With the High Court having favoured status as an outsourcing centre for litigation emanating from the former Soviet Union, most English civil lawyers are aware that service of English proceedings in Russia under the Hague Convention is a painfully slow process. The most recent decision in BNP Paribas SA v OJSC Russian Machines demonstrates the pragmatic approach that the English courts are prepared to take to the issue of proper service of proceedings, especially when dealing with urgent injunctive proceedings whose purpose would otherwise be thwarted.
The proceedings concern an alleged failure to pay money due to BNP Paribas under a parent company guarantee given by the first defendant, Russian Machines, in respect of one of its subsidiaries.
In August 2010 BNP Paribas commenced arbitration under the London Court of International Arbitration Rules against Russian Machines, claiming $80 million. In doing so, it chose not to exercise its option to pursue proceedings before the English courts. The parties reached an agreement to vary the composition of the arbitral panel. In the course of reaching this agreement, a provision which permitted service of process of any English proceedings on the first defendant's English solicitors was deleted from the parent company guarantee, reportedly because it was thought no longer to be necessary, as an agreement had been reached to arbitrate.
The second defendant - Russian company Ingosstrakh Investments - was a related company under the same ultimate beneficial ownership. It owned a small parcel of shares in Russian Machines. In late December 2010 Ingosstrakh commenced proceedings before the Moscow Arbitrazh Court against Russian Machines and BNP Paribas, claiming that the parent company guarantee was invalid under Russian law because Russian Machines had not obtained its shareholders' consent to enter into it (as Ingosstrakh claimed it was obliged to do).
English anti-suit proceedings
BNP Paribas obtained permission from the arbitrator to commence anti-suit injunction proceedings. By oversight, it sought to serve proceedings on Russian Machines' English solicitors pursuant to the now deleted provision, and sought permission to serve out of the jurisdiction only in respect of Ingosstrakh. Permission was granted on paper in an order which permitted:
- service through the official channels under the Hague Convention;
- hand delivery to Ingosstrakh's Russian lawyers; or
- registered mail delivery to Ingosstrakh and its Russian lawyers.
In a judgment handed down on November 24 2011, applications in which both defendants challenged the jurisdiction of the English court were dismissed. In response to an application from BNP Paribas, the judge also declared that the claim form had been validly served on Ingosstrakh by service on its Russian lawyers. The dispute over the latter concerned Part 6.40 of the Civil Procedure Rules (CPR), which states in part:
"(3) Where a party wishes to serve a claim form or other document on a party out of the United Kingdom, it may be served…
(c) by any other method permitted by the law of the country in which it is to be served.
(4) Nothing in paragraph (3) or in any court order authorises or requires any person to do anything which is contrary to the law of the country where the claim form or other document is to be served."
The judge found that while Russian law actively permitted service of English proceedings to be achieved only through the official Hague Convention channels, it did not actively prohibit or make illegal the effecting of service on a party's Russian lawyers. Accordingly, the English court had been entitled to permit BNP Paribas to serve Ingosstrakh through its Russian lawyers.
The defendants appealed these decisions. The Court of Appeal hearing was due to take place on April 23 2012.
Meanwhile, in late December 2011 in Abela v Baadarani(1) the Court of Appeal found that:
"CPR 6.40(4) … does not mean that it can be appropriate to validate a form of service which, while not itself contrary to the local law in the sense of being illegal, is nevertheless not valid by that law."
This directly contradicted the rationale by which service on Ingosstrakh had been found to be valid in the November judgment. In order to rescue the position before the Court of Appeal, BNP Paribas urgently applied for an order retrospectively making good the service of proceedings.
The relevant provision, CPR 6.15(2), states that:
"On an application under this rule, the court may order that steps already taken to bring the claim form to the attention of the defendant by an alternative method or at an alternative place is good service."
The basis of the application by BNP Paribas was that Ingosstrakh had been made aware of the claim form by its later service on Bryan Cave, its English lawyers, and that there was good reason for the court to find that this was, in itself, effective service, irrespective of the position in relation to service attempted in Russia.
The claim form was first served by BNP Paribas on Bryan Cave on June 20 2011. The judge accepted that at that point, Ingosstrakh had not yet instructed Bryan Cave. However, he found that Ingosstrakh had instructed the firm to challenge the jurisdiction of the English court by June 27 2011, and that as Bryan Cave had already been served with the claim form, it could not have come to Ingosstrakh's attention any later. He also noted that Ingosstrakh had subsequently been represented by leading counsel at the November hearing. In light of this, the judge held that:
"there can be no doubt that the claim form was brought to the attention of the Second Defendant. In circumstances where leading counsel was instructed to challenge the jurisdiction that is the only realistic conclusion."
Having determined that steps had been taken which had brought the claim to the attention of Ingosstrakh, the judge turned to the question of whether there was good reason to order that those steps constituted good service of the proceedings. He held that:
"The mere fact that the claim form has been brought to the attention of the Second Defendant in this way cannot amount to good reason for making an order under CPR 6.15(2). Otherwise the requirement for service in accordance with the Hague Convention would be side-stepped. There has to be a good reason for doing so since such an order may only be made exceptionally.
In the present case the nature of the relief sought against the defendants is an anti-suit injunction designed to protect an arbitration taking place in London between the Claimant and the First Defendant. In such a case there is a particular need for the trial to be heard promptly. If service can only take place via the Hague Convention there is a risk, on the evidence now before the court, that it may not take place in sufficient time to enable the trial against all defendants to take place in December 2012. Disclosure has been agreed, subject to questions of jurisdiction and service, to take place in August 2012. That is just over one year from the date when the papers were transmitted by the FPS to Russia. Service may not take place until some time thereafter and so the projected early trial may be put at risk."
For those reasons the judge made the order sought by BNP Paribas, deeming that proceedings had validly been served on Ingosstrakh. In light of the imminent Court of Appeal hearing, and recognising that the decision was contentious, he granted permission to appeal.
This aspect of the matter was clearly a hard case. Any anti-suit injunction would be ineffective if made only against Russian Machines, as it was the defendant in the Moscow action. In order for an injunction to bite, Ingosstrakh had to be a party to the English proceedings. The main strand of BNP Paribas's substantive case is an allegation that Ingosstrakh and Russian Machines were acting together to seek to invalidate the parent guarantee before the Moscow courts. The now-notorious delays which would result from requiring re-service through the Hague Convention channels might well have rendered the entire proceedings ineffective.
However, the judgment creates a difficult position for a foreign domiciled defendant(2) that wishes to dispute the validity of service of English proceedings upon it. It cannot dispute the jurisdiction of the English courts without indicating that it has been made aware of the claim form. However, in doing so, it risks giving away what may be an important aspect of its jurisdiction arguments - namely, that the proceedings were not validly served on it in the first place. On the other hand, if the defendant does not take steps to challenge jurisdiction, it will have default judgment entered against it and will have its defences reduced to a battle over enforcement.
There will be many situations in which proceedings are less urgent, and a defendant in such a situation may well consider that there are no exceptional circumstances which would lead to it being deemed to have been validly served by the fact that it appears before the English courts to challenge jurisdiction. Whether it is right that such defendants should have to consider such circular risks is another question - one which the Court of Appeal may well have to answer shortly.