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Killing two birds with one answer: when jurisdiction is founded on choice of law

01 September 2014 #Dispute Resolution


As the commercial world becomes increasingly international, the English Courts are called upon more and more often to rule on cases involving litigants that are not based in this country. In cases between litigants of different nationalities, the English Court may also need to determine which country’s law will apply to the dispute. This article looks at the peculiar circumstances where the separate questions of whether the English Courts have jurisdiction and what the is the law applicable to the dispute become intertwined.

Founding Jurisdiction under the Gateways

The English Court will only hear a case where it is satisfied that it has jurisdiction to do so. This will often be a key battle between the parties as the place where the case is heard is likely to have significant practical and legal implications. If the Defendant is a foreign entity (whether an individual or a company), the Claimant may need to obtain the Court’s permission to serve the Claim Form on that Defendant outside the English jurisdiction under CPR 6.36 before the Claim can commence. There are 26 reasons (often called gateways) that the English Courts accept as good reasons to grant permission under CPR 6.36. These reasons are set out in Practice Direction 6B paragraph 3.1 of the CPR.  Of particular relevance to this article is the gateway at CPR PD 6B 3.1(6(c) (the “Gateway”), which states that:

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) The claim is made in respect of a contract where the contract

(c) Is governed by English law

The reasoning behind the Gateway is simple enough; the English Courts have greater familiarity with applying English law and so a contract subject to English law should be determined by the Court which is most qualified to do so. However, the picture becomes far murkier where the choice of law has not been expressly stated in the contract. Under the Gateway, the questions of whether the English Courts have jurisdiction and what law applies to the contract at the heart of the dispute become linked and the determination of these issues is likely to have far reaching implications for the future conduct of the dispute.

In the recent case of Aquavita International SA and another v Ashapura Minecham Ltd [2014] EWHC 2806 (Comm), the Court was asked to set aside an Order giving the Claimant permission to serve out of the jurisdiction under the Gateway because the contract in question was not governed by English law. The case is an interesting illustration of how the Court should determine the choice of law of the contract where jurisdiction is founded on that determination.

The Dispute

The First Claimant (Aquavita) was a shipping country registered in the Marshall Islands. The Second claimant (Glendive) was a company registered in Cyprus. Aquavita had entered into a contract of affreightment (CoA) with a company called Arabian Resources FZC, which was registered in Sharjar in the UAE, in October 2011. Arabian Resources’ performance under the CoA was guaranteed (the “Guarantee”) by the Defendant (Ashapura), which is a substantial Indian company that exports minerals. Glendive was nominated by Aquavita as the performing party under the CoA. Glendive was also party to the Guarantee.

The Claim and Application To Set Aside

Aquavita and Glendive sued Ashapura under the Guarantee and obtained permission to serve the proceedings out of the jurisdiction under the Gateway on the basis that the Guarantee was subject to English law. Ashapura applied to set aside this Order on the basis that Indian law applied to the Guarantee.

The Court accepted that if Ashapura was correct and English law did not apply to the Guarantee, the Order giving permission under the Gateway must be set aside. However, at this preliminary stage, Aquavita and Glendive only had to show that there was a good, arguable case that English law applied to the Guarantee. A good arguable case means that Aquavita and Glendive had to show that they had the better of the arguments. However, the Court was not required to make a definitive ruling on the law of the Guarantee for the purposes of determining jurisdiction.

The Court’s Decision

The CoA was expressly subject to English Law. However, the Guarantee did not have an express choice of law provision. The Guarantee had been written in English and had been signed by Ashapura‘s representative in India and sent to Aquavita and Glendive in the Marshall Islands and Cyprus respectively.

The English Court’s test for determining the law applicable to a contract is set out in the Rome I Regulation (the “Regulation”). Under Article 3 of the Regulation, a choice of law can be express or implied. Since there was no express choice of law in the Guarantee, the argument focused on whether there had been an implied choice of English law. The Court concluded that there was a good arguable case that the Guarantee was governed by English law. In coming to this decision, the Court found that the choice of law was clearly demonstrated by the terms of the Guarantee and the circumstances of the case because the Guarantee had a close connection with the COA, which was expressly subject to English law. It was also significant that Ashapura was a party to the Guarantee and the COA and had negotiated and agreed the terms of the COA, including the English governing law clause. In addition, the Court decided that it would be bizarre if the CoA and the agreement that guaranteed the performance of the obligations of the CoA could be subject to different laws.

Conclusions

The outcome of this application is likely to be unsatisfactory for Ashapura because the Court has not had to make a final, binding determination on whether English law applies before finding that the English Courts have jurisdiction. It might be that after a full trial and after weighing up all the evidence, the Court will take the view that English law does not apply to the Guarantee and therefore the Court did not have jurisdiction. However, the Court is in an unenviable position of having to try to do justice to all parties in these circumstances. It would be equally unsatisfactory to require the parties to incur the time and cost of a full length trial on all the issues in the dispute before making a decision on whether jurisdiction under the Gateway had been correctly founded. The only proportionate alternative is for the Court to hear preliminary arguments and unless it is pretty obvious that English law will not apply to the contract, the Court has to hold that jurisdiction has been properly founded. 

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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