Court of Appeal clarifies correct approach in jurisdiction disputes

5th April 2019

The Court of Appeal has re-examined the standard of proof required when assessing a jurisdictional challenge and has given guidance as to how the relevant legal test should be applied.  The case of Kaefer Aislamientos SA de CV v AMS Drilling Mexica SA de CV and Ors [1] will be of interest to commercial contract drafters and all those involved in cross-border dispute resolution.

What are the practical conclusions?

If, as is anticipated, Brexit prompts a rise in jurisdictional challenges, it will be important for businesses to understand the standard that they will have to meet in order to be able to proceed with litigation in the courts of England and Wales.

The correct approach to resolving jurisdictional challenges is now significantly more clear for businesses involved in cross-border disputes (albeit the ‘flexibility’ of Limb 3 of the Goldman Sachs/Kaefer test – see below may prove fertile ground for future litigation in this area).

The Court of Appeal also commented that it found complexity of legal debate in such cases, and voluminous and tactical disclosure, to be regrettable.  Instead, jurisdiction disputes should be conducted in an economic and proportionate manner.

For all practical purposes, if a claimant can establish with some evidence that, broadly speaking, it has the better argument that a jurisdictional gateway exists, then the chances are that its case will be able to proceed.

What was the commercial context?

This case concerned a claim for sums alleged to be owed to the claimant (Kaefer) under a contract.  Kaefer issued proceedings in the English courts against four defendants, relying on an exclusive English jurisdiction clause in the contract. The contract was signed by two of the defendants, but they were in financial difficulty. The non-signatory defendants challenged jurisdiction.  If Kaefer could show that the other defendants were in fact undisclosed principles under the contract, the English jurisdiction clause would also be enforceable against them.

In line with Supreme Court authority on considering jurisdiction [2], the High Court applied the “good arguable case” test and found that, on the evidence available, the more plausible case was that the two defendants were not undisclosed principles.  They were not, therefore, bound by the jurisdiction clause.

Kaefer appealed.  The Court of Appeal re-examined the correct test for determining jurisdiction and gave guidance as to how it should be applied.

What is the correct approach to resolving jurisdiction disputes?

Where a claimant needs to establish that a relevant statutory or contractual right exists which entitles it to pursue proceedings within the jurisdiction of the courts of England and Wales (often referred to as a ‘jurisdictional gateway’), the Supreme Court in Goldman Sachs confirmed that the claimant must establish a “good arguable case”.  But what does that actually mean?

The legal test for a good arguable case has become “befuddled”.  In particular, it has not been clear how the test applies in practice.  In an attempt to remedy this, the Court of Appeal explained that there is a single test, which is made up of 3 limbs:

Limb 1

The claimant must provide a plausible evidential basis for a relevant jurisdictional gateway. Whilst this involves the claimant demonstrating that it has the better argument, it does not have to establish much the better argument.  Neither is this a test on the balance of probabilities – it is a lesser standard because this is merely a jurisdiction hearing, it is not a full trial at which all evidence will be adduced and examined;

Limb 2

If there are evidential difficulties, the court has to take a view based on the material it has available.  This amounts to an “instruction to use judicial common sense and pragmatism”; and

Limb 3

If no reliable assessment can be made, there will still be a good arguable case for the application of the gateway if there is any plausible evidential basis for it, even if this is contested.  The court stated that this is a flexible test (which, it acknowledged, leaves room for debate).

What did the Court of Appeal decide?

In the particular Kaefer case, the Court of Appeal found that, in considering the contract as a whole, the High Court judge had effectively applied Limb 2 and it agreed that the evidence pointed towards the non-signatory defendants not being undisclosed principles.  The Court of Appeal therefore confirmed that the non-signatory defendants were not bound by the jurisdiction of the English court under the exclusive jurisdiction clause.

If you would like any advice or assistance in relation to any jurisdiction clause or if you have any queries or concerns in relation to any commercial contract or cross-border dispute, please do not hesitate to contact any member of Walker Morris’ Commercial Dispute Resolution Team.

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[1] [2019] EWCA Civ 10
[2] Goldman Sachs International v Novo Banco SA [2018] UKSC 34)