When does contesting jurisdiction become “playing the system”?
It is a fundamental principle of private international law that a party should be entitled to question whether a court can take jurisdiction over them.
As the number and complexity of cross-border transactions continues to rise*, when commercial disputes arise, the question of whether a defendant is being sued in a court of competent jurisdiction is one that is likely to be asked with increasing frequency. Whether a defendant is right to argue the point, however, is another matter.
It is only just that a party to court proceedings should be entitled to defend itself in those proceedings without losing the right to contest the jurisdiction of the court in which it is being sued. To allow otherwise would be to put a defendant in the invidious position of having to choose between losing its right to challenge the jurisdiction and losing the right to defend himself. There is however, a line that a party must not cross if it is to maintain a challenge to jurisdiction whilst arguing the case on the merits.
The recent case of Desarrollo Immobiliario Y Negocios Industriales De Alta v Kader Holdings Company Ltd** is an example of the English Court taking the view that a defendant’s actions have traversed the line between legitimately contesting jurisdiction and “playing the system”.
In brief the defendant had litigated the merits of a case in the hope of obtaining a favourable judgment. When that didn’t end favourably, it sought to contest the jurisdiction of the court in which the substantive dispute had been argued out, in this instance to prevent enforcement action being taken in the UK.
The claimant (Desarollo) had obtained a judgment against the defendant (Kader) in the courts of Arizona for UD$10.5 million in connection with a dispute over a guarantee of a lease of property in Sonora, Mexico. Desarollo took to the English courts to enforce the judgment.
In determining the question of whether it should recognise the judgment, the English Court will apply domestic rules of private international law. Desarollo relied on three of the four recognised grounds on which a court can claim personal jurisdiction:
- 2 – If the person against whom the judgment was given was claimant, or counterclaimed in the foreign court;
- 3 – If the person against whom the judgment was given submitted to the jurisdiction by voluntarily appearing in the proceedings;
- 4 – If the person against whom the judgment was given had, before the commencement of proceedings, agreed in respect of the subject matter of the proceedings, to submit to the jurisdiction of that court or the courts of that country.
The issue for the English court, therefore was whether under the relevant agreements (which were governed by the laws of Arizona), Kader had taken steps in the Arizona proceedings which made out one or more of those grounds.
Andrews J found that under the jurisdiction provisions of the agreements, Kader had submitted to the jurisdiction (thus ground 4 was made out). For completeness however, the judge then turned to consider whether grounds 2 and 3 (which she treated as one issue) were also made out.
Whilst Kader had sought “affirmative relief” in the Arizona court by making a counterclaim, it argued that the act of counterclaiming did not, of itself, waive its right to contest the jurisdiction of the Arizona court as a matter of that system of law.
The judge held that, following the leading decision in Rubin and another v Eurofinance SA and others*** whilst under English law, when determining whether a party has submitted to the jurisdiction of the English Court is one of waiver, that is not the case in the question of submission to a foreign court. It was therefore open to the English Court to find that a party has submitted to the jurisdiction of a foreign court for the purposes of enforcement even if, under its laws, that party has not waived its right. Thus whilst the waiver point may be a factor for consideration, it is not determinative.
Applying the principles developed by Lord Collins in Rubin, the judge found that Kader’s conduct in the Arizona proceedings was “inconsistent with its initial objections to the jurisdiction”. Accordingly, even if she had made a different finding as to ground 4, the judge would have still reached the conclusion that the Arizona judgment was made by a competent court “by virtue of Kader’s voluntary appearance… and by reason of its Counterclaim and cross claim.”
For more information on issues relating to cross-border litigation, please contact Adam Ramlugon or Quentin Bargate.
* “The rise of the cross-border transaction” – Grant Thornton International Business Report 2013
** Desarrollo Immobiliario Y Negocios Industriales De Alta v Kader Holdings Company Ltd  EWHC 1460 (QB)
*** Rubin and another v Eurofinance SA and others  UKSC 46