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England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Avonwick Holding Ltd v Azitio Holdings Ltd & Ors  EWHC 1254 (Comm) (24 May 2019)
Cite as:  EWHC 1254 (Comm)
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BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Fetter Lane, London, EC4A 1NL
B e f o r e :
| (1) AVONWICK HOLDING LIMITED
- and –
|(1) AZITIO HOLDINGS LIMITED
(2) DARGAMO HOLDINGS LIMITED
(3) OLEG MKRTCHAN
(4) SERGIY TARUTA
|(1) DARGAMO HOLDINGS LIMITED
(2) SERGIY TARUTA
|(1) AZITIO HOLDINGS LIMITED
(2) AVONWICK HOLDING LIMITED
(3) OLEG MKRTCHAN
|(1) VITALI GAIDUK
(2) ROSELINK LIMITED
(3) PRANDICLE LIMITED
(4) OLENA GAIDUK
(5) GASTLY HOLDINGS LIMITED
(6) EDUARD MKRTCHAN
(7) CHRYSTALLA ARGYRIDOU
(8) ASTRELLA HOLDINGS LIMITED
(9) ETMOR INVESTMENTS LIMITED
(10) EMINENCE EQUITY S.A.
(11) MD NOMINEES LTD
(12) MELGRED LIMITED
(13) SARGIS ISRAELYAN
(14) OLGA SHCHYGOLYEVA
(15) SERGEI UDOVENKO
(16) LESHI LIMITED
(17) NEUTRAL POINT HOLDING LIMITED
(18) LANACOMO LIMITED
(19) LEADPOINT LIMITED
(20) TROTIO HOLDINGS LIMITED
Third Party Defendants
Mr N Pillow QC & Mr S Dhar (instructed by Hogan Lovells International LLP) for the 2nd & 4th Defendants
Mr B Woolgar (instructed by Quinn Emanuel Urquhart & Sullivan UK LLP) for the Claimant, 1st, 3rd & 4th Third Parties
Hearing date: 10 May 2019
Crown Copyright ©
Mrs Justice Moulder :
The Set Aside Application
i) the application was made without notice;
ii) the applicants have not had sight of the order nor the evidence before the court which led to the order being made; and
iii) the authorities make clear that service on a defendant resident in a Hague Convention country should be effected in accordance with the Hague Convention.
"Where it appears to the court that there is a good reason to authorise service by a method or at a place not otherwise permitted by this Part, the court may make an order permitting service by an alternative method or at an alternative place."
Since Lord Clarke was at pains in Abela to say (paras 33-34 and 45) nothing about the position where the Hague Convention applied and expressly referred to paras 65-68 of Cecil v Bayat  1 WLR 3086 on which the judge relied, without expressing any disapproval of them, I cannot accept Soc. Gen's submission. In para 65-66 Stanley Burnton LJ said:-
"65. In modern times, outside the context of the European Union, the most important source of the consent of states to service of foreign process within their territory is to be found in the Hague Convention (in relation to the state parties to it) and in bilateral conventions on this matter. Because service out of the jurisdiction without the consent of the state in which service is to be effected is an interference with the sovereignty of that state, service on a party to the Hague Convention by an alternative method under CPR r 6.15 should be regarded as exceptional, to be permitted in special circumstances only.
66. It follows, in my judgment, that while the fact that proceedings served by an alternative method will come to the attention of a defendant more speedily than proceedings served under the Hague Convention is a relevant consideration when deciding whether to make an order under CPR r 6.15 , it is general not a sufficient reason for an order for service by an alternative method."
The phrase "interference with the sovereignty" might now be re-phrased in the light of Lord Sumption's judgment in Abela but the essential reasoning of Stanley Burnton LJ (with whom Wilson LJ and Rix LJ agreed) remains binding on this court so that service by an alternative method is to be permitted "in special circumstances only." [emphasis added]
49. I would endeavour to summarise the relevant principles as follows:
(1) As the wording of Rule 6.16 makes clear, the Court will only dispense with service in exceptional circumstances.
(2) In deciding whether to authorise service by an alternative method under CPR Rule 6.15, whether prospectively or retrospectively, the Court should simply ask itself whether there is "a good reason": Abela at . This is the same test as whether there is good reason (without the indefinite article): Barton at [19(i)]. The Court must consider all the relevant circumstances in determining whether there is a good reason for granting the relief; it is not enough to identify a single circumstance which taken in isolation would be a good reason for granting relief (e.g. allowing the claimant to pursue a meritorious claim) if it is outweighed by other circumstances which are reasons not to grant the relief. I do not read Aikens LJ as saying anything different in Kaki at  when emphasising the existence of the indefinite article "a good reason"; he did so in order to make the point that although all the relevant factors for and against granting relief inform the conclusion as to whether there is a good reason (see his paragraph ), no subsequent and separate discretion falls to be exercised if there is a good reason for granting relief.
(3) A critical factor is whether the defendant has learned of the existence and content of the claim form: Abela at , Barton at [19(ii) and (iii)]. If one party or the other is playing technical games, this will count against him: Abela at ; Barton at [19(vii)]. This is because the most important function of service is to ensure that the content of the document served is brought to the attention of the defendant: Abela at ). The strength of this factor will depend upon the circumstances in which such knowledge is gained. It will be strongest where it has occurred through what the defendant knows to be an attempt at formal service. It may be weaker or even non-existent where the contents of the claim form become known through other means. It is well known that sometimes issued claim forms are sent to a defendant "for information only" because the claimant does not want for the time being to trigger the next steps. Sometimes a claim form may be sent in circumstances which although less explicit do not suggest that the sending is intended to amount to service. The defendant may happen to learn of the claim form and its contents from a third party, or a search, in circumstances which might not suggest an intention by the claimant to serve it or to pursue the proceedings, or might positively suggest the reverse.
(4) However, the mere fact that a defendant learned of the existence and content of the claim form cannot of itself constitute a good reason; something more is required: Abela at , Barton at [19(ii)];
(5) There will be a focus on whether the claimant could have effected proper service within the period of its validity, and if so why he did not, although this is by no means the only area of inquiry: Abela at , Kaki at , Barton at [19(iv)]; generally it is not necessary for the claimant to show that he has taken all the steps he could reasonably have taken to effect service by the proper method: Barton at [19(v)]; however negligence or incompetence on the part of the claimant's legal advisers is not a good reason; on the contrary, it is a bad reason, a reason for declining relief: Hashtroodi at , Aktas at .
(6) Delay may be an important consideration. It is relevant whether the application for relief has been made promptly and, if not, the reasons for the delay and any prejudicial effect: Anderton at . It is relevant if the delay is such as to preclude any application for extension of the validity of the claim form because the conditions laid down in 7.6(3)(b) and/or (c) cannot be fulfilled, i.e. if the claimant has not taken reasonable steps to serve within the period of validity of the claim form and/or has not made the application promptly: Godwin at , Aktas at . The culpability of the claimant for any delay may be an important factor. Particular considerations arise where the delay is abusive (see (7) below) or may have given rise to a limitation defence (see (8) below).
(a) It is relevant whether any conduct of the claimant has been an abuse of process of the proceedings.
(b) At one extreme, there will rarely if ever be "good reason" where the claimant has engaged in abusive delay or abusive conduct of the proceedings which would justify striking them out if effective service had been made when attempted under the principles established in Grovit v Doctor  1 WLR 640 and Habib Bank v Jaffer  CPLR 438 .
(c) However even where the abuse is not of that character, any abuse of process will weigh against the grant of relief.
(a) Where relief under Rule 6.15 would, or might, deprive the defendant of an accrued limitation defence, the test remains whether there is a good reason to grant relief: Abela .
(b) However, save in exceptional circumstances the good reason must impact on the expiry of the limitation period, for instance where the claimant can show that he is not culpable for the delay leading to it or was unaware of the claim until close to its expiry: Cecil at  and see Godwin at .
(c) It is not ordinarily a good reason if the claimant is simply desirous of holding up proceedings while litigation is pursued elsewhere or to await some future development; the convenience for a claimant of having collateral proceedings determined first is not a good reason for impinging on the right of a defendant to be served within the limitation period plus the period of validity of the writ: Battersby per Lord Goddard at p.32; Dagnell per Lord Browne-Wilkinson at p. 393C. Cecil at -.
(d) Absent some good reason for the delay which has led to expiry of the limitation period, it is only in exceptional cases that relief should be granted under Rule 6.15 or 6.16 ; there is a distinction between cases in which there has been no attempt at service and those in which defective service has brought the claim form to the defendant's attention ( Anderton at -, Abela ), with relief being less readily granted in the former case, but even in the latter case exceptional circumstances are required: Kuenyehia at ;
(e) Absent some good reason for the delay which has led to expiry of the limitation period, it is never a good reason that the claimant will be deprived of the opportunity to pursue its claim if relief is not granted; that is a barren factor which is outweighed by the deprivation of the defendant's accrued limitation defence if relief is granted; that is so however meritorious the claim: the stronger the claim, the greater the weight to be attached to not depriving the defendant of his limitation defence: Cecil at , Aktas at .
(9) Cases involving service abroad under the Hague Convention or a bilateral treaty:
(a) Where service abroad is the subject matter of the Hague Convention or a bilateral treaty, it will not normally be a good reason for relief under CPR 6.15 or 6.16 that complying with the formalities of service so required will take additional time and cost: Knauf at , Cecil at , .
(b) It remains relevant whether the method of service which the Court is being asked to sanction under CPR 6.15 is one which is not permitted by the terms of the Hague Convention or the bilateral treaty in question. For example, where the country in which service is to be effected has stated its objections under Article 10 of the Hague Convention to service otherwise than through its designated authority, as part of the reciprocal arrangements for mutual assistance on service with this country, comity requires the English Court to take account of and give weight to those objections: see Shiblaq at . In such cases relief should only be granted under Rule 6.15 in exceptional circumstances. I would regard the statement of Stanley Burnton LJ in Cecil at  to that effect, with which Wilson and Rix LJJ agreed, as remaining good law; it accords with the earlier judgment of the Court in Knauf at -; Lord Clarke at paragraphs  and  of Abela was careful to except such cases from his analysis of when only a good reason was required, and to express no view on them (at ); and although Stanley Burnton LJ's reasoning that service abroad is an exercise of sovereignty cannot survive what was said by Lord Sumption (with unanimous support) at  of Abela , there is nothing in that analysis which undermines the rationale that as a matter of comity the English Court should not lightly treat service by a method to which the foreign country has objected under mutual assistance treaty arrangements as sufficient. That is not to say, however, that there can never be a good reason for ordering service by an alternative method in a Hague Conventions case: Bank St Petersburg at .
(10) The mere fact that a party is a litigant in person cannot on its own amount to a good reason, although it may have some relevance at the margins: Barton at [19(vi)]." [emphasis added]
i) The sanctity of the Hague Convention should be upheld and the court should not allow convenience to circumvent the Hague Convention. The court should have regard to the fact that Ukraine has derogated from Article 10 and the need for a "bright line": Popplewell J at first instance in Société Générale at [49(9) (b)]
ii) The reasons advanced by the Taruta parties did not warrant an order- delay was not enough: Marashen Limited v Kenvett Limited  EWHC 1706 (Ch) at :
"72. In the circumstances of this case, and even without taking account of the Article 15 point, I do not think the level of delay inherent in service in the Russian Federation under the HSC rises beyond the level of mere delay, and the position is a fortiori once Article 15 is brought into consideration. There was no suggestion of the delay causing prejudice or potentially prejudicing the fair determination of the s.51 Application, merely of an understandable desire on Marashen's part to "get on with it". I would note that it has taken 7 months between the Master's rejection of the set aside application and the determination of this appeal, which may put the time it would take to serve the proceedings under the HSC into context.
iii) It was submitted that at the September Hearing the evidence was that service would take 3-8 months and at the December Hearing the delay was at least a year. However, something more was required such as "litigation prejudice" as stated in Marashen at :
"In my judgment, the current state of the law is as set out in the decisions of Mr Justice Cooke in Deutsche Bank AG v. Sebastian Holdings Inc. and Mr Justice Popplewell in Société Générale v. Goldas Kuyumculuk Sanayi and others  EWHC 667 (Comm) , and that in HSC cases, or cases in which there is a bilateral service treaty which is exclusive in its application:
i) "exceptional circumstances", rather than merely good reason, must be shown before an order for alternative service other than in accordance with the terms of the treaty can be used; and
ii) mere delay or expense in serving in accordance with the treaty cannot, without more, constitute such "exceptional circumstances". I say "without more" because delay might be the cause of some other form of litigation prejudice, or be of such exceptional length as to be incompatible with the due administration of justice." [emphasis added]
It was submitted that at the December Hearing Cockerill J did not have in mind the judgment in Marashen when she made the order and in particular when she concluded (page 98 of the transcript) that this was "not simply a case of delay" but a case of "very considerable delay".
iv) The involvement of the applicants as custodians for the purposes of disclosure did not mean that Covington had an obligation to keep them apprised of the wider proceedings. It was not appropriate to make an order for alternative service on Covington who were not acting for the applicants, merely because that firm was already acting in the proceedings and it would be more convenient to effect service on them than to go through the proper channels
v) The court will look at conduct: Societe Generale at [49(6)]. It was submitted that the Taruta parties could have effected service through the Hague Convention once it knew that the applicants were to be joined as a party: they could have made the application at the September Hearing or on paper immediately after that hearing. Alternatively, if the Taruta parties had started the process for service under the Hague Convention in December 2018 they would be six months into the period.
vi) It was submitted that the applicants are not impacted by the first trial and thus no "catch up" is required on the part of the applicants. It would be unfair and contrary to the overriding objective for the applicants now to be bounced into participating in a trial in October 2019. The second trial has not yet been fixed.
i) A critical factor is whether the parties had learnt of the existence of the proceedings. In this case the documents had been served on Covington on 7 February 2019 and thus the content of the documents had been brought to their attention "through what the defendant knows to be an attempt at formal service". A letter dated 22 February 2019 from Covington to Hogan Lovells refers to Covington being informed of certain matters by Ms Shchygolyeva. This would suggest that Covington are able to communicate with her directly. Further Reed Smith were acting for corporate entities for which the applicants are alleged to be beneficial owners and which are party to the same proprietary and personal claims in respect of UGMK. It was submitted that it would be highly artificial to ignore this and assume that the applicants were not fully aware of the nature and content of the claims being made against them and their corporate vehicles. Further the applicants had been involved in without prejudice negotiations as referred to in the evidence of Roberts at paragraphs 44 and 45.
ii) This is not a case of "mere delay": the evidence of Roberts at paragraphs 50 and 51 is that the level of potential delay is itself significant.
iii) The delay or potential delay is significant in the context of the ongoing proceedings leading up to the first trial in October 2019 at which proprietary claims requiring the Mkrtchan parties to account for and return the shares in UGMK will be determined. Live issues for the trial include who holds the relevant interests in UGMK and the applicants should be bound by any order or findings made at that trial.
"So the claims are in essence the same claims as the existing proprietary and personal claims advanced against the Mkrtchan parties in relation to UGMK. And as I have indicated in the judgment, it was argued and I accepted that the joinder of these parties effectively needed to be done. It is important, not least in relation to the proprietary claims where it is the Taruta parties desire to bind the proposed defendants to any judgment which reflects the position of the judgment that insofar as they held their shares in UGMK they do so for and on behalf of Mr Mkrtchan and need to ensure that those individuals and entities are heard in relation to the issues which arise in relation to that and are bound by any judgment recognising the proprietary interest." [emphasis added]
"it is a different matter if you are looking at a self standing claim to if you are looking to slot in a service out into existing set of proceedings".