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August 2014: EU Litigation Update

August 01, 2014
Business Litigation Reports

English Court of Appeal Confirms Extra-Territorial Reach of Contempt Proceedings Against Foreign Company Directors: Dar Al Arkan Real Estate Development Co. and Another v. Al Refai and Others [2014] EWCA (Civ.) 715, [2014] WLR (D) 239. In a recent decision, the English Court of Appeal has confirmed that the principle against extra-territorial application of legislation does not prevent a committal order being made against a foreign director of a foreign company which has not complied with an order of an English court, and that the English courts have jurisdiction to give permission for service of contempt proceedings out of the jurisdiction. The decision demonstrates that where a company is required by a judgment or order of the English court to take certain action but fails to do so within the time fixed by the judgment or order, or disobeys a judgment or order to refrain from certain action, a committal order may be made against any director or officer of that company even if they are domiciled outside of the jurisdiction.

In this case the Claimants—a Saudi company and a Bahraini bank—brought proceedings for breach of confidence and other torts against the Defendants in England, alleging that the Defendants were pursuing a campaign of blackmail against them. Before commencing proceedings, the Claimants applied ex parte for interim injunctive relief. At the injunction hearings, the Claimants gave undertakings, and were subject to a court order, for the preservation of certain computer hard drives and data. The Claimants were subsequently found to be in breach of those undertakings and the court order. In response, the Second Defendant, Kroll Associates UK Ltd, brought contempt proceedings against the Claimants and sought a committal order (under CPR Rule 81.4(3)) against Sheikh Abdullatif as director of both Claimants. Sheikh Abdullatif was not domiciled in an EU Member State, as he was resident in Saudi Arabia. He argued that (i) a committal application could not be made outside the jurisdiction; that (ii) the English courts had no jurisdiction to give permission for service of contempt proceedings out of the jurisdiction; and that (iii) Article 22(5) of the Brussels I Regulation, which confers exclusive jurisdiction on the courts of an EU Member State regardless of domicile in proceedings concerned with the enforcement of judgments, had no application in the present case.

On the first issue, the English Court of Appeal acknowledged the presumption against extra-territoriality, but also noted that the Civil Procedure Rule Committee had the power to make rules with extra-territorial reach. The key issue was therefore the legislative intention behind CPR 81.4(3). The English Court of Appeal held that the intention to give CPR 81.4(3) extra-territorial effect could be inferred from the need to control proceedings brought in England, the need to control participants in such proceedings, and the need to have a means of recourse to discipline companies in contempt of court because of the actions of their directors. The practicability of the enforcement of an order outside the jurisdiction was considered by the English Court of Appeal to be a factor which must be weighed when interpreting a civil procedure rule; however, in the circumstances of this case, it did not outweigh the overriding public interest in the enforcement of judgments, orders, and undertakings in private civil litigation.

With regard to the second issue, the judge at first instance took a pragmatic approach to service of the committal application outside the jurisdiction by other means, namely by granting permission for service in Saudi Arabia with retrospective effect and indicating that, had it been necessary, he would have dispensed with service. The Court of Appeal confirmed that an application for committal was proceeding within the meaning of CPR 6.2 and the application notice in respect of Sheikh Abdullatif qualified as a claim form under CPR 6.36, and therefore gateway (3) of paragraph 3.1(3) of Practice Direction 6B applied, because there was a “real issue” for the court to try and the director was “a necessary or proper party” to the committal application.

Given that the English Court of Appeal allowed the service of contempt proceedings out of the jurisdiction on the basis of CPR 81.4(3) and CPR 6, it did not need to decide the third issue with regard to the correct application of Article 22(5) of the Brussels I Regulation. The first instance judge held on this point that he was bound by the previous English Court of Appeal decision in Choudhary and Others v Bhattar and Others [2009] EWCA (Civ) 1176, [2009] WLR (D) 326, even though he concluded that decision was reached per incuriam (that is, mistaken). In Choudhary, the English Court of Appeal held that Article 22(5) had no application to a defendant not domiciled in an EU Member State. The judge therefore stated that it was not open to him to hold that notice of the committal application could be served on Sheikh Abdullatif under Article 22(5) of the Brussels I Regulation. While it was not necessary for the English Court of Appeal to decide the applicability of Article 22(5), it nonetheless considered it appropriate to express its view, having regard to the judge’s decision below and having heard full submissions on the point. The present English Court of Appeal found the reasoning of the judge at first instance compelling, in view of the jurisprudence of the European Court of Justice. Although this part of the judgment is expressed obiter and therefore does not resolve the Choudhary issue, it must now be doubted that the case is good law.