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30 Jan 2019

Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV and others [2019] EWCA Civ 10

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Stephenson Harwood acted for the successful respondents, Atlantic Tiburon 1 Pte Ltd and Ezion Holdings Limited ("AT1" and "Ezion" respectively), in a leading Court of Appeal judgment which reconciles various authorities on how the test of "good arguable case" in a jurisdiction challenge is to be applied.

The applicable test had been the subject of much judicial discussion over the last twenty years and even two recent Supreme Court decisions (Brownlie v Four Seasons (2017) and Goldman Sachs v Novo Banco SA (2018)), had not completely laid the matter to rest. This case therefore provides much welcome clarification.

Factual summary

The dispute in Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV and others, arose out of a contract for repair works to a rig. The claimant repairer brought claims in the English High Court against four defendants, including AT1 and Ezion, alleging that they owed sums under the repair contract, which contained an exclusive English law and jurisdiction clause. The claim form was served in Singapore on AT1 and Ezion, who were not named parties to the contract. The claimant alleged that AT1 and Ezion were, nevertheless, undisclosed principals who were parties to the contract and that the evidence supported this allegation.

AT1 and Ezion challenged the jurisdiction of the English Court over them, on the basis that they were not parties to the contract, and therefore not parties to the exclusive jurisdiction clause.

At first instance

The first instance judge took the view that the applicable test had two elements to it: that the claimant must have (1) a "good arguable case", as well as (2) "the better of the argument". The latter concept had first surfaced in the judgment of Waller LJ in Canada Trust Co v Stolzenberg (No 2) [1998] 1 WLR 547 ("Canada Trust") who had construed the "good arguable case" test as including the relative concept of who had the better of the argument.

The first instance judge held that the claimant had a good arguable case that AT1 was an undisclosed principal, but AT1 had the better of the argument that it was not. The second limb of the test having not been fulfilled, the English Court had no jurisdiction over AT1. Neither limb of the test was fulfilled in relation to Ezion.

The appeal

The claimant appealed, inter alia, on the basis that the judge should not have applied the second limb of the test, and that the test was simply that of "a good arguable case" without any "gloss".

The Court of Appeal has now clarified the test for jurisdiction. It confirmed the relative test set out in the Canada Trust case, and concluded that Lord Sumption's three-limb explanation of it in Goldman Sachs is the correct approach:

  1. The claimant must establish a plausible evidential basis for the application of a relevant jurisdictional gateway. In other words, the claimant must have the better argument. The burden of proof remains on the claimant and the test is context specific and flexible.
  2. If there is an issue of fact about the gateway, 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. The Court must use judicial common sense and pragmatism to overcome evidential difficulties.
  3. Given the interlocutory stage, a reliable assessment of the relative merits of the arguments may not be possible. In that case, the claimant must still establish that there is a good arguable case for the application of the gateway with a plausible (albeit contested) evidential basis for it.

While the above sounds technically complex, what it boils down to is a common sense and practical approach.

The entire agreement clause

AT1 and Ezion had also argued that the entire agreement clause in the contract was evidence that the named contractual parties were to treat each other, and no one else, as the only parties to it.

In the appeal, AT1 and Ezion argued that the first instance judge had given insufficient weight to this argument. The Court of Appeal agreed, however, that the entire agreement clause was indeed evidence pointing against the conclusion that either AT1 or Ezion were undisclosed principals.

Conclusion

The complexity of the debate on this issue of jurisdiction over the years is one that would likely enthral only the keenest academics of the law. There is undoubtedly relief from the clarity this judgment brings on a point that, in the Court of Appeal's view, is a distraction from the main dispute.

For clients, the key takeaway points are:

  1. When being served out of the jurisdiction, there may be the opportunity to defend a claim at the interim stage by challenging jurisdiction, as was done in this case. This is tactically wiser than submitting to the jurisdiction and then making a striking out application where the burden of proof would lie on the defendant instead.
  2. The express identification of parties in an entire agreement clause may be considered to be evidence precluding a party from arguing that there were undisclosed principals to the contract. Commercial parties should be mindful of this when drafting contracts.
  3. Whilst used often to hedge one's bets in litigation, the words "and / or" can suggest uncertainty. If a party wants to make a case for the existence of an undisclosed principal, it may not be helpful to proceed against "Party X and / or Party Y". if you have a good arguable case, it should be possible to clearly identify the undisclosed principal!

The Stephenson Harwood team was led by Michelle Yong in Singapore, who was assisted by Mary Dodwell, based in our London office. Counsel was Nigel Cooper QC of Quadrant Chambers.

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KEY CONTACT

Michelle Yong

Michelle Yong
Partner

T:  +65 6622 9691 M:  +65 9765 2936 Email Michelle | Vcard Office:  Singapore

Mary Dodwell

Mary Dodwell
Associate

T:  +44 20 7809 2330 M:  +44 7557 163 813 Email Mary | Vcard Office:  London