Key Point

The liquidation of an agent for service appointed by a Borrower under a loan agreement did not prevent the Lender from validly serving process on the Borrower by delivering documents to that agent.

The facts

A loan agreement contained the following clause:

"Service of process. Without prejudice to any other mode of service allowed under any relevant laws, each Borrower -

38.2.1 irrevocably appoints Johnson Stevens Agencies Ltd, presently of Johnson Stevens House, 2 Abbey Road, Barking, Essex IG11 7AX as its agent for service of process in relation to any proceedings before the English courts in connection with any Finance Document; and

38.2.2 agrees that failure by a process agent to notify any Borrower of the process will not invalid proceedings concerned.

The borrower expressly agrees and consents to the provisions of this clause 38."

At the time the Lender served proceedings on the agent it was in creditors voluntary liquidation and the liquidators had effectively ceased to conduct any business at the company.

The issue was whether the Lender could obtain judgment in default in relation to its claim which meant it had to establish that proceedings had been properly served upon the Borrower.

Decision

In a laudably short judgment the Court held that the legal proceedings had been properly served upon the Borrower by the Lender despite the Borrower's agent being in liquidation at the time service was effected and failing to pass the notice on.

Comment

The provision considered in this case it very similar to the provision that deals with service agents in the Loan Market Association recommended form of facility agreements so the decision is likely to be of interest generally in the loan markets. The judge thought that it was at least arguable that the liquidation of the agent terminated the actual authority of the agent to act on behalf of the Borrower. However, the key was that even if this revocation of authority automatically occurred when the agent went into liquidation it had no effect on the Lender. The term in the loan agreement had agreed that as between Borrower and Lender the appointment was irrevocable and that any failure on the part of the agent to notify the Borrower was a Borrower risk. It is unlikely all but the most coveted borrowers will be able to persuade their lenders to amend this type of provision so that agent liquidation becomes a lender risk. It is normally something a lender will not want to worry about after the documents are signed. Once proceedings are contemplated the lender will simply want to serve whoever is named as agent in the contract. 

DVB Bank SE v Isim Amin Limited