Clarification provided on the service of claims out of the jurisdiction under S.423 IA 1986

The Judgment handed down by the Court of Appeal in Orexim Trading Ltd v Mahavir Port And Terminal Private Ltd (formerly known as Fourcee Port and Terminal Private Ltd) [2018] EWCA Civ 1660, [2018] All ER (D) 101 (Jul) on 13 July 2018 provided important clarification as to the service of claims under s.423 of the Insolvency Act 1986 ("IA 1986") out of the jurisdiction.

The Facts

Orexim Trading Ltd (a Maltese company) ("Orexim"), commenced proceedings in England claiming damages from the First Defendant, Mahivir Port and Terminal Private Ltd (an Indian company) ("MPT"), for breach of a settlement agreement.  Orexim also sought an order under s.423 of the IA 1986 to set aside a sale of a vessel by MPT to the Second Defendant, Singmalloyd Marine (S) Pte Ltd (a Singaporean company), and the subsequent sale from the Second Defendant to the Third Defendant, Zen Shipping and Ports India Private Ltd (an Indian company) ("Zen").  The claim was based upon the transactions being entered into at an undervalue, for the purpose of putting the vessel beyond the reach of MPT's creditors.

The settlement agreement was subject to an English jurisdiction clause, and it was accepted that the Court had jurisdiction to hear the claim for damages for breach of that claim. However, both MPT and Zen brought applications to challenge the Court’s jurisdiction to hear the claim under s.423 on the basis that:-

• The court lacked 'gateway jurisdiction' to hear that claim; and
• The court should not as a matter of discretion exercise its jurisdiction, since the claim had no reasonable prospect of success, and England was not the proper place to hear it.

At first instance, the Judge held that the Court lacked gateway jurisdiction to hear the s.423 claim. The Judge held that the gateway which applied to “claims under an enactment which allows proceedings to be brought” did not, on its proper construction, cover claims under s.423. 

The Decision

The Court of Appeal disagreed with the decision at first instance. It held that the time has now come to say, in an age of globalisation and digitisation of the world economy, that the court does have power to permit service of a claim under section 423 outside England and Wales. However, the Court emphasised that it is important that this power is subject to safeguards. In particular, relief under s.423 will not be granted unless it can be shown that there is a “sufficient connection” between the defendants and England and Wales to make such relief appropriate, and the Court will not grant permission to serve a claim under s.423 out of the jurisdiction unless it can be shown that there is a realistic prospect of establishing that connection.

The Court of Appeal accepted MPT’s and Zen’s arguments that, on the facts of the case, there was an insufficient connection between the Defendants and England and Wales to justify relief under s.423, and that the claim therefore had no reasonable prospect of success. In reaching this conclusion, the Court rejected a submission by Orexim that the fact that MPT had agreed to an English jurisdiction clause in the settlement agreement provided a sufficient connection.

The settlement agreement, despite being governed by English Law, was not sufficient to provide the necessary connection with England and Wales. In circumstances where none of the parties had been incorporated in England and Wales; none of the transactions had taken place in England and Wales and were not governed by English law; none of the parties had assets in the jurisdiction; no loss would be suffered in the jurisdiction and the vessel had never been flagged or entered English territorial waters, Orexim had not established that England and Wales was the proper place to hear the claim.  Despite the Court of Appeal disagreeing with the Judge's reasoning at first instance, the Court agreed with the Order that had been made refusing permission to serve out, but for entirely different reasons.  The appeal was dismissed.

Comment

The decision of the Court of Appeal is significant in confirming that claims under IA 1986, s.423 can be served out of the jurisdiction under the procedural gateway in CPR PD 6B, para 3.1(20), which applies to ‘claims under an enactment which allows proceedings to be brought’, even if the facts of the case do not allow the claim to be served out under any other gateways. There were conflicting first instance decisions on this point so the ruling by the Court of Appeal provides welcome clarity.

It is appropriate that the courts should have a wide power to permit service abroad of claims under s.423 IA 1986, provided the claim has sufficient connection with England. The decision in Orexim shows that the mere fact that the defendant is before the court in connection with a separate claim, which the claim under s.423 IA 1986 is designed to support, is not sufficient for these purposes. Prospective claimants seeking to rely on s.423 IA 1986 against foreign defendants will therefore need to think very carefully about possible links between the claim and defendants and England and Wales before applying for permission to serve the claim out of the jurisdiction.