How do you recover debts from someone living outside the UK?

How do you recover debts from someone living outside the UK? Andrew McBirnie offers an insight into a tricky leasehold issue.

Being faced with a debtor who is overseas can be a major headache. The rules on starting debt recovery proceedings against someone living outside the UK jurisdiction are extremely complicated and it is important to get it right.

As a basic principle of English law, a defendant must be given notice of the substance of any claim made against him which is commonly referred to as ‘service’ of proceedings and is dealt with in some considerable detail within the Civil Procedure Rules. Failing to properly serve the proceedings can be costly in terms of both money and time.

If the defendant is based within the UK, then this is a relatively straightforward process. Service of proceedings usually involves simply posting the claim form and court documents by first class post or DX. Sometimes the documents may be left at a specified place, they may be served in person or by another agreed method such as by fax, electronic means or they may be given to a solicitor instructed to accept them.

So far so good, but what happens in those situations where the defendant is based outside the UK jurisdiction? This issue is becoming increasingly problematic due to the increasing attraction of the UK property market to overseas investors who may not maintain a UK residence. And it isn’t just a question of debtors based in far flung destinations -  the Republic of Ireland also falls into this category so the issue may come up unexpectedly.

 It is important for property managers to have a system in place to spot the potential for problems at an early stage, so always check before you issue any proceedings exactly where the defendant is based.  Then you should consider the following steps:

Where should the claim be brought
You will need to consider whether the courts of England are the proper place for the dispute to be heard and there are very complex rules that govern jurisdiction. In cases between parties based in EU countries the starting point is that a defendant living in an EU country must be sued in the courts of that country. This could be a major concern if the debtor lives abroad, but generally in service charge matters it is possible to establish the UK as the correct venue for the claim where the lease states which jurisdiction should apply or on grounds of the property being based in the UK. The rules relating to non-EU defendants are even more complex. However, the courts will take into account similar factors to those above concerning any contractual agreement and the location of the property.

Where to serve proceedings?

Once you have established the English Court as the correct venue you need to consider whether it is then going to be necessary to serve the defendant abroad.  If you are lucky you may find that it is  possible to effect service on the office/agent of a foreign company if they have a base here, or if there is a UK address for service required in the lease.

If service is looking particularly difficult to achieve, it is possible to apply to the court for an order permitting service by alternative means. The courts have been known to allow service by email, Twitter and Facebook when a good reason can be established.  Unfortunately, being easier or quicker probably isn’t going to be a good enough reason to convince most judges and at least some attempt at accomplishing service in the country concerned will be necessary first.

Can I Serve?
Permission is not generally needed for service on a defendant in Scotland or Northern Ireland or for countries to which the Brussels or Lugano Conventions or the Brussels Regulations apply. In general terms, the Brussels Regulations apply to all EU member states and the Brussels Convention applies to certain EU-dependent territories. The Lugano Conventions apply to Iceland, Switzerland and Norway.

Outside of these, the court’s permission is generally required before effecting service. Again the rules are complex but in service charge cases there are several factors which would support permission being granted. Where the lease is made in the UK, potentially disputes will be governed by English law and where the property is based in the UK, that is likely to be considered the jurisdiction with the most substantial connection. It is also necessary to convince the court that the claim has a reasonable prospect of success.

How do I serve?

Once you have established whether permission is needed and - if necessary - you have obtained it, the next hurdle is to identify what the proper method of service is for  the country in which the debtor is residing.

For service in an EU member state, service is usually effected by a method set out in the EU Service Regulation or any method provided by a Civil Procedure Convention or a Treaty, such as the Hague Convention. The latter convention applies to a large number of, but not all, countries. The primary method of service under the Hague Convention is through a central authority established in each contracting country to take responsibility for service of documents. However, this method of service can be a very lengthy process and the timescale can vary substantially from country to country.

Alternatively, or in the case of a country not contracted to one of the above mentioned regulations or conventions, service may be effected by any other method permitted by the law of the country in which the claim is to be served. In this situation it is usually wise to obtain advice from a local lawyer in that country for an estimate of the timeframe for service and to ensure that the method of service you intend to use is valid in accordance with that country’s laws.

And finally…
Unfortunately there is no hiding from the fact that the rules relating to the issue and service of debtors based overseas are complicated and carry considerable risk of delay and additional costs if you get them wrong. If you are in any doubt, it is usually best to seek legal advice on these issues.

Andrew McBirnie is a Partner and Head of Litigation at Swaine Allen Solicitors