Jurisdictional gateway for transactions defrauding creditors’ claims (Orexim Trading Ltd v Mahavir Port And Terminal Private Ltd (formerly known as Fourcee Port and Terminal Private Ltd)

Luke Pearce, barrister at 20 Essex Street Chambers, discusses the practical implications of the judgment in Orexim Trading Ltd, which concerns the circumstances in which claims under section 423 of the Insolvency Act 1986 (IA 1986) can be served out of the jurisdiction.

Orexim Trading Ltd v Mahavir Port And Terminal Private Ltd (formerly known as Fourcee Port and Terminal Private Ltd) [2018] EWCA Civ 1660, [2018] All ER (D) 101 (Jul)

What are the practical implications of the case?

The decision of the Court of Appeal is significant in confirming that claims under IA 1986, s 423 of can be served out of the jurisdiction under the gateway in Civil Procedure Rules, CPR PD 6B, para 3.1(20), which applies to ‘claims under an enactment which allows proceedings to be brought’, even if the facts of the case do not allow the claim to be served out under any other gateways. Following the decision of HHJ Waksman QC at first instance, there were conflicting first instance decisions on this point—and differing views expressed in the leading textbooks—and so the Court of Appeal’s ruling provides welcome clarity.

The court’s decision is also interesting for the approach taken to the construction of gateway. According to Dicey & Morris on the Conflict of Laws (para 11—142), it is a ‘cardinal rule’ that ‘if there is any doubt in the construction of any of the heads of jurisdiction, that doubt ought to be resolved in favour of the defendant’. However, the Court of Appeal indicated—following dicta from Lord Sumption in two recent Supreme Court cases—that such an approach may be out of date, and that the courts should nowadays approach the construction of heads of jurisdiction ‘neutrally’ (paras [33]–[35]). It follows that Dicey’s ‘cardinal rule’ may no longer be applicable.

Finally, the decision is also important for illustrating the caution that courts will exercise before allowing claims under IA 1986, s 423 to be served out of the jurisdiction as a matter of discretion. Although it is well established that the court has the power under IA 1986, s 423 to make orders against foreign defendants (see Re Paramount Airways [1993] Ch 223), it is also recognised that this power should be used sparingly, and only where (despite the foreign element) there is a relevant connection between the defendants in question and this jurisdiction. As the decision in Orexim shows, the mere fact that the defendant is otherwise before the court in connection with a separate claim, which the claim under IA 1986, s 423 is designed to support, is not sufficient for these purposes. Prospective claimants seeking to rely on IA 1986, s 423 against foreign defendants will therefore need to think very carefully about possible links between the defendants and England and Wales before applying for permission to serve the claim out of the jurisdiction.

What was the background to the case?

The claimant, Orexim, brought a claim in the Commercial Court against the first defendant, MPT, claiming damages for breach of a settlement agreement. In addition, Orexim claimed an order under IA 1986, s 423 setting aside a transaction for the sale of a vessel by MPT to the second defendant (Singmalloyd) and from Singmalloyd to the third defendant (Zen). The basis of the claim under IA 1986, s 423 was that the transactions in question were entered into at an undervalue, for the purpose of putting the vessel out of the reach of MPT’s creditors. MPT and Zen are both Indian companies and Singmalloyd is a Singaporean company.

The settlement agreement between Orexim and MPT was subject to an English jurisdiction clause, and it was therefore common ground that the court had jurisdiction to hear the claim for damages. However, MPT and Zen challenged the court’s jurisdiction to hear the claim under IA 1986, s 423. They contended that:

  • the court lacked ‘gateway jurisdiction’ to hear that claim
  • the court should not as a matter of discretion exercise its jurisdiction, since the claim had no reasonable prospect of success, and England was not the proper place to hear it

What did the court decide?

At first instance, HHJ Waksman QC accepted the defendants’ argument that the court lacked gateway jurisdiction to hear the claim under IA 1986, s 423. In particular, he held (applying the decision of the Court of Appeal in Re Harrods [1991] 4 All ER 334) that the gateway in CPR PD 6B, para 3.1(20), which (as noted above) applies to ‘claims under an enactment which allows proceedings to be brought’, only applied to enactments which indicated on their face that they were expressly contemplating proceedings against persons who are not within the jurisdiction, and that IA 1986, s 423 did not do so. In reaching this conclusion, HHJ Waksman QC held that the contrary decision of Flaux J in Erste Group Bank v JSC (VMZ Red October) [2013] EWHC 2926 (Comm), [2013] All ER (D) 128 (Oct) was wrong. However, the judge went on to hold (obiter) that, had he concluded that there was gateway jurisdiction, he would, as a matter of discretion, have held that the court should exercise that jurisdiction.

The Court of Appeal disagreed with the judge on each of the above issues. It held that ‘the time has now come to say that the court does have power under gateway (20) to permit service of a claim under section 423 outside England and Wales’ (para [47]). However, the court went on to emphasise that this power is subject to important ‘safeguards’ (para [49]). In particular, relief under IA 1986, s 423 will not be granted unless it can be shown that there is a ‘sufficient connection’ between the defendants and England and Wales to make such relief appropriate, and the court will not grant permission to serve a claim under IA 1986, s 423 out of the jurisdiction unless it can be shown that there is a realistic prospect of establishing that connection.

The Court of Appeal accepted MPT’s and Zen’s arguments that, on the facts of the case, there was an insufficient connection between the defendants and England and Wales to justify relief under IA 1986, s 423, and that the claim therefore had no reasonable prospect of success (paras [55]–[60]). In reaching this conclusion, the court rejected a submission by Orexim that the fact that MPT had agreed to an English jurisdiction clause in the settlement agreement provided a sufficient connection. The court also held that Orexim had not established that England and Wales were the proper place to hear the claim (paras [61]–[66]).

Interviewed by Susan Ghaiwal.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Further Reading

If you are a LexisPSL subscriber, click the link below for further information:

Transactions defrauding creditors—claims under section 423 of the Insolvency Act 1986 (subscriber access only)

Service of insolvency proceedings out of the jurisdiction (subscriber access only)

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