Default judgment against anchor defendant closes the “necessary and proper party” service gateway

This blog by Henry King considers the recent decision in Satfinance Investments Limited v Inigo Philbrick and ors [2020] EWHC 1261 (Ch). The key point in this case was Chief Master Marsh’s interpretation of the CPR 6BPD 3.1(3) “necessary and proper party” service gateway. This is a significant decision for those involved in cross-border claims involving multiple parties.

The 3.1(3) gateway allows parties suing an “anchor defendant” to serve proceedings on foreign-domiciled persons who are “necessary or proper parties” to the claim against the anchor defendant.

But there is a threshold test to this gateway, which is that there must first be “between the claimant and the defendant a real issue which it is reasonable for the court to try” (emphasis added).

Chief Master Marsh interpreted this as meaning that, if default judgment has been, or likely will be, entered against the anchor defendant, then there will be no issue for the court to try.

In those circumstances, the 3.1(3) gateway will not apply and jurisdiction cannot be established against the non-anchor defendants under it.

The Facts

The case concerns a valuable painting worth in excess of 12.5 million USD. For the purposes of this blog, the key facts were as follow:

  1. The Claimant issued proceedings against D1 and D2 (the anchor defendants), as well as D3 and D4. In the event, D1–D3 did not respond to the Claim Form and Particulars of Claim.
  2. The Claimant’s claim was ultimately for:
    • Declaratory relief concerning the painting and D4’s lack of interest or security; and
    • Injunctive relief against D4 to preserve the painting, restraint of dealing with the painting, delivery up and damages.
  3. Permission was required to serve on D4 outside the jurisdiction as D4 was based in New York. The position was therefore governed by CPR 6BPD rather than the European jurisdiction rules.
  4. The Claimant therefore applied for permission to serve and for an injunction to preserve the painting. The Claimant also applied to serve D1 via email.
  5. Roth J granted injunctive relief and gave permission to serve on D4 out of the jurisdiction at a hearing on 1 November 2019. The Claimant was granted permission to serve D1 via email.
  6. D4 subsequently applied to set aside Roth J’s order on two grounds:
    • Firstly, there was no real issue that it was reasonable for the court to try between the Claimant and D1 and D2; and
    • Secondly, that England was not clearly or distinctly the appropriate forum for the dispute.

Relevant Law

The relevant law is set out under CPR 6BPD 3.1(3) – “the necessary and proper gateway”:

The claimant may serve a claim form out of the jurisdiction with the permission of the court under rule 6.36 where – …

(3) A claim is made against a person (‘the defendant’) on whom the claim form has been or will be served (otherwise than in reliance on this paragraph) and –

(a) there is between the claimant and the defendant a real issue which it is reasonable for the court to try; and

(b) the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim.

The Supreme Court recently clarified the position for applications under this gateway in the case of Lungowe v Vedanta Resources PLC [2019] UKSC 20, where Lord Briggs summarised the position as follows at [20]:

the claimant must demonstrate as follows:

i) that the claims against the anchor defendant involve a real issue to be tried;

ii) if so, that it is reasonable for the court to try that issue;

iii) that the foreign defendant is a necessary or proper party to the claims against the anchor defendant;

iv) that the claims against the foreign defendant have a real prospect of success;

v) that, either, England is the proper place in which to bring the combined claims or that there is a real risk that the claimants will not obtain substantial justice in the alternative foreign jurisdiction, even if it would otherwise have been the proper place, or the convenient or natural forum.

Following a review of the above, and a variety of other case law, Chief Master Marsh reminded himself at [29] that:

The role of the court on hearing an application to set aside an order for permission to serve out of the jurisdiction is not to rehear the application and decide the issue afresh. The subsequent court must consider on an objective basis whether permission was rightly granted, considering each of the three requirements, to the extent they are in dispute, with the benefit of full argument from the relevant parties. … The court may have regard to that additional evidence and the events it describes but only for the purpose of properly interpreting the circumstances that pertained on the occasion when permission to serve out was granted. As I see it, the important point is not that the later court is asked to have regard to additional evidence, but that a change of circumstances is not a ground for setting aside the order.

As such, it is important note that a subsequent change of circumstances would not be sufficient to set aside the order granting permission for service out of the jurisdiction. It is only evidence that shows the true circumstances as they were at the time of the original application that might change the court’s view.

The Decision

Chief Master Marsh found, on the first limb of the application, that there was no real issue to be tried between the Claimant and the anchor defendants. In so finding, the judge acceded to D4’s submission which placed emphasis on the fact that, for this gateway to apply, there must be a likely trial of the claim between the Claimant and the anchor defendant – not simply an issue between the parties (paras [43] and [55]).

The judge found that this case was unusual in that due to subsequent events, it was possible to interpret the position as at the date permission was granted with “reasonable certainty” (at para [56]). The position was that D1 and D2 were not likely to contest the Claimant’s claim in any manner, and indeed had probably absconded or were likely to abscond within the coming days. D1 (and D2 and D3 by extension) had not responded to the notice of hearing, and there was a doubt as to whether he resided in England at the date of the permission hearing, hence the need for the Claimant to serve via email.

As such, Chief Master Marsh held at [55] that: “If there is to be no trial of issues concerning the anchor defendant, and it is clear the claim will go by default, the claimant is unable to pass through the gateway.” The application therefore succeeded and the order permitting service out of the jurisdiction was set aside.

Whilst strictly obiter, as the substance of the application had been adjudicated, the judge also passed comment upon the appropriate forum. By reference to five factors including the location of the painting, and the location of all the defendant’s witnesses meant that the judge would have held that England was not obviously the most appropriate forum.

Comment

This judgment makes clear that an anchor defendant will actually need to play a part in the proceedings in order for the “necessary and proper party” gateway to apply. If a defendant that is not within the jurisdiction can demonstrate that the anchor defendant is not going to contest a claim at the time of the making of the order, they will apparently have good grounds for setting aside an order permitting service outside the jurisdiction.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s