Case law update – the battle for jurisdiction

Oslo, Norway-based marine insurer Skuld has published a piece on the thorny topic of whether or not a court has jurisdiction in any particular case.

While on the face of it this was a relatively simple concept, it was in practice, and particularly in the context of the shipping and offshore industries, “an incredibly complex area”, said Skuld, observing that jurisdictional disputes could arise in all manner of court actions, but resolving them did not automatically lead to the case itself being finalized. “Rather, they are often an opening skirmish in a far longer battle”, Skuld warned.

Skuld looked at three recent court decisions and what could be learnt from those cases.

Michelle Yong at Stephenson Harwood, Toby Miller at Hill Dickinson and Pamela Milgrim of Skuld New York contributed to the analysis

Case One: Contractual jurisdictional battle

Kaefer Aislamientos v AMS Drilling Mexico

In this case the Court of Appeal looked at the test that the English courts should adopt when dealing with a jurisdictional challenge. The claimant, Kaefer Aislamientos, brought a claim in the English High Court against four defendants, alleging that they owed sums under a contract for repair works to a rig.

The first two defendants were the named parties in the contract. However, the claim form was served out of jurisdiction in Singapore on the third and fourth defendants, Atlantic Tiburon 1 and Ezion Holdings, who were not named parties to the contract. Kaefer alleged that AT1 and Ezion were party to the contract as undisclosed principals. The contract contained an English exclusive jurisdiction clause.

AT1 and Ezion challenged the jurisdiction of the English courts on the basis that they were not parties to the contract and therefore not bound by the exclusive jurisdiction clause.

The High Court judge in the first decision applied a two-fold test of whether Kaefer had established that:

(a)  it had a ‘good arguable case’ and

(b)  it had ‘much the better argument’ in respect of the relevant jurisdictional gateway.

The judge in the first instance held that Kaefer established a good arguable case that AT1 was an undisclosed principal, but AT1 had the better of the argument that it was not.

In respect of Ezion the judge held that Kaefer failed in both respects to establish jurisdiction. Accordingly, the claim for jurisdiction against AT1 and Ezion failed.

Kaefer appealed, arguing that the threshold for jurisdiction was a single test of ‘good arguable case’. Kaefer sought to argue that the court’s enquiry into who had the ‘better argument’ was wrongful and in any event not applicable where the evidence was incomplete, with AT1 and Ezion not having provided disclosure.

The Court of Appeal dismissed Kaefer’s appeal, stating that the High Court judge had arrived at the correct conclusion, although he had incorrectly formulated the relevant legal test on establishing jurisdiction.

The “three-limbed test”

Following the Supreme Court decisions in Brownlie (2017) and Goldman Sachs (2018), the Court of Appeal confirmed that the test for jurisdiction was a three-limbed test:

The claimant must establish a “plausible evidential basis” for the application of a relevant jurisdictional gateway. The burden of proof remained on the claimant and it had to show that it had the better argument. The test would be context-specific and flexible.

If there was some reason for doubting whether the jurisdictional gateway applied, the court had to take a view on the material available if it could reliably do so. Jurisdiction challenges were invariably interim and usually characterized by gaps in evidence. This limb was an instruction to the courts to use judicial common sense and pragmatism.

The nature of the issue and the limitations of the material available at this stage might be such that no reliable assessment could be made. The claimant must still establish that there was a good arguable case for the application of the gateway with a plausible (albeit contested) evidential basis for it.

The Court of Appeal also stressed that jurisdiction challenges were to be determined on the available evidence, and not as mini-trials.

“Entire Agreement” clauses

AT1 and Ezion also argued that the “entire agreement clause ” in the contract operated to exclude the possibility of any person other than those expressly identified, being a party to the contract.

In the appeal, AT1 and Ezion challenged the judge’s approach to the significance of the contract terms and in particular the entire agreement clause. The question for the Court of Appeal was whether the first instance judge erred in his conclusion that the contract terms were essentially neutral.

They held that the contract terms were relevant and pointed against the conclusion that AT1 or Ezion were undisclosed principals. The entire agreement clause was evidence that the named contractual parties were to treat each other, and no one else, as the parties with liabilities and rights under the agreement and hence the persons to sue or be sued thereunder.

Skuld said that this case provided much needed clarity on how the test of ‘good arguable case’ should be applied in a jurisdictional dispute. It was unfortunate that overly legalistic arguments on this point had historically distracted parties from the main dispute, resulting in much time and costs being expended at the preliminary stage of proceedings. “With the test now being clearly set out, it is hoped that such protracted arguments over jurisdiction will be avoided in the future”, said Skuld.

When being served out of the jurisdiction, a defendant should always ask itself whether a jurisdictional challenge was available. This may be tactically preferable to submitting to the jurisdiction and then making a striking out application where the burden of proof would lie instead on the defendant.

A finding on jurisdiction was not a finding on the substantive merits because it was based only on the available evidence at that time. A rejection of jurisdiction may not prevent a claimant from pursuing the merits in another court.

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” said Skuld.

Case Two

Can contractual jurisdiction be implied?

In Sonact Group Limited v Premuda SPA – (the “Four Island”) the English High Court considered whether the arbitration clause in a charterparty applied to a subsequent settlement agreement.

Sonact Group Ltd was the charterer of MV Four Island and challenged an award in favour of the owners, Premuda SpA, on the ground that the arbitrators did not have substantive jurisdiction.

On June 27th 2014 Sonact and Premuda entered into a charterparty in respect of the Four Island. The charterparty provided for London arbitration for disputes between the parties. In due course Premuda had a claim for demurrage and heating costs. The claim was settled by an exchange of emails in which Sonact agreed to pay $600,000 to Premuda. However, the sum was not paid.

On December 23rd 2015 Premuda gave notice of arbitration. Sonact challenged the tribunal’s jurisdiction to determine this claim because the dispute arose under the settlement agreement, which did not contain an arbitration clause, and not the charterparty. The tribunal rejected Sonact’s argument. They subsequently appealed to the High Court.

The Court agreed with the arbitrators that it was obvious that Sonact and Premuda intended for the arbitration clause in the charterparty to continue to apply. The Judge commented that the settlement agreement reached between the parties was, in reality, “no more than an informal and routine arrangement to finalise the sums due under the charterparty”.

The Judge suggested that his conclusions reflected the “broad and flexible approach” to notices of arbitration and dismissed the charterer’s appeal.

Skuld said that this case was an example of the High Court finding that an arbitration clause in one agreement may be implied into another later agreement in circumstances where there was no express jurisdiction clause in the later agreement.

However, the case was determined on its own particular facts. The writers warned that parties should not assume that an arbitration agreement in an underlying contract would always apply to subsequent related agreements. “The best way to avoid future disputes in relation to jurisdiction is to ensure that the essential terms of any settlement, including those relating to choice of law and jurisdiction, are documented clearly in a settlement agreement”.

The complexity of international operations

In a recent Skuld case, the assured, who were the owners of an offshore service vessel, was sued by a third-party employee who allegedly injured his neck while performing a task on the vessel. As a consequence of this incident, he raised court action against a number of parties, first in Texas and thereafter in Alaska and Louisiana.

The injured party was a resident of Louisiana, and at the time of the incident the Finnish-owned and operated offshore services vessel was working in Alaskan waters, under charter to a Delaware, USA registered company. The injured party’s employer was based in Louisiana. However, he instructed lawyers based in Texas to raise action, and they sought to do so in the courts there, arguing, amongst other things, that the assured and the Company carried on business there, meaning that the Texas court had jurisdiction. Were that to have been proven, the Court would have had jurisdiction.

On behalf of the assured, special appearance was filed in the action, setting out that the Court did not have jurisdiction over them, and nor were they willing to submit to the jurisdiction of the court. Before this was expressly decided by the court (but indicating that the plaintiff’s lawyer had serious concerns in relation to the strength of the case), they agreed to drop this action, to pursue it in another venue.

Two further actions were then raised by the Plaintiff:

  • one in Alaska, where the injury occurred, against the assured, the employer and two companies within the Company group;
  • one in Louisiana, where the employer was based against the same parties.

The place where the accident happened and the domicile of one of the defendants could be sufficient to establish jurisdiction, but that was not universally the case under all legal systems. In this case, on behalf of the assured, Skuld argued that they were not subject to personal jurisdiction in Louisiana which the Courts ultimately accepted and the assured was dismissed from that claim, which continued against the other parties. That meant only the Alaskan action remained against Skuld’s assured.

However, while jurisdiction was established against the assured in the Alaska action, the way in which the claim was pleaded was lacking, meaning that following an application to the Court, the court granted summary judgement in their favour, leading to a resolution of the Plaintiff’s claim.

Skuld said that there were many bases upon which jurisdiction could be established, and it might seem that there was an even wider choice when the parties involved were domiciled in a variety of locations, operated internationally and/or employed crew globally, as was often the case in offshore operations.

However, as this case aptly demonstrated, said Skuld, that was not necessarily the case, and adopting a scattergun approach to jurisdiction was unlikely to pay dividends. “Instead, before commencing action, due consideration should always be given to the question of the correct jurisdiction”, Skuld concluded—the-battle-for-jurisdiction/