Interest and delay

The claimant obtained a judgment against the defendant. The court had to determine interest on the judgment and costs in the light of a Part 36 offer. The defendant alleged that the claimant’s liquidators were guilty of unreasonable delay in failing to bring the proceedings for some four years after the cause of action accrued and so should not be entitled to interest for the period of delay before commencing the proceedings.

The court held that the claimant was entitled to a period of time to investigate its claim but there was no good reason for the period of excessive delay in bringing the claim after that. The fact that the claimant had been kept out of its money could not be attributed to the defendant. The claimant would be deprived of its interest for the period of the excessive delay.

This is clearly an argument to watch out for in mortgage shortfall claims where the lender might have known for a number of years that it has suffered a shortfall but not brought a claim as quickly as perhaps it could have done (and a District Judge might think it should have done) to institute proceedings against the borrower. Socimer International Bank Ltd (In Liquidation) v Standard Bank London Ltd

Interest and IVAs

The first defendant entered into an IVA with his creditors, which included his liability to the claimant. The claimant had, prior to the IVA, obtained a judgment against the first defendant, the principal of which was paid but the interest on that sum remained outstanding. The defendant argued that execution of the interest judgment against him should be stayed as the claimant was bound by the IVA. It was not just and equitable for the claimant to enforce payment when the IVA provided for all creditors’ claims to be dealt with under it and not otherwise.

The court agreed that the claimant had agreed to be bound by the terms of the IVA. If the IVA was completed, then the creditors, including the claimant, would be taken to have agreed that they would have no further claim against the first defendant in respect of the debts (and interest thereon) that were provable. The IVA constituted a special circumstance that rendered it unjust to allow the order for interest to be enforced - the judgment interest went into, and was ‘lost’ in, the IVA.

Abdul Ghani El Ajou v Stern and others

Procuring payment

The claimant and second defendant entered into a joint venture agreement under which the claimant advanced £3 million to the first defendant. The venture was unsuccessful. The claimant sued the second defendant for the shortfall in the principal sum borrowed pursuant to a clause in the agreement which provided that the second defendant would “procure” the repayment of the loan plus all outstanding interest. The second defendant argued that the clause simply placed an administrative obligation upon it to try to ensure that the first defendant repaid the sums due. The court held that the normal meaning of “procure” was to “see to it”. Agreeing with the claimant, the court found that a party agreeing to procure that another party perform a contractual obligation was first required to attempt to ensure that that party did comply with the obligation and, if they failed to do so, to pay as damages the amount that ought to have been paid by the third party. There was nothing in the terms of the agreement to displace this meaning and the second defendant was liable to pay any outstanding sums not paid by the first defendant.

This was therefore a liberal judgment to impose a guarantee liability, where normally the courts are restrictive. It may well be a case hard to apply outside its specific facts.

Nearfield Ltd v Lincoln Nominees Ltd and Lincoln Trust Co (Jersey) Ltd

Service abroad

Two cases have been before the courts recently in relation to service of proceedings abroad.

• In Habib Bank, the claimant issued proceedings against the defendant which were served through diplomatic channels as required under the CPR. The court also ordered an alternative method of service on named officials at the defendant’s head office in Khartoum. The defendant failed to acknowledge service or take part in the proceedings. Had good service been effected?

The court held that it had. The CPR did not require service abroad to be effected only by a method permitted by the law of the country in which service was to take place. Service abroad did not have to be expressly permitted by the foreign jurisdiction for it to be good service. It was implicit that the court could permit any alternative method of service abroad so long as it did not contravene the law of the country where service was effected.

• In Olafsson, the proceedings were personally served on the defendant in Iceland. The defendant did not sign a written receipt as required by Icelandic law, or acknowledge service, and judgment in default was obtained. The defendant’s application to set judgment aside was dismissed as the court held the failure to obtain the defendant’s signature was an irregularity that could be remedied retrospectively under CPR 3.10 as a recognized form of service had nevertheless been used. The defendant appealed on the basis that simple personal service was not a permitted method of service in Iceland, and the service rules imposed by the state in which the person resided had to be strictly observed.

Allowing the appeal, the court distinguished Habib Bank above on the basis that the application there had been a prospective application for alternative service prior to judgment being entered. In the instant case, however, there had already been a failure correctly to serve the claim form which could not subsequently be overridden.

The claimant then immediately sought relief under CPR 6.9, applying for an order dispensing with service of the claim form as there were exceptional circumstances. The court agreed. The failure to achieve valid service had been for want of the merest of technicalities in circumstances where the fact of service had been accepted. The only defect was as to evidence of service: the defendant had accepted that he had received all the relevant documents in the correct form at the appropriate time. Service would be dispensed with and the claim allowed to proceed.

The effect of these two decisions is that so long as the law of the country where service takes place is not contravened, or if only a minor technical error occurs and exceptional circumstances exist, then service will be good (or salvageable).

In mortgage claims, however, such issues as to service can usually be avoided by applying for an order for substituted service by post at the security property address in the UK. This would still be much the safer course.

Habib Bank Ltd v Central Bank of Sudan

Olafsson v Gissurarson

Mistaken identity

After the expiry of the relevant limitation period, the claimant applied to substitute APSA (the actual manufacturer of a vaccine) for APMSD (wrongly identified as the manufacturer of the vaccine) pursuant to s35 Limitation Act 1980. S35 permits substitution of parties where a party has been mistakenly named in the proceedings. The claimant had been aware of its mistake prior to the expiration of the limitation period. APSA argued that this meant that s35 could not apply as there was no mistake at the time when the limitation period expired: the claimant knew by then who the correct defendant was.

The court disagreed. Section 35 could not be interpreted so narrowly. If it was, the jurisdiction to substitute a party would not exist where a claimant, by diligent enquiry, had discovered the mistake before the limitation period expired, but would exist where a claimant failed to make further enquires. In effect that would mean that the more negligent the claimant had been, the more likely the jurisdiction would exist. That could not be the intention of the section. The true construction of s35 was whether substitution was necessary for the determination of the original action. The court would exercise its discretion in favour of permitting the substitution to meet the overriding objective of cases being dealt with fairly.

A decision for lenders to bear in mind: as claimants - given the rise as to concerns in the current market on valuer negligence claims and where there may have been a number of changes in the corporate identity of a valuer over the years; as defendants - if the wrong lender subsidiary in a group is sued.

O’Byrne v Aventis Pasteur MSD Ltd and Aventis Pasteur SA (Proposed defendant)

When are proceedings brought?

The claimant delivered its claim form for issue to court on the day before the limitation period for the claim expired. Unfortunately, it was not issued until four days later. Had the proceedings been brought within time? The defendant argued that proceedings started when the claim form was issued by the court and that that was the same date on which they were brought for the purposes of limitation. The claim was therefore out of time.

The Court of Appeal disagreed holding that “bringing” a claim did not mean the same as “starting” a claim. A claim was brought for the purposes of limitation when the claimant’s request for the issue of a claim form was delivered to the correct court office during its opening hours. This was not necessarily the same date that the claim was started, or issued, which was the date that fixed the time within which the proceedings had to be served.

So, for mortgage shortfall claims whether the claim has been brought within time will be determined by counting back 12 years from the date of delivery of the claim form to the correct court.