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08 September 2020
Process agent clauses are commonly included in cross-border finance transactions. They avoid the need for the claimant, typically the lender, to have to serve process outside the jurisdiction, which is frequently a costly and time-consuming exercise, particularly when the court's permission is needed. Accordingly, lenders will often require a foreign borrower or any guarantors to appoint a process agent in the lender's jurisdiction to accept service on their behalf.
In Banco San Juan Internacional, Inc v Petroleos De Venezuela, SA,(1) the English court explored whether a borrower had been validly served when the borrower had failed to comply with its contractual obligation to ensure that a process agent remained in place at all times.
Puerto Rican bank Banco San Juan International SA (BSJI) and Venezuelan oil company PDVSA entered into two loan facility agreements dated 2016 and 2017, respectively. These facility agreements contained identical process agent clauses, which are common in cross-border finance transactions and consistent with the provisions of the Loan Market Association's standard documentation, structured as follows:
I. PDVSA is obliged forthwith to appoint a process agent to be an authorised agent for service of proceedings in England.
II. If for any reason the process agent ceases to be such an agent, then PDVSA must forthwith appoint a new agent and notify that appointment within 30 days of the previous agent ceasing to be agent.
III. If PDVSA fails to comply with its obligation to appoint a new agent for the service of process, the lender may appoint an agent for service of process on PDVSA.
PDVSA appointed a process agent, as required by the 2016 facility agreement, but this appointment lapsed in 2019 and PDVSA failed to appoint a replacement. As regards the 2017 facility agreement, no process agent was ever appointed by PDVSA.
A dispute subsequently arose between BSJI and PDVSA and, in the absence of any process agent appointed by PDVSA, BSJI itself appointed a new process agent on behalf of PDVSA and duly purported to serve proceedings on the new agent. PDVSA failed to acknowledge service and, when faced with an application by BSJI for summary judgment, argued that the sending of the claim to the new process agent had not constituted good service on PDVSA.
PDVSA argued that:
The judge rejected these arguments.
The requirement for an 'authorised' agent meant authorised under the terms of the facility agreements. The facility agreements expressly provided for BSJI to appoint a process agent on behalf of PDVSA if PDVSA failed to comply with its obligation to appoint a new one when necessary; when PDVSA failed to do so, BSJI's agent was properly authorised. Any finding to the contrary would have meant that the contractual provision entitling BSJI to appoint a process agent was obsolete.
The judge also rejected an argument by PDVSA that a valid appointment needed PDVSA's approval; to imply such a term was inconsistent with the whole purpose of a process agent clause which is to speed up and simplify the service of proceedings.
The judge also had no difficulty rejecting PDVSA's argument that the provisions of the facility agreements entitling BSJI to appoint its own process agent ceased to have effect when BSJI refused to advance further monies to PDVSA. PDVSA had not fulfilled its primary obligation to repay the loans, so it was clear that the facility agreements had not been terminated. It was in precisely such a scenario – where a dispute had arisen between the parties – that a process agent clause of this nature was of value and it would be uncommercial if such a clause ceased to have effect at the point in time at which it was needed the most.
Finally, in relation to the 2017 facility agreement in respect of which no process agent had ever been appointed by PDVSA, BSJI's appointment of a process agent had been equally valid. While the wording of the process agent provision might be said to presuppose that a process agent had been appointed at the outset, such that PDVSA was not in breach of its obligation to appoint a new agent, that was not how the clause should be construed. Such a construction would have allowed PDVSA to frustrate the operation of the clause by failing to appoint a process agent at the outset, thereby profiting from its own breach of contract.
Accordingly, the court rejected PDVSA's arguments and concluded that BSJI had validly effected service on PDVSA by appointing a process agent itself and serving that agent with the relevant documents.
The court's decision shows that it will adopt a commercial approach to the interpretation of process agent clauses and, where possible, it will give effect to such clauses' primary purpose of allowing a speedy and certain means of service. This judgment is also a further reminder of the significant benefits conferred on a party able to rely on a process agent clause and, had it not been for the inclusion of a process agent clause here, there would likely have been significant delay and costs associated with attempting to serve in Venezuela.
The benefits of including a process agent are likely to be of even wider application following Brexit. At present, English proceedings can be served on defendants in other EU member states under the EU Service Regulation, which is generally relatively quick and efficient. However, following Brexit, the United Kingdom will no longer be party to the EU Service Regulation and, depending on the outcome of Brexit negotiations between the United Kingdom and the European Union, it may have to rely on the slower and more cumbersome Hague Service Regulation. While the final outcome of Brexit negations must be closely monitored, UK parties to transactions with counterparties in EU member states would be well advised to consider adding process agent clauses allowing them to effect service on a process agent in England and Wales.
For further information on this topic please contact Tim Potts or Daniel Wyatt at RPC by telephone (+44 20 3060 6000) or email (email@example.com or firstname.lastname@example.org). The RPC website can be accessed at www.rpc.co.uk.
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