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Service out for section 423 of the Insolvency Act 1986 claims

This article was first published by Lexis®PSL on 2nd November, 2017

Daniel Webb considers the case of Orexim Trading Ltd v Mahavir Port and Terminal Private Ltd and other companies. In a draft of the judgment handed down on 27 October 2017, HHJ Waksman QC sitting as a judge of the High Court held that a claim made under section 423 Insolvency Act 1986 (the Act) did not fall within the jurisdictional gateways of CPR PD 6B, paras 3.1(20)(a), 3.1(4A) or 3.1(3). The first of these gateways must be interpreted narrowly. It is not sufficient that an enactment is worded entirely generally for it to fall within the gateway. Following the rationale of Re Harrods (BA) [1992] Ch 72, the enactment must contemplate proceedings against persons outside the jurisdiction. As section 423 of the Act did not, the gateway was not available.

What are the practical implications of this case?
For an enactment to fall within the jurisdictional gateway of CPR PD 6B para 3.1(20)(a), it must contemplate proceedings against persons outside the jurisdiction. Claims which do not constitute ‘insolvency proceedings’ for the purpose of the Insolvency Rules 1986 or Insolvency (England and Wales) Rules 2016 and which are based on enactments of entirely general wording (eg a s 423 claim) would not fall within the gateway.

HHJ Waksman QC was clear that two conflicting authorities on this point were not good law. Re Harrods (BA) [1991] 4 All ER 334, [1992] Ch 72 had not been cited in Jyske v Spjldnaes [2000] BCC 16, [1998] Lexis Citation 3422 and as such the latter was per incuriam on the scope of a s 423 claim. Similarly, if and to the extent that Erste v JSC [2013] EWHC 2926 decided that a s.423 claim was within PD6B para 3.1(20)(a), it was ‘clearly wrong’.

This case is also instructive in its arguably restrictive application of the CPR PD 6B, para 3.1(4A) and CPR PD 6B, 3.1(3) gateways. The logic of the former was said to be similar to that of section 35 of the Limitation Act 1980. The ‘new claim’ should not raise substantially different facts dealing with different points. It does not follow that any claim designed to protect a claimant’s ‘main’ claim must be viewed as arising out of the same facts.

As to CPR PD 6B, para 3.1(3), HHJ Waksman QC emphasised that there must be a factor connecting two claims to render a defendant, in one claim, a necessary or proper party to the other. This would be met where both claims require only one investigation, or where there was a ‘common thread’.

What was this case about?
In 2013, Orexim Trading Limited (Orexim) had sold a shipment of sunflower oil. It was a requirement of the sale that Orexim would charter a delivery vessel from Mahavir Port and Terminal Private Limited (MPT). Although the shipment was delivered to its ultimate purchaser, Orexim was not paid. By a 2014 settlement agreement, MPT agreed to cause monies due to Orexim to be paid over to Orexim’s benefit (the settlement agreement).

MPT did not comply with the settlement agreement. Further, it purported to transfer the delivery vessel to Singmalloyd Marine(s) Pte Limited (Singamalloyd), which Singmalloyd then transferred to Zen Shipping and Ports India Private Limited (Zen). This gave rise to a concern that MPT was disposing of its assets so as to prejudice Orexim’s claims.

On 30 August 2016, Orexim issued a claim against MPT, Singmalloyd and Zen:

(1) for damages for breach of the settlement agreement (damages claim)

(2) that the transfer of the delivery vessel from MPT to Singmalloyd was made for no consideration or at an
undervalue and should be set aside under s 423 of the Act (s 423 claim)

(3) for a declaration that the transfer of the delivery vessel was a sham (declaration claim)

Permission was originally given to serve the claim form out of the jurisdiction. By applications dated 26 May 2017, MPT and Zen contested jurisdiction in respect of (2) and (3), inter alia on the basis that there was no relevant available gateway. Jurisdiction for (1) could not be challenged as the settlement agreement contained an English law and jurisdiction clause.

What did the court decide?
Orexim’s s.423 and declaration claims did not show a good arguable case of falling within a jurisdictional gateway.

Orexim mainly relied upon CP PD 6B, para 3.1(20)(a), for claims made ‘under an enactment which allows proceedings to be brought and those proceedings are not covered by any other grounds referred to in this paragraph’.

Dillon LJ had held in Re Harrods (BA) [1991] 4 All ER 334, [1992] Ch 72 that an enactment could only fall within a gateway analogous to CPR PD6B, para 3.1(20)(a) if it indicated on its face that it expressly contemplated proceedings against persons outside the jurisdiction. It was not enough for an enactment to give a remedy in general cases without any express contemplation of a foreign element. Banco Nacional de Cuba [2001] 3 All ER 923, [2001] 1 WLR 2039 applied this rationale to a s 423 claim in respect of a gateway materially the same as CPR PD6B, para 3.1(20)(a).

HHJ Waksman QC therefore held that the PD6B para 3.1(20)(a) gateway was not available. This gateway did not differ from others in essentially requiring a claim to be linked to this jurisdiction.

Orexim’s reliance on the gateways of CPR PD6B, paras 3.1(4A) and CPR PD6B, 3.1(3) was also unsuccessful. As to the former, the s 423 and declaration claims did not arise out of the same facts as the damages claim. The facts required to be proven for the damages claim were different and less extensive. As to the latter gateway, Zen was not a necessary or proper party to the damages claim against MPT as there was no (or insufficient) factor connecting Zen to it.

Case details

  • Case name: Orexim Trading Ltd v Mahavir Port and Terminal Private Ltd and other companies [2017] EWHC 2663 (Comm)

  • Court: High Court

  • Judge: Judge Waksman QC

  • Date of judgment: 27 October 2017
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