Practitioners regularly acting in insolvency proceedings were given a “refresher” on the matters to which they should have regard when seeking permission to serve a non-EU foreign defendant out of the jurisdiction in Hosking v Apax Partners LLP  EWHC 558 (Ch).
The proceedings concern a claim by the liquidators of Hellas Telecommunications (Luxembourg) II SCA (Hellas II) against, relevantly, four Guernsey companies. It is alleged by the liquidators of Hellas II that the price for the redemption of various Convertible Preferred Equity Certificates in 2006 paid by Hellas II was exorbitant and left Hellas II over-leveraged and insolvent. The redemption and re-financing the subject of these transactions are said to constitute a transaction or transactions defrauding creditors within the meaning of s 423 of the Insolvency Act 1986 (the IA) and/or fraudulent trading within the meaning of s 213 of the IA.
In determining the application to set aside service out of the jurisdiction, the Court focussed on the procedural requirements for service out in the relevant insolvency provisions, including paragraphs 6.4 to 6.6 of the Practice Direction: Insolvency Proceedings  BCC 502 (the Insolvency PD). Those paragraphs of the Insolvency PD were said to apply in preference to rr 6.30-6.51 of the CPR, which apply to non-insolvency proceedings: at . As such, the application for permission to serve out must be accompanied by a witness statement which satisfies three requirements, namely it sets out: “(1) the nature of the claim or application and relief sought; (2) that the applicant believes that the claim has a reasonable prospect of success of success; (3) the address of the person to be served or, if not known, in what place or country that person is, or is likely to be found”: at , citing paragraph 6.6 of the Insolvency PD. Although noting that nothing turned on it (at ), it was explained that the test of “serious issue to be tried” (which was put forward by the respondents), being the test under the CPR, should not be conflated with the requirement that the “claim has a reasonable prospect of success”: at . Further, the test of a good arguable case is only relevant in cases which fall outside the IA: at .
For present purposes, it is unnecessary to recite the facts in great detail, other than to note that the applicants’ success largely rested on their ability, in the circumstances of the case, to rely on foreign judgments which assisted them to establish the requisite belief in the reasonable prospects of success. The witness statement was otherwise deficient. That is, they relied on various exhibited U.S. and Luxembourg judgments to establish the requisite belief. It was pointed out, however, that the use that can be made of such foreign judgments was limited in this case to the “narrative of the evidence within a judgment [which] may be referred to for the purpose of identifying the evidence before the court [and] the evidence that existed may also be inferred from the findings in the judgment”: at , . But the English Court was not bound by that judgment. Assisted by the amended complaint in the U.S. proceeding, and the material in those foreign judgments, the Court was satisfied that the applicant had the requisite belief to found service out.
It was plain, however, that the Registrar was not satisfied with the material before him. Observing that the witness statements in this case did not satisfy the requirements, unless the exhibits were taken into account (at ), he explained:
What is required is: identification of the causes of action; a statement of facts and matters relied upon to satisfy the elements needed to be provided; identification of potential defences within the context of full and frank disclosure being pragmatic and not being carried out to an extreme length and sufficient evidence to satisfy the belief required by paragraph 6.6 of the PD Insolvency.
Further, Registrar Jones identified various breaches of full and frank disclosure, none of which caused him to exercise his direction to set aside the order for service out, but which, collectively, evidenced his criticisms of the evidence: at .
While the applicants in this case were fortunate, by reference to the exhibits to which reference was made, to satisfy the Court of a basis to found service out of the jurisdiction, practitioners should beware. The requirements of paragraph 6.6 of the Insolvency PD, less discerning than the relevant CPR rules they may be, still requires careful attention to be given to the evidentiary basis for an application for service out. As insolvency proceedings pertaining to matters across State borders increase, the wise counsel set out in this judgment should serve as a warning for practitioners to ensure that their (evidentiary) houses are in order before seeking permission for service out.