Section 423 of the Insolvency Act 1986 and Service Out of the Jurisdiction

13 July, 2018

In Orexim Trading Limited v MPT and Zen (judgment delivered on 13 July 2018) a Court of Appeal (Gross, Lewison and Leggatt LJJ) decided that the Court had power to order service of a claim under section 423 out of the jurisdiction pursuant to paragraph 3.1 (20) of PD 6B. In this respect, the Court differed from the judgment of Judge Waksman QC [2017] EWHC 2663 (Comm), although the appeal was dismissed on other grounds.

Following the Court of Appeal decision in Re Paramount Airways Limited [1993] Ch 223, the Court held that section 423 of the Insolvency Act 1986 confers on the court power to make orders against persons or property outside England and Wales, subject to the court being satisfied that there is a close enough connection with England and Wales. Before the CPR was updated in 2008, it was thought there was no power to serve proceedings under section 423 out of the jurisdiction. That was the effect of the decision of Re Harrods Buenos Aires [1992] Ch 72 and In re Banco Nacional de Cuba [2001] 1 WLR 2039 on the rules which were the predecessors of what is now CPR 6.33 (3). However, the decision of the Court of Appeal in Orexim Trading Limited v MPT and Zen establishes that there is jurisdiction to serve proceedings under section 423 out of the jurisdiction with the permission of the Court pursuant to paragraph 3.1 (20) of PD 6B (introduced in its present form in 2008), which permits service of a claim:

“under an enactment which allows proceedings to be brought and those proceedings are not covered by any of the other grounds referred to in this paragraph.”

Lewison LJ’s judgment has a detailed analysis of the history of this “gateway” and is also significant for the confirmation of the recent change of judicial attitude to service out of the jurisdiction. No longer are doubts in the construction of the rules to be resolved in favour of the foreign party:

“…In days gone by the assertion of extra-territorial jurisdiction was described as “exorbitant”. But following the globalisation (and digitalisation) of the world economy that attitude can now be seen as out of date…

… The key point, for present purposes, is that the question of construction is a “neutral” one…”

The core of the Court of Appeal’s reasoning on the application of paragraph 3.1 (20) of PD 6B appears in paragraph 47 of the judgment.

However, the appeal ultimately failed. As the Court said in paragraph 55:

“…The breadth of the potential scope of section 423 makes it all the more important that in a case with a foreign element the court is scrupulous to ensure that the safeguards are rigorously applied…”

The Court concluded that there was insufficient connection with England and Wales for the court to give permission to serve the claim out of the jurisdiction; and that it did not need a trial to resolve that question (see paragraph 59). In addition, in paragraph 66, Lewison LJ concluded that Orexim had failed to show England and Wales to be “the proper place” to bring the claim.

As Lewison LJ said in paragraph 67:

“…Ironically, however, my disagreement with the judge on these points has the consequence that I agree with the order that he made refusing permission to serve out, but for entirely different reasons…”

Jeffrey Gruder QC appeared for the successful Respondent, Zen Shipping, instructed by Richard Wise at Addleshaw Goddard LLP. Read the judgment in full here.