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Corporate & Commercial

Ruling demonstrates importance of process agent clauses in cross-border commercial contracts

By Aoife Murphy

2 November 2020

Introduction

The High Court of England and Wales (the “Court”) recently considered whether a party to a contract had been correctly served with proceedings in circumstances where that party had either failed to appoint a process agent or failed to replace its original appointed process agent under the contract.

The appointment of a process agent is often required, or beneficial, in a cross-border contract where one of the parties is based outside of the jurisdiction governing the contract. For example, a contract between an Irish party and a foreign party which comes under the jurisdiction of the Irish courts might provide that the foreign party shall appoint a process agent located in Ireland, on which notices can be served under the contract. The appointment of a process agent in such circumstances would circumvent the lengthy and uncertain process of serving Irish proceedings on a party not based in Ireland.

Background

In the case of Banco San Juan Internacional Inc v. Petróleos De Venezuela SA [2020] EWHC 2145 (Comm), Banco San Juan Internacional Inc. (“BSJI”) had been a party to two credit agreements with the Venezuelan state-owned oil and natural gas company Petróleos De Venezuela SA (“PDVSA”) in 2016 (the “2016 Agreement”) and 2017 (the “2017 Agreement”) respectively (together the “Agreements”).

Under both Agreements PDVSA was required to appoint a process agent to receive service of proceedings in England and Wales. The Agreements also provided that if the relevant process agent ceased to be the appointed process agent for PDVSA, PDVSA was required to appoint a new process agent within 30 days and to provide notification to BSJI of that fact. The Agreements further provided that if PDVSA did not comply with this requirement then BSJI would be authorised to appoint a process agent (or replacement process agent, as applicable) on behalf of PDVSA.

PDVSA had appointed a process agent in relation to the 2016 Agreement, which appointment had expired in 2019. PDVSA did not appoint a process agent under the 2017 Agreement. Consequentially BSJI appointed a process agent on behalf of PDVSA and served proceedings on that new process agent in May 2020.

The Case

In its claim, BSJI relied on the relevant Civil Procedure Rules (in England and Wales) on the service of documents and argued that the relevant proceedings had been properly served on PDVSA by a “contractually agreed method”. In turn, PDVSA argued that that adequate service had not taken place because the appointment of a process agent by BSJI did not constitute an appointment of PDVSA’s “authorised” agent.

The Court held that proceedings had been validly served on PDVSA under both Agreements on the basis that the new process agent was PDVSA’s “authorised” agent under the terms of the Agreements, given that each Agreement expressly authorised BSJI to appoint an agent on PDVSA’s behalf if PDVSA failed to do so. The Court found that any other interpretation would result in BSJI’s right of appointment being “entirely nugatory and purposeless”. It further found that if PDVSA wished to avoid the risk of a process agent being appointed on unfavourable terms, PDVSA should have complied with its contractual obligation to appoint/replace its process agent (as applicable) at the outset.

The Court rejected PDVSA’s argument that a term should be implied into the Agreements requiring the notification to PDVSA of the identity and terms of appointment of the process agent and providing PDVSA with the opportunity to comment on such appointment. The Court stated that such a provision would obviously introduce considerable scope for the delay or obstruction of the appointment, especially where these types of clauses are well recognised as being to facilitate simplicity and speed in the service of proceedings.

The Court further rejected as “wholly uncommercial” PDVSA’s argument that the clause allowing BSJI to appoint a process agent would not apply where BSJI had refused to lend PDVSA any further funds, on the basis that these types of clauses are most valuable once there has been a breakdown in the relationship between the parties necessitating the potential commencement of proceedings. 

Notwithstanding that the Court determined as a preliminary issue that BSJI had correctly served proceedings on PDVSA under both of the Agreements, the Court did reluctantly grant PDVSA’s application to adjourn the proceedings based on certain circumstances of the case (including the fact that PDVSA’s solicitors only came on record the evening before the hearing).

Commentary

While this is a decision of the High Court of England and Wales, the judgment in Banco San Juan Internacional Inc. would be of persuasive precedent to the Irish courts. In any event, it serves as a useful and timely reminder not only to ensure that parties carefully draft appointment clauses, but also to always revisit the specific provisions of a contract regarding service of proceedings if proceedings may need to be issued under that contract. As has been seen in this case, the courts are more frequently willing to strictly interpret the wording of the relevant clause(s) already dealing with any specific matters before them.

Furthermore, the decision in Banco San Juan Internacional Inc. will be reassuring for claimants seeking to ensure that proceedings may be served on foreign defendants efficiently by means of service on process agents.

From an Irish perspective, Irish parties contracting with foreign counterparties should always consider the inclusion of a provision regarding the appointment of a process agent in Ireland for service of process on that counterparty. Irish parties should consider the inclusion of such a clause even if the foreign counterparty claims to have a branch or an operation in Ireland as these can be unreliable for service of process because:

  • it is sometimes difficult to determine the exact legal status of the operation in Ireland;
  • the branch/operation may be closed at short notice thus potentially removing this easy service option;
  • the branch/operation may not bring the matter to the attention of the relevant party, this could result in any default judgment obtained by our client being set aside, wasting both time and expense.

Finally, in light of Brexit, Irish parties entering into contracts with UK counterparties should consider including a provision regarding the appointment of a process agent and should review the terms in their existing contracts with UK counterparties to assess any risk in this area.

For more information on the content of this insight please contact:

Aoife Murphy, Solicitor| E: aoife.murphy@rdj.ie  T: +353 21 4802762

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