James McNeil | 7th August 2020

Process agent clauses in credit agreements


James McNeil | 7th August 2020

Process agent clauses in credit agreements

Process agent clauses  in credit agreements are valid. In Banco San Juan Internacional Inc v Petroleos De Venezuela SA [2020] EWHC 2145 (Comm), the High Court confirmed that proceedings brought by a bank against an oil company (PDVSA) had been properly served on a process agent, in accordance with contractual documentation (credit agreements) and CPR 6.11.

Structure of process agent clauses

The structure of the relevant process agent clauses was the standard form found in most credit agreement i.e.:

  • PDVSA was obliged to immediately appoint a process agent as an authorised agent for service of proceedings in England;
  • If for any reason the process agent ceased to be such an agent, PDVSA must immediately appoint a new agent and notify that appointment within 30 days;
  • If PDVSA failed to comply with its obligation to appoint a new agent, the bank could appoint an agent for service on PDVSA.

The court confirmed:

  • that “authorised” agent meant authorised under the contract terms. If they permitted the bank to appoint a process agent for PDVSA, following PDVSA’s failure to do so, then by definition that agent was an authorised agent of PDVSA. To argue otherwise would render the bank’s right to appoint a replacement agent entirely nugatory and purposeless. If PDVSA did not like the bank appointing an agent, it should have complied with its contractual obligations and appointed one itself;
  • it was not arguable that the obligations did not survive the “termination” of the credit agreements i.e.: the lender had refused to lend more funds. The agreements clearly had not been terminated as the borrower’s predominant obligation, repayment, had yet to be performed. It was precisely when the relationship of the parties had broken down and proceedings needed to be commenced that clauses of this kind were most valuable. It would be wholly uncommercial to construe that they then ceased to apply;
  • as to whether the clauses regarding a “new” process agent and the bank appointing an agent if PDVSA failed to appoint a new one were capable of applying where PDVSA had failed to appoint an agent originally, the judge construed the words “such obligation” as embracing PDVSA’s general obligation to appoint a process agent and he found that an agent was a “new” agent if it was an agent being appointed for the first time. After all, someone who has never owned a coat may still be said to buy a new coat.

Although not a surprising judgment, it does re-confirm the validity and efficacy of process agent clauses which are common to most credit agreements.

It also reinforces the view that courts take a dim view of a party not complying with its contractual obligations and then using that as a defence to proceedings brought by another party seeking to enforce their contractual rights.

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