A Possible Consequence Of Not Appointing A Process Agent - London Registrars
by Liz Seyi Digital marketing managerIf you have ever questioned the crucial role that
process agents can play in financial transactions between UK and non-UK
parties, it might be instructive to look at just one example of a dispute that
arose several years back.
The case in question, Banco San Juan Internacional,
Inc. v Petroleos De Venezuela, S.A., culminated in an English court considering
whether the borrowing party had been validly served, in a situation where the
borrower had not complied with its contractual obligation to make sure there
was always a service of process agent in place.
What were
the details of the case?
The two parties in the proceedings were the Puerto
Rican bank, Banco San Juan International SA (BSJI), and the Venezuelan oil
company, PDVSA. The two parties entered into a loan facility agreement dated
2016, and then another in 2017.
Contained within these facility agreements were
identical process agent clauses, as are widespread in cross-border financial
transactions.
The clauses set out that the borrower – PDVSA – was
“obliged forthwith to appoint a process agent to be an authorised agent for
service of proceedings in England”, and that “if for any reason the process
agent ceases to be such an agent, then PDVSA must forthwith appoint a new agent
and notify that appointment within 30 days of the process agent ceasing to be
agent.”
Crucially, the contract also followed this up with:
“If PDVSA fails to comply with its obligation to appoint a new agent for the
service of process, the lender may appoint an agent for service of process on
PDVSA.”
In line with the requirement of the 2016 facility
agreement, PDVSA put in place a process agent; however, when this appointment
lapsed in 2019, the company did not appoint a replacement. The 2017 facility
agreement, meanwhile, never saw a process agent appointed by PDVSA.
BSJI and PDVSA subsequently found themselves in
dispute, and with there not being any process agent in place as appointed by
PDVSA, BSJI made its own appointment of a new process agent on the borrower’s
behalf.
PDVSA did not acknowledge service, and when BSJI
applied for summary judgement, the borrower argued that the sending of the
claim to the new process agent did not constitute good service on PDVSA.
What was
the outcome of the court case?
PDVSA made a number of arguments in its defence in
the case. These included that BSJI’s direct appointment of the new process
agent without PDVSA’s approval meant the new process agent could not be said to
be an “authorised agent”, as the process agent clause required.
The borrower also argued that the process agent
clause did not survive after the date on which BSJI had refused to advance
further sums to PDVSA in accordance with the facility agreements’ terms.
In addition, PDVSA reasoned – with regard specifically
to the 2017 facility agreement – that the borrower could not be said to have
failed to appoint a “new” process agent, given that no process agent had ever
been put in place in relation to that facility in the first place. It said that
this meant BSJI should not have the right to appoint an agent on the borrower’s
behalf.
The Judge (Foxton J), however, rejected these
arguments. The court stated that the reference to an “authorised” agent, for
example, must mean authorised under the terms of the credit agreement. The
court concluded that if the bank appointed an agent on the borrower’s behalf
after the latter’s failure to do so, then by definition, that agent was the
defendant’s “authorised” agent.
Foxton J also stated, in response to the defendant’s
argument that it was “unfair” for it to have a process agent imposed on it that
was not of its own choosing, that there was no such unfairness, reasoning: “If
the defendant did not want to be at risk of an agent being appointed who it
does not like [or] on terms of appointment that it did not like, all it need do
is comply with its contractual obligation to appoint an agent in the first
place.”
Finally, with regard to the 2017 facility
agreement, the Judge also objected to the defendant’s interpretation of the
word “new” in the context of the clause. He said that the bank’s ability to put
in place a new process agent for that agreement did not depend on the borrower
having previously appointed an agent, likening the situation to one where
“someone who has never owned a coat may still be said to buy a new coat,
notwithstanding the fact that it is not a replacement”.
A
reminder of the significant role that a process agent can have
The above may have been just one judgement, but it
nonetheless underlines just how crucial it can be to ensure the appointment of
a service of process agent in relation to cross-border transactions.
For a more in-depth discussion of the comprehensive and cost-effective process agent service that London Registrars can provide, and to take your first steps in what could be a longer-term relationship with us, please do not hesitate to contact our team.
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Created on Dec 15th 2022 23:27. Viewed 103 times.