British Virgin Islands: Submission To Jurisdiction And ‘Impracticability’ Of Service

Last Updated: 2 February 2015
Article by Jerry D. Samuel

Introduction

The introduction of a gateway to obtain permission for an alternative method of service out of the jurisdiction under CPR Part 7.8A was one of the key amendments made to Part 7 of the Eastern Caribbean Supreme Court, Civil Procedure Rules, 2000 (the "CPR") on 1 October 2011. Since enactment of that provision, there has been no reported decision about its precise effect and scope as part of the service out regime.

That position has now changed with a recent decision in Claim No. BVIHC (COM) 062 of 2014 between JSC VTB Bank -v- Alexander Katunin and Sergey Taruta, where the BVI Commercial Court shed some light on its view of that provision. In this Case, the Court considered, inter alia, whether an order for alternative service within the jurisdiction, made pursuant to CPR Part 7.8A against a proposed defendant who is outside the jurisdiction, was properly made. This was part of an interesting decision to determine whether the first Defendant submitted to the jurisdiction by conduct in the face of repeated reservations of his right to contest service and jurisdiction.

Relevant Facts

The non-exhaustive relevant factual background may be summarised as follows. In Claim No. BVIHC (COM) 062 of 2014 between JSC VTB Bank -v- Alexander Katunin and Sergey Taruta the Claimant ("VTB") is a Russian Bank seeking common law enforcement against the Defendants in the BVI, in respect of a judgment obtained from the Meschansky District Court in Russia (the "District Court") in the sum of US$30 million. The Defendants, K and T, are said to have BVI assets by way of shares in BVI companies.

An application made by the first Defendant ("K") and dealt with by the BVI Court sought to set aside an alternative service order. That application arose in circumstances where VTB obtained permission to serve K outside the jurisdiction in the Russian Federation, then subsequently obtained an order for alternative service (the "Alternate Service Order") on K under CPR Part 7.8A. The Alternative Service Order permitted VTB to leave the claim form and other documents with the registered agents of the BVI companies beneficially owned by K.

K filed an acknowledgment of service in August 2014, and therein provided VTB with notice that this was done without prejudice to his right to challenge service and jurisdiction. On the same day, VTB filed an application for summary judgment. In response, in September 2014 K wrote to VTB's lawyers to agree to an extension of time to serve a defence, until after the summary judgment application. That letter continued to reserve all of K's rights to challenge service and jurisdiction. Failing agreement between the parties, K applied for an extension of time to serve a defence until after determination of the summary judgment application.

In opposition to the summary judgment application, in October 2014 K filed an application for permission to adduce expert evidence of Russian law, along with an affidavit, inter alia, expressly opposing summary judgment. In November 2014, K's application for an extension of time was heard, but on the same day of that application, K filed a jurisdictional challenge and abandoned the extension application incurring liability for costs.

Reservations and Submission to Jurisdiction

The Court considered the well-known proposition in Williams & Glynn's Bank Plc -v- Astro Dinamico Cia Naviera SA [1984] 1 All ER 760 that generally, a foreign defendant will not be prejudiced if he makes it clear that he is objecting to the Court's jurisdiction by making applications that are not inconsistent with those objections.

On the facts, even though the affidavit filed on behalf of K in opposition to the summary judgment application (and indeed every application filed on his behalf) contained reservations to challenge service and jurisdiction, the BVI Court found that the affidavit fully argued the merits of K's defence to VTB's claim and sought decisions in K's favour on the merits of the substantive claim.

The BVI Court also held that the application to adduce expert evidence of Russian law in opposition to the summary judgment application and K's application for an extension of time to serve his defence were similarly inconsistent with any contention that the Court was without jurisdiction over K.

In the final analysis, which speaks for itself, the BVI Court opined as follows:

"In my judgment a reservation of rights, however consistently repeated, cannot trump conduct which of itself renders continued assertion of those rights futile. The question whether a person has submitted to the jurisdiction of the Court is a question of fact - using 'fact' as a way to describe a particular state of affairs, rather than in contradistinction to a question of law. It is idle for a person filing a document which effects a submission to the jurisdiction to set up expressions in the very document as neutralising the plain legal effect of the step taken – just as a man cannot walk through a door while reserving the right not to have done so."

Following the analysis above, the Court concluded that by asking for dismissal of VTB's summary judgment application and seeking permission to adduce expert evidence in its efforts to persuade the Court to do so, K engaged with VTB within the jurisdiction on the substantial merits of the claim and must be taken to have waived or abandoned whatever right he may earlier have had to challenge the Court's jurisdiction. On that basis, the application to set aside service was dismissed.

The Court's view of CPR Part 7.8A

Although the above finding was sufficient to dispose of K's application, the Court helpfully went on to consider K's objections in relation to service within the jurisdiction under CPR Part 7.8A(1), which provides as follows:

"Where service under Rule 7.8 is impracticable, the claimant may apply for an order under this Rule that the claim form may be served by a method specified by this Court."

In considering whether the Alternative Service Order should be set aside, it was not disputed that service under the Hague Convention applied between the BVI and the Russian Federation in relation to service on K in the Russian Federation, but this process was not engaged by VTB.

In contending that the Alternative Service Order should be set aside, it was argued that the threshold for permitting alternative service under the CPR upon a proposed Defendant who is out of the jurisdiction is that service must be 'impracticable' under CPR Part 7.8. It was further argued that the Court could not have been satisfied that service was 'impracticable' because VTB did not even attempt to serve through the Hague Convention. Finally, the contention was made that alternative service within the jurisdiction cannot be ordered under CPR Part 7.8A, against a proposed Defendant who is outside the jurisdiction. Consequently, K should be treated as having never been served.

In dismissing these points, the Court observed and opined that there was no express restriction under CPR Part 7.8A to the effect that alternative service within the jurisdiction cannot be ordered against a proposed Defendant who is outside the jurisdiction and concluded that there is no reason to imply any such restriction. In distinguishing Deutsche Bank AG -v- Sebastian Holdings Inc. [2014] 4 All ER (comm) 733, which was relied on by K, the Court held that the nature of the procedure said to be adopted by the Russian authorities in this case was not present in the Deutsche Bank Case.

Specifically, in the present case, the Court found that the overall thrust of the expert evidence of Russian law was that an intended Defendant who is in Russia cannot be compelled to accept service of foreign process. The BVI Court considered this expert evidence and the principal evidence of fact that K failed to attend the hearing before the District Court at which the judgment was obtained and concluded that this was sufficient evidence to enable it to decide that it was more probable than not, that K would not submit to service under the Hague Convention in Russia and accordingly, it was 'impracticable' to serve him by that route. As a result, the BVI Court concluded that the Alternative Service Order was properly made.

Conclusions

In many ways, the decision in Claim No. BVIHC (COM) 062 of 2014 between JSC VTB Bank -v- Alexander Katunin and Sergey Taruta best reflects the pragmatism of the BVI Commercial Court and the important role that conduct of a Litigant can play in high value, multi-jurisdictional commercial disputes. In relation to submission to jurisdiction, the BVI Commercial Court has signaled that in cases of ambiguity, conduct trumps words and substance triumphs over form. Practitioners and Litigants would be well advised to tread carefully in order to avoid procedural pitfalls when seeking to reserve the right to challenge service and jurisdiction.

The Court's signal of its interpretation of CPR Part 7.8A is useful, because it suggests that where the express provisions of the CPR are clear the Commercial Court will be reluctant to import or imply unnecessary restrictions. Moreover, while the threshold for 'impracticability' can be illusive, the approach of the Commercial Court confirms that for enforcement actions, the conduct of the debtor before the foreign court may be highly relevant, along with important nuances of foreign procedural law.

If this decision is appealed, it will be equally interesting to see whether the Court of Appeal adopts the same approach and whether any further guidance will be forthcoming in relation to the scope of CPR Part 7.8A.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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