outside the jurisdiction. However, she did not believe it was necessary for her to decide the issue in this case. That was because, on the facts of the case, the English court had in personam jurisdiction over the third party.
3. The judge was therefore required to consider whether it would be appropriate to make an order injuncting the foreign assets of the third party. She concluded that it would be inappropriate to continue the worldwide freezing order against the third party. This was because (inter alia) the third party would only become a necessary or proper party when it came to enforcement, the third party's connection to the English court was minimal and the English court had no realistic ability to monitor its business activities and payments in Singapore (and any attempt to do so might trespass on a foreign court's jurisdiction). However, the judge did decide to continue the freezing injunction against its assets within the jurisdiction (although it did not have assets here at the present time, there was a real possibility that at some future date it may do so - whether by using the English banking system or otherwise).
Madoff Securities v Raven & Ors [2011] EWHC 3102 (Comm)
Freezing injunctions and whether claimant must believe in risk of dissipation/Article 6(1) of Regulation 44/2001
Two of the issues considered in this case were as follows:
1. Whether delay in applying for a freezing injunction (and applying on notice) should prevent the injunction being granted. Flaux J considered that, on the facts of this case, the claimant could not be criticised for delay because it had had to carry out a global investigation into the whereabouts of the proceeds of a fraud. In any event, the mere fact that there has been delay in bringing the application does not mean that there is no risk of dissipation. Furthermore, "even if delay in bringing the application demonstrates that the claimant does not consider there is a risk of dissipation, that is only one factor to be weighed in the balance in considering whether or not to grant the injunction sought". The real question is whether, looked at objectively by the court, there is a risk of dissipation, whatever the claimant believes. In any event, Flaux J was satisfied that the claimant did believe there was a risk of dissipation here
The judge also accepted that "in complex cases, it is not unusual for even applications for freezing injunctions to be made inter partes or at least on some form of notice".
The defendant took issue though with the suggestion that the very nature of the alleged deliberate misconduct in this case was such as to give rise to the risk of dissipation. It was argued that the defendant had cooperated with the authorities and not tried to evade responsibility. Although that argument was accepted to a degree, the judge said that the defendant's failure to make voluntary disclosure of her assets, despite ample opportunity to do so, meant that the court simply did not know whether or not she had dissipated her assets. In short, if the defendant was not going to dissipate her assets, why has she not given disclosure of them? The fact that the defendant came from a banking and commercial background on the continent "where parties have a high regard for confidentiality and secrecy" did not excuse her failure to make disclosure. Furthermore, prior misconduct was of relevance here - the alleged issuing of false invoices over a prolonged period and the disguising of the true nature of the payments of millions of dollars to the defendant did demonstrate a serious risk of dissipation.
2. The defendant is domiciled in Austria. Article 6(1) of Regulation 44/2001 provides that a person domiciled in a Member State may also be sued "where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear ...them together to avoid the risk of irreconcilable judgments". In this case, the claimant seeking to rely on Article 6(1) did not have a claim against the relevant English-domiciled defendants. Instead, another claimant with a similar claim was suing both the English-domiciled defendants and the Austrian defendant. No prior ECJ or English case has dealt with this situation. Flaux J ruled that Article 6(1) did not apply to this situation. Article 6(1) should be interpreted restrictively and the risk of irreconcilable judgments should not be the sole determining factor for establishing jurisdiction.
Instructions
British Arab Commercial Bank Plc v NTC of the State of Libya [2011] EWHC 2274 (Comm)
Bank seeks declaration after receiving conflicting instructions
The issue in this case concerned the control of the accounts of the Libyan embassy in London which were held with the applicant bank. Until 27 July 2011, the recognised government of Libya was that led by Muammar Muhammad al-Qadhafi and the Libyan embassy in London was known as the People's Bureau. The Bureau was a long-standing client of the bank. On 27 July, the Foreign Secretary announced that the UK recognises and will deal with the National Transitional Council ("NTC") as the sole governmental authority in Libya (a certificate to that effect (dated 24 August and signed by the Foreign Secretary) was subsequently provided to the court).
When the bank received instructions from the Bureau, it brought an application for a declaration from the court that it is entitled to act on the instructions of the embassy established by the NTC. Blair J noted commentary in the White Book that claims for a declaration alone are unusual and that it is also unusual for a court to grant a declaration as to the scope of a bank's mandate. Nevertheless, this was an appropriate case for declaratory relief.
The judge went on to find that the Foreign Secretary's certificate was conclusive and the bank was entitled to the declaration which it sought. There was no need to adjourn the hearing to allow the Qadhafi regime to be present. Following the Foreign Secretary's certificate, it would not be possible for the Qadhafi regime to argue that it remained the lawful government of Libya and it has been established that an unrecognised state cannot sue or be sued in an English court (City of Berne v Bank of England (1804)).
Interest
SCB v Ceylon Petroleum [2011] All ER (D) 72
Interest rate on a foreign currency judgment
The claimant was awarded a judgment sum of US$ 166m (approx.). Section 17 of the Judgments Act 1838 provides for an interest rate of (currently) 8% on all judgment debts. However, where the judgment is expressed in a currency other than sterling, the court has a discretion under section 44A of the Administration of Justice Act 1970 to vary the statutory rate (no such discretion arises where the judgment is expressed in sterling). Various issues arose in this case:
1. What was the effect of a contractual clause entitling the claimant to a certain rate of interest both before and after judgment? It is well-established that where a contract fixes the rate of interest to be paid up to judgment, the court cannot override that contractual provision. In relation to post-judgment interest, Hamblen J held that, absent a special provision, a contractual right to interest merges into a judgment. However, where (as here) the contract preserves a right to interest post-judgment, the creditor will be entitled to a higher rate than 8% if that is what the contract provides for. Conversely, if the contractual rate of interest is lower than 8% (as it was in this case), the creditor will still receive 8% under the Judgments Act.
2. Should the court exercise its discretion to vary the rate of interest on this US dollar judgment? Hamblen J held that the inclusion of an English jurisdiction clause in the contract was not a sufficient reason for the court to refuse to exercise its statutory discretion. Of particular significance in this case was the fact that the difference between US Prime Rate (the appropriate rate - see Kuwait Airways Corp v Kuwait Insurance Co [2000]) and the Judgments Act rate was significant (US Prime Rate is currently 3.25%) and that difference was not due to rapidly fluctuating or highly variable factors: "a much lower US dollar interest rate has been established for some time and is likely to continue for the immediately foreseeable future and [the claimant] has no relevant or sufficient "concern with sterling"". Accordingly, Hamblen J held that the appropriate rate in this case should be US Prime Rate.
3. Should the Judgments Act rate of interest payable on the claimant's costs (which are in sterling) be deferred? Hamblen J accepted that the court should not routinely make an order postponing the date from which interest post-judgment will start to run. However, there were sufficient factors in this case (the costs were large and there may well be real issues of proportionality and reasonableness on taxation) to justify a 4 month postponement (on a disputed balance above the 50% payment on account made by the defendant).
Negligence
Rubenstein v HSBC Bank [2011] EWHC 2304 (QB)
Whether advice (or only information) was given by an IFA to an investor/whether losses arising from sub-prime crisis were foreseeable
The claimant invested the proceeds of his house sale in the AIG Premier Access Bond. Following the collapse of Lehman Brothers in September 2008, withdrawals from the Bond were temporarily suspended. When the claimant eventually cashed in his investment, he suffered a loss of capital. He claimed damages for negligent mis-selling against the defendant Bank. The Bank argued that its independent financial adviser ("IFA") gave the claimant information, but not advice, about the Bond and the investor made the decision to invest. Havelock-Allan QC HHJ held as follows:
1. No contract was entered into between the claimant and the Bank until the claimant told the IFA that he wanted to proceed with the investment and returned the appropriate forms to the IFA (and became bound to pay the Bank's fees). However, since that contract was entered into following an exchange of emails and telephone calls, any advice given would have constituted a collateral contract.
2. On the facts, the contract was for advice and was not "execution only". When will the provision of information amount to advice? The judge held that "the key to the giving of advice is that the information is either accompanied by a comment or value judgment on the relevance of that information to the client's investment decision, or is itself the product of a process of selection involving a value judgment so that the information will tend to influence the decision of the recipient". The starting point is to ask what inquiry the IFA was responding to.
3. There was no doubt that, on an objective test, advice was given by the IFA to the claimant in this case.
4. Breaches of the FSA's Conduct of Business rules were relevant to, although not conclusive of, the argument that the recommendation given by the IFA was inappropriate. The judge concluded that the IFA had not taken reasonable care when giving the advice. There was also a breach of COB because the investment was not the "most suitable" from the range of packaged products on which the bank held itself out as giving advice. Furthermore, the claimant had relied on the advice.
5. However, the judge went on to find that the loss was not caused by the IFA's negligence and the loss was too remote to be recoverable as damages for breach of contract or in tort. That was because the events of 2008 (and, in particular, the idea that one of the world's largest insurance companies might go bankrupt) were unthinkable in 2005, when the investment was made. (Furthermore, the measure of damages for breaches of COB would be the same as that which could be recovered for breach of contract or in tort).
Accordingly, the claimant was entitled to nominal damages only and his claim for substantial damages was dismissed.
One further issue considered in the case was the effect of an ex gratia payment from AIG to the claimant in 2011 (should substantial damages have been recoverable by the claimant). In general, benefits conferred on claimants by third parties are left out of account (even if they reduce the claimant's loss). However, Havelock-Allen QC HHJ said that "I can see no reason in principle why a benefit conferred by a third party which is not collateral, in the sense that it can be seen to have been caused by or to have flowed from the original breach of duty should not be brought into account". The payment to the claimant, made pursuant to a "moral obligation" was a continuation of the transaction whereby the defendant had caused the claimant to invest in the Bond.
Privilege
Berezovsky v Hine & Ors [2011] EWCA Civ 1089
Waiver of privilege and common interest privilege issues
A firm of solicitors produced (privileged) draft witness statements for Mr Berezovsky ("B"). These were sent to another firm of solicitors acting for both B and an associate of his, Mr Patarkatsishvili ("P"). The drafts were then sent to colleagues at the same firm of solicitors who were acting for P in relation to an asylum claim (in order to support that claim and also to ensure that nothing said in that claim was inconsistent with what was being said in a claim being brought by B against a third party). Following P's death, the drafts came into the possession of P's family as part of his estate. B subsequently commenced proceedings against P's family (in a separate dispute) and claimed that the drafts could not be used by P's family in those proceedings. At first instance, the judge held that P's family should not be restrained from using the documents and B appealed. He has now won that appeal. The Court of Appeal held as follows:
1. When the drafts were sent to P's solicitors, this did amount to a waiver of privilege. However, this was not a blanket waiver. B intended that P would only use the drafts in connection with the limited purpose of P's asylum claim. Looking at all the circumstances of the case, it was held that the drafts were sent on the basis that their use for any other purpose was prohibited, unless it was a purpose to which B assented (or, arguably, although it was unnecessary for the Court of Appeal to decide, unless it was a purpose to which B objected). P's family was in exactly the same position as P would have been had he still been alive. It was clear that the sensitivity of the drafts must have been clear to P and that B would have expected P to be very sympathetic to his wish to maintain confidentiality in the drafts. It was also not insignificant that the drafts were headed "privileged and confidential".
2. The nature of common interest privilege between B and P was also discussed during the hearing. The Master of the Rolls did not decide whether common interest applied (and therefore did not opine on whether common interest must exist at the time a document is created or when it is shared (which is an issue on which there has been some conflicting caselaw). However, he did suggest that, in any event, "if common interest privilege does apply to a document, then there is no reason why the common interest should not be subject to terms as to which one of the parties can use the document (particularly where those terms are for the benefit of the party who originally had, and chose to share, the documents and who enjoys, as it were, the primary privilege, and binds the party who, at the time of the creation of the common interest privilege, had little, if any, interest in any subsequent use of the document)".
The Master of the Rolls referred to the case of Cia Barca de Panama v George Wimpey [1980] in which Bridge LJ said that if two parties have a common interest in litigation against a third party (and create documents for use in that litigation) and they subsequently fall out with each other, then common interest privilege is still maintained. He said that that statement was a general observation and "was plainly not intended to be a complete statement of the law". He implied that matters might be different where (as here) documents were not created for a common purpose (ie only B was originally involved in the litigation for which the drafts were produced) and were later shared pursuant to a common interest but the parties then fell out. It should be noted, however, that there is textbook commentary and some caselaw to support the contrary view that "once common interest privileged, always common interest privileged".
R (on the application of Ford) v The FSA [2011] EWHC 2583 (Admin)
Joint interest privilege where legal advice given to a company and its directors
Solicitors provided legal advice to a company (K). After the FSA began an investigation into K's directors, K went into administration. The administrators passed the legal advice which K had received to the FSA. However, K's directors claimed joint interest privilege over that advice on the basis that the solicitors had advised them, not just as the directors of K, but also in their individual capacity (in relation to the (then) prospective FSA investigation). Accordingly, they argued that the FSA had acted unlawfully in using the material supplied by the administrators.
It was accepted that only K (and not the directors) had retained the solicitors. Nevertheless, there is textbook commentary to support the position that joint interest privilege can arise even where there is no joint retainer, provided that the parties have a joint interest in the subject matter of the communication in issue at the time that it comes into existence. Neither counsel (Bankim Thanki QC and Hodge Malek QC) could cite any English caselaw on this aspect of joint interest privilege (although Australian and American caselaw was cited in this case).
Burnett J concluded as follows:
1. It is not a satisfactory test to ask whether the directors "reasonably believed" that they were the clients of the solicitors: "It begs too many questions".
2. Best practice would suggest that the retainer letter should make it clear whether advice is being given to a company alone or also to (identifiable) directors. However, in the absence of a formal joint retainer or clear contemporary record, a factual inquiry must be made. Burnett J rejected the adoption of an American approach that, once lawyers have been retained by a company, the officers of that company cannot prevent it waiving privilege (even if the personal affairs of the directors are inextricably linked with the advice).
3. Instead, it is necessary to distinguish between advice given to an individual as a client (which will support a claim for joint interest privilege) and advice given to another but in which the individual is interested because it impacts on his personal position (which will not support a claim for joint interest privilege). Furthermore, "joint privilege should not arise casually or accidentally".
4. Accordingly, in order to claim joint interest privilege, it will be necessary to establish: (a) that an individual communicated with the lawyer in order to seek advice in a personal capacity; (b) that he made it clear to the lawyer that he was seeking legal advice in an individual capacity; (c) that those with whom the joint privilege was claimed knew (or ought to have known) the legal position; (d) that the lawyer knew (or ought to have known) that he was communicating with the individual in that individual capacity; and (e) that the communication with the lawyer was confidential.
The judge found that, on the facts, these criteria were satisfied and the directors were entitled to joint interest privilege with K. It was accepted that the administrators' waiver of privilege on behalf of K did not impact on that privilege and, accordingly, the FSA could not rely on the material supplied to it.
Service
BNP Paribas v Open Joint Stock Co & Anor [2011] EWHC 208 (Comm)
Issues relating to an anti-suit injunction against a non-party to an arbitration agreement and service out of the jurisdiction
The French claimant bank entered into an agreement with the first defendant, a Russian company. That agreement contained an arbitration clause (in favour of arbitration in London). Following a dispute, the claimant commenced arbitration proceedings. Some months later, the second defendant (another Russian company, related to the first defendant), commenced proceedings in Russia against the claimant (and the first defendant) seeking the invalidation of the agreement which the claimant had entered into with the first defendant. The claimant sought an anti-suit injunction restraining the pursuit of the Russian proceedings. Various jurisdictional and procedural issues arose. Some of the issues considered by Blair J were as follows:
1. Does the English court have jurisdiction to hear the application for interim relief against the second defendant, who is not a party to the arbitration agreement? The claimant argued that the second defendant was engaged in the unconscionable pursuit of litigation intended to prejudice the arbitration agreement. The judge held that the claim against the second defendant fell within the "gateway" of CPR r62.5(1)(b). This provides that the court can give permission to serve an arbitration claim form out of the jurisdiction if the claim is for an order under section 44 of the Arbitration Act 1996. The court can grant an interim injunction if (pursuant to section 44(3)) "the case is one of urgency" and on the application of a party to the arbitral proceedings, such order is necessary to preserve evidence or assets. Blair J acknowledged that section 44(3) is a narrow gateway but held that it encompassed the contractual right to have disputes referred to arbitration (even if the application is made against a non-party to the arbitration agreement).
2. Should service on the first defendant be retrospectively validated under CPR r6.15(2) (which provides that the court can order that steps already taken to bring the claim form to the defendant's attention by an alternative method amount to good service)? In this case, the claimant served the first defendant's English solicitors in the mistaken belief that service was covered by a process clause (which had, in fact, been "repealed"). The judge held that this should be deemed to be good service. It did not matter whether that service was legal under Russian law as service on the foreign defendant took place in England. In this case, it was clear that the solicitors for the first defendant knew the arbitration claim form was coming and no limitation issues arose.
3. Had the second defendant been validly served in Russia? CPR r6.40(3) provides that service can be made "by any other method permitted by the law of the country where it is to be served". Although domestic proceedings can be served by registered post in Russia, Russian is a party to the Hague Convention and it has made a reservation in relation to service directly by post. Accordingly, only service through "official channels" is permitted where (as here) the claim form originates from a Hague Convention signatory country. In this case though, service of the claim form on the second defendant was made by delivery by hand to its lawyers in Moscow and by registered post in Moscow, after an English judge had given permission for service by alternative methods.
CPR r6.40(4) provides that nothing in r6.40(3) authorises "any person to do anything which is contrary to the law of the country where the claim form...is to be served". The second defendant argued that service by post or in person is "contrary" to Russian law and so the English judge had not been justified in making his order. That argument was rejected by the judge: "Alternative service in Russia in person or by post is not permitted, but neither is it illegal". The court could properly order service by alternative means on the second defendant in Russia.
JSC BTA Bank v Ablyazov & Ors [2011] EWHC 2988 (Comm)
Test for extending time for service of a claim form and service by an alternative method
The claimant applied for, and was granted, permission to extend the time for service of the claim form on the second defendant (a Russian national who had not instructed his London solicitors to accept service). The claimant was also given permission for alternative service (on the London solicitors). The second defendant applied for those orders to be set aside. Teare J considered the following issues:
1. Permission to extend the time for service. In Cecil v Bayat, Burnton LJ stressed that a claimant must, at the very least, show that he has taken "reasonable steps" to serve. Teare J held that in this case it was arguable that the claimant had not taken "reasonable steps" (for example, it had delayed taking preparatory steps (ie preparing notarised translations) and the fact that without prejudice discussions between the claimant and the second defendant were taking place was not a reason to delay starting those preparatory steps). However, this delay had been for only a month or so, whereas the evidence from the Foreign Process Section was that service in Russia under the Hague Convention would normally take between 1 and 2 years. This was therefore a good reason to extend time for service.
Did that good reason "surmount" the fact that the defendant might lose certain limitation defences if the time for service was extended? Teare J held that it did. Once it became clear that the London solicitors were not instructed to accept service, an extension of time for service in Russia would inevitably have been required: "Were that reason not sufficient to "surmount" the limitation issues time could never be extended for service in Russia where there were limitation issues".
2. Permission for alternative service. Although the observations by the Court of Appeal in Cecil v Bayat as to how the jurisdiction to permit alternative service out of the jurisdiction should be exercised were strictly obiter dicta, Teare J said they were of very persuasive authority. It was therefore necessary to note that the mere fact that service by an alternative method would be quicker than under the Hague Convention was not sufficient in itself to justify an order. However, the claimant in this case did not rely upon a "mere desire for speed". Instead, there were grounds for believing that the second defendant might refuse to accept service in Russia (and there was risk, though not a great risk, that the disposal of the action (which involved seven other defendants) might be impeded). In particular, the second defendant had made it clear that he did not wish to defend this action before another action which had been brought against him had been concluded.
COMMENT: This case offers a sensible, practical solution for claimants faced with service in a jurisdiction where the service procedure is notoriously slow (and certainly will usually take more than the 6 months allowed under the CPR). In such circumstances, it will be possible to apply for an extension of time from the court (once it is clear that service cannot be made on the defendant's English/EEA lawyers) without having to first take "reasonable steps" to try to effect service. The court can be asked to grant an extension for as long as is likely to be needed - in this case, the extension was given until 2013.
State Immunity
Servaas Incorporated v Rafidain Bank & Ors [2011] EWCA Civ 1256
Scope of "commercial purpose" exception in State Immunity Act 1978
The claimant obtained judgment against the Republic of Iraq ("Iraq") 20 years ago. Over US$ 34m remains outstanding. The claimant sought to execute (by way of a third party debt order ("TPDO")) against distributions due imminently to Iraq because it has an admitted claim in the scheme of arrangement for Rafidain Bank (a state-controlled Iraqi bank).
The issue in this appeal was whether Iraq is entitled to state immunity in respect of this imminent payment. Section 13(2)(4) of the State Immunity Act 1978 provides (broadly) that a party can apply for enforcement in respect of "property which is for the time being in use or intended for use for commercial purposes". It was common ground that the payments were not intended to be used for a commercial purpose. However, the claimant argued that the current use of its right to payment could only be ascertained from the underlying commercial transaction which led to the payment of the debt by the bank. It submitted that the right to a payment under the scheme was being used for the final working out of a debt purchase transaction by which Iraq had bought the commercial claims of various commercial creditors against the bank. It was therefore "in use for commercial purposes" That argument was rejected at first instance.
Burnton LJ and Hooper LJ agreed that, at the time of the TPDO application, the debt due to Iraq was not being used at all and there was no evidence to support the proposition that the current use was for a commercial purpose. The fact that the debt was a commercial debt was not relevant. (Rix LJ, dissenting, said that he was inclined to find that the property in question (ie the admitted claim) is currently being used for the purposes of a commercial transaction and that it was only its intended use which was not for a commercial purpose. He thought the exception was a wide one and the property did have a current use ("it is in use in order to secure the scheme dividend")).
The appeal was dismissed.
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