A lesson for businesses using process agents

Action may be required in light of an English High Court decision that provided important guidance on the enforceability of process agent clauses, particularly in contracts involving consumers. The judgment highlighted the potential for such clauses to be deemed unfair under the Consumer Rights Act 2015 (CRA) where they create an imbalance between the parties.

Under the Civil Procedure Rules, parties to a contract are free to contractually agree the method for service of a claim form. One method of service which parties might agree is service on a process agent – these provisions are known as a process agent clause or service agent clause. A process agent is a designated representative authorised to receive legal documents on behalf of a party to a contract. This method of service is useful when a party to the contract is based abroad. Process agent clauses are common terms in facility or credit agreements where there is an international element, as well as in other cross-border contracts.

However, issues may arise when the nominated process agent ceases to exist, or their appointment otherwise fails. Process agent clauses often contain provisions designed to cater for this scenario. It was these provisions that the High Court considered in its judgment, in a case involving a lender that commenced litigation against two foreign nationals, each of whom was a guarantor of a loan facility.

The case

Regera SARL (Regera) was a lender pursuing two Australian nationals based in the US, who were guarantors of a loan facility advanced to another person, Andrew Valmorbida, who was the son of one of the guarantors. Valmorbida had defaulted and failed to pay sums due to Regera.

Under the loan agreement, an English-based process agent – Areval UK Properties Ltd (Areval) – was appointed for the service of proceedings. However, Areval was dissolved before proceedings were issued. The agreement provided for the appointment of an alternative process agent: if the original agent could not act, Valmorbida had five days to appoint a new agent; failing this, Regera could then appoint the new agent instead.

Regera appointed Law Debenture as the new agent and served proceedings on them in August 2024. Regera stated that it had informed Valmorbida and the guarantors about the appointment by letter dated July 2024, although there was no express provision requiring the guarantors to be notified of the replacement process agent appointment. The guarantors argued that they had not been properly notified of Law Debenture’s appointment and were unaware that proceedings had been served. The guarantors did not serve an acknowledgement of service or file a defence, and default judgment was entered against them. They applied to have the default judgment set aside.

An important issue the High Court had to consider was whether there had been valid service of proceedings on the guarantors via service on Law Debenture.

The court’s decision

The court held that Valmorbida had to be notified of the appointment of Law Debenture as the new process agent, despite the absence of an express contractual provision to this effect. This was because, the court considered, a principal should be made aware of who its appointed agent is, and Regera’s power to appoint arose only if Valmorbida failed to make such an appointment. However, there was no requirement for the guarantors to be notified, according to the court. This was because notification by Regera to Valmorbida was treated as notification to the guarantors, as Valmorbida was their agent under the terms of the loan agreement. Accordingly, the default judgment could not be set aside on the grounds of inadequate notice.

However, the court ultimately set aside default judgment on different grounds. The court held that the clause permitting the lender to appoint a replacement agent was unfair under the CRA. As a result, it could not be relied upon by Regera.

The judge’s main concerns were that:

• the clause created an imbalance between the parties – the clause in question only regulated service on Valmorbida and the guarantors but not on Regera, despite Regera also being based overseas in Luxembourg;
• the clause provided for a replacement process agent to be appointed without any notice to the guarantors, which could lead to the entry of default judgments against them without them being aware of the service of proceedings.

The court therefore held that the default judgment should be set aside as Regera had not validly served proceedings on the guarantors.

Practical implications

This decision is important for anyone drafting agreements or seeking to serve proceedings under a process agent clause in a contract with a consumer. A process agent clause in such a contract may be found unenforceable if it creates a significant imbalance between the parties and fails to provide the consumer with adequate awareness of the service of proceedings on them.

Consideration should be given, for example, to including an express obligation to notify all parties of any change to the appointed process agent, along with a clear mechanism for how such notice should be given. 

It is also worth considering whether the inclusion of a process agent clause which only applies to service on one of the parties – the consumer, and their guarantors – may be considered so imbalanced as to be unfair, although process agent clauses are often asymmetric. One option is that, where both counterparties are based outside of the UK, a symmetric process agent clause could be included, requiring that both parties nominate an agent within the jurisdiction.

In business-to-business contracts, the risks are lower as those contracts are not subject to the CRA. For example, in the case of Banco San Juan Internacional Inc v Petroleos De Venezuela SA, the court recognised the value of process agent clauses in allowing for service of proceedings to be quick and simple. However, even in business-to-business contracts, it is important to ensure that any process agent clause is clear and includes a sensible mechanism for appointing a replacement agent, to avoid scope for challenge.

In either situation, careful consideration should be given to the identity of the process agent. For example, if a third party is to be the process agent, that process agent should ideally be a well-established company to minimise the risk that they will cease to operate and give rise to a need to navigate provisions concerning the appointment of a replacement.

If a dispute arises, it is always important to consider the method of service of proceedings well ahead of time, so that any issues, such as over an appointed process agent or the need for a replacement, can be dealt with early and so that alternative options for service are likely to remain open. It is important for those bringing claims to consider the clarity and efficacy of any process agent clause carefully. If there is any doubt that service under the clause may not be valid, consideration should be given to serving by another method either instead of or in addition to service in accordance with the clause.

Co-written by Elana Phillips of Pinsent Masons.