Newland Shipping and Forwarding Ltd v Toba Trading FZC [2017] EWHC 1416 (Comm) (Ms Sara Cockerill QC)

The English Commercial Court recently dealt with a dual application by the Fifth Defendant (D5) for relief from sanctions under CPR 3.9 and to dispute jurisdiction late under CPR 11. The High Court found that the justice of the challenge to jurisdiction trumped the long delay in making the application and gave relief from sanctions.

Facts

The claim arose out of a contract for the sale of gasoil made between the Claimant (C) (as seller) and the First Defendant (D1) (as buyer) in February 2011. The Claimant alleged that it shipped the cargo in March 2011 but D1 failed to pay. In August 2014 D5 was added to the claim on the basis that D5 was a necessary and proper party as “the director and shareholder” of D1 and served out of the jurisdiction by email.

Procedural History

D5 did not acknowledge service or challenge jurisdiction within the time prescribed by the CPR as he did not receive the emailed Claim Form or know of the claim until October 2016. In October 2014 C entered judgment in default against D5 for more than US$7 million. D5 entered an acknowledgement of service 4 months after the proceedings came to his knowledge and issued applications to challenge jurisdiction and for relief to make such application within 28 days thereafter in January/February 2017.

The Issues

The issues for the Court were whether (i) D5 should have relief from sanctions under CPR Part 3.9 and an extension of time to make its application to challenge jurisdiction not having not entered an acknowledgement of service within 28 days of service and whether (ii) D5 had been properly joined to the proceedings and service out had been properly affected.

Preliminary Issue – A challenge to jurisdiction without submitting to the jurisdiction?

D5, intentionally, did not make an application to set aside the judgment in default on the basis that such a challenge might amount to a submission to the English jurisdiction thereby rendering the jurisdictional challenge nugatory.

The Court held that it was arguable that a challenge to a default judgment in partnership with a jurisdictional challenge might amount to a submission on the basis that taking any step in relation to the merits of the claim can amount to a submission (Global Multimedia International v ARA Media Services [2006] EWHC 3612 and Deutsche Bank AG London Branch v Petromena ASA [2015] EWCA Civ 226).

The Court also held that, if the jurisdictional challenge succeeded the default judgment could not stand. The Court’s reasoning was that if a claim form was set aside the basis for the default judgment would be removed and the judgment itself could not stand. Thus an application to set aside default judgment was strictly unnecessary.

How should a dual application to challenge jurisdiction and for additional time to make such a challenge be dealt with?

Logically the issue of whether D5 could bring an application to challenge jurisdiction should have preceded the issue of whether there was jurisdiction against D5.  However, sensibly, the Court regarded the that merits of whether there was jurisdiction was an important issue as to whether procedural relief from sanctions should be granted under CPR Part 3.9.

Was there Jurisdiction?

C’s joinder of and service out on D5 was founded on the assertion that he was both the director and shareholder of D1. There was however no evidence that D5 was the director and shareholder of D1 at the relevant time i.e. in 2011, whatever may have been the position when proceedings were commenced or default judgment entered. On that basis the Court held it did not have jurisdiction, D5 should not have been joined, service out should not have been effected and judgment in default should not have been entered.

Should there be relief from sanctions?

On that basis the Court then had to decide whether there should be relief from the sanctions consequential on the failure to challenge jurisdiction and whether what would otherwise be a successful challenge to jurisdiction should be permitted 2 years and 4 months late.

In the usual course of events a party wishing to dispute jurisdiction must make such an application, supported by evidence, within 28 days after filing an acknowledgment of service: (CPR 11.4). However, the English Courts have jurisdiction to grant a retrospective extension of time where appropriate, Texan Management Ltd v Pacific Electric Wire and Cable Co Ltd [2009] UKPC 46. However an application for retrospective extension (made out of time) falls to be decided in accordance with CPR 3.9 as clarified by the 3-stage test in Denton v TH White Ltd [2014] EWCA Civ 906. This 3-stage test is as follows

  1. The first stage is to identify and assess the seriousness and significance of the "failure to comply with any rule, practice direction or court order”. If the breach is neither serious nor significant, the court is unlikely to need to spend much time on the second and third stages.
  2. The second stage is to consider why the default occurred.
  3. The third stage is to evaluate "all the circumstances of the case, so as to enable [the court] to deal justly with the application including [factors (a) and (b)]"."

As to the first stage of Denton, the Court found that the breach by D5 was serious and significant.  However with respect to the second stage, the Court found that there was a good explanation for the failure to make an application up to at least October 2016 in that the proceedings did not come to D5’s knowledge until then. Conversely for the period between October 2016 and January 2017, the period of 4 months, from the receipt of Court documents until service of the acknowledgement, was not covered by a good reason. Thus the default position at stage 3 of Denton was that there should be no relief from sanctions.

However at the third stage of the Denton test the Court held that it must consider whether there are other “circumstances” which indicate against refusing the application. The Court indicated that in addition to the 2 explicit factors set out in CPR Part 3.9(1)(a) and (b) the following might be relevant factors:-

  1. whether the sanction imposed is proportionate to the breach in question;
  2. whether the application for relief from sanctions was made promptly; and
  3. whether the defaulting party has a poor record as to compliance with proper court procedures.

The Result

The Court granted relief. The Court held that the need for litigation to be conducted efficiently and at proportionate cost in CPR Part 3.9(1)(a) was not engaged on the facts as there were no ‘knock-on’ effects on the litigation, in the form of adjournments or other manifest inconvenience. Similarly the objective of enforcing compliance with rules, practice directions and orders (CPR Part 3.9(1)(b), there was a good excuse for most of the delay, there was no flouting of  the rules and no history of non-compliance. In the absence of relief, the CPR also provided for an “unusually disproportionate sanction” since D5 would have been entitled to set aside the Claim Form and its service and to deprive him of the opportunity to challenge a baseless assertion of jurisdiction when there was no prejudice would be disproportionate.

The Court held that a refusal to grant relief would be “a display of judicial musculature […] hard to square with [CPR Part 3.9’s] wording”.

The Procedural Lesson

Thus the lesson of the case is that although some latitude will be given to a litigant in challenging the jurisdiction of the English Court, such challenges should be made immediately a party has knowledge of the proceedings. Such challenged will only generally be allowed to be made late when the merits for setting aside service are overwhelming.