In the recent related cases of Punjab National Bank International Limited v Vishal Cruises (Private) & others and Punjab National Bank International Limited v Passat Kreuzfahrten GmbH & others ( EWHC 1962 (Comm)), the defendants’ challenges to jurisdiction were rejected.
In so doing, the English Commercial Court provided helpful rulings for international banks in the context of applications to serve proceedings out of the jurisdiction, including the place for performance of guarantees, compliance with laws local to the finance obligors, and in relation to service under the Hague Convention.
PNB, an English registered company, provided a loan and overdraft facilities to Vishal, a Mauritian company, to assist with the purchase of a cruise ship, the MV Delphin. The promoter, Mr Agrawal (an Indian resident), and Superior Industries Limited (SIL), an Indian company, provided guarantees in support of those facilities. Vishal’s facility agreements contained English law and jurisdiction clauses, as did the first set of guarantees (albeit non-exclusive jurisdiction). The second set of guarantees were silent on governing law and jurisdiction.
PNB provided separate loan facilities to Passat, a German company, to charter and operate the MV Delphin as a cruise liner. Mr Agrawal, a Mr Gupta (also an Indian resident) and Vishal provided guarantees. Passat’s facility agreement contained English law and jurisdiction clauses. Mr Agrawal and Mr Gupta’s guarantees were subject to Indian law but were silent on jurisdiction. Vishal’s guarantee contained Mauritian law and (non-exclusive) jurisdiction clauses.
Where necessary, PNB had obtained permission to serve the defendants out of the jurisdiction. In relation to the Vishal claim, PNB had already secured summary judgment against Vishal in October 2018 following a contested hearing. In relation to the Passat claim, neither Mr Gupta nor Vishal had challenged jurisdiction despite having been served. Their failure to do so meant that they were deemed to have accepted the jurisdiction of the English court.
To obtain permission to serve out, a claimant must satisfy at least one “jurisdictional gateway” set out in paragraph 3.1 of Practice Direction 6B in the Civil Procedure Rules. PNB relied on three :
Cockerill J held that at least two of the three gateways were satisfied.
In particular, she held that, whilst Mr Agrawal and SIL might need to make payment from India, this did not mean that the breach (failure to pay) occurred there. Where no place of payment is specified in a guarantee, payment is to be made in the same place the borrower is obliged to pay. This was in England; the loans were advanced by an English registered bank (the fact PNB was a subsidiary to an Indian parent was not relevant) and, in at least one of the loan facilities, payment was required into a specified English bank account.
Mr Agrawal and SIL were also ‘necessary and proper parties’ to the proceedings against the borrowers (over which claims the English court undoubtedly had jurisdiction) as guarantors. The borrowers were sufficient ‘anchor’ defendants, as were, in the Passat proceedings, Mr Gupta and Vishal. This gateway was designed to deal with circumstances where claims are interdependent without necessarily being the same (i.e. breach of loan agreement and breach of supporting guarantee).
The second limb when seeking permission to serve out is a serious issue to be tried.
Mr Agrawal and SIL contended that their guarantees were invalid because the requisite approval pursuant to Indian foreign exchange regulations had not been obtained. As a result, they argued no underlying contract existed and therefore there was no serious issue to be tried.
This argument was rejected. There was no dispute the guarantees were executed. Cockerill J noted that the parties’ respective foreign law expert evidence disagreed on the validity of the guarantees absent the requisite approval, but held that this in itself established that there was, at the very least, a serious issue to be tried.
Of perhaps greater significance for international banks, Cockerill J also held that, even if there had been a breach of local laws rendering performance of an agreement illegal in India, this would not prevent the English court from making a finding of liability. Where a contract is illegal at the place of performance an English court will refuse to pass judgment; however, because the place of performance (i.e. payment) here was in England, any local law breach did not prevent the English court making a finding of liability.
It was also disputed that service had been validly effected. India requires service of foreign proceedings to be affected in accordance with the Hague Convention on service, meaning here that service had to be carried out via the appointed central judicial authority.
It was common ground that the Indian judicial authority had, in relation to Mr Agrawal, handed the court documents to an individual who had said he was an employee at Mr Agrawal’s home address and, in relation to SIL, to a security guard at SIL’s registered address (a shared office building). Both argued that this was not valid service under Indian law and said that PNB should have made enquiries as to Indian law to confirm whether service had been properly effected.
The Indian judicial authority had provided certificates of service as required by the Hague Convention. Cockerill J held that these certificates of service created a very strong presumption that service had been validly effected in accordance with Indian law. In particular, she said it would be an “extremely odd and extremely uncomfortable” proposition if a claimant was in a better position under Article 15 of the Hague Convention (which allows a court to deem service effected if no reply is received from a central judicial authority within 6 months) than where they held a certificate of service.
Cockerill J also held that, if she was wrong, she would have exercised her discretion and ordered that further service be dispensed with as PNB had taken sufficient steps to ensure that the defendants had become aware of the proceedings, that the defendants had in fact become aware and that any further attempts at service would result in unnecessary cost and delay.
Having defeated the defendants’ jurisdiction challenge, PNB can now move forward with its claims, which were issued in September 2017. It took over 18 months for service to be affected in India on Mr Agrawal (service being attempted unsuccessfully twice) and over a year for the defendants’ jurisdiction challenge to be heard.
Almost 3 years of delay could have been easily avoided, however, had the finance documents contained appropriate jurisdiction clauses and, more importantly, a simple clause irrevocably appointing a process agent for service in England. The latter in particular should be included as a matter of standard practice in any finance agreements involving parties domiciled overseas.
Absent of such clauses, the judgment demonstrates that there remains an effective route to service of English proceedings on defendants based overseas provided the necessary procedural requirements are met. It underlines the importance of clients getting the right legal and strategic advice at the outset of claims.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.
TLT wins significant result in US$22m recoveries case for Punjab...Read more
Financial services investigations and enforcement round-up - July 2020Read more
TLT expands UK-wide litigation and restructuring and insolvency teamsRead more
Lessons to be learned from the FCA's Enforcement action against...Read more
Financial services investigations and enforcement round-up - June 2020Read more
Covid-19 related disputes involving SMEs - complaints in the longer...Read more
Covid-19 related disputes - SME complaints in the short termRead more
Financial services investigations and enforcement monthly round-up -...Read more
Busy lenders' monthly round-up - March 2020Read more
Keep on top of the employment law issues that matter most to you and your business with our new podcast.Read more
As businesses adjust to new ways of working and plan for an uncertain future, we keep track of the emerging legal and regulatory issues.Read more
Keeping you up to date with the latest guidance on regulatory change and legal impact of the coronavirus pandemic.Read more
While future trading relationship with the EU is negotiated, we will be in a 'status quo' transition period until 31 December 2020. Follow our latest updates.Read more
Our Senior Managers Regime hot topic features news and insight to help banks, building societies, investment firms and UK branches of foreign banks prepare for the new regime.Read more
The clock is ticking for firms to prepare for moving from LIBOR to sterling risk-free rates. Follow our insights and events for strategic advice.Read more
We approach a brave new world of Gigabit full-fibre fixed communications, 5G mobile technologies, data driven markets enabled by true AI, with the potential for huge commercial and social growth and benefits. Follow our...Read more
Open Banking is driving innovation in banking and customer experience but also presents new challenges around security and data protection.Read more
As the UK moves towards a carbon neutral future, electric vehicles are the new watchword. We explore what this means for the energy market and investors through a series of legal insights.Read more
Advising on complex and reputationally sensitive matters involving litigation, arbitration, mediation and debt recovery.Read more
We provide legal expertise relating to all contentious insolvency issues, assisting our clients in achieving successful resolutions to complex matters.Read more