Extending time to challenge jurisdiction in the Commercial Court? Always remember it “takes three to make an agreement”. (Michael McParland QC)

Extending time to challenge jurisdiction in the Commercial Court? Always remember it “takes three to make an agreement”. (Michael McParland QC)


CategoryNews Author Michael McParland QC Date

The Commercial Court’s 28 November 2018 judgment in Griffin Underwriting Limited -v- Varouxakis (the “Free Goddess”) [2018] EWHC 3259 (Comm) is a salutary warning to all Commercial Court practitioners whose clients want to challenge the court’s jurisdiction but either need more time to make their application or want to pause proceedings to explore possible settlement.

The background

In Griffin Underwriting, the claimant insurer brought a Commercial Court action against a Greek defendant for inducing breaches of contract by companies under his control. The contract in question was a settlement agreement which was subject to English law and jurisdiction. This settlement agreement was entered into by the claimant insurers and the registered owners and the managers of a vessel, the MV Free Goddess, which has been insured under a kidnap and ransom insurance. On a voyage from Egypt to Thailand the vessel had been seized by pirates in the Arabian Sea and taken to Somalia. Consequently, the claimant paid out $6.5 million under the policy, including ransom payments. Following the vessel’s release, the settlement of agreement was entered into, and it was signed on behalf of both the shipowner and the ship’s managers by the defendant. The claimant’s case was that shipowner subsequently committed breaches of the terms of settlement agreement and that it was induced to do so by the defendant.

Initial procedural steps

The defendant was served personally with proceedings in Greece on 8 March 2017. On 29 March 2017, he filed an acknowledgement of service indicating an intention to contest jurisdiction. Under the rules, a defendant who files an acknowledgment of service indicating an intention to challenge the jurisdiction in Commercial Court proceedings has 28 days to make their application, i.e. by the 26 April 2017: see CPR 11(4) as varied by CPR 58.7. If such an application to challenge jurisdiction was made then a defendant does not need to serve his Defence: see CPR 15.4 (2). But the rules make it clear that if a defendant fails to make an application within the specified time period then “… he is to be treated as having accepted that the court has jurisdiction to try the claim”: see CPR 11 (5).

The parties’ moratorium agreement

On 25 April 2017, the day before the 28-day time period expired and before any further steps had taken place, the parties agreed a moratorium in relation to all litigation, terminable on 48 hours’ notice. Neither side notified the Commercial Court of the terms of this agreed moratorium.

Settlement discussions between then took place, but these failed. Accordingly, on 24 October 2017, the claimant’s solicitors sent an email to the defendant purporting to withdraw its agreement to the ongoing stay of the English action against him personally unless some new proposals were forthcoming. Some further discussions occurring, but nothing else happened in the litigation. The Defendant did not issue an application to challenge jurisdiction nor did he serve any defence. Eventually, on 1 May 2018, the claimant applied to enter judgment in default. On 25 May 2018, the defendant finally filed his jurisdiction challenge. The claimants objected, arguing, inter alia, that it was out of time.

“It takes three to make an agreement”

Mr Justice Males rejected the defendant’s application and held that, in the circumstances, the defendant must be treated as having accepted the jurisdiction of the English court under CPR 11 (5).

His Lordship noted that while the parties were free under the CPR to agree extensions of time (see CPR 2.11 & CPR 3.8) in  the Commercial Court if the parties, agree in writing to vary a time limit in accordance with rule 2.11, the claimant must notify the court in writing, giving brief written reasons for the agreed variation and the court may make an order overriding the agreement: see CPR 58 PD para 7. Furthermore, while the Commercial Court Guide (para. C.3.3) explains that the general power to agree variation in time limits contained in CPR 2.11 enables the parties to agree extensions that are longer than 28 days, but even if this is agreed by the parties, in any such the court should be invited to make a consent order on documents.

In Griffin Underwriting, no-one had notified the court of the terms of the agreed moratorium, much less sought a consent order from the court. His Lordship considered the consequence of this failure rendered the moratorium agreement completely ineffective to stop time running under CPR Part 11. Males J. concluded (at paragraph 47):

“I would hold that the failure to notify the court meant that the moratorium was not effective to extend the time for the defendant to challenge jurisdiction. It is important that the court retains control of the proceedings and has at least the opportunity to consider whether to override any agreement reached between the parties, in accordance with CPR 58 PD para. 7. It is not open to the parties to agree an indefinite extension of time without notifying the court. To hold that the moratorium was effective despite the failure to comply with the notification requirement would deprive the court of control and would mean that there was no effective sanction for non-compliance. Or as Hobhouse J used to say in the days long before the CPR, in this court it takes three to make an agreement”.

His Lordship also rejected attempts to seek relief from sanctions, rejecting any suggestion that the observations of Ms Sara Cockerill QC in Newland Shipping & Forwarding Ltd v Toba Trading FZC [2017] EWHC 1416 (Comm) stood for the proposition that a more liberal approach to relief from sanctions should apply to cases where a defendant has failed to challenge the jurisdiction within the time provided by the rules.

Conclusion

Griffin Underwriting underlines that it must be borne firmly in mind that any extension of time or moratorium agreement in which the parties do not strictly comply with the specific requirements of the Commercial Court is not worth the paper it is written on unless and until the court approves it.


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