Bayat Telephone Systems Internaitonal Inc & Ors v Lord Michael Cecil & Ors

A claimant should not delay service of a claim form merely to secure funding and costs protection for the whole litigation. Where funding is needed only to pursue the claim to trial, the proper course is ordinarily to serve within the claim form’s validity and seek a stay or case-management directions.

Where an extension may deprive a defendant of a limitation defence, that consequence is of primary importance. A balance of hardship arises only after a good reason for extension has been shown. Service out by an alternative method under the Civil Procedure Rules 1998 is exceptional. Greater speed or a wish to ensure actual notice will not ordinarily justify bypassing the Hague Convention or other approved foreign-service methods.

The claimants alleged that the defendants had promised them minority interests in a telecommunications project in Afghanistan in return for their services. They sought substantial contractual, trust, restitutionary and tortious relief.

After issuing a claim form, the claimants obtained without-notice extensions of time for service while seeking litigation funding, followed by permission to serve out and by alternative methods. Hamblen J refused the defendants’ applications to set aside those orders: [2010] EWHC 641 (Comm).

The defendants appealed. The central issues were whether funding difficulties justified extensions which might defeat limitation defences, and whether the need for quicker notice justified alternative service abroad.

1. Appeal allowed. The extensions of the claim form’s validity granted by Field J and Tomlinson J should not have been granted and were set aside. The order permitting alternative service was also unjustified.

2. Under CPR r 7.6, the ordinary good reason for extending time to serve is a genuine difficulty in effecting service. The claimants had instead made a deliberate choice not to serve until they had assembled funding, conditional fee arrangements and after-the-event insurance for the entire litigation. That did not prevent them from commencing and serving proceedings. If they required time before pursuing the claim, they should have served and sought a stay or directions from the court.

3. The court accepted that the claimants had not deliberately misrepresented their position by saying that funds had been exhausted. Their evidence was nevertheless not a full account of all claimants’ means. More importantly, it proceeded from the mistaken premise that comprehensive funding was required before service.

4. The possibility that an extension would deprive the defendants of a limitation defence was central. It was not enough to ask whether the defendants knew that litigation remained likely, or whether the extension fell only shortly beyond an assumed period. In a limitation case, the claimant must show a good reason which properly addresses the significance of that defence. The balance of hardship is relevant only once such a reason is established.

5. Service is an exercise of the court’s power within another state and is more than a means of giving actual notice. Alternative service under CPR r 6.15 in a Hague Convention state is therefore exceptional and requires special circumstances. Speed, international travel by individual defendants, and urgency created by the claimants’ own delay did not amount to good reason. The court followed the approach in Knauf UK GmbH v British Gypsum Ltd [2002] 1 WLR 907.

Rix LJ added that cases involving a country with no relevant service treaty and exceptionally lengthy delay may warrant greater flexibility, but those circumstances were absent.

• Court of Appeal (Civil Division): Allowed the defendants’ appeal and reversed the refusal to set aside the extensions of time for service: [2011] EWCA Civ 135.
• High Court, Queen’s Bench Division, Commercial Court: Hamblen J dismissed the defendants’ applications to set aside the extensions and alternative-service order: [2010] EWHC 641 (Comm).