Marashen Ltd v Kenvett Ltd Dmitry Ivanchenko (Third Party/Part 20 Defendant)

Hearing date: 16 June 2017

Judgment Approved

David Foxton QC (sitting as a Deputy Judge of the High Court):

(1) Introduction

This is an appeal, brought with the permission of Mr Justice Snowden of 3 April 2017, against the order of Master Price ("the Master") of 27 October 2016:

i) refusing the Third Party/Part 20 Defendant's ("Mr Ivanchenko"'s) application to set aside an order granting the Claimant ("Marashen") permission under CPR r.6.15 to serve an application for a third party costs order against Mr Ivanchenko by an alternative method, namely service on the Defendant's ("Kenvett"'s) former solicitors within the jurisdiction, and

ii) ordering Mr Ivanchenko to pay the costs of that application.

Mr Ivanchenko advances four substantive grounds of appeal:

i) The Master failed to make an order granting Marashen permission to serve proceedings on Mr Ivanchenko out of the jurisdiction ("Ground 1").

ii) The Master erred in law in concluding that he had jurisdiction to make an order for service by an alternative method within the jurisdiction in circumstances in which the Hague Service Convention ("HSC") applies to the service of English court proceedings in the country of Mr Ivanchenko's residence, the Russian Federation ("Ground 2").

iii) Alternatively, the Master erred in law in holding that the test for ordering service by an alternative method within the jurisdiction in a case in which the HSC was something less than a requirement of "exceptionality" ("Ground 3").

iv) The Master erred in law and misdirected himself in concluding that this was a case in which the threshold for ordering service by an alternative method notwithstanding the application of the HSC was met ("Ground 4").

In addition, Mr Ivanchenko challenges the costs order ("Ground 5").

Marashen has served a Respondent's Notice:

i) In relation to Ground 1, seeking, if necessary, an order for permission to serve the s.51 Application out of the jurisdiction; and

ii) In relation to Grounds 3 and 4, on the basis that, if the Court finds the Master did not apply the right test in ordering service by an alternative method, that test was met on the facts in any event.

I am very grateful to both counsel for the very high quality of their submissions.

(2) The background

These proceedings were commenced by Marashen against Kenvett in May 2015, seeking to recover amounts due under a loan agreement. Kenvett applied under CPR Part 11 to challenge the jurisdiction of the English court, but that challenge was rejected and a costs order made against Kenvett for the costs of the challenge.

Mr Ivanchenko is the beneficial owner of Kenvett, and Marashen asserts, apparently without contradiction from Mr Ivanchenko, that Mr Ivanchenko provided the instructions on behalf of Kenvett in relation to the jurisdictional challenge.

On 11 July 2016, Marashen issued an application under s.51 of the Senior Courts Act 1981 for an order requiring Mr Ivanchenko to pay Marashen's costs of the jurisdiction challenge ("the s.51 Application"). Marashen applied for permission:

i) to serve the s.51 Application on Mr Ivanchenko out of the jurisdiction in the Russian Federation; and

ii) to effect service of the s.51 Application by an alternative method, namely within the jurisdiction on Kenvett's former solicitors, Osborne Clarke LLP.

I describe Osborne Clarke LLP as Kenvett's former solicitors because it is said by Mr Ivanchenko that their retainer had been terminated following the failure of Kenvett's jurisdictional challenge, notice of change having been served on 18 April 2016. The efficacy of that notice may be in dispute, although I have not found it necessary to determine that issue.

The Master granted the application to serve the S.51 Application on Osborne Clarke LLP on 13 July 2016. The Master did not find it necessary to make an order for service of the S.51 Application out of the jurisdiction, and this gives rise to the first ground of appeal.

On 20 July 2016, Mr Ivanchenko instructed Osborne Clarke LLP to represent him, and he applied to set aside the order for service by an alternative method.

On 9 September 2016, Marashen obtained summary judgment against Kenvett (who did not participate in the application) for a sum in excess of US$7 million and for the costs of the action, and for an interim payment on account of costs of £50,000. The s.51 Application has been amended to extend to the full costs of the action which, save for the s.51 Application and issues of enforcement, has now come to an end.

Mr Ivanchenko's set aside application was dismissed by the Master on 27 October 2016, for reasons set out in a judgment handed down on 18 November 2016. I return to that judgment below. Mr Justice Snowden gave permission to appeal on all grounds on 3 April 2017 on the basis that Grounds 1, 3, 4 and 5 had a real prospect of success, and that the appeal on Ground 2 is interrelated with those issues.

(3) CPR r6.15

CPR r.6.15 provides:

" (1) Where it appears to the court that there is a good reason to authorise service by a method or at a place not otherwise permitted by this Part, the court may make an order permitting service by an alternative method or at an alternative place.

(2) On an application under this rule, the court may order that steps already taken to bring the claim form to the attention of the defendant by an alternative method or at an alternative place is good service".

(4) Ground 1

As his first ground of appeal, Mr Salzedo QC argues that the application of the power to order service by an alternative method in this case arose not from the direct application of CPR 6.15, but from the terms of CPR 6.37(5)(b)(i) which provides:

" Where the court gives permission to serve a claim form out of the jurisdiction

(b) it may:

(ii) give directions about the method of service".

On this basis, he contends that the power to permit service by an alternative method in the present case was premised on the court first having given permission to serve out of the jurisdiction. In circumstances in which no order granting such permission had been made, he submits that there was no basis for the order for service by an alternative method.

Mr Penny QC argues that it was enough that the Court would have been prepared to order service out of the jurisdiction, and, if it would have done so, there was no need for such an order to be made where the method of alternative service ordered under CPR 6.15 did not in fact involve service out of the jurisdiction. He relied upon the manner in which the issue was expressed in two leading commentaries:

i) First, in Dicey, Morris & Collis, The Conflicts of Law 15th para. 11–11 which provides:

" Under the practice prior to the Civil Procedure Rules, the general principle was that an order for substituted service within the jurisdiction could not be made against a person outside of the jurisdiction. The current Rules contain no specific provision for service by an alternative method on defendants outside the jurisdiction, but it is suggested that alternative service within the jurisdiction should not be ordered unless the case is one which is otherwise suitable for an order for service outside the jurisdiction, and there is good reason for alternative service within the jurisdiction".

Mr Penny QC relies on the words " or otherwise" to contend that this passage supports the view that no order for service out is in fact necessary. I would note, however, that the statement that " the current Rules contains no specific provision for service by an alternative method on defendants outside the jurisdiction" does not directly address the contention that there is such an express power, albeit expressed in more general terms in CPR 6.15(b)(i).

ii) Second, Professor Briggs in European Jurisdiction and Judgments (6th) para. 5–12 which states:

" As a matter of principle … an order permitting service by alternative means should not be made in respect of a defendant who could only be served out of the jurisdiction with the permission of the court unless the court is satisfied that it wouldhave been prepared to grant permission to serve the defendant out of the jurisdiction".

I accept that this passage directly supports Mr Penny QC's argument, although no authority is cited in support of the formulation adopted.

17. On this issue, I am satisfied that Mr Salzedo QC's submissions are correct, and that an order for service by an alternative method within the jurisdiction against a defendant who is resident outside of the jurisdiction can only be made if the court has satisfied itself that the case is a proper one for service out of the jurisdiction, and has made an order to that effect.

18. I have reached this conclusion essentially for the reasons which Mr Salzedo QC advanced:

i) In Abela and others v. Baadarani and another [2013] UKSC 44, the Supreme Court considered the exercise of the powers set out in CPR6.15 in cases in which the defendant was resident out of the jurisdiction. Lord Clarke of Stone-cum-Ebony JSC, in a judgment with which the remainder of the Supreme Court agreed, recorded at [20] his agreement with the concession that CPR 6.15(2) could be used retrospectively to accept the parties' actions as constituting good service where the defendant is outside the...