SET Select Energy GmbH v F & M Bunkering Ltd

The claimant S.E.T. Select Energy GmbH (“S.E.T.”) is a German company, and the defendant F&M Bunkering Limited (“F&M”) is a Cyprus company. S.E.T. claims $1.2m together with interest from F&M in respect of the supply of bunkers for vessels on the River Danube. The contracts are expressed to be subject to English law, and the parties submit to the jurisdiction of the London High Court.

There are two applications for decision. The first is F&M’s application dated 3 May 2013 for a stay under CPR Pt 11 in favour of prior proceedings begun in Cyprus on 4 December 2012. The second application is that of S.E.T. dated 15 May 2013 for judgment in default of defence. Since a party challenging the court’s jurisdiction does not have to file a defence before the hearing of the application, the fact that there are two apparently inconsistent applications before the court is an indication of the odd path that these proceedings have followed.

In essence, the issue is whether F&M is now barred from pursuing its challenge to the jurisdiction, because its application was late, and it is deemed to have submitted to the court’s jurisdiction. The challenge to the jurisdiction raises the question of the relationship between proceedings in one member state under a first demand bank guarantee, and in another member state in relation to the underlying supply contract for the purposes of Articles 27 and 28 of Council Regulation (EC) No 44/2001, the Judgments Regulation.

It is convenient to start with the English proceedings. S.E.T.’s straightforward claim for the cost of goods sold and delivered was begun in the High Court on 21 February 2013. Unusually, the proceedings were issued in the Chancery Division by S.E.T.’s then solicitors. The proceedings were served on F&M on 12 March 2013.

On 15 April 2013, S.E.T. issued an application for judgment in default of acknowledgment of service. However, that is not pursued. This is because on 18 April 2013, F&M did acknowledge service indicating an intention to challenge jurisdiction (I have taken the dates from a summary in S.E.T.’s skeleton argument).

F&M duly filed an application contesting jurisdiction on 3 May 2013. The application under CPR Pt 11 was for a stay of proceedings pending the outcome of the Cyprus proceedings. The application was supported by a witness statement made by a solicitor with Hill Dickinson, the solicitors then acting for F&M.

Under CPR Pt 11(4)(a), an application disputing the court’s jurisdiction must be made within 14 days after filing an acknowledgment of service. F&M’s solicitors may have been confused by the fact that in the Commercial Court, where one would have expected this case to have been brought, an application to dispute the court’s jurisdiction must be made within 28 days after filing an acknowledgement of service (rule 58.7(2)) rather than 14, (but this is not something that is explored in the evidence filed for this hearing).

However, it is not in dispute that the Pt 11 application contesting jurisdiction was out of time. According to S.E.T.’s evidence, the “very short answer” to the matters the court has to decide is that the application was late by a day. On the basis that the acknowledgement of service was filed on 18 April 2013, F&M was indeed a day late, though it was suggested by S.E.T. in argument that the 14 days ran from the date on which acknowledgement of service should have been filed, in which case it was 16 days late.

On 15 May 2013, S.E.T.’s then solicitors filed an application seeking judgment in default of defence. This is the application which S.E.T. pursues at this hearing in support of its application that judgment be entered against F&M. However, it is to be noted that the application notice filed by S.E.T.’s solicitors (or to be precise its then solicitors since the claimants have also changed solicitors) does not accurately state the position. It states that “… the defendant has not made an application to the Court within the 14 day time period as set out in CPR Part 11”. It does not state that an application to the court had in fact been made by the defendant, albeit a day (or 16 days) late. I was told that the reason for this was that S.E.T.’s then solicitors were not aware that the application had been issued. On 26 June 2013, Master Teverson transferred the matter to the Commercial Court.

The evidence does not explain what (if anything) happened to the litigation over the next few months. On 31 October 2013, however, Hill Dickinson notified S.E.T.’s then solicitors that they were no longer instructed by F&M.

On 16 November 2013, the applications were listed for hearing on 31 January 2014. On 22 January 2014, S.E.T. gave notice of change of solicitor. Its evidence was filed on 28 January 2014. A few days later, notice of change of solicitor was filed on behalf of F&M, and its evidence was filed on 30 January 2014. The solicitor formerly acting for F&M at Hill Dickinson is now with Holman Fenwick & Willan, which now acts for F&M.

As part of the commercial arrangements between the parties, F&M provided S.E.T. with a demand bank guarantee. This guarantee was issued by Bank of Cyprus on 12 October 2011. The guarantee is in the amount of US$1 million, and is subject to the Uniform Rules on Demand Guarantees (URDG ICC No 758).

The evidence shows that S.E.T. made demand under the guarantee on 30 November 2012. On 4 December 2012, F&M began proceedings in the Limassol District Court in Cyprus, and applied for, and was granted, an interim injunction restraining payment under the guarantee. The basis was that on its true construction, the guarantee only covered debts arising after the date of issue of the guarantee, and that since (it was alleged) no goods had been delivered by S.E.T. to F&M after that date, the demand was made based on fabricated transport documents.

The Statement of Claim was filed by F&M on 14 May 2013. S.E.T. has not participated in these proceedings. However, Bank of Cyprus has participated, and by defence filed on 4 September 2013 asserts that the documents forwarded to the bank were correct. It is not evident on the evidence precisely what the current status of the Cyprus proceedings is, though the interim injunction has (so far as S.E.T., but not Bank of Cyprus is concerned) become absolute.

F&M seeks a stay of the English proceedings under Article 27 or Article 28 of the Judgments Regulation. The Cyprus proceedings came first and, it is submitted, will determine the matters in dispute in these proceedings, namely F&M’s alleged liability to S.E.T. under the contracts for unpaid invoices. Proceedings are already on foot between the parties in Cyprus, and hence the court should decline jurisdiction or stay its proceedings.

F&M submits that the proceedings are within Article 27 of the Judgment Regulation, because the claim in the English proceedings is the mirror image of the claim in the Cyprus proceedings, which were started first. Alternatively, the court should exercise its powers to stay the English proceedings under Article 28 because of the risk of inconsistent judgments.

S.E.T. maintains that a stay is inappropriate. The English proceedings concern a claim to recover the cost of bunkers supplied to F&M. Each contract is governed by English law, and the London High Court has exclusive jurisdiction. The Cypriot proceedings, on the other hand, involve a completely different transaction, namely a bank guarantee.

There is then the procedural argument which took up much of the time at the hearing. In support of its application for judgment in default of defence, S.E.T. relies on the fact that the application under CPR Pt 11 disputing the court’s jurisdiction was made late. As noted above rule 11(4), which applies in the Chancery Division where these proceedings were commenced, provides that the application has to be made within 14 days after filing an acknowledgment of service. The application made by F&M was either a day late, or 16 days late, depending on whether time starts from the date of filing the acknowledgement of service, or the date when the acknowledgement of service should have been filed. (This is not a matter I have to determine in this case.)

Since the application was late, it follows, S.E.T. submits, that rule 11(5) applies. By this rule, if the defendant does not make the application within the period specified in rule (4), “he is to be treated as having accepted that the court has jurisdiction to try the claim”. Therefore, S.E.T. submits, rule 11(9), by which a defendant who makes an application disputing the court’s jurisdiction need not serve a defence before the hearing of the application, does not apply. Consequently, S.E.T. submits, the court should not hear the challenge to its jurisdiction, and S.E.T. is entitled to succeed on its application for judgment in default of defence.

On its part, F&M makes three responses to S.E.T.’s procedural submission:

S.E.T. disputes each of these contentions. It accepts that in principle the court has power to grant relief against sanctions, but submits that no proper application has been made in that respect, since under rule 3.9(2), an application for relief must be supported by evidence.

There are two fundamental issues which arise for decision. The first is whether F&M’s time for challenge to the jurisdiction should be extended so that its application, which was slightly late, should nevertheless be treated as made in time, so that it is not deemed to have submitted to the court’s jurisdiction. The second is whether this court should defer to the Cyprus proceedings, either on the basis that a stay is mandatory (Article 27 of the Judgments Regulation) or on discretionary grounds (Article 28).

F&M’s first submission is that the time limit in CPR Pt 11(4) does not preclude a challenge under Article 27 which is in fact well grounded. This is based on the decision of the Court of Appeal in The Alexandros T [2012] EWCA Civ 1714, and reflects the wording of the Regulation. Article 27 provides that where it applies, “… any court other than the court first seised shall of its own motion stay its proceedings …”. It was held that the stay was mandatory, and that if the article applied, the court had to give effect to it even where, as was the position in that case, reliance on the article had been disavowed in the court below.

However, that view was rejected on appeal to the Supreme Court ([2013] UKSC 70). At [121], Lord Clarke made it clear that the time limit under CPR Pt 11(4) was not (in the court’s view) contrary to EU law. He said:

“In my judgment, there is no sensible basis upon which it can be said that the time limit under CPR 11(4), which can in an appropriate case be extended under CPR 3.1(2)(a), is contrary to EU law. The time limit satisfies the principle of equivalence because it is the same rule that applies in all cases. It fulfils a legitimate aim, namely making sure that points going to whether the proceedings are to be tried on their substantive merits in England are taken promptly and without unnecessary costs. It satisfies the principle of legal certainty because parties need to know where they stand. The absence of a time limit would allow a litigant to take the point years afterwards. Moreover, the time limit does not render the right to apply for a stay under Article 27 (or Article 28) impossible or excessively difficult to exercise. It allows sufficient time for the point to be raised, especially given the express rule permitting an extension of time in appropriate cases.”

It is true, as F&M points out, that the Supreme Court did not regard this conclusion as acte clair (see [123]) and that it would (if necessary) have referred an appropriate question to the Court of Justice of the European Union. However, the fact that the issue can ultimately be resolved authoritatively only by the CJEU does not mean that the decision in The Alexandros T is not binding in the meantime. It is plainly binding on this court, and I take the rule to be, therefore, that notwithstanding the mandatory language of Article 27, CPR Pt 11(4) and (5) may apply so as to bar a challenge which is late under the rules, and deem the applicant to have submitted to the jurisdiction.

The question, therefore, is whether this is such a case. In The Alexandros T, the challenge was years late. In the present case, the challenge was days late, and on one view, only one day late. Although S.E.T. relied upon Mitchell v News Group Newspapers Limited [2013] EWCA Civ 1537 in support of its contention that the time limit should be applied despite the slight infraction, in my view that authority supports the opposite conclusion. At [40], the court expressly refers to the situation where a party has narrowly missed a deadline as one in which the court will usually grant relief. Where there is a genuine dispute as to jurisdiction, one would normally expect an extension to be agreed.

Furthermore, it is relevant that the CPR in this context is concerned with civil procedure not in the purely domestic context, but with the relationship between proceedings carried on at the same time in different member states of the EU. The mutual recognition of judgments under the Judgments Regulation includes rules as to lis pendens and related actions intended (among other things) to preclude inconsistent judgments. Though the CPR Pt 11(4) time limit is not objectionable under EU law (see The Alexandros T, ibid, at [121]), the context may (in my view) operate as a factor when considering whether to extend time. This is because a case might be heard in England which might otherwise not have been had the jurisdiction application been on time. This was the approach adopted by Beatson J in Polymer Vision R & D Limited v Van Dooren [2011] EWHC 2951 (Comm) at [79] based on Texan Management Ltd v Pacific Electric Wire & Cable Company Ltd [2009] UKPC 46, and I would follow the same approach.

The Polymer case was one in which the court ordered an extension of time by way of relief against sanctions under CPR Pt 3.9. In the present case, S.E.T. objects that no such application can be entertained by the court because it is not “supported by evidence” as required by the rule. S.E.T. argues that an application for relief against sanctions is the only route available to F&M to obtain an extension of time, and since it is closed, there can be no extension.

It is right to say that there is no witness statement explaining why the challenge to the court’s jurisdiction was made late. This may be because of the odd course which these proceedings have taken to date, as noted above. This includes the fact that both sides changed solicitors a few days before the hearing. (F&M sought an adjournment, which was opposed by S.E.T., and which I refused.) Obviously, save in unusual circumstances, the court will require a proper explanation as to why the application was late.

As a matter of law, however, I reject S.E.T.’s submission that the sole route available to a defendant in the position of F&M is an application for relief against sanctions under CPR Pt 3.9. This question is covered by authority. In The Alexandros T at [121] cited above, the Supreme Court stated expressly that the time limit under CPR 11(4) “can in an appropriate case be extended under CPR 3.1(2)(a)”. Such an extension is made pursuant to the court’s general powers of management, and an order extending time may be granted retrospectively (White Book 3.1.2).

In an appropriate case therefore, the court may extend the time limit for challenging the jurisdiction by exercising its powers under CPR 3.1(2)(a). In asking the court to exercise this power, F&M suggests that had the proceedings been initiated in the Commercial Court in the first place, F&M’s then solicitors, an experienced commercial firm, would not have breached the time limit. This is not accepted by S.E.T. because of a lack of evidence.

The main point, in my view, is that though the application was late, it was not very late. The application pursued by S.E.T. for judgment in default of defence was made in ignorance of the fact that a challenge to the jurisdiction had already been made, but it is not suggested that this was the fault of F&M. S.E.T. does not suggest that it has suffered any prejudice. In the circumstances, I do not think that the court should lightly countenance an outcome which requires it to enter judgment in England without considering whether a stay is mandated under the Judgments Regulation in favour of the court in Cyprus. In my view, the principled approach is to extend F&M’s time for challenging the jurisdiction under CPR 3.1(2)(a) until 3 May 2013, when the application was issued. I shall therefore proceed to consider the jurisdiction challenge.

F&M’s application to stay the English proceedings is made pursuant to Articles 27 and 28 of the Judgments Regulation on the basis that there were parallel proceedings already afoot between the parties in Cyprus at the time the present proceedings were issued in England. I have set out the chronology above. S.E.T.’s response is that the proceedings are not the same, and that neither article is engaged. Further, as between S.E.T. and F&M, there is an exclusive English jurisdiction clause, and the claim between these parties should, it is submitted, be determined accordingly.

Article 27 provides that:

In The Alexandros T, the question was whether proceedings in England involved the same causes of action as Greek proceedings. At [28], Lord Clarke (with whom Lord Sumption and Lord Hughes agreed) summarised the principles of EU law which are relevant to the determination of issues under Article 27 as considered in a number of cases in the CJEU. The phrase “same cause of action” in Article 27 has an autonomous meaning as a matter of European law. In order for proceedings to involve the same cause of action they must have “le même objet et la même cause”. Identity of cause means that the proceedings in each jurisdiction must have the same facts and rules of law relied upon as the basis of the action. Identity of objet means that the proceedings in each jurisdiction must have the same end in view. The assessment of identity of cause and identity of object is to be made by reference only to the claims in each action and not to the defences to those claims. It follows that Article 27 is not engaged merely by virtue of the fact that common issues might arise in both sets of proceedings. These propositions are derived from decisions of the CJEU including The Tatry (Case C-406/92).

In the present case, both S.E.T. and F&M are parties to the proceedings in England and in Cyprus, so to that extent the terms of Article 27 are satisfied, though Bank of Cyprus is a party only to the proceedings in Cyprus. The question under Article 27, therefore, is whether the proceedings involve the same cause of action, in the sense set out above. In particular, the question is whether the proceedings have “le même objet et la même cause”.

As explained above, S.E.T. claims the price of bunkers supplied to F&M in the English proceedings. It is a claim for the price of goods said to have been sold and delivered.

The proceedings in Cyprus concern a demand bank guarantee issued by Bank of Cyprus. S.E.T. is the beneficiary of the guarantee, which was opened on the application of F&M. The guarantee was subject to the ICC’s Uniform Rules on Demand Guarantees, URDG 758. These are the rules issued by the ICC which banks internationally routinely incorporate in their demand guarantees. The rules provide that the guarantee is independent of the underlying relationship. The autonomy of demand guarantees is also recognised in a long line of authority (beginning in England with Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159). The principle has helped facilitate commerce, enabling the supply of goods and services backed, in the case of non-payment by the counterparty, by the undertaking of a creditworthy institution, payable on demand, together with any supporting documentation required under the terms of the guarantee.

The counterparty undertakes to indemnify the issuing bank against a demand made under the guarantee, and presumably F&M has given such an indemnity to Bank of Cyprus. But whatever the precise position between them may be, it is clear that the object of F&M’s proceedings in Cyprus is to restrain Bank of Cyprus from paying under the guarantee. This is reflected in the interim relief which it has obtained by way of an interim injunction.

In the above circumstances, in my opinion the proceedings in England and the proceedings in Cyprus have neither the same cause, nor the same object. They involve distinct transactions and contractual relationships. The object of F&M’s Cyprus proceedings is to prevent Bank of Cyprus from making payment under the guarantee. The English proceedings have an entirely different end in view, namely the recovery of sums said to be due under the contracts of supply.

F&M seeks to obviate this conclusion by contending that the court in Cyprus will have to determine whether the sums claimed by S.E.T. are due and owing in order to decide whether to make the interim injunction permanent. This however is not supported in the evidence. The documents filed in the Cyprus proceedings show that the claim is based on the alleged fraud of S.E.T. in making a demand under the guarantee. F&M is doubtless seeking to invoke the principle that a bank should not pay in the case of established fraud on the part of the beneficiary. However, this is a distinct question from whether sums are due under the contract of supply, which is what the English court will have to decide.

F&M also seeks to rely on a particular clause in its Statement of Claim in the Cyprus proceedings. At the end of the document, it sets out the relief it is claiming in twelve subparagraphs. Paragraph (I) seeks, “Declaration of the Court that the Plaintiff [F&M] does not owe any sum to the First Defendant [S.E.T.] and/or that whatever past debt owed under the agreements in question was repaid by third parties for the benefit of the Plaintiff”. Therefore, F&M submits, the same cause of action is in fact before the Cyprus court as it before the English court.

As noted above, the Cyprus proceedings were begun on 4 December 2012, and the English proceedings were begun on 21 February 2013. The Statement of Claim in the Cyprus proceedings was filed on 14 May 2013. I was not addressed on whether this sequence of dates may affect the question to be decided as to seisin, and do not consider this further.

I agree with the more general point made by S.E.T., which is that the inclusion of a claim in F&M’s pleading in this way does not have the consequence that Cyprus proceedings have “le même objet et la même cause” as the English proceedings. The inclusion of this claim, in my view, makes no difference to the substance of the matter. Article 27 is not engaged merely by virtue of the fact that common issues might arise in both sets of proceedings (The Alexandros T at [28(vi)]).

Finally, it not incongruent that the disputes are decided in different courts. Under Article 35 URDG 758, the place for resolving the dispute between F&M and Bank of Cyprus is Cyprus, as the location of the relevant branch of the bank. Under the contracts of supply, the place for determining disputes between F&M and S.E.T. is the London High Court. The allocation of different jurisdictions in such transactions is a commonplace, and reflects the autonomy of the bank guarantee.

For the above reasons, I agree with S.E.T. that Article 27 has no application in these circumstances.

Much of the above reasoning applies to F&M’s alternative case based on Article 28. This provides that:

F&M contends that the Cyprus proceedings and the English proceedings are related actions for the purposes of Article 28. There is, it is submitted, a risk of irreconcilable judgments in allowing the claims to progress in both England and Cyprus, because the courts could arrive at different determinations as to whether F&M is liable to S.E.T. under the relevant contracts of sale. Furthermore, the same documents and factual allegations underlie both claims.

Article 28 is specific as to what actions are related, namely “where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings”. Thus the focus is on the risk of irreconcilable judgments. Whilst I accept F&M’s submission that there is likely to be some overlap between the facts and documents in the two actions, I agree with S.E.T. that this is not a case in which any substantial risk of irreconcilable judgments arises. This is because the issue in the Cyprus court is whether the bank should pay S.E.T.’s demand under the guarantee because of S.E.T.’s alleged fraud. The issue in the English proceedings, on the other hand, is whether S.E.T. is entitled to recover under the contracts of supply. The courts are concerned with different contractual relationships.

Further, the claim on the supply contracts has been brought in England, because, as I have explained, there was an exclusive English jurisdiction clause in the contracts. In The Alexandros T at [95], Lord Clarke said that in distinction with the position under Article 27, Article 28 “… clearly contemplates that where there are two related sets of proceedings they may proceed in parallel. That conclusion follows from the proposition that the grant of a stay is discretionary and not mandatory. In these circumstances, I can see no reason why, in exercising that discretion under Article 28, the court second seised should not take into account the fact that the parties had previously agreed (or arguably agreed) an exclusive jurisdiction clause in favour of that court. On the contrary, depending upon the circumstances of the particular case, that seems to me to be likely to be a powerful factor in support of refusal of a stay”. In my view, the exclusive jurisdiction clause in the present case is a powerful factor in support of the refusal of the stay. Accordingly, I do not accept F&M’s case under Article 28.

The outcome is that F&M’s time for bringing its jurisdiction challenge is extended, S.E.T.’s application for judgment in default of defence is dismissed, and F&M’s challenge to the jurisdiction is also dismissed. I am grateful to both parties for their assistance, and will hear them as to consequential directions following this judgment.