In a recent decision, the High Court confirmed that proceedings had been properly served on a borrower where it had failed to comply with its contractual obligations to appoint a process agent and so the lender had appointed an agent on its behalf as permitted by the credit agreement: Banco San Juan Internacional Inc v Petroleos De Venezuela Sa [2020] EWHC 2145 (Comm).

This decision will be welcomed by lenders, demonstrating the willingness of the court to construe service clauses in accordance with their clear and intended purpose, which is to ensure proceedings can be brought efficiently and in a timely manner. 

Background

A dispute arose between the claimant bank and the defendant state-owned oil company under the terms of two credit agreements. Under those agreements the defendant was required to appoint a process agent for service of proceedings in England, which it failed to do. The credit agreements both contained provisions permitting the bank to make such appointment on behalf of the defendant if it failed to do so.

The defendant had failed to appoint a process agent at all under one credit agreement (the 2017 agreement), and under the other (the 2016 agreement) the agent’s appointment had expired and had not been renewed. The bank therefore relied on the contractual provisions to appoint a process agent for the defendant, and served two sets of proceedings on it.

The defendant subsequently challenged whether it had been properly served with the claims.

Decision

The High Court (Foxton J) held that the proceedings had been properly served on the defendant.

The court noted that the general efficacy of clauses permitting service on a process agent had been recognised by a long line of first instance authorities, but that each clause depended on its own particular language. The court described the structure of the relevant clauses in the two credit agreements as follows:

(i) PDVSA is obliged forthwith to appoint a process agent to be an authorised agent for service of proceedings in England.

(iii) If for any reason the process agent ceases to be such an agent, then PDVSA must forthwith appoint a new agent and notify that appointment within 30 days of the previous agent ceasing to be agent.

(iii) If PDVSA fails to comply with its obligation to appoint a new agent for the service of process, the lender may appoint an agent for service of process on PDVSA.

The court said that “authorised” agent must mean authorised under the terms of the credit agreement, and therefore rejected the defendant’s argument that the bank’s appointment could not be an appointment of the defendant’s “authorised” agent for service as required by (i) above. If the bank appointed an agent on behalf of the defendant following its own failure to do so, then by definition that agent was the “authorised” agent of the defendant. To construe the clause otherwise would render the bank’s right to appoint a replacement agent “entirely nugatory and purposeless”.

The defendant tried to argue that it was “unfair” for it to be encumbered with an agent not of its choosing. The court found there was no unfairness, saying:

“if the defendant did not want to be at risk of an agent being appointed who it does not like [or] on terms of appointment that it did not like, all it need do is comply with its contractual obligation to appoint an agent in the first place”.

In relation to the 2017 credit agreement, where the defendant had not appointed a process agent at all, the court noted that the language of (iii) above”might be said to pre-suppose that PDVSA had at one stage appointed a process agent and failed to replace it”, including because of the reference to a “new” agent. However, adopting an “appropriately purposive construction”, that was not how the clause should be construed.

If the defendant’s construction were adopted, it would allow the defendant to frustrate the operation of the clause in the first place by failing to appoint an original process agent. The court said it was:

“clear from the authorities that the courts construe these clauses, so far as possible, in the light of their acknowledged purpose of allowing a speedy and certain means of service, and they seek to avoid a construction which allows the party to be served to deprive the clause of its intended benefit”.

In the court’s view, the better construction was that the bank’s ability to appoint a “new” agent did not require the defendant to have previously appointed an agent. The court likened the situation to one where: “Someone who has never owned a coat may still be said to buy a new coat, notwithstanding the fact that it is not a replacement…”

Rupert Lewis
Rupert Lewis
Partner
+44 20 7466 2517
Antonia Brindle
Antonia Brindle
Associate