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09 Sep 2020

The purpose of a process agent: Banco San Juan International v Petróleos de Venezuela

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A recent decision of the High Court has provided further clarity on the position when a party to a contract has failed to appoint a process agent, or has failed to replace its original appointee.

Process agent appointments are frequently required in cross-border contracts providing for English jurisdiction; by appointing agents authorised to accept service in England, the parties provide a clear and certain method of service that circumvents the often lengthy process to serve English proceedings out of the jurisdiction. But what happens when a party fails to comply with its contractual obligation to appoint or replace a process agent?

Background

In Banco San Juan Internacional, Inc. v Petróleos de Venezuela, S.A.1, the claimant (BSJI) applied for summary judgment in its claim against the defendant (PDVSA), the Venezuela state-owned oil company, and PDVSA cross-applied for an adjournment. Both applications engaged the issue of whether proceedings had been properly served upon PDVSA.

Under the two credit agreements in issue (the ‘2016 Agreement’ and the ‘2017 Agreement’), PDVSA agreed:

  1. to appoint an “authorised” process agent to accept service of proceedings in England;
  2. in the event the originally appointed process agent ceased to be an agent, to appoint a “new” agent within 30 days and notify that appointment to BSJI; and
  3. that should it fail to comply with its obligation to appoint a new process agent, BSJI could appoint an agent for service of process on PDVSA.

Under the 2016 Agreement, PDVSA appointed a process agent, whose appointment expired in April 2019. PDVSA did not appoint a replacement process agent. Under the 2017 Agreement, PDVSA had failed to appoint any process agent at all. BSJI therefore itself appointed an agent for service of process on PDVSA, and effected service on the agent on 19 May 2020.

The claim

BSJI relied upon CPR 6.11 in arguing that proceedings had been properly served pursuant to a contractual term providing for the method of service.

PDVSA argued that the appointment of an agent by BSJI did not amount to an appointment of PDVSA’s “authorised” agent for service, and that service had therefore not taken place.

In rejecting PDVSA’s argument and deciding that proceedings under both the 2016 and 2017 Agreements had been properly served, Mr Justice Foxton held that:

  • “Authorised” must mean authorised under the terms of the contracts in question; if these contracts permit BSJI to appoint a process agent for PDVSA, then an agent so appointed is an authorised agent of PDVSA. Any other interpretation would render BSJI’s right “entirely nugatory and purposeless”;
  • The purpose of process agent appointments is well recognised as allowing simplicity and speed in the service of proceedings, and the court was not prepared to allow an interpretation that would allow for obstruction and delay; and
  • If PDVSA wanted to avoid the risk of an agent being appointed on terms it did not like, it was always open to PDVSA to comply with its contractual obligation to appoint or replace a process agent in the first place.

Mr Justice Foxton also rejected PDVSA’s argument that a process agent appointment obligation could not survive after the lender had refused to lend any more funds. This would be a wholly uncommercial construction given that a process agent is most valuable in circumstances such as these when the relationship between the parties has broken down and proceedings potentially need to be commenced. 

In the case of the 2017 Agreement, Mr Justice Foxton rejected PDVSA’s submission that BSJI’s right to appoint was only exercisable in the event that PDVSA failed to replace a formerly-appointed process agent, and not in circumstances where PDVSA had failed to appoint a process agent at all. He found that:

  • Such a construction would allow PDVSA to frustrate the purpose of the clause by failing to appoint a process agent in the first place;
  • The courts should avoid, where possible, a construction of a clause by which a party is better off by reason of its own breach of contract. In this case, PDVSA could delay and obstruct service of process by failing to appoint a process agent; and
  • Whilst language such as “new agent” and “such obligation” might more readily relate to PDVSA’s replacement obligation, it was capable of bearing a construction relating to both PDVSA’s original appointment obligation and its replacement obligation. In Mr Justice Foxton’s words: “Someone who has never owned a coat may still be said to buy a new coat, notwithstanding the fact that it is not a replacement for a much loved but now no longer serviceable coat.”

Having determined that proceedings under both the 2016 Agreement and the 2017 Agreement had been properly served, Mr Justice Foxton then considered PDVSA’s application to adjourn. In allowing PDVSA an adjournment, “with great reluctance”, Mr Justice Foxton held that:

  • If BSJI had so wanted, it could have sought judgment in default of acknowledgment of service. It had understandably not wanted to do so because of the greater ability to enforce a judgment on the merits. The court should therefore be concerned if it appeared that there had not been the chance for PDVSA to say what it wanted to say, such that any judgment was not really a summary judgment on the merits that would bring those enforcement benefits;
  • This was the first procedural indulgence that PDVSA had sought in this claim; although PDVSA had acted slowly in responding to the action, once the matter reached outside lawyers, the speed with which they acted could not be criticised; and
  • There was no substantial risk of prejudice to BSJI.

Commentary

This decision will be reassuring for banks and other potential claimants seeking to ensure that proceedings may be served on foreign defendants quickly via process agents. Following the decision in Cargill International Trading Pte Ltd v Uttam Galva Steels Ltd2, it will be increasingly difficult for defendants to claim that service has not been effective as a result of their failure to appoint or maintain a process agent for the duration of the contract.

With the uncertainties of Brexit on the horizon and the potential for increased complexity and delay in service out of the jurisdiction, parties to contracts within the EU (as well as globally) are well-advised to review the mechanics of existing clauses and, if necessary, consider appointing an agent for service of process (either for their own account or on behalf of another party, if permitted under the contract). This case shows that the English courts will adopt a practical approach to any drafting infelicities, particularly where the court senses that a party is attempting to circumvent its contractual obligations.


1 [2020] EWHC 2145 (Comm)

2 [2018] EWHC 974 (Comm)

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