ON APPEAL FROM QUEEN'S BENCH DIVISION
MR JUSTICE HAMBLEN
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE WILSON
LORD JUSTICE STANLEY BURNTON
| EHSANOLLAH BAYAT
TELEPHONE SYSTEMS INTERNAITONAL INC. (A COMPANY INCORPORATED IN NEW JERSEY, USA)
AFGHAN WIRELESS COMMUNICATIONS COMPANY (A COMPANY INCORPORATED IN AFGHANISTAN)
|- and -
|LORD MICHAEL CECIL
Gregory Denton-Cox (instructed by Paul, Hastings, Janofsky and Walker (Europe) LLP) for the Fourth Appellant
Robert Miles QC and Richard Hill (instructed by Stephenson Harwood) for the Fourth Appellant
Nicholas Strauss QC and Michelle Menashy (instructed by McGuire Woods London LLP) for the Respondents
Hearing dates: 6 and 7 December 2010
Crown Copyright ©
Lord Justice Stanley Burnton :
(a) dismissing their application to set aside the order made by Field J dated 19 September 2008 extending the Claimant Respondents' time to serve their claim form on the Appellants;
(b) dismissing their application to set aside the order made by Tomlinson J dated 18 March 2009 granting the Respondents an extension of time to serve their claim form on the Defendants; and
(c) dismissing their application to set aside the order dated 8 April 2009 made by Steel J in so far as it gave the Respondents, pursuant to CPR 6.15, permission to serve the Appellants by alternative means.
The procedural history
11. In April 2006, Lord Cecil and Mr Bentham sought to commence proceedings in England against Mr Bayat and the various companies and individuals. However, having exhausted their funds in the SDNY proceedings, it was necessary for them first to obtain third party funding for their claim.
12. Over the course of the next 2 years, Lord Cecil and Mr Bentham approached various potential funders including: Barclays Bank; Coutts Bank; Allianz; IMF (an Australian listed company involved in litigation funding); Insolvency Management, Consillium Capital, Arlington Group, Justice Capital, Trafalgar and Elliott (investment funds involved in litigation funding); and, various wealthy individuals with histories of funding litigation.
13. Unfortunately, negotiations with each of these potential funders were unsuccessful for reasons including, but not limited to: the scale of the claim (and the consequent cost implications); the cross-border nature of the claim; and, the fact that any subsequent enforcement of a judgment or award in the Claimants' favour would need to take place across various jurisdictions.
14. On or about 25 April 2008 I met Therium Capital (a newly established company specialising in litigation funding and whose principals include solicitors and barristers experienced in large scale litigation) who subsequently expressed interest in funding the Claimants' claim subject to securing funding themselves. Subsequently, on or about 11 August 2008 Therium provided a draft funding agreement for consideration.
15. On or about 3 September 2008, the Claimants received confirmation that Therium had secured an offer for their own funding from Och Ziff Capital Management and that the Claimants' claim would be the first put forward for approval of funding. However, on 9 September 2008, the claimants were informed that Och Ziff Capital management had declined the Claimants' application for funding.
16. Whilst Therium is in the process of pursuing backing from an alternative capacity provider, Credit Suisse, it is not, at present, able to confirm whether its negotiations are likely to be successful. Consequently, the Claimants are themselves pursuing alternative means of funding through a contact known to the Fourth Claimant ("Mr Lehmkuhl"). Once funding has been obtained, it will then be necessary to finalise the relevant litigation funding agreement, finalise ATE insurance (for which a firm proposal has been received from Brit Insurance), put in place conditional fee agreements with the Claimants' legal advisers (both solicitors and counsel) and agree a deed of priority.
17. Unfortunately, all this is after the deadline for service of the Claim Form on 20 September 2008, being 4 months after the issue under CPR 7.5(3).
18. Therefore, because of the funding issue, service of the Claim Form has not been effected on any of the Defendants and the Claimants therefore make this application for an extension of time of the service of the Claim form, to 4 pm on 20 March 2009, under CPR 7.6(1).
19. A substantial amount of work has already been undertaken on the Claimants' case. As the First, Second and Third Defendants are outside of the jurisdiction, an application to allow service outside of the jurisdiction and/or an application for alternate service will then have to be made. The preparations for service outside of the jurisdiction on the various Defendants will be complicated and it will take time to complete this process. Given the fact that the Christmas holidays also fall at the end of December, it is likely that the Claimants will not be in a position to serve the Claim Form outside the jurisdiction on the various Defendants before February and it could be as late as March 2009, although the Claimants will endeavour to do so before then.
Hamblen J's judgment
166. As to the relevance of limitation, whether the claim has become statute barred since the issue of the claim form is a matter of importance. Where an extension of time is sought in circumstances where the claim has, or may have, become time-barred since the date on which the claim form was issued, or will become time-barred in the extended period, the court should have regard to the fact that an extension of time might disturb a defendant who is entitled to assume that his rights can no longer be disputed as a matter of importance when deciding whether to grant an extension of time for service: see Hashtroodi para. 18 and Hoddinott para. 52. See also Sodastream v Coates  EWHC 1936 (Ch) "…it was certainly prejudicial to the fifth defendant who, as a result of the further extension, found the limitation period for the claim against him extended by a further three months" (para. 38). This consideration is the more important if the extension is beyond four (or six) months after the expiry of the limitation period when such an assumption can be safely made.
167. The Claimants also submitted that in the exercise of its discretion the court should have regard to the balance of hardship. In this regard reliance was placed upon case law under RSC Ord 6 r 8 (under which it was necessary to show "good reason" for an extension) and Lord Brandon's judgment in Waddon v Whitecroft-Scovill Ltd  1 All ER 996 at p1003 in which he stated that whilst balance of hardship could not in itself be a good reason, "where there were matters which could, potentially at least, constitute good reason for extension, balance of hardship might be a relevant consideration". Although reliance upon RSC caselaw is generally discouraged (see in the present context Hashtroodi at para. 16), I accept that, if a potentially good reason for an extension has been shown, balance of hardship may be relevant to the exercise of the court's discretion to extend time.
179. Whilst I accept that lack of funding will often not be a good reason for an extension of time, in the unusual circumstances of the present case I am satisfied that good reason has been made out. In particular:
(1) The immediate reason that … Cecil and Bentham were so strapped for funds was that significant amounts had been spent by them in the US proceedings but, through no fault of theirs and without any determination on the merits, those proceedings had very unusually been dismissed on the Court's own motion.
(2) Following the failure of their attempted appeal to the Supreme Court, Cecil and Bentham resolved that proceedings would have to be brought here and made extensive efforts to obtain funding.
(3) It was apparent that the costs of litigation here would be very extensive. The ATE insurance eventually obtained was for £6 million in total, including provision of £2.6 million for adverse costs. For reasons that will be addressed in more detail below, I accept that it was not viable for the Claimants to bring proceedings here without a CFA and ATE insurance.
(4) Although the Claimants could have funded the service of the claim form and then sought a stay there is little doubt that that would have been opposed and that they would in any event have been faced with the present application. A heavy and expensive hearing would have been inevitable, as borne out by the Defendants' costs estimate of £500,000 for this hearing.
(5) Although the claim form was eventually served before the CFA had been obtained, ATE insurance had been procured which meant that there was now a good prospect of securing a CFA and doing so soon, as was borne out by events.
180. In the unusual circumstances of the present case I therefore accept that the Claimants acted "sensibly and responsibly" in not serving the claim form. In cases such as Steele v Mooney it was not sensible to serve the claim until it had been established that the claimant had a viable claim. In that case expert evidence was required for the claim to be viable. In the present case funding was required for the claim to be viable. That could clearly not justify a prolonged extension of time but in this case a short extension was being sought in circumstances where extensive efforts had been made to obtain funding and there was a real prospect of it being obtained shortly, as events proved. Further, the obtaining of ATE insurance before serving the claim was in the Defendants' own interests since it would provide them with costs protection in respect of the heavy applications which would inevitably follow service.
181. I also consider that the balance of hardship strongly favours the granting of an extension. If the extension is set aside the Claimants will have lost the opportunity to pursue a very sizeable claim which they are now in a position to fund and which they have been seeking to pursue since 2002. Through no fault of their own the US proceedings came to an end without resolution. This is not a case where the Defendants are suddenly faced with a claim for the first time at or after the end of the limitation period. The Defendants have been facing and dealing with this claim since 2002 and extensive documentary and witness evidence has already been procured in relation to it. In such circumstances, a short further delay in prosecution of the claim would cause little prejudice. Nor is this a case, given its history, in which the Defendants could safely assume that the claim was no longer being pursued. It will have been apparent from Cecil and Bentham's conduct of and attempts to revive the US proceedings that this was a claim that they were very serious about pursuing. In any event, on the Claimants' case on limitation the extension did not in any event take the claim outside the period of 6 years and 6 months after which, in an ordinary case, such an assumption might safely be made. Although the Defendants contended for a slightly earlier date, even on their case the extension is only just outside the extended period.
182. For all these reasons, I am satisfied that there was good reason for the grant of the extensions of time and that this is an appropriate case for an extension.
186. I also do not accept that the statement that Cecil and Bentham had "exhausted" their funds would be reasonably understood as meaning that they had no funds; not even sufficient funds to issue a claim form. The statement was made in the context of evidence relating to their attempts to obtain litigation funding for the prosecution of the claim. What was being said was that in view of the monies spent in the US proceedings they were not in a position to fund proceedings here and could not pursue their claim without external funding. That was and remains true. The assets disclosed do not reveal an ability to fund this expensive litigation without significant external support.
187. I therefore do not accept that there was a material non-disclosure or misrepresentation or, if there was, that it was deliberate or that … in any event it would be appropriate to set aside the orders made.
199. The evidence is that the individual Defendants in this case are international businessmen who travel extensively, have a transient lifestyle and homes in different countries. As such, service through official channels would not necessarily have meant that the proceedings would come to their attention promptly. I accept that the more efficient means of doing so was service by electronic means. In the case of the corporate Defendants the evidence was that service in the US and Afghanistan would involve delay. In relation to all Defendants, given the limitation issues, it was important that service was effected as soon as possible. I do not consider that there was any ulterior motive behind the request for service by alternative means. Concerns about a possible anti-suit injunction was (sic) a reason why the Defendants were not told of the proceedings in advance. It was not the reason why service by alternative means was being sought. That was justifiably motivated by a desire to ensure that proceedings were brought to the Defendants' attention as efficiently and expeditiously as possible. In my judgment in the present case service by alternative means was likely to be the most effective and efficient means of bringing the proceedings to the attention of the Defendants and there was a need, in the interests of the Defendants themselves, for that to be done as expeditiously as possible. In all the circumstances I am satisfied that there was good reason for service by alternative means.
The parties' contentions in summary
(a) The order made by Field J extending the validity of the claim form
(a) The order of Field J was obtained as a result of material non-disclosure or misrepresentation by the Claimants as to their ability to fund their claim.
(b) The only ground put forward by the Claimants for the extension was their inability to fund the litigation to the end. This was not an admissible ground. Alternatively, the judge erred in the exercise of his discretion by giving this consideration undue weight, and in failing properly to consider and to take into account the effect of the order on their limitation defence.
(c) The judge should have required the Claimants promptly to apply for permission to serve the claim form out of the jurisdiction and to serve the claim form, and if they were financially unable at that point to pursue the litigation they could and should have made an application for a stay of proceedings for an appropriate period in which they could seek to make the necessary funding arrangements.
(a) There had been no material misrepresentation or non-disclosure, and certainly not such as to justify setting aside the order.
(b) Although in general difficulty in funding litigation is not a good reason to extend the validity of a claim form, in the particular and unusual circumstances of this case, in which time and the Claimants' resources had been used up in the US proceedings, it was a good reason.
(c) The suggestion that there could have been a relatively inexpensive application for a stay after service of the claim form was impractical. The Defendants had demonstrated that they could and would seek to outspend the Claimants, and exhaust their ability to pursue their claims. Any such application would have been met by the applications in fact made by the Defendants, at a time when the Claimants would not have had the funding available properly to contest them.
(d) This was not a case in which the Claimants or their solicitors had acted imprudently or negligently. They had not waited until the last minute before issuing proceedings. The authorities which demonstrated a strict approach to extensions of time were concerned with such cases, rather than cases in which the Claimants had acted sensibly, even if not perfectly, as the Claimants had in this case.
(e) The judge had duly exercised his discretion; he had taken into account the effect of the extension of time on the Defendants' limitation defence; and it had not been shown that he had erred so as to exceed the wide bounds of his discretion.
(b) The order of Tomlinson J further extending the validity of the claim form
(c) The order of David Steel J permitting service by alternative means
(1) The extensions of time to serve the claim form
(b) The extensions of time for service of the claim form: substance
54. It is tempting to ask: what is the point in refusing to extend the time for service if the claimant can issue fresh proceedings? But service of the claim form serves three purposes. The first is to notify the defendant that the claimant has embarked on the formal process of litigation and to inform him of the nature of the claim. The second is to enable the defendant to participate in the process and have some say in the way in which the claim is prosecuted: until he has been served, the defendant may know that proceedings are likely to be issued, but he does not know for certain and he can do nothing to move things along. The third is to enable the court to control the litigation process. If extensions of time for serving pleadings or taking other steps are justified, they will be granted by the court. But until the claim form is served, the court has no part to play in the proceedings. A key element of the Woolf reforms was to entrust the court with far more control over proceedings than it had exercised under the previous regime. The rules must be applied so as to give effect to the overriding objective: this includes dealing with a case so as to ensure so far as is practicable that cases are dealt with expeditiously and fairly (CPR 1.1(2)(d)). That is why the court is unlikely to grant an extension of time for service of the claim form under CPR 7.6(2) if no good reason has been shown for the failure to serve within the 4 months' period.
148. … As Mr Walker said, the apparent justification advanced on behalf of the claimant, namely that his solicitors were awaiting receipt of the accountant's report, is not a reason for delaying service of the claim form. In the first place, if that point could justify any extension of time, it would be an extension for the service of the particulars of claim, not the service of the claim form. The judge appears to have accepted that, but it does not seem to us that this can simply be explained away, as the judge sought to do it, by describing the claimant as having made "the wrong form of application". The essential point is not that the claimant made the wrong form of application, but that the reason which may justify an extension of time for service of the particulars of claim does not justify an extension of time for the service of the claim form.
See too the judgment of Christopher Clarke J in City & General (Holborn) Ltd v Structure Tone Ltd and Ainscough Crane Hire  EWHC 2139 (TCC) at paragraphs 36 and 37, in which he similarly considered that the desirability of postponing production of the particulars of claim did not justify an extension of time to serve the claim form, in a case in which limitation was in issue.
91. The reason why failure to serve in time has always been dealt with strictly (even if CPR 7.6(3) represents a still further tightening of the rules where a retrospective request for an extension is made out of time) is in my judgment bound up with the fact that in England, unlike (all or most) civil law jurisdictions, proceedings are commenced when issued and not when served. However, it is not until service that a defendant has been given proper notice of the proceedings in question. Therefore, the additional time between issue and service is, in a way, an extension of the limitation period. A claimant can issue proceedings on the last day of the limitation period and can still, whatever risks he takes in doing so, enjoy a further four month period until service, and his proceedings will still be in time. In such a system, it is important therefore that the courts strictly regulate the period granted for service. If it were otherwise, the statutory limitation period could be made elastic at the whim or sloppiness of the claimant or his solicitors. For the same reason, the argument that if late service were not permitted, the claimant would lose his claim, because it would become time barred, becomes a barren excuse. But even where the claimant is well within the limitation period despite his delay in serving, there is a clear public interest in the rules and the courts curtailing the efficacy of a claim form which, because it has not been served, is not very different from an unposted letter. Therefore, the strictness with which the time for service is supervised has entirely valid public interest underpinnings which are quite separate from the doctrine of abuse of process. It is sufficient for the rules to provide for service within a specified time and for the courts to require claimants to adhere strictly to that time limit or else timeously provide a good reason for some dispensation. …
59. Nothing that we have said in this judgment should be interpreted as undermining the approach articulated in Hashtroodi and the later cases. In his judgment, the district judge said:
"In my experience, there are very few applications [without notice for an extension of time for service of the claim form] being made since the 2006 cases unless there are real difficulties in actual physical service. Even fewer are being granted."
But even where there is no good reason for failing to serve within the 4 months' period, the court will exceptionally exercise its discretion to grant an extension where CPR 7.6(2) applies. In our view, the unusual combination of facts in this case justifies the exercise of this discretion.
52. It is clear beyond doubt that the claim for breach of contract is not yet time-barred and will not be time-barred for several years. There is no basis for a contrary argument and the contrary does not seem to have been argued. Where there is doubt as to whether a claim has become time-barred since the date on which the claim form was issued, it is not appropriate to seek to resolve the issue on an application to extend the time for service or an application to set aside an extension of time for service. In such a case, the approach of the court should be to regard the fact that an extension of time might "disturb a defendant who is by now entitled to assume that his rights can no longer be disputed" as a matter of "considerable importance" when deciding whether or not to grant an extension of time for service: see Hashtroodi para 18.
7. … It is well-settled that when debatable issues of limitation arise, it is inappropriate to attempt to decide them on an interlocutory application for an extension of time for service of a claim form. If the claimants' argument that the claims are not time-barred is correct, they can always begin a fresh action in which, if a time-bar is asserted, it can be adjudicated upon. It is enough for a defendant to show that he might be deprived of a defence of limitation if time for service of a claim form is extended; if he can show that, an extension should not be granted or, if granted without notice, such extension should be set aside, see Hashtroodi v Hancock  1 WLR 3206 (paragraph 18) and Hoddinott v Persimmon Homes (Wessex) Ltd  1 WLR 806 (paragraph 52).
(c) Service by an alternative method
The right of administering justice is the attribute of sovereignty, and all persons within the dominions of a sovereign are within his allegiance and under his protection. If, therefore, one sovereign causes process to be served in the territory of another, and summons a foreign subject to his Court of Justice, it is in fact an invasion of sovereignty, and would be unjustifiable, unless done with consent …
Service out of the jurisdiction at the instance of our courts is necessarily prima facie an interference with the exclusive jurisdiction of the sovereignty of the foreign country where service is to be effected.
In Afro Continental Nigeria v Meridian Shipping Co SA (The Vrontados)  2 Lloyd's Rep 241, Lord Denning MR said, at 245:
As I have always understood it, service of a writ out of the jurisdiction is an exercise of sovereignty within the country in which service is effected.
… under both English and Continental legal systems service out of the jurisdiction is regarded as an interference with sovereignty
It was argued by Peters before the judge that the Hague Convention and the Bilateral Convention were a "mandatory and exhaustive code of the proper means of service on German domiciled defendants", which therefore excluded alternative service in England. The judge did not accept that submission, pointing out that those Conventions were simply not concerned with service within the English jurisdiction. Peters did not repeat that submission on its appeal. Nevertheless, it follows in our judgment that to use rule 6.8 as a means for turning the flank of those Conventions, when it is common ground that they do not permit service by a direct and speedy method such as post, is to subvert the Conventions which govern the service rule as between claimants in England and defendants in Germany. It may be necessary to make exceptional orders for service by an alternative method where there is "good reason": but a consideration of what is common ground as to the primary method for service of English process in Germany suggests that a mere desire for speed is unlikely to amount to good reason, for else, since claimants nearly always desire speed, the alternative method would become the primary way.
Lord Justice Wilson:
Lord Justice Rix:
Extension of time for service
"In such a system, it is important therefore that the courts strictly regulate the period granted for service. If it were otherwise, the statutory limitation period could be made elastic at the whim or sloppiness of the claimant or his solicitors. For the same reason, the argument that if late service were not permitted, the claimant would lose his claim, because it would become time barred, becomes a barren excuse."
"If an extension is sought beyond four months after the expiry of the limitation period, the claimant is effectively asking the court to disturb a defendant who is by now entitled to assume that his rights can no longer be disputed."
That is so, and that thought was referred to with approval first in Hashtroodi at , and again in Hoddinott at  (see at  above).
"The need for placing a time limit on service of the claim form is dictated by the need for finality in litigation and by the very existence of limitation periods. The period allowed for service seeks to ensure that the uncertainty of litigation is not unreasonably extended. True, unlike the limitation period, which the court has no power to extend, except within narrowly defined statutory exceptions, the court has always had a power to extend the time for service of originating process. This discretionary power reflects the recognition that some latitude must exist to deal with situations where it has proved difficult to carry out service within the time limits established by the rules. However, as Lord Browne-Wilkinson stated in Dagnell v J.L Freedman & Co (a firm) [ 1 WLR 388 (HL)], the starting point of any consideration of extension of the period for service must be that a defendant has a right to be sued, if at all, by means of a writ (now a claim form) issued within the limitation period and served within the period of its initial validity."
"That is why the court is unlikely to grant an extension of time for service of the claim form under CPR 7.6(2) if no good reason has been shown for the failure to serve within the 4 months' period."
"Now that the disputed interpretations of the Civil Procedure Rules have been resolved by Godwin's case and by this judgment, there will be very few (if any) acceptable excuses for future failures to observe the rules for service of a claim form. The courts will be entitled to adopt a strict approach, even though the consequences appear to be harsh in individual cases."
"The claimant had good reason for not serving the claim form…The claimant's solicitors behaved sensibly and responsibly in not serving proceedings when they did not know whether the claimant had a claim which had real prospects of success against any, and if so which, of the three defendants. They could not responsibly proceed against any of the defendants without the report of an expert…The report was delayed because the first defendant himself had not responded to proper requests for his clinical notes. The situation was quite different from that which often arises where the claimant seeks an extension of time for service of the claim form because he or she wants further time to prepare a schedule of loss. In the present case, the outstanding information went to the very heart of the claimant's case."
"In the unusual circumstances of the present case I therefore accept that the Claimants have acted "sensibly and responsibly" in not serving the claim form. In cases such as Steele v. Mooney it was not sensible to serve the claim until it had been established that the claimant had a viable claim. In that case expert evidence was required for the claim to be viable. In the present case funding was required for the claim to be viable."
"ordinarily it is not a good reason that the plaintiff desires to hold up the proceedings while some other case is tried or to await some future development".
"In my judgment, there is no ground for treating a Beddoe application differently. The fundamental consideration is that a defendant has a right to be served with proceedings (if at all) within the statutory period of limitation plus the period for the validity of the writ. The convenience of the plaintiffs seeking to have other collateral proceedings determined first is not ordinarily good reason for impinging on this right of the defendant. The trustee plaintiffs, like other plaintiffs, may wish to secure their position as to costs before starting proceedings but this does not ordinarily justify denying defendants their normal right to be sued in time."
"That the widest discretion is given to the court under that rule none will deny, but there is a line of authority, unbroken till the recent decision in Holman's case [ KB 591], that the court will not exercise that discretion in favour of renewal, nor allow an amendment of pleadings to be made, if the effect of so doing be to deprive a defendant of the benefit of a limitation which has already accrued."
"It is for the court and not for one of the litigants to decide whether there should be a stay, and it is not right that people should be left in ignorance that proceedings have been taken against them if they are here to be served."