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English court grants the European Union summary judgment against Syria

 

26 July 2018

​The English High Court has granted the European Union (EU) summary judgment against the Syrian Arab Republic (Syria) for non-payment of EUR190m under a series of commercial loans.  The case is procedurally noteworthy: it develops the law on alternative methods of service on a State and provides  helpful authority if one party fails to nominate a solicitor to take service.  The judgment also gives a useful reminder of the rules on summary judgment – in circumstances where one party fails to engage with proceedings – and of the law of subrogation.  The loans to Syria were made by the European Investment Bank (EIB) and guaranteed by the EU.  The EU claimed under the loan agreements, on a subrogated basis, having reimbursed the EIB for its losses pursuant to the terms of the guarantees. Allen & Overy LLP (Dirk Arts, Lawson Caisley, Sarah Garvey and Thomas Cusworth) act for the European Union and the EIB in this matter: (1) The European Union (represented by the European Investment Bank) and (2) the European Investment Bank v the Syrian Arab Republic [2018] EWHC 1712 (Comm), 29 June 2018

The EIB entered into a number of English law governed loan agreements with Syria between 1990 and 2008 to support certain development projects in that country.  The claim brought in the English High Court was in respect of those loans containing an English jurisdiction clause (the Loan Agreements).  Since 2011, Syria had failed to make loan repayments under the Loan Agreements.  The EU, as guarantor of Syria’s repayment obligations, indemnified the EIB for unpaid sums totalling over EUR190m, including principal, interest and default interest. 

In August 2017, the EU (represented by the EIB) and the EIB brought proceedings against Syria in the English High Court to claim the unpaid sums. The proceedings were effectively served on Syria by the Foreign and Commonwealth Office (FCO) in September 2017 (see our article on the judgment of Teare J in EIB v Syrian Arab Republic [2018] EWHC 181 (Comm)).  

Syria did not file an acknowledgement of service or a defence following service, and did not otherwise engage in the proceedings. The EU/EIB subsequently applied for summary judgment (and for permission to apply for such judgment).  

Alternative service of documents once proceedings served

Generally, a defendant will provide an address for service of documents (normally a solicitor) once proceedings have been served pursuant to CPR 6.23.  However, Syria did not comply with this provision.  

How then should the documents concerning the summary judgment application be served on Syria? CPR 6.44(1) provides “this rule applies where a party wishes to serve a claim form and other document on a State”.  Bryan J held that CPR6.44 is not concerned with the service of documents (eg an application for summary judgment) once proceedings have been served on a State, interpreting CPR 6.44(1) in line with s12(1) State Immunity Act 1978 (SIA 1978) that requires the “writ [claim form] and other documents required to be served for instituting proceedings ” (emphasis added) to be served via the FCO.  The claimants’ solicitors (Allen & Overy LLP) had served the application notice and associated documents on Syria by email and by fax, and had attempted to serve by courier  to the Syrian Ministry of Foreign Affairs, which had been served with the claim form and other documents required to be served to institute proceedings by the FCO under CPR 6.44. Given the apparent lacuna in the rules, the court granted an order for service by an alternative method under CPR 6.27, having found that the EU/EIB had satisfied the requirements for such an order and that there was good reason to do so.  The EU/EIB therefore had to serve the application for the summary judgment documents directly. 

Permission to apply for summary judgment

Where a defendant does not file an acknowledgement of service or defence, under CPR 24.4(1) it is necessary to obtain permission, before an application for summary judgment can proceed. Bryan J granted such permission noting that permission should be granted only where the court is satisfied the claim has been validly served and that the court has jurisdiction to hear it. Once those conditions are met there is generally no reason why the court should prevent a claimant with a legitimate claim from seeking summary judgment (Citicorp Trustee Company Limited v Al Sanea [2017] EWHC 2845 (Comm)).  The court was satisfied that the EU and the EIB met the requirements for permission to be granted.

No immunity

Bryan J noted that Syria had expressly submitted to the jurisdiction of the English courts and waived its right to immunity in the Loan Agreements, meaning any claim to sovereign immunity would have failed.  In any event, Bryan J observed that the Loan Agreements were “commercial transactions” under s3(1)(a) SIA 1978, to which no immunity from suit would attach. 

EU right to bring claim in its own name

The EU’s rights of subrogation arose upon payment of the sums under the guarantee made by the EU. Bryan J considered the two types of subrogation outlined in Alliance Bank JSC v Aquanta Corporation [2011] EWHC 3281 (Comm), by reference to a textbook entitled Subrogation: Law and Practice (Mitchell and Watterson). The first, referred to as “Extinguished Rights” subrogation, is where the defendant’s obligation to the creditor is discharged by the claimant and the claimant is given new rights which replicate the creditor’s extinguished rights. The second type is “Subsisting Rights” subrogation, occurring where the defendant’s obligation is not discharged on payment by the claimant and the creditor's rights subsist, as illustrated in the insurance context.  The court concluded that in this case the EU’s claim was correctly categorised as the first “Extinguished Rights” subrogation and that the claim had been properly brought by the EU in its own name.

Summary judgment granted

Bryan J was satisfied that: (i) there was no potential defence which stood any real prospect of success; (ii) that there was no real prospect of Syria successfully defending the claims (which ultimately were claims in debt that had, at least in part, been previously acknowledged); and (iii) there was no other compelling reason why the case should be disposed of at a trial.  The court therefore granted the EU permission to apply for summary judgment, and gave summary judgment to the EU against Syria for EUR190m (plus contractual default interest and costs).

COMMENT

The judgment in this case gives parties helpful guidance for the service of documents on States once proceedings have been served, in particular where a party has not nominated an address for service under CPR 6.23.  Despite the unusual circumstances of the case, by ruling on service on a State (both in this judgment and in the earlier decision of Teare J) and granting summary judgment the English court has also shown that it is able to deal with disputes involving States in an efficient manner.

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  If you wish to receive this publication, please contact Amy Edwards, amy.edwards@allenovery.com.

 

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