If you have ever questioned the crucial role that process agents can play in financial transactions between UK and non-UK parties, it might be instructive to look at just one example of a dispute that arose several years back.

The case in question, Banco San Juan Internacional, Inc. v Petroleos De Venezuela, S.A., culminated in an English court considering whether the borrowing party had been validly served, in a situation where the borrower had not complied with its contractual obligation to make sure there was always a service of process agent in place.

What were the details of the case?

The two parties in the proceedings were the Puerto Rican bank, Banco San Juan International SA (BSJI), and the Venezuelan oil company, PDVSA. The two parties entered into a loan facility agreement dated 2016, and then another in 2017.

Contained within these facility agreements were identical process agent clauses, as are widespread in cross-border financial transactions.

The clauses set out that the borrower – PDVSA – was “obliged forthwith to appoint a process agent to be an authorised agent for service of proceedings in England”, and that “if for any reason the process agent ceases to be such an agent, then PDVSA must forthwith appoint a new agent and notify that appointment within 30 days of the process agent ceasing to be agent.”

Crucially, the contract also followed this up with: “If PDVSA fails to comply with its obligation to appoint a new agent for the service of process, the lender may appoint an agent for service of process on PDVSA.”

In line with the requirement of the 2016 facility agreement, PDVSA put in place a process agent; however, when this appointment lapsed in 2019, the company did not appoint a replacement. The 2017 facility agreement, meanwhile, never saw a process agent appointed by PDVSA.

BSJI and PDVSA subsequently found themselves in dispute, and with there not being any process agent in place as appointed by PDVSA, BSJI made its own appointment of a new process agent on the borrower’s behalf.

PDVSA did not acknowledge service, and when BSJI applied for summary judgement, the borrower argued that the sending of the claim to the new process agent did not constitute good service on PDVSA.

What was the outcome of the court case?

PDVSA made a number of arguments in its defence in the case. These included that BSJI’s direct appointment of the new process agent without PDVSA’s approval meant the new process agent could not be said to be an “authorised agent”, as the process agent clause required.

The borrower also argued that the process agent clause did not survive after the date on which BSJI had refused to advance further sums to PDVSA in accordance with the facility agreements’ terms.

In addition, PDVSA reasoned – with regard specifically to the 2017 facility agreement – that the borrower could not be said to have failed to appoint a “new” process agent, given that no process agent had ever been put in place in relation to that facility in the first place. It said that this meant BSJI should not have the right to appoint an agent on the borrower’s behalf.

The Judge (Foxton J), however, rejected these arguments. The court stated that the reference to an “authorised” agent, for example, must mean authorised under the terms of the credit agreement. The court concluded that if the bank appointed an agent on the borrower’s behalf after the latter’s failure to do so, then by definition, that agent was the defendant’s “authorised” agent.

Foxton J also stated, in response to the defendant’s argument that it was “unfair” for it to have a process agent imposed on it that was not of its own choosing, that there was no such unfairness, reasoning: “If the defendant did not want to be at risk of an agent being appointed who it does not like [or] on terms of appointment that it did not like, all it need do is comply with its contractual obligation to appoint an agent in the first place.”

Finally, with regard to the 2017 facility agreement, the Judge also objected to the defendant’s interpretation of the word “new” in the context of the clause. He said that the bank’s ability to put in place a new process agent for that agreement did not depend on the borrower having previously appointed an agent, likening the situation to one where “someone who has never owned a coat may still be said to buy a new coat, notwithstanding the fact that it is not a replacement”.

A reminder of the significant role that a process agent can have

The above may have been just one judgement, but it nonetheless underlines just how crucial it can be to ensure the appointment of a service of process agent in relation to cross-border transactions.

For a more in-depth discussion of the comprehensive and cost-effective process agent service that London Registrars can provide, and to take your first steps in what could be a longer-term relationship with us, please do not hesitate to contact our team.

November 2022