England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE QBCMI 96/0438/B

COMMERCIAL COURT

(His Honour Judge Diamond QC) Royal Courts of Justice

Monday, 24th March 1997

B e f o r e :

LORD JUSTICE STAUGHTON

LORD JUSTICE WAITE

LORD JUSTICE ALDOUS

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(1) KUWAIT OIL TANKER COMPANY S.A.K.

(2) SITKA SHIPPING INCORPORATED Plaintiffs

-v-

(1) ABDUL FATTAH SULAIMAN KHALED AL BADER

(2) HASSAN ALI HASSAN QABAZARD

(3) TIMOTHY ST. JOHN STAFFORD Defendants

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MR. D. GERRANS (instructed by Messrs. Brian Harris & Co., London W1) appeared on behalf of the Appellant Third Defendant.

MR. J. MALINS QC and MISS H. DAVIES (instructed by Messrs. Shaw & Croft, London EC3) appeared on behalf of the Respondent Plaintiffs.

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J U D G M E N T

(As Approved by the Court)

Crown Copyright

Monday, 24th March 1997

LORD JUSTICE STAUGHTON: In this action there are two plaintiffs: Kuwait Oil Tanker Company S.A.K. and Sitka Shipping Incorporated. There are three defendants: Mr Al Bader, Mr Qabazard and Mr Stafford. We do not need to enter upon the circumstances which have given rise to the action, save to say that they apparently are complicated.

The plaintiffs (or perhaps I should say the intended plaintiffs) applied to Mr Justice Cresswell on 21st July 1994 for world-wide prior restraint on the defendants from disposing of their assets and also for leave to serve the second and third defendants out of the jurisdiction. That leave was granted. Later the same day the first defendant, Mr Al Bader, was served in this country. Mr Qabazard was served in Kuwait pursuant to leave granted by the judge on some date which is not material. He, we were told, applied to set aside service on a number of grounds, not including the point taken by Mr Stafford on the present appeal. His application failed.

Mr Stafford was served in Australia on or about 29th July 1994. He applied to Judge Diamond QC, sitting as a judge of the Commercial Court, to set aside service on himself on the ground that, on the date when leave was given to serve him under Order 11, rule 1(1)(c), there was no other defendant who had already been served. As I have mentioned, Mr Al Bader was served on the same day, but later in the day. Judge Diamond considered the application with great care. He concluded that Order 11, rule 1(1)(c) requires that one defendant shall have been served within or out of the jurisdiction before leave can be given to serve another defendant under Order 11, rule 1(1)(c). However, he held that he had power retrospectively to validate the service, and he exercised that power. Consequently, it is Mr Stafford who now appeals.

However, there is a respondent's notice on behalf of the plaintiffs raising again the question which the judge decided against them as to the construction of Order 11, rule 1(1)(c). We decided to hear the argument on the construction of the rule first, before coming to discretion, and we now express our views on the construction point.

The 1993 version of Order 11, rule 1(1), which is that relevant to the present case, provides, so far as material:

"... service of a writ out of the jurisdiction is permissible with the leave of the Court if in the action begun by the writ ...

(c) the claim is brought against a person duly served within or out of the jurisdiction and a person out of the jurisdiction is a necessary or proper party thereto".

The previous version of the rule was somewhat different. Prior to 1983 it provided:

"... service of a writ, out of the jurisdiction is permissible with the leave of the Court in the following cases, that is to say ...

(j) if the action begun by the writ being properly brought against a person duly served within the jurisdiction, a person out of the jurisdiction is a necessary or proper party thereto".

Under the old rule it was well recognised, even by students at the Inns of Court School of Law, that one defendant had to be served within the jurisdiction before there could be an application for leave to serve another out of the jurisdiction. That conclusion is supported by the judgments in Yorkshire Tannery v. Eglinton Chemical Co. (1884) 54 LJ Ch 81; Collins v. North British & Mercantile Insurance Co. [1894] 3 Ch 228; and Tassell v. Hallen [1892] 1 QB 321. There was some doubt expressed on the matter by Lord Coleridge CJ in Tassell v. Hallen , but otherwise authority has been uniform to that effect and so has the practice.

At the same time as Order 11, rule 1(1) was altered in 1983, there was an alteration in Order 11, rule 4. Previously that had provided, so far as material:

"(1) An application for the grant of leave under Rule 1 or 2 must be supported by an affidavit stating the grounds on which the application is made and that, in the deponent's belief, the plaintiff has a good cause of action, and showing in what place or country the defendant is, or probably may be found.

(2) No such leave shall be granted unless it shall be made sufficiently to appear to the Court that the case is a proper one for service out of the jurisdiction ..."

Since 1983 rule 4 has provided, so far as material:

"(1) An application for the grant of leave under rule 1(1) must be supported by an affidavit stating -

(a) the grounds on which the application is made,

(b) that in the deponent's belief the plaintiff has a good cause of action,

(c) in what place or country the defendant is, or probably may be found, and

(d) where the application is made under rule 1(1)(c), the grounds for the deponent's belief that there is between the plaintiff and the person on whom a writ has been served a real issue which the plaintiff may reasonably ask the Court to try.

(2) No such leave shall be granted unless it shall be made sufficiently to appear to the Court that the case is a proper one for service out of the jurisdiction ..."

Mr Malins QC, for Mr Stafford, argues that under the new rule the relevant point of time at which to judge whether the case comes within rule 1(1) is the time when service is effected pursuant to subparagraph (c). If he be right about that, service was valid in the present case because at that time both leave had been granted and service had been effected on Mr Al Bader.

In my judgment that is not the proper interpretation of the rules. It seems to me, first, that leave must be given before service. That is plain from the opening words of the rule: "... service of the writ out of the jurisdiction is permissible with the leave of the Court ..." Secondly, it seems to me that, before leave can be given, one of the requirements in subparagraphs (a) to (v) must be satisfied. In the case of subparagraph (c) a person must have been duly served within or out of the jurisdiction before leave can be given to serve another defendant under that paragraph. That is a condition of leave being given.

I reach that conclusion also by reason of the wording of rule 4. That says in plain terms that there must be between the plaintiff and the person on whom a writ has been served a real issue which the plaintiff may reasonably ask the court to try before leave can be granted.

Mr Malins' answer to that point is that there are cases which show that the requirements of rule 4 and its predecessor are not mandatory. He submits that they can be relaxed. The authorities which he refers to for that purpose are, first, Fowler v. Barstow (1881) 30 WR 112; secondly, Borealis AB v. Stargas Ltd. (16th July 1996) New Law Digest; and thirdly, Collins v. North British and Mercantile Insurance Co. [1894] 3 Ch 228.

I say nothing as to whether those authorities do establish the proposition that the requirements as to an affidavit are not mandatory but merely directive. It would seem rather odd if the requirement, for example, that the deponent of the affidavit shall state his belief that the plaintiff has a good cause of action is something which can be dispensed with. But whether that be so or not, the importance of Order 11, rule 4, in my view, is that it shows what the Rule Committee thought to be the meaning of rule 1(1)(c). After all, both rules came into existence at the same time in 1983 and one would suppose that when the Rule Committee devised the new rule 4 it did so because it thought that that was the proper construction of rule 1.

I would on those grounds hold that rule 1(1)(c) requires another defendant to have been served before leave can be given under that paragraph. That, as the judge held, was in line with the construction long adopted for the old rule, and that is an additional ground, to my mind, for reaching the conclusion which I have done on the wording of the rules.

Mr Malins says that this will create difficulties. Supposing that all the defendants are out of the jurisdiction? There no longer is a requirement that the defendant first served under rule 1(1)(c) has to be served within the jurisdiction. Mr Malins says that in such a case you will have to serve one defendant first out of the jurisdiction, which might take some time, even months, and then come back and obtain leave to serve the other. I am afraid that does not wring any tears from me. If that is what the rules provide, so be it.

The same is true of his second practical objection. He says that if there are two defendants and the plaintiffs desire to obtain a prior restraint injunction against both of them, they ought to make the application for the injunction and for leave to serve one or both out of the jurisdiction at the same time; otherwise there will be a risk that the defendant who is served first in order to comply with the construction of the rule, if such it be, will tell the defendant not yet served what is coming to him at a time when that defendant is not yet injuncted. Mr Malins does accept that this could be avoided by an injunction restraining the first defendant for the time being from communicating with the second defendant. Once again my answer to that is that, if such be the construction of the rules, it must be applied, even if it produces inconvenience in such a case.

To my mind the best point taken by Mr Malins is that the words "duly served" in rule 1(1)(c) may not necessarily mean that the person must have been served at the time when the test is applied. He says that by reference to the words at the opening paragraph of the Order: "... service ... out of the jurisdiction is permissible with the leave of the Court if in the action begun by the writ ..." He says that at the time when the matter is considered by the court the action may not have been begun by the writ. Nobody may have taken a draft writ to the appropriate department somewhere in the basement of this building to pay the fee and have the writ sealed. He says that the words "begun by the writ" do not necessarily refer to something that has happened in the past and therefore the words "duly served" need not necessarily refer to anything that has happened in the past.

It is true that there has long been a practice for judges or masters to give leave to serve a writ out of the jurisdiction before it has been issued. There is a note in the Supreme Court Practice at paragraph 11/4/3 of the 1993 edition that the affidavit

"... should be intituled ´In the Matter of the Supreme Court Act 1981, And in the Matter of an intended action between A.B. ... Plaintiff, and C.D. ... Defendant.'"

So, too, the practice form in the second volume of the Supreme Court Practice at page 59 expressly refers to an "intended plaintiff" and an "intended defendant". We were also referred to paragraph 6/7/2, which similarly appears to contemplate leave being granted before a writ is issued.

There are two possible views that one can take. The first is that habitually over the years the courts have not insisted that the action must have been begun before granting leave to serve out of the jurisdiction, despite what the rule says and means. The other view is that "begun" means "begun to be begun". But I do not see that that leads to the conclusion that "duly served" means "duly served to be duly served". There is no practice to treat those words in that way and I see no ground for starting one.

Finally, there is the case of Mercedez Benz v. Leiduck [1996] AC 284. That was an appeal to the Privy Council from Hong Kong. There, at page 293, Lord Mustill, delivering the advice of the Board, quoted from the affidavit in that case seeking leave to serve out of the jurisdiction. The affidavit candidly said:

"The second defendant has not been served in advance of the first defendant because that would put the first defendant on notice of this application. However, I undertake to arrange service of these proceedings at the company's registered office in Hong Kong before service on any other party. Subject to prior service on the second defendant, I believe that the plaintiff has a good arguable case that the first defendant is a necessary or proper party to those proceedings within RSC Ord.11, r.1(1)(c) in that, had he been present within the jurisdiction, both he and the second defendant would clearly have both been defendants to the same proceedings."

The words "Subject to prior service on the second defendant" seem to me to indicate doubt on the part of the deponent as to whether rule 1(1)(c) can be operated when there has not been prior service on another defendant. Lord Mustill, at page 296, said:

"The deputy judge was faced with a complex affidavit, and did not have the benefit of adversarial argument, but once the matter was explored it became obvious that leave to serve the writ on the first defendant in the form which it then took should not have been granted, except perhaps on the ground alleged to fall within subparagraph (c) of rule 1(1); and this ground disappeared once the proceedings against I.R.C. were abandoned."

So the highest it can be put is that Lord Mustill was prepared to allow the possibility that service under rule 1(1)(c) might be effective despite the fact that no other defendant had been served when leave was given.

However, with the benefit of the further examination of the point that we have enjoyed, it seems to me that the construction of the rule does not have that effect. I would, therefore, uphold the decision of Judge Diamond as to the meaning of the rule.

LORD JUSTICE WAITE: I agree.

LORD JUSTICE ALDOUS: I also agree.

(The appeal continued and counsel made further submissions)

LORD JUSTICE STAUGHTON: I now turn to the way that Judge Diamond exercised his discretion in holding that the error made in obtaining leave to serve Mr Stafford out of the jurisdiction could be cured by the retrospective validation of a service upon him.

The relevant facts are set out in the chronology incorporated in the appellant's outline argument. The writ was issued and leave originally given to serve out of the jurisdiction on 21st July 1994. As we have already said, the error was in obtaining leave before there had been service on the first defendant, Mr Al Bader. A month later, on 31st August, Mr Stafford took the point that there had been this error in a summons which was issued on his behalf; and on 19th October his affidavit was served in support of that summons, again mentioning this point. That was met, on 20th December, by an affidavit of Mr Croft, the solicitor for the plaintiffs, in which it was said that, even if leave ought not to have been granted by Mr Justice Cresswell when it was, the court could now grant leave to serve out of the jurisdiction on a fresh application. That was correct at that date. But on 20th January 1995 the six months period of validity of the writ expired. No fresh application could in those circumstances be made unless there was first a successful application for an extension.

Mr Malins has submitted that there could be no application for an extension because the premise to Order 6, rule 8(2) is that a defendant has not been served. He is prepared to accept that that means the relevant defendant, but he says Mr Stafford had been served. But he had been served invalidly, as we now know, by virtue of leave given under Order 11, rule 1(1)(c), and also by virtue of leave given under Order 11, rule 1(1)(f) and (t). That does not seem to me a good point. For the present purposes we must assume that Mr Stafford had not been validly served on any of the grounds in Order 11, rule 1(1). Therefore, there could have been an application for an extension of time.

But, come 20th May 1995, even that possibility disappeared because the maximum period for an extension is four months at any one time. Meanwhile, Mr Stafford's solicitors had written saying that if, indeed, the plaintiffs' solicitors applied for an extension, the application would be opposed. So the present situation came about.

There are three cases of significance on this topic to which we have been referred. The first is Leal v. Dunlop Bio-Processes [1984] 1 WLR 874, a decision of Stephenson, May and Slade LJJ. Next, there is Camera Care v. Victor Hasselblad [1986] 1 FTLR 348; [1993] 1 WLR 1065. Thirdly, there is The Golden Mariner [1990] 2 LLR 215.

In the first two cases there is considerable emphasis on the care and caution with which a court should approach an application to validate retrospectively leave purported to be given under Order 11, rule 1, when the requirements for granting leave had not been fulfilled. It is emphasised on several occasions that this requires great care and caution. There are also passages which say that exceptional circumstances are required before there can be retrospective validation. It is not easy to know what can qualify as exceptional circumstances. There are some indications in an earlier judgment of Megaw J, but the matter is by no means clear.

Then, when it came to the case of The Golden Mariner , the law took, as it seems to me, a new turn. What had happened in that case was that a number of writs were authorised to be served in the United States of America on a number of defendants, and they were for some reason mixed up, so that the wrong writs were served on each defendant. This did not cause them any problem whatever as they were all members of the same pool in an insurance matter. Lloyd LJ, in a dissenting judgment, said, at page 221, that the validation required exceptional circumstances which were not present. But McCowan LJ and Sir John Megaw took a different view.

I take, first, the judgment of McCowan LJ at page 223, where he says:

"There remains of course the discretion in the Court whether or not to set aside the service pursuant of O.2, r.1(2). The risk was placed with these particular defendants through a New York broker called John F. Curry Agency Inc. All of them were parties to the contract, all knew of the accident that had occurred and all got a copy of the writ. None of them was in the dark about the proceedings, and they all took the same prompt action, namely, to put the matter in the hands of their London solicitors, who took in each case the same point on service. Mr Tomlinson for those defendants says that as they were all part of the Curry pool it is not surprising that there should have been some co-ordination. That is a very long way from saying that any one of them was in any way misled by the mistake; and, indeed, none of them has ever suggested that it was.

In those circumstances their position falls squarely, in my judgment, within these words of Lord Justice Kerr in Singh v. Atombrook Ltd. [1989] 1 WLR 810 at p.820C:

´Of course, in the present case there was never the slightest doubt in the minds of the defendants that the plaintiff intended to sue them and that they were the persons with whom this case was concerned.'

The approach of the Court to the exercise of discretion was stated as follows by Lord Justice Cumming-Bruce in Metroinvest Ansalt v. Commercial Union [1985] 1 WLR 513 at p.521F:

´I would say that in most cases the way in which the court exercises its powers under Ord. 2, r.1(2) is likely to depend upon whether it appears that the opposite party has suffered prejudice as a direct consequence of the particular irregularity, that is to say, the particular failure to comply with the rules. But I would construe Ord. 2, r.1(2) as being so framed as to give the court the widest possible power in order to do justice ... '

Mr Tomlinson frankly accepted that he could point to no prejudice suffered by any one of these six defendants by reason of the irregularity. Consequently I have no hesitation in concluding that this Court should exercise its discretion against setting aside the service upon them."

Sir John Megaw, at page 225, said:

"If it had resulted in any misunderstanding by, or any prejudice to, any of the defendants concerned, the consequences would have been very different in these proceedings. But it is accepted that the mistakes caused none of them any prejudice; they knew that concurrent writs had been issued and were in existence in respect of each of them, and that it had been the intention that the appropriate document should be served. I leave out of account for the moment the argument for the defendants based on the fact that these writs were for service out of the jurisdiction. In the absence of actual harm to these defendants as a result of the process server's errors, the only ground on which it would be proper to refuse to allow the plaintiffs to correct the mistakes would be if it were right to punish the plaintiffs in the interest of upholding the importance of proper diligence in the service of proceedings. Should the plaintiffs be punished pour encourager les autres? I think not.

There is, however, the potent argument that special considerations apply to the exercise of the discretion under O.2, r.1 where the failure or irregularity has occurred in connection with proceedings which involve the requirement of leave to serve out of the jurisdiction."

He refers to the two cases of Leal v. Dunlop Bio-Processes and Camera Care Ltd. v. Victor Hasselblad . Then he says, at page 226:

"The criterion of ´exceptional circumstances' was based on my judgment in Heaven v. Road and Rail Wagons Ltd. [1986] 2 QB 355. After the date of the judgments of this Court in Leal v. Dunlop and the Camera Care case, that criterion of ´exceptional circumstances' was disapproved by the House of Lords in The Myrto . [A reference to the case of Kleinwort Benson v. Barbrak ] In The Myrto (No. 3) [1987] 2 Lloyd's Rep. 1 at p.11, col. 1; [1987] AC 597 at p.619E Lord Brandon said:

´... what is required to justify extension is "good cause" or "good reason" rather than the more stringent "exceptional circumstances".'

It appears to me to follow that, in seeking guidance from Leal v. Dunlop as to the exercise of the Court's discretion under O.2, r.1 in respect of proceedings involving service out of the jurisdiction, it must be borne in mind that, if analogy is sought to be drawn from the criterion under O.6, r.8, the relevant criterion is no longer ´exceptional circumstances', as was thought to be the criterion by the Court in Leal v. Dunlop , but would now be ´good cause' or ´good reason'."

For my part, seeing the difficulty in defining "exceptional circumstances" and after considering the decision of the House of Lords in Kleinwort Benson v. Barbrak [1987] 1 AC 597, I would gladly adopt the test of "good cause" or "good reason".

However that may be, the judge in this case did treat this matter with great care. He said:

"I accept that great caution has to be exercised before curing an irregularity under Order 2, rule 1 where service out of the jurisdiction under Order 11, rule 1 is concerned."

He had already set out what he regarded as special circumstances, as assembled in the outline argument for the respondents, which were:

(a) The bona fide minor and excusable nature of the plaintiffs' mistake. (I pause to say that I do not know that I would regard it as all that excusable. Everybody should have known what the position was.)

(b) The absence of any prejudice to Mr Stafford.

(c) The fact that the mistake could easily have been cured before 21st January 1996.

(d) The fact that the plaintiffs gave notice in December 1994 that they intended to cure the mistake under Order 2.

(e) The fact that the plaintiffs' failure to issue any concurrent writ of summons was only minor inadvertence at a time of negotiations between the parties.

(f) That it was admitted that, subject to jurisdiction, the case was a proper one for service out of the jurisdiction.

(g) That it was desirable that the action should be heard against all three defendants in the same jurisdiction.

I would add two more possible exceptional circumstances: first, that Mr Stafford, like the defendants in The Golden Mariner , instructed English solicitors forthwith and arranged for them to put forward his application; secondly, there is, to my mind, the important fact that the plaintiffs could start another action all over again against Mr Stafford. The time limit has not expired. It is true, as Mr Gerrans pointed out, that they could not incorporate Mr Stafford into the present action. It is too late for that. Nor could they start a new action against Mr Stafford in England because he would be the only defendant, unless they had valid grounds for service out under Order 11, rule 1(1)(f) or (t); and we are assuming, for present purposes, that they had not. But they could start a new action in Australia, assuming that the limitation period is the same. And that would be the worst of all possible worlds, because, as was featured in one of the exceptional circumstances, it was desirable that the action should be heard against all three defendants in the same jurisdiction.

In those circumstances I find nothing to criticise in the judge's reasoning whereby he decided that this was a case where he could treat the service as valid. That is even more the case when one takes into account the additional factor that the claim is still alive in any event.

As Mr Malins percipiently observed, we are quite frequently reminded in this court of a passage quoted in the Supreme Court Practice, para. 59/1/59:

"There are many authorities for the proposition that an appeal will not be entertained from an order which it was within the discretion of the judge to make, unless it be shown that he exercised his discretion under a mistake of law or in disregard of principle or under a misapprehension as to the facts; or that he took into account irrelevant matters or failed to exercise his discretion or the conclusion which the judge reached in the exercise of his discretion was ´outside the generous ambit within which a reasonable disagreement is possible'."

None of those requirements is fulfilled, in my judgment, in this case. I would, therefore, dismiss this appeal.

LORD JUSTICE WAITE: I agree.

LORD JUSTICE ALDOUS: I also agree.

Order: appeal dismissed with costs; respondent's notice dismissed with costs; leave to appeal to the House of Lords refused.