Alexander Vik v Deutsche Bank (CA) and Integral Petroleum SA v Petrogat FZE
In 2017 over 75% of cases in the English Commercial Court were international in nature. Yet for some time, English procedural law has lacked clarity with regard to the options available to those seeking to enforce judgments and orders against foreign defendants. However, two 2018 judgments – one from the Court of Appeal - have provided guidance on the court's jurisdiction in this area and will be welcomed by those seeking to enforce judgments or court orders against those domiciled outside the jurisdiction.
The key principles in summary
In Vik, Deutsche Bank was seeking to enforce a judgment debt and brought committal proceedings against a Monaco domiciled individual for breach of a connected order. In Integral, an application was made to commit to prison five individuals, four of whom were resident outside the EU, for breach of various court orders by the defendant companies. In both cases the defendants alleged that the court did not have the requisite jurisdiction to make the orders.
The following key principles arise from the judgments:
- Permission to serve committal proceedings brought under CPR 81.4 on a defendant out of the jurisdiction is not required where such proceedings are incidental to a claim or order in respect of which the Court's jurisdiction has already been established (Vik);
- A party may bring committal proceedings using the general provision in CPR 81.4, even where they are brought for breach of an order made under CPR 71.2 (i.e. an order for a judgment debtor to attend court), in respect of which the suspended committal procedure in CPR 71.8 is available (Vik);
- Article 24(5) of the Recast Brussels Regulation (the "Recast Regulation"), which grants exclusive jurisdiction over proceedings concerning enforcement to the court of the Member State in which a judgment is to be enforced, will apply to committal proceedings but only where the subject of the committal proceedings is domiciled in an EU Member State (Integral); and
- Where the subject of committal proceedings is a company or corporation, committal proceedings may be brought against a de facto, as well as a de jure, director but not a "shadow" director (as defined in the Companies Act 2006) (Integral).
Whilst this judicial guidance is welcome the area will remain uncertain as the procedure for defendants based in the EU relies on the current reciprocity between the UK and other EU member states contained in the Recast Regulation, which will no longer apply to the UK following Brexit.
Both judgments also highlighted the need for consideration by the Civil Procedure Rules Committee of the gateways for service out of the jurisdiction in Practice Direction 6B (the "PD"). Whilst paragraph 3.1 (10) of the PD can be relied upon to apply for service of proceedings to enforce a judgment out of the jurisdiction, it cannot be used to enforce an order (and, therefore, a committal application for breach of an order). Gross LJ in Vik invited consideration by the Rules Committee to address uncertainty on this issue, noting the public interest in there being a specific jurisdictional gateway permitting service out of jurisdiction on an officer of a company, where the fact that he is out of jurisdiction is no bar to the making of the committal application itself. It will be interesting to see whether the Rules Committee publish any updates to the PD in the future, particularly given that CPR 6 is under consideration in light of Brexit and an amended version of the PD is expected to be published in the next few weeks.
The cases in detail
Alexander Vik v Deutsche Bank
The Court of Appeal's judgment related to proceedings to enforce a judgment debt of approximately $320m owed to Deutsche Bank AG ("DB") by Sebastian Holdings Inc. ("SHI"), a company of which Alexander Vik ("Mr Vik"), a Monaco domiciled ultra-high net worth individual, was at all relevant times the sole director and shareholder. In 2015, DB obtained an order under CPR 71.2 requiring Mr Vik to provide documents within SHI's control relating to its means of satisfying the judgment debt and to attend court in order to be cross-examined on the same (the "CPR 71 Order"). The CPR 71 Order was served personally on Mr Vik when he was present in the jurisdiction. Mr Vik attended court and provided documentary disclosure, but DB argued that he had deliberately withheld several relevant documents and had lied under oath in court.
DB brought committal proceedings against Mr Vik under CPR part 81.4 for Mr Vik's alleged breach of the CPR 71 Order. Mr Vik challenged this on the grounds that the court lacked jurisdiction to enforce the CPR 71 Order against him in Monaco, that DB was not entitled to bring an application under CPR 81.4 and even if DB had been allowed to use the procedure in CPR 81.4, the application should be dismissed because there was no applicable jurisdictional gateway by which the application could be served out of the jurisdiction.
At the Court of Appeal, Gross LJ confirmed that a party may bring an application for committal under CPR 81.4, even where such application arose as a result of the breach of an order made under CPR 71.2. In his reasoning, Gross LJ noted: "CPR 71 and CPR 81 are different and complementary provisions….. CPR 71 is appropriate for one type of application – essentially those which are straightforward – and CPR 81 is appropriate for other types of application, essentially those which are more complex".
Permission for DB to serve the CPR 81.4 application on Mr Vik in Monaco was not required because the Court already had jurisdiction over Mr Vik to enforce the CPR 71 Order. Where jurisdiction in respect of a claim or order had been established over a person, the jurisdiction would also include matters which are incidental to the claim or order. As committal was one of the means for enforcing the CPR 71 Order, the committal application was clearly incidental to it.
Integral Petroleum SA v Petrogat FZE and San Trade GmbH and five others
The High Court's judgment in Integral Petroleum arose in relation to an application by Integral to commit to prison five individuals (referred to as the "Third Parties") who were described as "owners and/or principals and/or directors" of the Defendant Companies, who had breached two Court orders. Three of the five Third Parties were not company directors and all but one were resident outside the EU. Integral applied for the Third Parties to be committed to prison for contempt and for an order for service of the application out of the jurisdiction.
The Third Parties applied to court for an order to set aside service of the Committal Application and sought a declaration that the English Court had no jurisdiction to hear it, on the grounds that: 1) Article 24(5) of the Recast Regulation would not apply to committal proceedings and in any event would only apply where the defendants were domiciled in a Member State; and 2) those of the Third Parties who were not directors could not be the subject of contempt proceedings. Further, as none of the gateways for service out of the jurisdiction under CPR Practice Direction 6B ("PD6B") paragraph 3.1 were available to the court, it could not grant permission to serve out.
The court held that Article 24(5) of the Recast Regulation could apply because the definition of "judgment" in Article 2 of the Recast Regulation was wide enough to include interlocutory orders, and therefore committal proceedings. However, it would not apply to a defendant who was not domiciled in a member state following Choudhary v Bhattar, which remained the authority on this question despite judicial criticism of the decision.
CPR 81.4(3) provides that a committal order may be made against "any director or other officer". The court held that it was in the public interest that de facto directors, meaning those exercising control over a company, assuming the function and status of a director, and who could therefore be said to be responsible for ensuring its compliance with an order, should be subject to discipline by the court, in addition to legal directors. There was no policy reason to extend this to "shadow directors", as defined in section 251 of the Companies Act 2006, however, as this was a statutory term which had limited application.
Permission to serve the committal proceedings out of jurisdiction on those of the Third Parties against whom they could be brought was granted in this case under Paragraph 3.1 (3) of PD6B. Integral could obtain permission under this provision because there was an issue for the court to try between the Claimant and the Defendant (i.e. whether the Defendants had breached the court orders). The court noted that paragraph 3.1(10) of PD 6B would not apply in this case, because it applied to claims to enforce a "judgment" only, which did not include an "order".
These judgments provide some much needed clarity on the avenues available to those seeking to bring committal proceedings against foreign debtors. However, they also highlight uncertainty in the current rules – in particular, on the lack of a clear gateway under PD 6B for service of committal proceedings arising from the enforcement of orders.
It remains to be seen how the UK's withdrawal from the European Union will affect these principles, particularly in relation to the exclusive jurisdiction rule under the Brussels Recast Regulation, which currently offers significant assistance to those seeking to enforce judgments and orders against EU based defendants.