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A Contract Made in Two Jurisdictions?

19 November 2013 #Dispute Resolution


In many disputes between parties based in different jurisdictions, one of the key battles will be over the place in which a dispute should be heard. This tactical battle will involve pragmatic considerations, such as convenience, cost and the presence of assets in a particular jurisdiction against which any subsequent judgment can be enforced. There may also be concerns about whether both parties will receive a fair hearing.

Service Out

To bring a claim in the English Courts, the Court must be satisfied that it has jurisdiction to hear the case. Serving the Claim Form using the valid procedure will be an important step towards obtaining jurisdiction, although service may subsequently be challenged on the basis that the Court does not have jurisdiction. Where the Defendant is based overseas and there is no way to serve the Claim Form on the Defendant in this jurisdiction (such as serving it on solicitors based in England and Wales that are instructed to accept service on the Defendant’s behalf), a Claimant may need to apply for the Court’s permission to serve the Claim Form out of the Jurisdiction under CPR 6.36.

There are several parts to the test under CPR 6.36 as to whether permission should be granted, which can be very briefly summarised as follows:

  1. There is a serious issue to be tried
  2. One of the “Jurisdictional Gateways” applies
  3. That in all the circumstances, England is the most appropriate forum to hear the dispute  

Practice Direction 6B sets out a list of “Jurisdictional Gateways” through which a Claimant can obtain permission to serve out. One of these gateways is PD 6 3.1(6)(a), which states:

3.1 The claimant may serve a claim form out of the jurisdiction with the permission of the court under rule 6.36 where –

(6) A claim is made in respect of a contract where the contract –

(a) was made within the jurisdiction

Case law has clarified that the jurisdiction in which a contract is formed is the place where acceptance of the offer is received. However, in the recent case of Conductive Inkjet Technology Ltd v Uni-Pixel Displays Inc [2013] EWHC 2968 (Ch) the Court held that, for the purposes of finding jurisdiction, a contract can validly be deemed to have been made in two jurisdictions.

Facts of the Case

Conductive Inkjet Technology (CIT), an English company, had commenced two separate Claims in the English Courts against Uni-Pixel Displays (UPD), based in Texas. In the first Claim (the EPA Claim), CIT claimed ownership of two European Patent Applications and sought declarations under the Patents Act 1977. Secondly (the Breach Claim), CIT claimed that UPD was in breach of a Non-Disclosure Agreement that the parties had entered into in June 2005 (the 2005 NDA). CIT had applied for, and been granted, permission to serve both Claims on UPD in Texas, which UPD applied to set aside.

UPD accepted that there was a serious issue to be tried in respect of both Claims and therefore the first limb of the test under CPR 6.36 was satisfied. UPD also accepted that the jurisdictional gateway under CPR PD6 3.1(20)(a) applied in respect of the EPA claim. However, UPD disputed the grounds on which CIT had been granted permission under second limb of the CPR 6.36 test in respect of the Breach Claim. CIT had been granted permission on the basis that the 2005 NDA had been formed in England (PD 6 3.1(6)(a) see above) and that the 2005 NDA was governed by English law (under PD 6 3.1(6)(c)). The 2005 NDA had been emailed by a director of UPD to a director of CIT. CIT’s director had signed the 2005 NDA and sent it to his counterpart at UPD who had signed it and sent it back.  There were no choice of law or exclusive jurisdiction clauses in the 2005 NDA since the parties had been unable to agree on which law should apply and which courts should have exclusive jurisdiction and so consciously left them out. UDP argued that the proper law was Texan law and the 2005 NDA had been formed in Texas and therefore permission to serve out should be set aside.

Court’s Decision

The Court decided (applying Apple Corps v Apple Computers [2004] EWHC 768 (Ch)) that it was artificial to suggest that English Courts did not have jurisdiction on the basis that there was a dispute over which party sent and received the final executed document. As long as the parties could establish with certainty that the place of formation of the contract was one of two places and that England was one of those two places, then it would have a good arguable case, which would be sufficient to obtain permission to serve out. As such, a contract could, under these circumstances, be validly deemed to have been formed in two jurisdictions.

Comment

Overall, the Judgment makes good commercial sense. It would indeed be artificial, particularly in modern business where the use of email in contract formation is very prevalent, to deny jurisdiction on the basis of which party was the last to act. That said, the Courts would appear to have widened the scope of CPR 6.36 since now any one of two jurisdictions may validly apply to a contract, which may result in an increase in forum shopping and more litigation as parties squabble over jurisdiction.

The Judge noted the similarities in the present case with the situation in the Apple case where the parties had deliberately omitted jurisdiction and choice of law clauses since they could not agree on them. While this may seem like a commercially pragmatic decision to close a deal where both parties are unwilling to compromise, it can result, as it did in both of these cases, with expensive and uncertain litigation. The present case represents another unfortunate example where the contract failed to deal with a number of key issues that would be relevant if the contract was subsequently disputed and this failure resulted in costly litigation.

One potential solution might for the parties to agree an arbitration clause instead of an exclusive jurisdiction clause with a neutral venue being agreed between the parties.   

Clarkslegal, specialist Dispute Resolution lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Dispute Resolution matter please contact Clarkslegal's dispute resolution team by email at disputeresolution@clarkslegal.com by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.

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