Cross border agreements: Giving effect to process agent clause


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A process agent clause is a common clause found in most cross border facility agreements and contracts providing for English law as the governing law.

The appointment of a process agent as provided in a process agent clause is helpful in allowing a speedier and certain means of service than the usual and often lengthy process required to serve English proceedings in a foreign jurisdiction.

The general efficacy of this clause is re-iterated in a recent decision by the English High Court.

Background

In Banco San Juan Internacional Inc v Petroleos De Venezuela SA [2020] EWHC 2145 (Comm), two parties, BSJI (the claimant bank) and PDVSA (the defendant), had entered into two credit agreements in 2016 and 2017 respectively, each containing a term providing for the method of service, namely the appointment of a process agent to accept service of proceedings in England on behalf of PSDVA.

The process agent clause found in the credit agreements is similar to the one found in an LMA template facility agreement and was structured as follow:

• PDVSA is obliged to immediately appoint a process agent to be an authorised agent for service of proceedings in England;

• If for any reason the process agent ceases to be such an agent, PDVSA must immediately appoint a new agent and notify BSJI of that appointment within 30 days of the previous agent ceasing to be agent;

• If PDVSA fails to comply with its obligation to appoint a new agent, the lender may appoint an agent for service of process on PDVSA.

The issue, the submissions and the decision

The preliminary issue which arose in this case was whether the proceedings for a summary judgment in the amount of US$80 million had been properly served by the claimant bank (BSJI) on the defendant, a Venezuela state-owned oil company (PDVSA).

Under the 2016 credit agreement, the initial appointment of PDVSA's process agent expired in April 2019. As PDVSA failed to appoint a replacement process agent in time, BSJI appointed a replacement agent where service was in effected in due course in May 2020 for the current proceedings.

In its counsel's submission, PDVSA argued as follow:

• that the appointment by BSJI could not be considered an "authorised" agent of PDVSA and therefore there was no effective service. The court rejected PDVSA's argument and held that the word "authorised" must mean authorised under the terms of the contracts in question. If the terms of the credit agreement permit BSJI to appoint a process agent for PDVSA, then by definition an agent so appointed is an authorised agent of PDVSA.

• that it was implied that before a replacement agent could be appointed by BSJI, PDVSA had to be notified in advance of the identity of the agent and of the terms of appointment, and given an opportunity to make recommendations or comments with some further obligation of uncertain scope on the part of BSJI to have regard to those comments or to implement those recommendations if reasonable. Judge Foxton however held that implying such conditions would introduce considerable scope for obstruction and delay into clauses whose purpose is well recognised as being to allow simplicity and speed in service of proceedings.

• that the obligation under such clause could not survive after the lender had refused to lend any more funds. This argument was rejected by the court as it is precisely when the relationship of the parties has either broken down or at least entered a new phase such that proceedings need to be commenced, that clauses of this kind are most valuable. Implying a construction in which they cease to apply in that eventuality would be wholly uncommercial.

Under the 2017 credit agreement, the issue was more complicated as no process agent was originally appointed by PDVSA. The issue then was whether BSJI was entitled to appoint a "new" agent on behalf of PDVSA when there was none at the start. The Court adopted a purposive approach to the clause and held that the clause imposes a general obligation on PDVSA to appoint a process agent and an agent is a "new" agent if it was an agent being appointed for the first time. To interpret the construction of such clause otherwise would allow PDVSA to not only frustrate the operation of the clause but to allow PDVSA to be better of by reason of its own breach of contract for failing to appoint a process agent in the first place.

The English High Court therefore held that both proceedings under the 2016 and 2017 credit agreements have been properly served.

Commentary

The decision rendered in this case coupled with the decision held not too long ago by the Queen's Bench Division in Cargill International Trading Pte Ltd v Uttam Galva Steels Ltd [2018] EWHC 974 (Comm) further cements the position taken by the English courts – that it would adopt a practical approach to give effect to the intended purpose of a process agent clause and would not allow a party to claim ineffective service as a result of their failure to appoint or maintain a process agent for the duration of a contract.

This is a comforting message indeed to banks and potential claimants seeking to serve proceedings on defendants in foreign jurisdiction.

This case also serves to remind us the importance and the benefit of including a process agent clause in any cross border facility agreements or contracts.  In this increasingly VUCA (volatile, uncertain, complex and ambiguous) world, parties to international or cross border contracts would be well-served to include such clause in their contracts and to review the mechanics of such clause to ensure continued compliance of such clause by its counterparty.

 

 

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