Case law update - the battle for jurisdiction

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For a court to hear a claim raised before it, it has to have “jurisdiction”. While on the face of it this is a relatively simple concept, it is in practice, and particularly in the context of the shipping and offshore industries, an incredibly complex area. Jurisdictional disputes can arise in all manner of court actions but resolving them does not automatically lead to the case itself being finalised. Rather, they are often an opening skirmish in a far longer battle.

Every year, courts around the globe are asked to decide on jurisdictional disputes in many cases. In this issue of The Field we will look at three recent court decisions, what we can learn from those cases and what Skuld Offshore can do to assist you in avoiding such issues.

Key contributors to this article are Michelle Yong at Stephenson Harwood, Toby Miller at Hill Dickinson and Pamela Milgrim of Skuld New York.

Contractual jurisdictional battle

Kaefer Aislamientos v AMS Drilling Mexico [1]

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 [Kaefer], 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 [AT1] and Ezion Holdings [Ezion], 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 first decision

The High Court judge 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.

He 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, he held that Kaefer failed in both respects to establish jurisdiction. Accordingly, the claim for jurisdiction against AT1 and Ezion failed.

The Court of Appeal

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.

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 is a three-limbed test:

  1. The claimant must establish a "plausible evidential basis" for the application of a relevant jurisdictional gateway. The burden of proof remains on the claimant and it must show that it has the better argument. The test is context specific and flexible.

  2. If there is some reason for doubting whether the jurisdictional gateway applies, the court must take a view on the material available if it can reliably do so. Jurisdiction challenges are invariably interim and usually characterised by gaps in evidence. This limb is an instruction to the courts to use judicial common sense and pragmatism.

  3. The nature of the issue and the limitations of the material available at this stage may be such that no reliable assessment can be made. The claimant must still establish that there is 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 are 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. See Comment (1) and Key takeaways (2).

Can contractual jurisdiction be implied?

Sonact Group Limited v Premuda SPA - The "Four Island" [2]

In Sonact v Premuda SPA, the High Court in England considered whether the arbitration clause in a charterparty applied to a subsequent settlement agreement.

Sonact Group Limited [Sonact], who were the charterers of MV "Four Island" [the Vessel] challenged an award in favour of the owners, Premuda SPA [Premuda], on the ground that the arbitrators did not have substantive jurisdiction.

Factual background

On 27 June 2014, Sonact and Premuda entered into a charterparty in respect of the Vessel. 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 USD 600,000 to Premuda. However, the sum was not paid.

On 23 December 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.

Legal issues

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. See Comment (3).

The complexity of international operations – a recent Skuld case

In a recent Skuld case, the assured, who were the owners of an offshore service vessel, were 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 first action

The injured party [IP] was 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 Company]. The IP'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 the 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.

The subsequent actions

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; and, 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 can be sufficient to establish jurisdiction, but that is not universally the case under all legal systems. In this case, on behalf of the assured we 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 our 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. See Comment (4).

How Skuld Offshore can help

Jurisdiction is very easy to get into a muddle over. Whether it be something which is to be agreed under contract or in a settlement agreement, or a question arising in relation to a claim being raised, taking the time to consider it, and the potential implications of doing so, is extremely important. These scenarios are all familiar to the lawyers working in the Skuld Offshore claims and contracts team, as we provide both legal and commercial guidance upon jurisdiction issues on a daily basis.

Normally, the sooner such issues are addressed, the better, whether that be in relation to a claim, an agreement or a contract. We would always recommend that if you have any questions in relation to this, please do contact us as soon as practicable and we will help you navigate through this potential legal minefield.

[1] 1 [2019] EWCA Civ 10
[2] 2 [2018] EWHC 3820 (Comm)