Deutsche Bank AG v Sebastian Holdings Inc & Anor

On 8th November 2013 I gave judgment against the first defendants (SHI) in the sum of $243,023,089.00 including interest and ordered payment by it of that sum and £32 million (plus non-recoverable VAT of £2,517,115.30) on account of costs, to be paid by 22nd November 2013.

No payment was received and on 28th November 2013 the claimant (DBAG) applied without notice for Mr Vik to be added as a party to the proceedings for the purpose of costs only, in order to seek a non-party costs order against him. DBAG also sought permission to serve that application for a non-party costs order on him out of the jurisdiction at 10 Ashton Drive, Greenwich, Connecticut 06831 USA pursuant to CPR 6.36, PD 6B 3.1(18), CPR 6.15(1), CPR 6.37(5)(b) and paragraph 9 Appendix 15 of the Commercial Court Guide. The documents were provided to the English and New York legal advisers of both Mr Vik and SHI on the same date.

In the witness statement filed in support of the application for permission to serve out, reference was made to the firm of English solicitors CYK which had advised Mr Vik personally in the course of the proceedings and to the attendance, on occasions during the trial, of leading counsel who was also instructed by him personally. It was suggested that Mr Vik had submitted to the court’s jurisdiction but, with the intention of avoiding any dispute on that issue, permission was sought for service out of the jurisdiction. DBAG contended that there were strong grounds for making a non-party costs order.

The critical evidence relied on in support of service out of the jurisdiction by an alternative method to that for which the provisions of the CPR ordinarily provided was set out in paragraphs 35-40 of the eighth witness statement of Mr Snelling, which I recite out in full:

It was implicit from paragraph 36 of the witness statement that service of proceedings in Connecticut was theoretically possible under provisions of the Hague Convention, although no evidence was provided as to how that might be done and whether personal service or any particular method would be required to do so validly. No evidence was provided as to how service might be effected under the Hague Convention in Monaco, which is also a party to the Convention. Because DBAG invited the Court to exercise its powers under CPR 6.15(1), 6.37.5(b) and paragraph 9 of Appendix 15 to the Commercial Court Guide, it was clear that it was seeking an order for alternative service – an order for “service by method or at a place not otherwise permitted” by Part 6 of CPR, which governs service of documents.

Paragraph 36 of the witness statement was directed to the point raised by CPR 6.40(3) which allows service on a party out of the UK “by any other method permitted by the law of the country in which it is to be served”. The hearsay evidence of US counsel admitted to the Connecticut Bar was that it was possible to serve foreign proceedings in that state otherwise than through the Hague Convention. DBAG submitted that service could be effected in accordance with any order of the English Court.

The basis upon which alternative service was sought can be summarised as follows:

Effecting service at the Connecticut property would be “most practical and expedient” because even if Mr Vik was not present at the time the documents were thus served, they would be brought to his attention expeditiously and without delay.

Such service had been effected previously in the Vik Millahue proceedings and although it had not been accepted that such service was effective, the documents thus served had come to his attention.

As both Mr Vik’s personal lawyers in London (CYK) and in New York (Becker Glynn), along with SHI’s lawyers in both jurisdictions, were to be sent copies of the documentation served, it was hoped that the pragmatic course to be adopted would assist in the efficacious and speedy determination of the non-party costs application.

On 3rd December 2013 I made the order sought, providing at paragraph 3 that “the Non-Party Costs Application is to be served, together with the Application Notice, this Order, and Snelling Eight, on Mr Vik pursuant to CPR 6.15(1), 6.37(5)(b) and paragraph 9 of Appendix 15 to the Commercial Court Guide by leaving a copy of the document set out above at 10 Ashton Drive, Connecticut, 06831, USA no later than 4pm on the date 10 working days after the sealing of this order.”

On 12th December 2013, on the evidence of Eric Rubin, in an affidavit of service sworn on 17th December 2013, the relevant documents were firmly and conspicuously affixed on the front gate of 10 Ashton Drive, which is a gated mansion with a call box. Mr Rubin had used the call box but been refused entry by a female.

By an application notice dated 13th January 2014, Mr Vik challenged both the order for service out by alternative means and the service itself. It was not admitted that the documents had been affixed to the gate because it was said that they did not come to the attention of anyone at the property. It was also said that this was not valid service under the law of Connecticut. A number of grounds were put forward for the application to set aside the order of 3rd December 2013:

I was asked at a directions hearing to determine the points relating to service, namely whether the documents had been attached to the gate, whether such a method was contrary to the law of Connecticut, whether such attachment was service in accordance with my order of 3rd December and whether it was right for alternative service to have been ordered at all.

Despite evidence from Ms Asgarian that the documents had never come to Mr Vik’s attention by being affixed on the gate of the mansion, it is clear from Mr Rubin’s affidavit and the photographs produced of the gates (with other process apparently fixed to them at other times) that Mr Rubin had made no mistake in identifying the premises. I find that that the documentation which was covered by my order of 3rd December was fixed to the gate of 10 Ashton Drive by him.

I also find that, contrary to Mr Vik’s counsel’s argument (Mr Stephen Rubin QC) that this complied with the terms of my order because the documents were left “at 10 Ashton Drive”. I also find that this was a method which was permitted under the law of Connecticut in accordance with paragraph 36 of Snelling Eight. Although service of process in Connecticut would only be valid, as a matter of domestic Connecticut law, (a Connecticut State Marshal, Constable or other proper officer authorised on the evidence of Patrick J. McHugh, a Connecticut lawyer) if served by to effect service under Connecticut law and Mr Eric Rubin was not such a person, this is not the relevant question. Service of foreign proceedings otherwise than by the Hague Convention process (which would involve service by such an authorised person) was permissible, even if not a valid form of service for Connecticut domestic law purposes.

Mr McHugh did not suggest that personal service was required and the statute exhibited by him appeared to allow service by leaving “a true and attested copy of the process … with the defendant, or at his usual place of abode, in the state”. At paragraph 14 of Ms Asgarian’s witness statement, she said that if anyone working or residing at the Connecticut property had seen any documents that appeared to be legal documents affixed to the gate, they were under strict instructions to forward the documents immediately to SHI’s US attorneys. This also suggests that this is not an uncommon form of service in Connecticut, whilst Snelling Nine at paragraph 28 refers to the standard practice of the process service firm to serve documents by affixing them to the front door or gate of a property, in the event that the process server cannot enter the property. He exhibited photographs of documents which had been affixed to the gate of that property.

There is not the slightest doubt in my mind that Mr Vik became aware of the existence of the proceedings within a very short period of time of the copy documents being provided to his personal English and New York lawyers and the relevant two sets of lawyers in those locations acting for SHI, which occurred on 5th December 2013. Mr Vik travelled the world doing business on his Blackberry and would have been told of the proceedings just as soon as those lawyers could make contact with him. This would have happened within a matter of 24 hours. Where Mr Vik was on 12th December was not something which his solicitors were prepared to impart in their evidence to the court.

Service is however a different concept from notice and whilst a prime purpose of service is to bring the issue of proceedings to the attention of the defendant, there is more to it than that because it is the formal act which engages the court’s jurisdiction in respect of a defendant.

Ms Sonia Tolaney QC for DBAG emphasised the summary nature of the section 51 application for joinder of an individual for the purpose of a non-party costs order and the flexibility of the procedure to be adopted. She referred to the dictum of Balcombe LJ in Symphony Group Plc v Hodgson [1994] QB 179 at p. 193 where he said that the procedure was not subject to all the rules that would apply in an action, that a full trial was not normally appropriate and that such applications were to be kept within proper bounds. As stated by Laddie J in Robertson Research International Ltd v ABG Exploration BV[1999] All ER 1125,“The court should exercise its considerable administrative powers to ensure that the application should be dealt with as speedily and inexpensively as possible consistent with fairness to both sides”. As Etherton J (as he then was) put it at paragraph 51 in Dranez Anstalt v Zamir Hayek [2005] EWHC 2435 (Ch) the power is intended to be speedy and summary.

This however does not, in my view, provide justification for departure from the ordinary principles applicable to the service of proceedings on an individual out of the jurisdiction, particularly for a claim of some magnitude, as this is.

I was referred to the decision of the Court of Appeal in Cecil v Bayat [2011] 1 WLR 3086 and that of the Supreme Court in Abela v Baadarani [2013] 1 WLR 2043 in relation to the exercise of the jurisdiction to order alternative service out of the jurisdiction. It was agreed that these decisions set out the relevant principles to be applied. The former was a decision involving service in a country which was party to the Hague Convention whereas the latter was not. In my judgment that is a critically important distinction, as submitted by Mr Stephen Rubin QC. The USA, Monaco and the UK are all parties to that Convention.

It is plain from paragraph 45 of the judgment of Lord Clarke in Abela and paragraph 53 of the judgment of Lord Sumption with whom Lords Neuberger, Reed and Carnwath agreed, that it is no longer realistic to see the court’s exercise of jurisdiction over a foreign defendant as an interference with the sovereignty of the state where process is served. There is no need for “muscular presumptions” against service out which are implied by the use of adjectives such as “exorbitant” when describing this jurisdiction over foreign individuals or corporations in modern commercial life. The need for some sort of connecting factor with England and the fact that a similar jurisdiction is exercised by many other countries on a similar basis, whether under international conventions or otherwise, means that the question of exercising sovereignty over a foreigner in another sovereign state is of limited significance.

In Abela there was no applicable bilateral treaty for service of proceedings and the terms of CPR rule 6.15(1) which require “good reason” to order service by alternative means was held not to require “exceptional circumstances” before such an order could be made. Rule 6.15(1) reads:

Lord Clarke in Abela referred at paragraph 23 to the judicial decision under CPR 6.15(1) as “a value judgment based on the evaluation of a number of different factors”. He went on to say at paragraph 24:

He continued at paragraphs 33-36 to say the following:

He also went on to say that the rules as to the method of service seemed to him to have the legitimate sensibilities of other states in mind.

It will be noted however that Lord Clarke, with whom three other Lords agreed, specifically abjured saying anything about the position where there is a relevant convention or treaty between the states in question.

Thus reference must be made to Cecil v Bayat where the headnote accurately summarise the points made by Stanley Burnton LJ and Rix LJ in the following way:

The critical parts of the judgments of these two Lord Justices with whom Wilson LJ agreed, are to be found at paragraphs 60-61, 65, 68-69 and 113, for relevant purposes. Whilst the Supreme Court disapproved the major reason advanced by the Court of Appeal for its decision when looking at a case where there was no bilateral treaty for service of proceedings, there remains a significant difference between that situation and a position where a bilateral treaty does apply. The Court of Appeal referred to service as more than a means of bringing proceedings to the attention of a defendant. The exercise of a power of the court was an exercise of sovereignty within a foreign state requiring the defendant to file an acknowledgement of service and participate in litigation in another country, if he wished to dispute the claim. Although the Supreme Court considered that to talk of “interference with the sovereignty of a foreign state” was to overstate the position, the fact remains that where there is an applicable convention, the two states in question have specifically agreed to the service of foreign process in accordance with it. In such circumstances this must represent the prime way of service in such a contracting state. Even if service by alternative means is not to be seen as “exceptional” and to be permitted in special circumstances only, there must still be good reason for allowing service by a means other than that provided by CPR 6.40(3)(b) namely in accordance with a relevant convention. Otherwise the Convention would be subverted.

When the facts are examined in the present case, I can find no good reason other than questions of convenience and possible speed to justify service by alternative means. Whilst finding Mr Vik to serve process on him personally may prove difficult because he travels the world it appeared that service under the Hague Convention did not require such personal service in Connecticut. There was no evidence of what was required in Monaco but paragraph 39 of Snelling Eight inferred that personal service was not required there either. There was no evidence before me to show how delayed service would be under the Hague Convention and it is to be inferred that, in the absence of such evidence, any delay would not be substantial. In the context of this application in this long-running case, a 2-3 month delay would not be of enormous significance, even when considering the supposed summary nature of the proceedings and the desire of the claimants to make progress speedily and inexpensively. There are not inconsiderable sums of money at issue here, particularly since further costs may be ordered over and above the payment on account.

In Knauf UK GmbH v British Gypsum Ltd & anor [2002] 1 WLR 907, the Court of Appeal held that where there was a primary method for service under a Convention, a mere desire for speed was unlikely to amount to good reason within the meaning of CPR 6.15.1 since claimants nearly always desire speed and, if permitted on this basis, the alternative method would then become the primary method of service.

There was no evidence to shows that Mr Vik was attempting to avoid service nor of any efforts made to serve by any conventional methods under the rules before seeking permission to serve under CPR 6.15.1.

Whilst I am conscious of accusations of “uncommerciality” or “technicality” in this approach, in my judgment service not only requires more than the giving of notice but is also not to be seen as not just a matter of speed and convenience, particularly where the court’s powers to permit service out of the jurisdiction are invoked. There must be some good reason beyond speed and convenience for the very reasons set out in Knauf. Whilst I regret that this will doubtless result in further delay, I can find nothing in the evidence which would justify me finding “good reason” for allowing service at this stage other than by the Hague Convention route. Of course, should service prove difficult by such means or any other conventional means, or evidence show that Mr Vik was seeking to evade service, then an order for alternative service would be available on different facts and in different circumstances and an application could be renewed under Rule 6.15.1.

In these circumstances paragraph 3 of the order of 3rd December cannot stand. As the same principles apply under Rule 6.15(2) that provision cannot avail DBAG either. In the light of other undecided issues I will listen to submissions as to the appropriate order to make.

I make no decision on any of the other points raised in Mr Vik’s application.

Subject to any further argument, costs must, it appears to me, follow the event.