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2-10-2020

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Lau v Cowley & Anor [2020] EWHC 2429 (Ch) was an appeal against a recognition order made under the Cross-Border Insolvency Regulations 2006 by Deputy Insolvency and Companies Court Judge Barnett on 8 January 2020. The deputy judge ordered that bankruptcy proceedings in the High Court of the Hong Kong Special Administrative Region Court of First Instance be recognised as a foreign main proceeding in accordance with the UNCITRAL Model Law as set out in Schedule 1 to the Regulations. He also ordered that, in so far as was necessary, service of the recognition application be validated retrospectively, the application having been served on the debtor by courier at his home in Hong Kong.

Permission to appeal was granted on one ground: whether the court had power under Sch 2 of the Regulations retrospectively to validate service of a recognition application out of the jurisdiction. The debtor submitted that there was no power to do so because Sch 2, on its true construction, required such an application to be made prospectively, there being no provision for granting retrospective permission.

After a review of various provisions relevant to service in the Regulations themselves and in the CPR, the judge, on appeal, concluded that the “gateway provisions” of Section IV CPR Part 6 for service out of the jurisdiction did not apply, but that Section II of Part 6 did. This  included:

6.15—(1) 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.

(2) On an application under this rule, the court may order that steps already taken to bring the claim form to the attention of the defendant by an alternative method or at an alternative place is good service.

[…]

6.16—(1) The court may dispense with service of a claim form in exceptional circumstances.
(2) An application for an order to dispense with service may be made at any time and –
(a) must be supported by evidence; and
(b) may be made without notice.

The judge rejected the contention that the Regulations give an applicant freedom as to the means of service of a recognition application:

“The provisions of para 22(1) and (2) are mandatory – both use the word ‘shall’. They denote what the applicant is required to do. The applicant is therefore required to serve the application by delivering documents to a person’s proper address or ‘in such other manner as the court may direct’. Therefore an applicant who cannot be served at his ‘proper address’, as defined for this purpose in para 22(3), must be served in accordance with the court’s directions. Although in many cases of an application for a recognition order, the applicant and the persons required to be served will be outside England and Wales, that does not mean that an applicant has free rein on the manner of service of any person who cannot be served at their proper address or in accordance with para 22(3), (4).”

He next considered whether an application for directions as to the manner of service had to be made prospectively. The debtor’s contention that it had to be was, he noted, “based on the language of para 77(2) of Sched 2, in particular the words ‘the court may order service to be affected…’ (emphasis added), and an asserted requirement for the court to perform a ‘gatekeeper’ function, akin to that under Section IV of CPR Part 6 for service out of the jurisdiction”.

The debtor relied on Re Ardawa (A Bankrupt) [2019] EWHC 456 (Ch) in which Roth J had had to decide whether substituted service of a bankruptcy petition under the Insolvency Rules 1986 could be authorised retrospectively, and if not whether failure to effect personal service was an irregularity that could and should be waived by the court. That authority appears, however, to have provided little assistance: At that time, CPR Part 6 did not apply to service of a bankruptcy petition; para 13.2 of the Practice Direction: Insolvency Proceedings of 2014 set out the steps that a creditor had to take to obtain an order for substituted service of a bankruptcy petition: “The substantive points leading to [Roth J’s] conclusion are the background and structure of the PDIP and the express exclusion of the whole of CPR Part 6 by IR rule 12A.16(2)”. But, the judge said, “The position is different under the new Insolvency (England and Wales) Rules 2016”. Under the Regulations, Section 2 CPR Part 6 was expressly applied. The court could therefore retrospectively authorise substituted service within the jurisdiction. That being so, the judge decided, “it is unclear why the court should read paras 22 and 72 of Sched 2 as depriving it of jurisdiction to do the same for service out, if it is just and appropriate to do so. That is particularly so given that the court has such a power (see Abela v Baadarani) where a Part 7 or Part 8 claim form has been served on a defendant out of the jurisdiction without prior permission, cases where the court performs a ‘gatekeeper’ function under section IV of CPR Part 6, which it does not in the same way under the Regulations”. More generally, he remarked, “The Court’s function under the Regulations is to lend support to a foreign representative appointed in foreign proceedings. It is often the case that the debtor and others requiring to be served are abroad. There is nothing ‘exorbitant’ about issuing a recognition application in Great Britain and service abroad should be routine”.

As to contesting jurisdiction the judge agreed with the trustees that, if a debtor disputed jurisdiction under the Regulations, that could and should be done by a CPR Part 11 application “by virtue of para 30 of Sched 2, which incorporates the CPR and the practice and procedure of the High Court”. The court did not need to be concerned with jurisdiction before issue of the application, only with effective service in good time before the hearing date.

Thus, he concluded, if for sufficient reason the applicant failed to obtain directions for service but the debtor and all others received the documents in good time and were able to act without detriment, the court was likely retrospectively to authorise  service that had already taken place, since it had effectively performed the function that service under Sch 2 paras 21 and 22 was intended to perform. He went on:

“In my judgment, power retrospectively to authorise service out is implicit in para 22(2), given the power under CPR rule 6.15(2) that applies expressly in the case of service within the jurisdiction and the general power of the court to give directions. [Counsel for the Debtor] argued that an equivalent power was unnecessary for service out, given that there was no element of prescription in Sched 2 as regards service out of the jurisdiction, unlike in Section IV of Part 6 and therefore the court does not need such a power. I disagree. It is easy to envisage a case in which something has gone wrong with the process where a power retrospectively to validate is beneficial. It is easy for a foreign representative inadvertently to overlook the need for directions, or omit to obtain them in relation to a particular person requiring to be served. A power retrospectively to authorise something that furthers the overriding objective and causes no one detriment is always salutary. That is why it is provided in CPR part 6.15 and why the Supreme Court in the Abela case held that it was incorporated or implicit in rule 6.37(5), which is a general power to give directions about service out of the jurisdiction”.

The debtor’s appeal was therefore dismissed.

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