England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand London WC2A 2LL
		23rd June 2009

MR JUSTICE FIELD:

1. There are before the Court two applications made by the defendants: (1) an application by the defendant, Agrinvest International Inc ("Agrinvest") in Claim No. 2007 Folio 1180 ("the Part 7 claim") pursuant to CPR Part 13.3, that a default judgment dated 19^th February 2008 in favour of the claimant bank ("the Bank") be set aside and Agrinvest be given leave to defend the proceedings; and (2) an application by the defendants, namely Agrinvest, Mr Charles Chawafaty, a director and the guiding mind of Agrinvest, and Cairo Phoenix Foreign Trade Centre, in Claim No. 2007 Folio 1156 ("the Part 8 claim") pursuant to CPR 39.3(3), that the judgment of Teare J. dated 9^th November 2007 in favour of the Bank and Standard bank Group and the interim injunction granted on 31^st August 2007 by Steel J. be set aside.

The background to the applications

2. The Bank and Agrinvest are parties to a Master Forward Sale Agreement dated 12^th May 2000 ("the MFSA"), clause 19.1 of which provided that the agreement was governed by English law. The MFSA related to two forward-sale transactions concluded on 26^th March 2000 under which the Bank purchased and sold-forward to Agrinvest:

(i) bonds issued by the Lakah Group, an Egyptian healthcare company, with a nominal value of US $14m ("the Lakah Bonds"); and

(ii) global depository receipts issued by the Lakah Group, with a nominal value of US $1,556,000 ("the Lakah GDRs").

The forward settlement date for both transactions was 26^th November 2000.

3. After the forward-sale transactions had been entered into, the value of the Lakah GDRs dropped sharply. As a result, on 8^th June 2000 the Bank made a margin call under the MFSA and on 16^th June 2000 issued a default notice. The defendants say the Bank terminated the transactions. The Bank denies this, contending that the parties entered into negotiations to work out a position, as a result of which Agrinvest provided further assets to the Bank as collateral in order to maintain its cover ratio, including certain promissory notes and certain security over land in Mississippi. This process appears to have gone on for a number of years, but on 11^th August 2005 the Bank demanded payment of the sums it said were outstanding under the two transactions.
4. In September 2005 the Bank took steps to enforce its security over the land in Mississippi, which prompted Agrinvest on 16^th October 2005 to file a complaint in the Chancery Court of Harrison County, Mississippi, seeking to enjoin the Bank from taking further enforcement action. On 27^th December 2005 the Bank filed a motion in the Mississippi court to discharge the temporary restraining order which had been granted in favour of the defendants. This was expressly on the basis that the Bank was not submitting to the jurisdiction of the Mississippi court in respect of the Bank's underlying claims against Agrinvest arising out of the MFSA.
5. On 13^th February 2006 Agrinvest filed a motion to amend its complaint. On 24^th January 2006 the Bank issued proceedings in England, in which it claimed for amounts unpaid under the two forward-sales transactions. These proceedings, the Part 7 proceedings, were served on Agrinvest on 25^th January 2006 at the address of the service process agent identified in the MFSA, Debevoise & Plimpton LLP. Agrinvest did not file an Acknowledgement of Service or a Defence, and on 14^th February 2006 the Bank entered judgment in default. On 4^th April 2006 an interim charging order was made by Master Miller over shares in three English companies owned by Agrinvest. On 24^th April 2006 Ramsey J. gave permission for a copy of the interim charging order to be served by delivery to Debevoise & Plimpton, with copies by fax and email to Agrinvest.
6. On 22^nd May 2006 Agrinvest, acting by Mr Charles Chawafaty, wrote to Master Miller at the Royal Courts of Justice in London, asking the Master to treat the letter as an application to set aside the default judgment. In that letter, Mr Chawafaty argued that Agrinvest had never appointed Debevoise & Plimpton to act as their agent for the purposes of service. He also stated that Agrinvest had real prospects of successfully defending the claim. The penultimate paragraph of the letter reads:

'Secondly Agrinvest has defence and counter-claim to the Bank's claim. Again, Standard Bank is aware of this fact from the US proceedings. Essentially it is the position of Agrinvest that the Bank in a letter dated 20^th June 2000 closed out its Bond position, effective 22 June 2000, at a loss of some US $3m. The Bank stated that it would then use "…a price of 65%, releasing USD 9.1 million." By a letter dated 23 June 2000 I agreed to this course of action (copy letters attached). The Bank has not accounted to Agrinvest for the said $9.1 million.'

7. Agrinvest subsequently filed an application to set aside the default judgment on 21^st June 2006. In his witness statement in support of the application, Mr Chawafaty repeated the gist of the penultimate paragraph of the letter I have just referred to. In the event, the Bank consented to the setting aside of the default judgment and the interim charging order, and an order was made accordingly by Christopher Clarke J. dated 24^th July 2007. Meanwhile, on 1^st May 2007, the Bank received a letter from a Mr O'Regan, a solicitor acting for Agrinvest and/or Mr Chawafaty, giving notice of a claim against the Bank and Standard Bank Group in Egypt, in which it was alleged that the Bank had wrongfully caused the value of the Lakah GDRs to fall, or had acted wrongfully in selling Lakah GDRs, thereby causing loss to Agrinvest.
8. On 19^th July 2007 the Bank issued the Part 8 claim, seeking injunctions restraining the defendants from continuing the Mississippi proceedings and the Egyptian proceedings, and declarations of non-liability in respect of these claims. On 20^th July 2007 the Bank issued an application for an interim injunction in the Part 8 claim, an application for permission to serve the Part 8 claim out of the jurisdiction, and an application for permission to serve the Part 7 claim out of the jurisdiction. On 26^th July 2007 Christopher Clarke J. made orders granting the Bank permission for a new Part 7 claim, and for the Part 8 claim to be served out of the jurisdiction on Agrinvest and the defendants respectively, and giving directions for the service of defences.
9. Also on 26^th July 2007, the Bank issued the Part 7 claim, seeking payment of what it alleged was the unpaid amount under the MFSA, damages, interest and default interest. This new Part 7 claim superseded and replaced the original Part 7 proceedings.
10. The Part 7 proceedings were served on Agrinvest in accordance with Arizona law on 2^nd August 2007. However, Agrinvest failed to file any Acknowledgement of Service, or Defence, and default judgment was entered on 19^th February 2008, notice of which was served on Agrinvest by email on 20^th February 2008. As to the Part 8 claim, the various orders made by Christopher Clarke J. and the notification of the hearing of the application for an interim injunction were served on Agrinvest in accordance with Arizona law, on 2^nd August 2007. The defendants were also provided with the Bank's skeleton argument for the hearing of the application for the interim injunction, but they did not attend and were not represented at that hearing. In the event, Steel J. granted the interim injunction sought by the Bank, a copy of which was served on the defendants, both by email and by personal service.
11. The defendants were well aware that a final hearing in the Part 8 proceedings was due to take place on 5^th November 2007 before Teare J., but they did not attend, and on 9^th November 2007 Teare J. gave judgment in favour of the claimants, granting them various declarations of non-liability and a final injunction restraining the defendants from pursuing proceedings against the Bank in either Mississippi or Egypt. This judgment, and the resulting order, were served on the defendants by email and fax and by process server, in accordance with Arizona law, on 5^th December 2007.
12. On 15^th May 2008 the Bank issued a motion in the Mississippi court to dissolve the injunction obtained by Agrinvest, and an oral hearing before the Mississippi court took place on 26^th September 2008, at which Agrinvest was represented and Mr Chawafaty was present. In a judgment dated 31^st October 2008, the Chancery Court of Harrison County, Mississippi, First Judicial District, dissolved the injunction it had granted in Agrinvest's favour, and dismissed Agrinvest's complaint.
13. Mr de Lacy QC for the defendants, accepted that the key application was the one to set aside the default judgment in the Part 7 proceedings. He recognised that if that application failed there would be no point in setting aside the Part 8 judgment of Teare J. On the other hand, if he succeeded in having the Part 7 judgment set aside, there were strong reasons, so he submitted, for setting aside that part of the Part 8 judgment which consisted of the declarations of the Bank's non-liability to Agrinvest under the MFSA.
14. The governing provision of the CPR, in respect of the Part 7 application, is CPR 13.3. The applicable rule so far as concerns the application to set aside the Part 8 judgment, is CPR 39. CPR 13.3 provides:

(1) In any case the Court may set aside or vary a judgment entered under Part 12 if:

(a) the defendant has a real prospect of successfully defending the claim, or

(b) it appears to the Court that there is some other good reason why:

(i) the judgment should be set aside or varied, or

(ii) the defendant should be allowed to defend the claim.

(2) In considering whether to set aside or vary a judgment entered under Part 12, the matters to which the Court must have regard include whether the person seeking to set aside the judgment made an application to do so promptly.'

15. In material part, CPR 39.3 provides,

(3) Where a party does not attend and the Court gives judgment or makes an order against him, the party who fails to attend may apply for the judgment or order to be set aside.

(4) An application under... paragraph (3) must be supported by evidence

(5) Where an application is made under paragraph... (3) by a party who failed to attend the trial, the court may grant the application only if the applicant:

(a) acted promptly when he found out that the Court had exercised its power to …enter judgment or make an order against him

(b) had a good reason for not attending the trial, and

(c) has a reasonable prospect of success at the trial.

16. In its Part 7 claim, the Bank gave no credit for the value of the Lakah Bonds it acquired under the sale to it, governed by the MFSA. Having given credit for certain receipts and proceeds realised from the sale of some of the Lakah GDRs, the Bank contends that the whole of the remaining balance of the forward sales is due. Clause 13.2 of the MFSA provides:

"If an Event of Default occurs, the Seller shall at any time thereafter be entitled with or without notice, which notice, if given, may be oral or in writing, to the Buyer to terminate all or any of the Transactions in its sole discretion and declare all amounts payable by the Buyer immediately due and payable including without limitation, the amount of any Unpaid Amount payable by the Buyer and the amount of any losses, costs or expenses of the Seller arising as a result of this termination and the sale (or deemed sale) of the Assets as contemplated herein, following which:

(a) the Seller shall have the right (but not the obligation) at any time thereafter, in its sole discretion, to liquidate or retain (in which case the Seller shall be deemed to have sold such Assets at a price ascertained pursuant to this Clause 13.2 (a)) sufficient Assets and to apply the proceeds of their sale (or deemed sale) to satisfy to the extent possible any amounts due to the Seller. The Seller may in its sole and absolute discretion sell the Assets at such time, in such manner and at such price as it deems reasonable and appropriate and the Seller shall be entitled to delay such sale at its discretion without liability for any decrease in the value of the Assets. The value of any Assets liquidated or retained and any losses, expenses or costs arising as a result of the termination or the sale (or deemed sale) of the Assets shall be determined on the date of the termination by the Seller;

any Assets remaining following the satisfaction of the amount due to the Seller shall be sold to the Buyer in the same manner as is contemplated by this Agreement and the relevant Trade Confirmation, as soon as practicable after the date of termination. Any proceeds from the sale of the Assets remaining following the satisfaction of all amounts payable to the Seller as stated above, sahall be paid by the Seller to the Buyer; and

(c) in the event that the amounts due to the Seller cannot be satisfied in full by the application of the Assets in the manner described above, then the Buyer shall pay to the Seller the amount of the deficiency as certified by the Seller, such certificate being conclusive and binding on the Buyer in the absence of any manifest error.

17. By letter dated 20^th June 2000, the Bank stated to Agrinvest that whilst reserving their right to act at any time, unless they received cash to cover a previous margin call or a Bank purchase confirmation to pay their exposure by 22^nd June, they would close out the bond position. The letter continued,

'We would intend to use a price of 65%, releasing $9.1 m. However, in order to give you some more time, you may re-purchase the bonds during the next five weeks at:

66% by 28^th June 2000

67% by 5th July 2000

68% by 12th July 2000

70% by 26^th July 2000'.

18. Mr de Lacy submits that by this letter in particular, the Bank terminated the two forward-sale transactions, and not having sold the Lakah Bonds, must give credit for them at their value as at the date of termination, namely 20^th June 2000. He relied on a decision of Mr Justice Cooke in Socimer International Bank Ltd v Standard Bank London Ltd [2004] EWHC 1041 (Comm). In that case, the MFSA provided in clause 14 that upon an event of default the contract of sale by the bank terminated, and the seller had either to sell or retain assets to satisfy outstanding amounts, or retain assets and forego the outstanding amounts. In addition, clause 14 contained the same words as are in the last sentence of clause 13.2(a) in the MFSA entered into between the Bank and Agrinvest. Mr Auld QC for the Bank, submitted that it was plain that the Bank had not terminated the transactions and that the Bank was not obliged to sell or to retain, or forego the Lakah Bonds. In substance, he maintained that the Bank was entitled to sue for the sums due under the transactions, whilst retaining the bonds, but as I understood it, he accepted that if all outstanding sums were paid, the ownership of the bonds would stand to be transferred to Agrinvest.
19. Mr de Lacy submitted on the basis of the wording of clause 13.2, and relying on the judgment of Cooke J., that Agrinvest had a real prospect of success of defending the Bank's claim if the Part 7 judgment were set aside. He pointed out that if credit had to be given for the Lakah Bonds in the sum of $9.1 million, far from Agrinvest owing the Bank money, the Bank would owe money to Agrinvest.
20. In my judgment, Agrinvest would have a real prospect of success in defending the claim if the judgment were set aside, but I can see a cogent argument that the Bank could retain the Lakah Bonds, subject to an obligation to convey ownership therein to Agrinvest once all outstanding sums had been paid under the two forward-sale transactions.
21. . I have therefore to consider whether or not Agrinvest's application to set aside the Part 7 judgment was made promptly, in order to decide whether, in the exercise of the court's discretion, the Part 7 judgment should be set aside. I was referred to Regency Rolls Ltd & Anor v Carnall [2000] EWCA Civ 379. There, the applicant had ceased to attend a court hearing and in his absence judgment was given against him on 22^nd March 1999. He sought legal advice on 29^th and 30^th March, and instructed new solicitors and issued an application under CPR 39.3 to have the judgment set aside on 21^st April 1999. The judge declined to set aside the judgment, and on appeal to the Court of Appeal, Arden LJ in paragraph 24 of the judgment said:

24. The first issue is whether or not the application was made promptly. Mr Stafford began his submissions by saying that promptness was a flexible concept. I think that a note of caution should be struck here. The dictionary meaning of "promptly" is "with alacrity". I have grave doubts as to whether Mr Carnall acted with the requisite degree of alacrity, but in view of my conclusion on other matters I need not decide this point.'

22. In paragraph 39 Rix LJ said,

'39. He (Mr Carnall) had to act with promptness, as the judge found below. With that knowledge, all he had to do, at any rate in the first instance, was to write a letter to the court saying that he had been ill and unable to attend trial, and asking the court to give him a chance to prove his disability and to request a new trial. His evidence on the merits of this defence, such as they were, was already before the Court. However broadly the concept of promptness might have to be regarded, for instance in a case where the appellant has an excellent case on appeal, in my judgment Mr Carnall here on any view failed to act promptly. He took another 26 or so days to make his application.'

23. In paragraph 45 Simon Brown LJ, having recited a footnote in the White Book, said,

'45. At first blush it might be thought that any inappropriate delay whatever on the part of an applicant would require that he be found not to have acted promptly. Yet such a construction would carry with it the Draconian consequence that, even if he had a good, perhaps compelling, reason for not having attended the trial, and a reasonable - perhaps, indeed, excellent - prospect of success at trial, the court would still be bound to refuse him a fresh trial. I would accordingly construe "promptly" here to require, not that an applicant has been guilty of no needless delay whatever, but rather that he has acted with all reasonable celerity in the circumstances. That said, I too would regard the appellant here as having failed even in that obligation. 30 days was altogether too long a delay before making this Part 39 application. Having regard to the long, and generally unsatisfactory, history of the proceedings to that point, the application plainly could, and in my judgment reasonably should, have been issued well before it was.'

24. I was also referred to Harrison v Hockey [ 2007] All ER (D) 336 where Mann J opined that a period of four-and-a-half months between judgment and an application under CPR 39.3 was likely to be too long in the vast majority of cases where an application under that provision was made.
25. Agrinvest is faced with a period of delay in making an application to set aside the Part 7 default judgment of one year and two weeks. (Judgment was given on 19^th February 2008 and the application to set it aside was filed on 6^th March 2009). Mr de Lacy submitted that this period should be viewed in the whole context of the dispute between the parties. Time effectively begins, he submitted, in June 2000 when, on Agrinvest's case, the Bank terminated the transactions. The Bank did not start its Part 7 proceedings until 24^th January 2006, and those proceedings were aborted through a lack of proper service. He pointed out, too, that notwithstanding the Bank's letter of 20^th June 2000, the Part 8 proceedings were only started on 19^th July 2007. These periods of time show, he submitted, that the Bank had placed an insignificant value on its asset constituted by its rights under the MFSA. He contended that no material injustice would be suffered by the Bank if the default judgment were set aside; this was not a case where the memories of witnesses had faded, it would simply involve the files being taken out and dusted off. He argued that the discretion exercised under CPR 13.3 had to be exercised in the round, and promptness was not the controlling factor.
26. The explanation given for the one-year-two-week delay by Mr Chawafaty is that it was only when he heard of the Socimer decision that he realised that he had a basis for contending, in contested proceedings, that the Bank's claim should fail. He deposes that he first heard of the Socimer decision in late-2008, after having instructed junior counsel in England. He claims that it had been extremely difficult to arrange funding to instruct English solicitors and counsel, and that he proceeded in the belief that the only way to assert a case against the Bank would be through fully-contested litigation in an English court.
27. . In my judgment, although promptness may not be the controlling factor under CPR 13.3, it is plainly a very important factor, as is evident from the fact that it is singled-out in the rule as a matter to which the court must have regard. It is a very important factor because there is a strong public interest in the finality of litigation. Put simply, people are entitled to know where they stand. In my opinion, the period of twelve months and two weeks is far too long a time in which to have applied to set aside the default judgment entered on 19^th February 2008. The fact that the Bank may only have issued the Part 7 proceedings on 24^th January 2006 and the Part 8 proceedings on 19^th July 2007, when the settlement date for both transactions was 26^th November 2000, counts for very little. Mr Chawafaty may not have been aware of the Socimer decision until late-2008, but he well knew of the Bank's claim that it was entitled to recover the outstanding amounts without giving credit for the value of the Lakah Bonds and he was also well aware of the wording of clause 13.2 of the MFSA.
28. In my judgment, lack of funds is no excuse. Mr Chawafaty had sent a letter dated 22^nd May 2006 to Master Miller giving notice of an intention to apply to set aside the earlier default judgment in which he explained Agrinvest's defence. There is no acceptable reason, in my view, for Agrinvest not having written a similar letter to the Bank many months before 6^th March 2009. Agrinvest may have a real prospect of defending the Bank's claim if the default judgment were set aside; but as I have already intimated, this defence is far from overwhelming. The Bank has a respectable argument for contending that the transactions were not terminated, and for contending that even if they were, it is entitled to sue for the outstanding sums without giving credit for the value of the Lakah Bonds, on the basis that the Bonds will become the property of Agrinvest if the outstanding sums are paid. Given the importance of proceeding with promptness to set aside a judgment regularly obtained and regular on its face, I can see no injustice in holding that a delay of twelve-and-a-half months is far too long. The defendant's application to set aside the Part 7 judgment accordingly fails.
29. Mr de Lacy has proceeded on the basis that if the application to set aside the Part 7 judgment failed, there would be no proper basis for re-opening the declarations of non-liability made in the Part 8 proceedings. The application under CPR 39.3 accordingly fails.
30. I would add that had it been necessary to do so, I would have found that that application was not made promptly for the purposes of CPR 39.3(5)(a). Here the delay is 15 months, which in my judgment is far too long, bearing in mind in particular that the defendants knew, on 9^th November 2007, that the Bank was not giving credit for the value of the Lakah Bonds, knew of the wording of clause 13.2 in the MFSA, and were alive to the argument that the Bank had terminated the transactions by the letter of 20^th June 2000.