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:

“35.

It is apparent from Mr Vik’s evidence that, whilst he is a Monaco resident, he lives for periods of the year at a property owned and resided in by his wife at 10 Ashton Drive, Greenwich, Connecticut 06831, USA (the Connecticut Property). Indeed, Mr Vik maintains an “office” at the Connecticut Property at which he employs a number of “administrative assistants” and he instructed CYK to search this office for personal documents which may be disclosable in these proceedings. The Connecticut Property is also the location from which Klaus Said conducted the FX trading which was the primary focus of the proceedings. Evidence from an internet search suggests that Mr Vik was very recently (and so may currently be) in New York (Manhattan is less than 50 miles from the Connecticut Property).

36.

I am informed by David Januszewski of Cahil Gordon & Reindel LLP (DBAG’s New York counsel), who is admitted to the Connecticut Bar, that it is permissible under Connecticut law to serve foreign proceedings otherwise than through the Hague Convention.

37.

The Connecticut Property is the address where service was effected upon Mr Vik in the Vik Millahue proceedings in 2009. Mr Vik did not seek to set aside service of these proceedings on the basis of invalid service; however he did not accept that such service was effective on the basis that the Connecticut Property is not his “usual place of abode” and he was not personally present when the proceedings were served.

38.

DBAG recognises that there are numerous places where, owing to the international nature of Mr Vik’s business interests and lifestyle, it might attempt to effect service upon him. Cooke J describes Mr Vik as someone who “travels the world”. The evidence before the Court showed that, whilst he may be a Monaco resident, he has significant business interests in North and South America and frequently travels there and to Europe. However, for the reasons set out in this statement, it is DBAG’s view that effecting service at the Connecticut Property would be the most practical and expedient. Even if Mr Vik is not physically present at the time of service, the relevant documents are likely to be brought to his attention without delay as his wife resides there and his office is located there, as are his administrative assistants.

39.

DBAG recognises that CPR 6.40(3)(c) provides that service is permissible “by any other method permitted by the law of the country in which it is to be served”. However, DBAG is mindful of: (a) the stance previously adopted by Mr Vik that the Connecticut Property is not his “usual place of abode”; (b) the practical difficulties of effecting service by alternative means, such as personal service upon Mr Vik (and the potential personal embarrassment that may be caused by this); and (c) the uncertainty as to whether service upon Mr Vik by leaving documents in another location, such as Monaco, would be brought to his attention more expediently. DBAG is keen to avoid the possibility of any argument as to whether Mr Vik has been validly served and therefore invites the Court to exercise its power, under CPR 6.15(1), 6.37(5)(b) and paragraph 9 of Appendix 15 of the Commercial Court Guide, to make an order permitting service by leaving a copy of the Non-Party Costs Application at the Connecticut Property. As noted above, service upon Mr Vik by leaving documents at the Connecticut Property has been effected previously and will ensure that the documents are brought to his attention expeditiously. It is therefore hoped that this pragmatic approach will assist the efficacious determination of the Non-Party Costs Application.

40.

Mr Vik has, in his personal capacity, instructed lawyers both in London (CYK) and New York (Becker Glynn, Muffly, Chassin and Hosinksi LLP (Becker Glynn) to advise and represent him in both these proceedings and the concurrent proceedings in New York. DBAG therefore intends, as a matter of courtesy, to provide both CYK and Becker Glynn with a copy of the documentation relating to both this Application and the Non-Party Costs Application.”

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:

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:

“3(1) There were no good reasons for alternative service at the Connecticut Property. In particular:

(i)

It was inappropriate to direct alternative service when the Claimant knew that Mr Vik resides in Monaco not at the Connecticut Property.

(ii)

It is to be inferred that the Claimant applied to serve at the Connecticut Property to avoid having to comply with the provisions for valid service under Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (the “Hague Service Convention”) which was not a good reason for alternative service nor was a mere desire for speed or any other matter of convenience.

(iii)

Service was practicable under the Hague Service Convention and was the correct method of service.

(2)

The Claimant obtained the said Order by material non-disclosure of the fact that it was about to issue (on 5 December 2013) – the same day that the Order of Cooke J was sealed) proceedings in the Supreme Court of the State of New York proceedings against Mr Vik and others Index Number 161257/2013 (the “New York Proceedings”) which included claims against Mr Vik personally for £34,517.115 (“per the English Judgment and Order”) being the same payment on account of costs ordered to be paid by Sebastian Holdings Limited and which are claimed from Mr Vik in these Section 51 proceedings and on similar grounds.

(3)

The Claimant has commenced further proceedings in the Superior Court of the State of Connecticut against Mr Vik and Sebastian Holdings Inc., Index Number (the “Connecticut Proceedings”) which included claims against Mr Vik personally of £34,517.115 (“for amounts owed pursuant to the English Judgment and Order”) being the same payment on account of costs ordered to be paid by Sebastian Holdings Limited and which are claimed from Mr Vik in these Section 51 proceedings and on similar grounds.”

Further grounds were put forward for jurisdiction to be refused as a matter for discretion.

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:

“Where it appears to the Court that there is a good reason to authorise service by 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.”

Rule 6(40)(3) provides a further qualification inasmuch as it allows service “by any other method permitted by the law of the country in which it is to be served”.

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:

“24.

It is important to note that r 6.15 applies to authorise service “by a method or at a place not otherwise permitted” by CPR Pt 6. The starting point is thus that the Defendant has not been served by a method or at such a place otherwise so permitted. It therefore applies in cases (and only in cases) where none of the methods provided in r 6.40(3), including “any other method permitted by the law of the country in which it is to be served” (see r 6.40(3)(c)), has been successfully adopted. The only bar to the exercise of the discretion under r 6.15(1) or (2), if otherwise appropriate, is that, by r 6.40(4), nothing in a court order must authorise any person to do anything which is contrary to the law of the country where the claim form is to be served. So an order could not be made under r 6.15(2) in this case if its effect would be contrary to the law of Lebanon. Although it was held that delivery of the claim form was not permitted service under Lebanese law, it was not suggested or held that delivery of the documents was contrary to Lebanese law or that an order of an English court that such delivery was good service under English law was itself contrary to Lebanese law.”

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

“33.

The question is whether the judge was entitled to hold that there was a good reason to order that the delivery of the documents to Mr Azoury on 22 October 2009 was to be treated as good service. Whether there was good reason is essentially a matter of fact. I do not think that it is appropriate to add a gloss to the test by saying that there will only be a good reason in exceptional circumstances. Under CPR 6.16, the court can only dispense with service of the claim form “in exceptional circumstances”. CPR 6.15(1) and, by implication, also 6.15(2) require only a “good reason”. It seems to me that in the future, under r 6.15(2), in a case not involving the Hague Service Convention or a bilateral service treaty, the court should simply ask whether, in all the circumstances, there is good reason to order that steps taken to bring the claim form to the attention of the Defendant is good service.

34.

This is not a case in which the Hague Service Convention applies or in which there is any bilateral service convention or treaty between the United Kingdom and Lebanon. In the courts below, the case was argued throughout on that basis and, although there was a hint in the argument before this court that that might not be the case, it was accepted that the appeal should be determined on that basis. It follows that an alternative service order does not run the risk of subverting the provisions of any such convention or treaty: cf the reasoning of the Court of Appeal in Knauf UK GmbH v British Gypsum Ltd[2001] EWCA Civ 1570, [2002] 2 All ER 525, [2002] 1 WLR 907, paras 46 to 59 and Cecil v Bayat [2011] EWCA Civ 135, [2011] 1 WLR 3086, paras 65 to 68 and 113. In particular, Rix LJ suggested at para 113 of the latter case that it may be that orders permitting alternative service are not unusual in the case of countries with which there are no bilateral treaties for service and where service can take very long periods of up to a year. I agree. I say nothing about the position where there is a relevant convention or treaty.

35.

As stated above, in a case of this kind the court should simply ask itself whether, in all the circumstances of the particular case, there is a good reason to make the order sought. It should not be necessary for the court to spend undue time analysing decisions of judges in previous cases which have depended upon their own facts.

36.

The mere fact that the Defendant learned of the existence and content of the claim form cannot, without more, constitute a good reason to make an order under r 6.15(2). On the other hand, the wording of the rule shows that it is a critical factor. As the editors of the 2013 edition of the White Book note (vol 1, para 6.15.5), r 6.15(2) was designed to remedy what were thought to be defects as matters stood before 1 October 2008. The Court of Appeal had held in Elmes v Hygrade Food Products Plc [2001] EWCA Civ 121 that the court had no jurisdiction to order retrospectively that an erroneous method of service already adopted should be allowed to stand as service by an alternative method permitted by the court. The editors of the White Book add that the particular significance of r 6.15(2) is that it may enable a Claimant to escape the serious consequences that would normally ensue where there has been mis-service and, not only has the period for service of the claim form fixed by CPR 7.5 run, but also the relevant limitation period has expired.”

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:

“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 Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (1965) (Cmnd 3986) by an alternative method under CPR r 6.15 should be regarded as exceptional, to be permitted in special circumstances only. 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 Convention is a relevant consideration when deciding whether to make an order under CPR r 6.15 , it is in general not a sufficient reason for an order for service by an alternative method.”

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.