Background
The recent case of Abu Dhabi Commercial Bank PJSC v Shetty raised the question of whether section 1140 of the Companies Act 2006, when used in conjunction with the “necessary or proper party” gateway under PD 6B.3.1(3), has an “exorbitant and arbitrary” effect.
Section 1140 provides for service of documents on company officers. Subsection 1140(2) lists the officers to whom the provision applies, and pursuant to subsection 1140(3), the provision applies “whatever the purpose of the document in question”. Subsection 1140(3) continues that the provision is “not restricted to service for purposes arising out of or in connection with” the person’s appointment or position in the company; nor is it limited to purposes “in connection with the company concerned”.
It is in this context that subsection 1140(1) provides that documents may be served by leaving it at or posting it to the person’s “registered address”; which, under subsection 1140(4), means any address shown in the public part of a company’s register in relation to that person. Subsection 1140(8) provides that nothing in the section is to affect any enactment or rule of law under which permission is required for service out of the jurisdiction.
Key facts
The claimant bank alleged it had been the victim of a fraud perpetrated through a formerly successful FTSE 100 company, its main UAE-based subsidiary, and its other subsidiaries. The defendants were controlling shareholders of the parent company, and held various senior positions within it and its subsidiaries; including CEO, director, and executive chairman.
None of the defendants, however, were or had ever been resident or domiciled in England. In the first defendant’s case, it was not in any serious dispute that he had lived in the UAE for about 50 years, before returning to India in 2020. The first defendant was, however, a foreign-resident director of two English-registered companies and, for this purpose, had provided a registered address in England. It was on this basis that the claimant served the present proceedings on him under section 1140 of the Companies Act 2006; then, using the first defendant as an anchor defendant, sought permission to serve the remaining defendants under the “necessary or proper party” gateway.
The issue
Is section 1140 available even if the company officer is not resident in the jurisdiction, so long as they have a registered address in England and Wales; or does subsection 1140(8) operate to limit the scope of section 1140 to cases where the officer is already within the jurisdiction?
As the defendants argued, the first construction arguably permits the “necessary or proper party” gateway to be used in an “exorbitant and arbitrary” manner. This is because it allows foreign defendants with no connection to England to be forced to defend a claim there, simply because: (i) one of the co-defendants happens to be the director of an English-registered company (which, furthermore, might not even have anything to do with the claim being brought against that co-defendant); and (ii) that co-defendant has happened to provide a registered address in England.
The decision
HHJ Pelling QC, however, rejected the defendants’ alternative construction. His reasons were as follows.
First, the judge concluded that – to hold that section 1140 is unavailable in respect of a director who happens, at the time when service is effected, not to be resident in the English jurisdiction – would itself be at least potentially arbitrary and would reduce the practical utility of providing for this method of service.
Second, the judge drew an analogy with cases under CPR 6.11 (where there is a contractually agreed method of service). He held that a director who is resident or domiciled abroad, but who provides a “registered address” in England, should be capable of being served at that that address without permission to serve out of the jurisdiction being required, like where service is by a contractually agreed method.
Third, the first construction gives effect to subsection 1140(8), when read together with CPR 6.6. Where a foreign based director supplies a registered address within England and Wales, then that director can be served there without permission being obtained. If a director provides a foreign registered address then permission to serve out at that address is required.
The judge therefore concluded that the first defendant had been properly served in England and so was capable of being an anchor defendant for the purposes of the “necessary or proper party” gateway.
The implications for the “necessary or proper party” gateway
The judge recognised it might be thought surprising that a provision within the Companies Act 2006 which applies to company officers would apply to proceedings brought against them other than in their capacity as company officers. However, that was the clear legislative effect of subsection 1140(3).
The defendants’ submissions on the potentially exorbitant effect of construing section 1140 in this way ignored several other constraints placed on any application to serve out using the “necessary or proper party” gateway.
First, CPR 6.37(3) precludes permission being granted to serve proceedings out of the jurisdiction unless the court is satisfied that England and Wales is the proper place in which to bring the claim.
Second, under the “necessary or proper party” gateway itself, the court must be satisfied that there is between the claimant and the anchor defendant a serious issue to be tried on the merits, applying the summary judgment test. Such requirement is “designed to ensure that a party who is out of the jurisdiction cannot be brought within the jurisdiction by reference to a claim against an anchor defendant that is bound to fail, and which is being used as a device to bring the non-anchor defendants into the jurisdiction”.
The judge, therefore, rejected the defendants’ submissions that: (i) section 1140 only applies when the company officer is already within the jurisdiction; and (ii) to hold otherwise would have an exorbitant and arbitrary effect when combined with an application to serve out of the jurisdiction based on the “necessary or proper party” gateway.
Comment
Section 1140 does confer a wide jurisdiction to serve proceedings on company officers at the address listed on the public part of the company’s register, even where the claim has nothing to do with their capacity as a company official. The facts of the present case, however, demonstrate the limits of the scope and proper application of this provision where it is used in conjunction with foreign defendants.
Where a foreign company officer provides an English registered address, they may be served at that address under the usual rules on service within the jurisdiction, that is, without permission, and without any need to show the merits of the case or that England is the convenient forum.
However, where a foreign company officer is served at an English registered address, and that foreign officer is used as an anchor defendant to serve foreign co-defendants out of the jurisdiction under the “necessary or proper party” gateway, the test on the claimant’s application for permission to serve out of the jurisdiction has been clarified.
Any application to serve the foreign co-defendants out of the jurisdiction will effectively treat that (foreign) anchor defendant as a person in respect of whom permission to serve proceedings is required; notwithstanding that the (foreign) anchor defendant himself will have been served within the jurisdiction without the claimant requiring permission from the court.
Under the “necessary or proper party” gateway, the claimant will first need to show, pursuant to PD 6B.3.1(3)(a), that, as between the claimant and anchor defendant, there is “a real issue which it is reasonable for the court to try”. Only then will it fall to be considered under PD 6B.3.1(3)(b) whether the foreign co-defendants are necessary or proper parties to that claim.
