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Molehills not mountains: Court of Appeal puts jurisdiction applications in perspective

06.02.2019 Energy & infrastructure

Simon Hems

Simon Hems Head of Energy & Infrastructure, Partner

Leila Peggs

Leila Peggs Managing Associate

Parties should always ensure their disputes are commenced in the proper forum, against the correct parties, a point we have revisited in our articles on many occasions over the years. Applications that challenge jurisdiction have something of a reputation for causing disruption.

The Court of Appeal has sought to restore confidence (and sanity) in the process in Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV, Atlantic Maritime Services BV, Atlantic Tiburon 1 Pte Limited, Ezion Holdings Limited [2019] EWCA Civ 10.

The facts

The appellant sought to recover sums it alleged were due under a contract of works (evidenced by a Purchase Order) for the refurbishment and upgrade of a rig. The terms and conditions annexed to the Purchase Order included exclusive jurisdiction and Entire Agreement clauses. The third and fourth defendants (“AT1” and “Ezion”) challenged jurisdiction on the basis that they were neither named in the contract nor undisclosed principals of the contractual parties, the first and second defendants (“AMS Drilling” and “AMS BV”), so the exclusive English jurisdiction clause had no application to them.

At first instance it was held by Mr Peter MacDonald Eggers QC that the claimant had failed to establish jurisdiction against AT1 and Ezion. This was on the basis that although there was “a good arguable case” that AT1 was an undisclosed principal to the contract, AT1 nevertheless had “the better of the argument that it was not an undisclosed principal. Interestingly, the Court of Appeal found that although the judge at first instance had erred, he had nevertheless ultimately applied the correct approach.

The thief of time

The fact of challenges to jurisdiction being made at an interim stage was stressed in the judgment by Lord Justice Green and more emphatically by Lord Justice Davis:

“Even so, this is by its nature an interlocutory process, not in any way concerned with a final conclusion on the facts or merits. Hearings and judgments in such cases should so far as possible be appropriately concise accordingly.”

In short, jurisdiction challenges should be dealt with expeditiously and as efficiently as possible, not requiring a “full-blown investigation” into an issue that is not germane to the substantive merits of the underlying claim.

The test

The Court of Appeal confirmed that the three-limbed exposition of the “good arguable case” test in Goldman Sachs International v Novo Banco SA [2018] UKSC 34 (a judgment which was awaited at the time Mr MacDonald Eggers QC published his) had the effect of passing previous obiter comment into law. Goldman Sachs set out the test as follows:

“(i)        that the claimant must supply a plausible evidential basis for the application of a relevant jurisdictional gateway;

(ii)         that if there is an issue of fact about it, or some other reason for doubting whether it applies, the court must take a view on the material available if it can reliably do so; but

(iii)        the nature of the issue and the limitations of the material available at the interlocutory stage may be such that no reliable assessment can be made, in which case there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it.”

The Court of Appeal went on to provide its own explanation of the elements of this test. It confirmed that the standard is no longer that the claimant must have “much the better argument” than its opponent – all Lord and Lady Justices generally concurring with the remark that “the additional word ‘much’ can now safely be taken as consigned to the outer darkness”.

The point of the second limb in this test was as an instruction for overcoming evidential difficulties by the application of “judicial common sense and pragmatism”, particularly when faced with gaps in the evidence as is in the nature of interim applications.

The third limb of the test is important as a tool for addressing situations in which the court cannot form a decided conclusion on the evidence and cannot say who has the better argument. It recognises that it is not simply a matter of saying the claimant has failed to prove its case, since the nature of the application means there has not been a full analysis. Nor should the matter be adjourned to the time when a full analysis is undertaken at trial; to do so defeats the early and interim nature of a jurisdiction challenge.

As such, we now have a flexible approach to jurisdiction applications, giving the presiding judge considerable discretion, which is clearly intended to ensure that challenges are dealt with more quickly and retain the interim status they should have rather than becoming a time-consuming and expensive “mini-trial” of the substantive matter itself.

Entire Agreement clause

AT1 and Ezion also argued that an Entire Agreement clause in the terms and conditions printed on the Purchase Order operated to exclude any person other than those expressly identified from being a party to the Purchase Order.

The Entire Agreement clause and other provisions of the contract were held to be “neutral” at first instance but the Court of Appeal disagreed finding that the terms of the contract were a powerful part of the evidential mix. The Entire Agreement clause pointed against AT1 and Ezion being party to the contract though it did not “exclude altogether the possibility that there might be undisclosed principals.” Rather, it was a “cogent indication” that AMS Drilling and AMS BV were not agents acting on behalf of undisclosed principals.

Disclosure

As is increasingly common in English judgments, there was also a postscript to the judgment on the subject of the disclosure process, or rather its abuse in the context of an interim application.  Lord Justice Davis maintained the current theme in the courts of keeping disclosure proportionate by sending the claimant away with the following reprimand ringing in its ears:

“I also rather deprecate the approach of claimants (as here) peremptorily in correspondence seeking the fullest and widest possible disclosure from defendants, in effect by way of fishing exercise, as though such proceedings are already some kind of ongoing trial process: and then coolly relying on non-disclosure as of itself supporting the claim of a plausible case.”

A timely reminder, as the disclosure pilot scheme in the English Business and Property Courts gets underway, that the judges have seen it all before and are not going to let conduct for improper purposes pass without comment (if not, also, costs sanctions).

Article authors:

Simon Hems Leila Peggs