This e-bulletin focuses on a recent English Court of Appeal decision concerning the extra-territorial reach of contempt proceedings.

The Court has held that civil contempt proceedings may be brought against a foreign director of a foreign company (in this case a Saudi-domiciled businessman) where the foreign company is a party to an English court action regardless of whether the director is otherwise subject to the court’s jurisdiction. The sanctions which the court can impose for contempt of court include an order committing that director to prison.

English courts are a jurisdiction of choice for many disputes with no connection to the UK. The decision in Dar Al Arkan Real Estate Development Co and another v Al-Sayed Bader Hashim Al Refai and others [2014] EWCA Civ 715 has potentially far-reaching consequences for foreign business owners wishing to use the English courts to resolve their disputes.

UK COURT OF APPEAL CONFIRMS CONTEMPT PROCEEDINGS ARE EXTRA-TERRITORIAL

Most UK legislation applies only within the UK's borders. However, the Court of Appeal has held that the legal principle against the extra-territorial application of UK legislation did not prevent an order committing to prison a foreign director who did not comply with an order of the court and who (i) was outside the UK and (ii) could not be served with proceedings within the UK.

Facts

Two companies incorporated in Saudi Arabia and Bahrain (C) began court proceedings in England claiming breach of confidence, defamation and other torts against a former CEO of one of the Claimant companies, an English company (D), and others. They alleged that the Defendants had embarked on a campaign of blackmail designed to undermine C's business. 'A', who was domiciled and resident in Saudi Arabia, was a director of both Claimant companies.

Before proceedings began, C had applied for injunctive relief without notice to the Defendants. In that application, the Claimants gave undertakings to the court and were subjected to an order to preserve certain computer hard drives and data, and to deliver them to C's solicitors in London.

English law provides that, where a company is required by a judgment or order to do an act and does not do it within the time specified or disobeys a judgment or order not to do an act, the judgment or order may be enforced by an order for committal to prison. Obviously, a company itself cannot be imprisoned, but the law provides that, 'the committal order may be made against any director or other officer of that company or corporation'1. The court discharged the injunctions at a subsequent hearing, during the course of which the judge found that the Claimants were in breach of the undertakings and the court order relating to the hard drives and data.

D subsequently applied for a declaration that C be held in contempt of court for the breaches and be punished by way of fine, and, importantly, that A be punished for C's contempt by imprisonment as C's director.

A contended that, for various reasons, the fact that he was a foreign person domiciled outside England meant that the courts did not have the power to make a committal order against him. Some of those arguments are highly technical, but the basic point was first, that the principle of English law against the extra-territorial application of legislation prevented a committal order being made against (a) a foreign director and (b) one who is not within the jurisdiction and cannot be served with proceedings there. The Judge held that he did have the power to hear committal proceedings against A, and A appealed.

Importantly, the decision of the court related to whether the court had the power to make a committal order; not whether an order should be made in this case against A.

Key legal provisions

The modern rules governing practice and procedure in the English courts were established by the Civil Procedure Act 1997. Section 1 of the Act gives the rules a name - the Civil Procedure Rules (CPR)2 – and establishes a rule-making power.

Rule 81.4 of the CPR provides that if a person disobeys a court order, the order may be enforced by a court order for committal to prison. If the person is a company, CPR Rule 81.4(3) extends the court's power to order committal against a director of that company. A did not dispute that he was the corporate officer responsible for the breaches of C's undertakings, as alleged.

As A was not a party to the existing proceedings, the application had to be served on him personally. CPR Rule 6.36 gives the court power to grant permission to serve proceedings on a person domiciled outside the EU on various grounds, including that there be a 'real issue' between the parties. 3

Decision

The Court of Appeal decided that:

  • the rule making power of the Civil Procedure Rule Committee and provided for at s.1 of the Civil Procedure Act 1997 extends to making rules with extra-territorial effect; 4
  • the court has an interest in being able to control participants to court proceedings and to have a means of disciplining a company which is made to breach court orders by its directors;
  • there are public policy reasons by which orders of the court should not be disregarded;
  • the legislative intention behind CPR Rule 81.4 is that extra-territorial effect is required, and this displaces any presumption against extra-territoriality; and
  • there was a 'real issue' between A and one of the Defendants (whether the jurisdiction to seek a committal order existed).

Comment

The decision is important in a number of key respects. First, it emphasises the importance of complying with court orders. If companies decide to submit their disputes to the English courts, they must accept that the English courts have the power to police compliance with their rules.

It confirms the extra-territorial reach of CPR Rule 81.4 and the power of the UK courts to deal with foreign-domiciled directors of corporate claimants who might otherwise act as if they were outside the Court's reach. In so doing, it reinforces the integrity of the UK courts and ensures a level playing field as the penalties for breach can be applied against both sides in a case regardless of where they are from.