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English courts and overseas defendants: jurisdiction challenges and the “two-fold test”

15 January 2018

When a dispute involves a foreign party or events that took place in another jurisdiction, questions often arise as to where the dispute should be determined.

The forum in which the dispute is determined can make a great deal of difference and affect, for example, the time taken to resolve the dispute, the likely costs involved and procedural matters (such as the scope of disclosure). It is therefore important for potential litigants to know where they can commence proceedings and whether they can resist claims brought against them in the “wrong” jurisdiction.Two recent cases consider the test the English courts will apply when deciding whether to permit a claimant to sue a “foreign” defendant in this jurisdiction. The cases are Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV and others [2017] EWHC 2598 (Comm) and Brownlie v Four Seasons [2017] UKSC 80. Set out below is a very brief introduction to the English law in this area and a practical consideration of the Kaefer and Brownlie cases.

Introduction

There are three requirements that a claimant must satisfy in order to obtain permission to serve English proceedings on a foreign defendant outside the jurisdiction, namely:

  1. There is a serious issue to be tried on the merits in relation to the foreign defendant - this means that there has to be a real, as opposed to fanciful, prospect of success on the claim.

  2. There is a good arguable case that the claim falls within one or more of certain defined jurisdictional “gateways”. There are a number of jurisdictional gateways including (among others) whether the claim is made in respect of a contract that contains an English jurisdiction clause, whether the relevant contract is governed by English law and whether the overseas defendant is a necessary or proper party to the claim being made in England. Claimants wishing to sue foreign defendants must show that they have a good arguable case that one or more of the jurisdictional gateways has been satisfied.

  3. England is the most appropriate forum in which to hear the claim(s). This will often involve considerations of convenience and expense, the governing law of the dispute and whether the claimant could obtain justice in another jurisdiction.

Each of the above requirements must be satisfied before an English court will allow a claim to be pursued against an overseas foreign defendant.

The Kaefer Claim

The Kaefer case is important because it considers the meaning of the “good arguable case” test and the jurisdictional standard of proof that must be met when bringing proceedings against a foreign defendant.

In Kaefer the claimant brought proceedings in England against a number of defendants claiming sums allegedly due under a contract. The claimant contended that two of the defendants, “AT1” and “Ezion”, were party to the agreement as undisclosed principals of the first two defendants and argued that the English court had jurisdiction pursuant to Article 25 of the Brussels Convention (Recast) because the relevant contract contained an exclusive jurisdiction clause. AT1 and Ezion were served with the proceedings in Singapore. AT1 and Ezion challenged the court’s jurisdiction on the ground that neither was a party to the alleged contract and so they could not be sued in the English courts.

It was agreed between the parties that the question of whether the court had jurisdiction or not depended solely on whether there was a “good arguable case” that AT1 and Ezion were parties to the alleged contract and therefore bound by the jurisdiction agreement.

The Kaefer Decision

Following a review of relevant authorities the Commercial Court concluded that:

  1. A claimant who asserts that a jurisdictional gateway has been satisfied need not prove the issue on the balance of probabilities. Showing that there is a “good arguable case” involves a lesser standard of proof because it will necessarily be the case that questions of jurisdiction are decided at an early stage in the proceedings and prior to a full exchange of evidence.

  2. A claimant must instead show that they have, on the material available, a “much better argument” that a relevant gateway has been satisfied. This is widely known as the “Canada Trust gloss”, following the case of Canada Trust Co v Stolzenberg (No 2) [1998] 1 WLR 547.

  3. In order to show that they have a “much better argument” on the relevant jurisdictional gateway, the claimant must meet an absolute standard of proof as well as a relative standard of proof. The claimant must show that:


    a. There is some “substance” to their claim that the relevant jurisdictional gateway has been satisfied – the evidence must achieve an acceptable level of quality and adequacy, but need not establish the issue on the balance of probabilities (the “absolute standard”); and

    b. On the evidence available, their case is more persuasive or convincing than that of the defendant (the “relative plausibility” test).

  4. Where the state of the evidence is such that it is not possible to determine which side has the better of the jurisdictional argument (ie there is a “dead heat” between the rival parties’ claims), the Court need not be satisfied of the requirement of relative plausibility in order to exercise jurisdiction over a foreign defendant. In that event, a good arguable case, or a sufficiently arguable case, without more, may be enough to allow the Court to exercise jurisdiction.

Pursuant to the Kaefer decision, a claimant is therefore subject to a twofold test in which they must establish (a) a good arguable case that the relevant gateway has been satisfied and (b) they have the better of the relevant jurisdictional argument. Applying these above principles to the facts, the Judge held that:

a. the English courts did not have jurisdiction over Kaefer’s claim against Ezion because Kaefer did not have a sufficiently arguable case that Ezion was a party to the contract (ie Kaefer did not meet the “absolute standard” required); and

b. even though there was a sufficiently arguable case that AT1 was a party to the contract, the English courts did not have jurisdiction over the claim because AT1 nevertheless had the better of the arguments on the evidence available (ie AT1 succeeded on the “relative plausibility” test).

The Brownlie Case

Since the Kaefer decision the Supreme Court has reviewed the meaning of the “good arguable case” test. In the case of Brownlie v Four Seasons [2017] UKSC 80, the Supreme Court considered a case in which the claimant and her family went on holiday to Cairo. Tragically, during an excursion the family’s chauffeur driven car came off the road and the Claimant’s husband and her daughter were killed. The Claimant sought to serve a claim on what she believed was the foreign owner/operator of the hotel out of the jurisdiction under relevant jurisdictional gateways.

Argument in the Brownlie case was heard before Kaefer but judgment was handed down after Kaefer. Consequently the Brownlie judgment does not refer to Kaefer. The Brownlie judgment, however, does materially correspond with the decision in Kaefer.

In Brownlie Lord Sumption referred to the “much better argument” test as a “serviceable test, provided that it is correctly understood”. In Lord Sumption’s opinion the “much better argument” test meant that:

  1. The claimant must supply a “plausible evidential basis” for the application of a relevant jurisdictional gateway;

  2. If there is some reason for doubting whether the jurisdictional gateway applies, the Court must “take a view” on the material available if it can reliably do so; but

  3. If no reliable assessment can be made of whether the jurisdictional gateway applies, then there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it.

Lady Hale expressed the view that the correct test was whether a claimant had a ‘good arguable case’, and that “glosses should be avoided”. Her Ladyship also said that she did not see Lord Sumption’s formulation as further glossing the test.

It would appear that the formulation of the “much better argument” test set out by the Supreme Court corresponds with Kaefer in the sense that it contemplates jurisdiction being taken over a foreign defendant where the claimant satisfies both an absolute test (“plausible evidence”) and a relative test. The relative test involves the court “taking a view” on the available material if there is some doubt about whether a jurisdictional threshold is available to the claimant.

The Supreme Court also confirmed that the test of relative plausibility can be dispensed with in cases where it is not possible to determine whether the claimant or defendant has the better argument. In other words, where there is a “dead heat” between the parties’ arguments on whether a gateway applies, the court can nevertheless take jurisdiction over a foreign defendant provided that there is a plausible (albeit contested) evidential basis for taking that step. The Brownlie decision potentially goes further than Kaefer in this regard, because in Kaefer the court indicated that in a “dead heat” scenario a claimant’s sufficiently arguable case “may” be enough to allow the court to exercise jurisdiction. But in Brownlie it was decided that there is a good arguable case where there is a merely plausible (albeit contested) evidential basis in respect of the relevant jurisdictional gateway. Put simply, in Brownlie it was decided that in a dead heat scenario the “good arguable case” test is satisfied where a claimant is able to present merely plausible evidence that the relevant jurisdictional gateway has been satisfied.

Conclusion

The Kaefer and Brownlie judgments are important because they shed further light on the crucial issue of when overseas defendants can be sued in the English courts. The cases confirm the two-fold nature of the test (the absolute and relative tests) that claimants must meet when seeking to sue an overseas foreign defendant in the English courts.

At a practical level, the cases underline the importance for claimants of not only convincing the court that they have a plausible argument that the relevant jurisdictional gateway is satisfied, but also that they must mount a persuasive case relative to that of the defendant when jurisdiction is disputed.

If a defendant can show that their jurisdictional gateway arguments are more persuasive the court will decline jurisdiction and the claim will not proceed in England.

Where it impossible for the court to take a reliable view on which party has the more persuasive jurisdictional arguments, however, it would appear from the Brownlie judgment that the court may well accept jurisdiction over a foreign defendant on the basis of merely plausible evidence that the relevant jurisdictional gateway has been satisfied.

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