The new approach to the tort service out gateway in practice

Abu Dhabi Commercial Bank PJSC v Shetty & Ors [2022] EWHC 529 (Comm) (ADCB v Shetty) shows the High Court applying the approach to the tort gateways for permission to serve out under Practice Direction 6B (Service out of the jurisdiction) (PD6B) that was recently clarified in FS Cairo (Nile Plaza) LLC v Brownlie [2021] UKSC 45 (Brownlie). There is room for differing views as to whether ADCB v Shetty reflects well on the approach taken in Brownlie.

Background

ADCB v Shetty arises out of a major alleged fraud involving NMC Health (NMC). Whilst NMC was quoted on the London Stock Exchange (LSE), its business was mainly in the UAE. ADCB loaned significant funds to UAE-based NMC subsidiaries and alleged that it had been induced to lend by the false financial statements of the UK-listed parent. ADCB commenced proceedings in London and sought permission to serve the claim out of the jurisdiction against a number of individual defendants whom ADCB alleged had been involved in NMC’s false accounting.

Judge Pelling QC delivered a comprehensive judgment covering various grounds on which ADCB sought permission to serve out. He accepted that the claims could satisfy a number of PD6B gateways, but concluded that England was not the most suitable place for the resolution of the dispute.

The tort service out gateway

ADCB v Shetty is most interesting for showing the High Court applying Brownlie. The majority in Brownlie considered that the courts should take a relatively permissive approach to the first two parts of the test for permission to serve out of jurisdiction, being (a) a serious issue to be tried and (b) a good arguable case that the claim satisfies a PD6B gateway. This approach leaves the third part of the test, whether England is the proper forum, as a safety valve to exclude claims that have only “casual or adventitious” links with England. Lord Leggatt’s dissenting judgment in Brownlie questioned the coherence of the majority approach and whether it could produce a bias in favour of cases being heard in England.

Where damage is sustained

Brownlie considered the gateway in PD6B para 3.1(9)(a) and the question of whether “damage was sustained…within the jurisdiction”, and found that these words were satisfied by “actionable harm, direct or indirect, caused by the wrongful act alleged” taking place in England. In Brownlie, the actionable harm taking place in England was pain and suffering, loss of amenity and the financial consequences of a death resulting from a car accident in Egypt. Acknowledging the width of this test, the court suggested that a more constrained approach could be necessary in pure economic loss cases.

In ADCB v Shetty, the Court found ADCB had sufficient basis to argue that actionable harm had occurred in England because the loan agreements between ADCB and the NMC borrowers were completed by the receipt of executed copies by London lawyers. The London lawyers had also sent out confirmations that conditions precedent to funding were satisfied. The “harm” arising at this point was the creation of obligations to fund the borrowers.

It is notable that these legal administrative acts in England were sufficient to satisfy the gateway even though the real substance of the lending relationship was overseas: all parties were UAE-based and the facilities were negotiated and managed in the UEA, including any reliance upon the alleged misrepresentations and the drawing down of funds.

Where the harmful acts occurred

ADCB separately argued that the damage it sustained resulted from “an act committed… within the jurisdiction” for the purpose of the gateway in PD6B 3.1(9)(b). ADCB’s arguments in this respect faced difficulties because the substance of the relationship between ADCB and the NMC borrowers was located in the UAE. However, the judge stressed it was sufficient that some “substantial and efficacious” action had occurred in England, even if other such actions had occurred overseas. He was reluctantly willing to accept that the publication of NMC’s accounts on the LSE website in England (which was argued to carry implied representations that accounts were honestly prepared) was sufficient.

The proper forum test

Although the Court found that the tort gateways were satisfied, ADCB failed to persuade the Court that England was the most appropriate forum to determine the dispute. The relevant factors pointed strongly to the UAE as the proper forum: the location of the parties and the crucial events underlying the dispute, the location of most witnesses and documents, UAE law governing the dispute, and related proceedings already on foot in the UAE.

The defendants had given undertakings to submit to the UAE courts. These undertakings had the effect of sharpening the Court’s choice between England and the UAE and were reflected in the Court’s orders. The Court stayed the proceedings with liberty for ADCB to apply to lift the stay if the defendants breached the undertakings to submit to the UAE courts.

The judge made interesting comments on some of ADCB’s arguments. A separate defendant to the English claim had accepted service and the jurisdiction of the English courts. However the risk of irreconcilable judgments was not a trump card that meant all proceedings should be brought in England when the other relevant factors pointed to the UAE. The judge also re-affirmed that the English courts will generally not have regard to the greater experience of the London courts in dealing with complex fraud or the procedural tools available to litigants in England.

Takeaways

Arguably, ADCB v Shetty shows the Brownlie approach to the tort gateways in PD6B operating as intended, with the proper forum test filtering out claims that satisfy the gateways but are obviously more closely connected to other jurisdictions.

On the other hand, the case shows a claim satisfying the PD6B gateways because of factors arising incidentally from contact between a foreign business and the financial and legal services offered in London. Given the vast number of foreign businesses that will touch London in this way, the proper forum test may need to do a great amount of work in future decisions.