Foreign directors may be imprisoned

Background facts 

In recent High Court proceedings, the Claimant companies obtained a ‘without notice’ injunction against the Defendants. This was discharged when the judge at first instance found that the Claimant companies had breached their duties to give full disclosure, misled the court in evidence and failed to comply with an undertaking to preserve evidence. One of the Defendants then applied for orders that the Claimant companies be fined for contempt because of these breaches.  Additionally, the Defendant made an application for committal of a director of the Claimant companies, who was not himself named as a Claimant, on the basis that he was also in contempt of court. The judge granted leave for service of the application for contempt on the director out of the jurisdiction.

The appeal

The director appealed on the basis that the court did not have jurisdiction over him. CPR 81, which governs applications in relation to contempt of court and committal proceedings, provides the court with powers to impose custodial or non-custodial sanctions on persons found guilty of contempt of court. There is a presumption against extraterritoriality whereby unless a contrary intention can be deemed from the language, subject matter or history of the legislation, it is presumed that Parliament did not intend a statute to operate beyond the territorial limits of the UK. The rule-making power in section 1 of the Civil Procedure Act 1997 for rules contained in the CPR allows rules with an extraterritorial effect to be made. The rules in this part are silent as to whether they apply to non-party directors of foreign litigant companies.

Judgment

The Court of Appeal dismissed the director’s appeal and held that in the absence of an express indication in the CPR as to the extraterritoriality of CPR 81, the legislative intention behind the rule must be taken into account.  The court decided that the relevant provisions were intended to be a mechanism by which the court could exercise its disciplinary powers over corporate contemnors; in this case the court had jurisdiction over the companies in question as they had instituted proceedings in the jurisdiction. Given that a company is only capable of acting by its agents, the acts of natural persons can be attributed to a company in order to ascertain the company’s rights and obligations.

The judgment distinguished Masri v Consolidated Contractors International (UK) Ltd and others (No. 4)[2009] UKHL 43, in which it was held that CPR 71 (the court’s power to order a corporate officer of a judgment debtor to provide information to aid enforcement) did not have extraterritorial effect as a result of the presumption against extraterritoriality. By contrast with Masri, under CPR 81 the court has an interest in being able to discipline a company which is in contempt because of the actions of its directors, whether the company is incorporated in the jurisdiction or not. The court concluded that if the court’s ability to enforce compliance with rules and orders under CPR 81 did not apply to foreign directors, then the court’s ability to control proceedings would be weakened and the results of CPR 81 would be inconsistent and unfair, in conflict with the overriding objective to deal with cases justly. In addition it would not be fair if foreign directors of companies in proceedings were able to escape the consequences of their actions simply because they were not named in proceedings.

Comment

Given the increasing international nature of proceedings in the High Court, it would have been very damaging to the effectiveness of the court’s orders if there was a strict regime applying to directors of domestic companies and a lenient one for directors of foreign companies.  This case shows that the court is prepared to dilute, or even negate, the presumption against extraterritoriality of the CPR if it can find a public interest argument for doing so.

Please click here for the judgment; (1) Dar Al Arkan Real Estate Development Co (2) Bank Alkair BSC v (1) Majid Al-Sayed Bader Hashim al Refai (2) Kroll Associates UK Ltd (3) Alexander Richardson (4) FTI Consulting Group Ltd & Shaikh Abdullatif [2014] EWCA Civ 715.