The international caseload of the English commercial court is enormous. A survey of 705 commercial court judgments handed down in the past five years showed that about 62% of the litigants involved were based outside England and Wales. In light of this trend—with a large proportion of the litigants emanating from Russia and the CIS—a number of questions arise. In particular:
- Why do international parties like to litigate in the English courts?
- What principles govern when the English courts will, and will not, assume jurisdiction over a case, and what is the process for serving proceedings against foreign parties?
This article provides an overview of the answers to those questions.
Why do international parties like to litigate in the English courts?
A short (but incomplete) answer to this question is that in many cases claimants wish to bring their claims in England because that is where the defendants and/or the defendants' assets are. Those are good and compelling reasons. But what about other cases where the nexus with England is not so obvious: why do litigants want to litigate in England in those cases?
On September 19, 2013, the Honourable Mrs Justice Carr (a High Court judge in England) answered the question in this way: "The coexistence of London’s reputation as an international business with its reputation as a global legal centre is no coincidence. Business requires expert legal advice and a predictable and stable legal system in which to operate. The English Courts are a safe and neutral forum for the resolution of disputes, overseen by a strong and famously independent judiciary."
The judge went on to point to particular features of the English litigation system that appeal to international parties, e.g.:
- the absence of juries in civil cases;
- the existence of a specialist commercial court staffed by judges who are highly competent and experienced in dealing with the most complex commercial cases;
- the array of powerful interim remedies available in English litigation;
- the availability of "discovery" (disclosure of documents) but not on as sweeping a basis as is the case in U.S. litigation; and
- the wealth of reported case law available in England to ensure that results in commercial litigation are principled and predictable.
To the judge’s list could be added other beneficial features of litigating in England such as the recoverability of a good proportion of legal costs if the litigation is successful; and that the costs paid to the state in return for the services provided by the judge in determining the dispute, as well as the provision of courtroom facilities, provide good value when assessed against the comparable costs of paying for a panel of arbitrators and arbitration facilities (although arbitration under English law remains popular and, of course, carries its own benefits, in particular the opportunity to keep the details of the dispute private).
What principles govern when the English courts will, and will not, assume jurisdiction over a case, and what is the process for serving proceedings against foreign parties?
Getting the proceedings served
If all the defendants are capable of being served in England and Wales (e.g., the defendant is an English company; a person who can be physically located there so he/she can receive the proceedings; or possibly a foreign company that has a place of business in England and Wales), the issue is straightforward. However, in most international cases, the position is less straightforward, with one or more defendants being based outside England and Wales. In such cases, there are various possibilities that may simplify the process of service and make it unnecessary to apply to the court for permission to serve the proceedings outside the jurisdiction.
First, subject to certain qualifying criteria (which it is beyond the scope of this article to explore), if the defendant is domiciled, and can be served, in Scotland, Northern Ireland, most member states of the European Union and a few other countries beyond, permission of the English court to serve the proceedings there is not required.
Secondly, if the defendant is a natural person (i.e., rather than a corporate entity) who happens to come into England, an alert claimant can serve the person with the proceedings while he or she is present within the jurisdiction. That is what happened in the well-known case of Berezovsky v Abramovich. The late Mr Berezovsky was fortunate enough to spot Mr Abramovich during one of his visits to England and took the opportunity to physically serve him with the proceedings which (it appears) Mr Berezovsky had taken to carrying around with him in the hope that such an opportunity would present itself.
Thirdly, it is open to each defendant to appoint solicitors to accept service of the proceedings on their behalf. However, in the context of many international disputes, non-resident defendants do not adopt a cooperative attitude to making a claimant's life simple in effecting service. Realistically, unless there was a pre-existing agreement under which the relevant parties had irrevocably nominated service agents in England, the prospects of securing co-operation after a dispute has arisen are slim.
So what happens in cases where one or more defendants can only be served outside not only England and Wales but (broadly speaking) the European Union; there is no prospect of the defendants coming into England so that service could be effected there; and the defendants will not co-operate by appointing solicitors to accept service on their behalf? The answer is that the court has to be asked to give permission for the proceedings to be served outside the jurisdiction.
The basis on which the English court decides whether or not to assume jurisdiction over a case where its jurisdiction is challenged
It is important to understand that whether or not the court needs to be asked at the outset for permission to serve the proceedings on a defendant outside England and Wales, the possibility of a jurisdictional challenge arises. The difference lies in the timing: in one case, the challenge surfaces before the court has had to look at the jurisdictional issue at least on a preliminary basis; in the other, it arises after the court has, at a minimum, considered the jurisdictional issue in the presence of the claimant but without necessarily yet having heard from the relevant defendant.
The process for seeking permission to serve proceedings on a defendant outside the jurisdiction is that the application is usually made without notice to the relevant defendant, often on paper and without a hearing taking place at all.
As for the qualifying requirements, the court will only grant permission to serve proceedings on a defendant outside the jurisdiction if it is satisfied that:
- the claim(s) advanced pass through one of several "gateways";
- the claim(s) have a reasonable prospect of success; and
- England is the proper place in which to bring the claim.
These requirements are discussed in turn in more detail below.
(a) Does the claim pass through one of the gateways?
The first requirement is to establish that the claim passes through one of several gateways. Some of the common gateways that are available are described below, all but the last being based on the nature of the claim.
- The claim relates to a contract made, or negotiated, in England or Wales.
This was one of the gateways relied upon in the case of Cherney v Deripaska in which the claimant, Cherney, relied upon a contract which he claimed had been entered into in London in 2001. Of course, as the Cherney case demonstrated, in today's world global travel and business are the norm, and so the fact that a contract is signed in England is not of itself a strong indicator as to whether the English courts should ultimately accept jurisdiction over the claim.
- The claim is in tort where it is said that the damage was felt, or the tortious act was committed, within England or Wales.
A recent example of how this gateway can be deployed arose in the case of VTB Capital plc v Nutritek and others where VTB sought to bring proceedings in England for alleged deceit and conspiracy against Mr Malofeev (a Russian businessman) and some BVI companies that it was said he controlled. For reasons explored further below, the Supreme Court of England nevertheless declined to allow the case to proceed in England because VTB had not satisfied the further requirement of showing that England was the proper place in which to bring the claim.
- The claim is made to enforce a previous foreign judgment or an arbitral award.
This is a commonly used gateway and enables permission to be obtained to serve proceedings outside the jurisdiction whenever the purpose of the proceedings is to enforce (or secure recognition of) a foreign judgment or arbitral award.
- The claim is solely for an interim remedy in support of main proceedings that are taking place in (broadly) another European state.
This is an extremely valuable gateway. In many cases it allows proceedings to take place in England that seek only interim remedies in support of foreign proceedings where the substantive claims are being litigated. Those remedies might include, for example, injunctions seeking to freeze assets; orders entitling the claimant to search premises for defined classes of documents, which there is reason to think would otherwise be destroyed or hidden; or other forms of temporary injunctions.
- The claim is for an order requiring the relevant defendant to do or to stop doing an act within the jurisdiction.
It is a recognised basis for securing permission to serve proceedings outside the jurisdiction that the claim seeks an order requiring the defendant to do or stop doing something within the jurisdiction. The obvious reason for this is that the location of where the event is or is not to take place (i.e., England or Wales) makes it appropriate for the English courts to assume the role of policing any order that it appears appropriate to make.
- The defendant is a "necessary or proper party" to proceedings in which another defendant (who can be served without the need for permission) is a party.
So, for example, if it is desired to sue alleged conspirators and some of them can be served within the jurisdiction, but others cannot, it may be possible to deploy this gateway to justify serving the co-conspirators who are outside the jurisdiction. For example, in the case of JSC BTA Bank v Ablyazov and others, the presence of two defendants in England made it possible to say that the other parties who were said to be joint tortfeasors but were based outside England could appropriately be served because they were "necessary or proper" parties to the litigation.
(b) Does the claim have a reasonable prospect of success?
If it is not possible to get through one of the gateways, the application for permission to serve proceedings outside the jurisdiction will fail. Assuming that that first hurdle can be overcome, the second hurdle is to establish that the claims asserted in the proceedings have a reasonable prospect of success. If the claimant fails to meet this burden in relation to any particular claim that is asserted, that claim will not be allowed to proceed.
The requirement to establish that the claim has a reasonable prospect of success should not be taken lightly. Especially where the nature of the dispute has already become apparent, submitting detailed evidence is likely to be essential if this hurdle is to be overcome. To illustrate this, in the Cherney case, Cherney required permission to serve Oleg Deripaska (the extremely wealthy Russian oligarch) in Russia with the English proceedings that he had commenced. As part of the process of securing jurisdiction in England, Cherney needed to prove to the court that his claim had a reasonable prospect of success. On the evidence that the parties put forward at the jurisdictional hearing, which necessarily could only be reviewed on a preliminary basis at that stage, the judge was satisfied that Cherney did have a reasonable prospect of success, saying "I am satisfied that, on the material presently before me, Mr Cherney has a good arguable case on this point, in the sense that he has a strong argument and that, insofar as any judgment can be made on present material, he has much the better side of the argument."
A stark contrast with Cherney's successful jurisdiction application is provided by the judgment of the very same judge in the case of OJSC Oil Co Yugraneft (in liquidation) v Abramovich and others, which was decided shortly after he gave his ruling on Cherney's application. In the Yugraneft case the liquidator of the claimant claimed damages against Mr Abramovich and an English company called Milhouse Capital UK Ltd, asserting that it had been the victim of a massive fraud directed by Mr Abramovich. As a gateway to jurisdiction, it sought to rely on the fact that Abramovich was (it claimed) a "necessary or proper party" to proceedings in which Milhouse (which, as an English company could be served in England) was a party. The court refused to allow the case to proceed. It concluded that the claim against Milhouse was unmaintainable; and so there was no claim to which Abramovich could be a "necessary or proper party"(although in fact the court went on to conclude that there was no maintainable case against Abramovich either).
(c) Is England the proper place in which to bring the claim?
The third requirement for establishing jurisdiction is that the claimant must establish that England is theonly proper place to bring the claim ("the" is emphasised because the cases make it quite clear that the fact that England may be one of several proper places to bring the claim is not enough). As already indicated, this question may fall to be answered either at the outset of proceedings (when a claimant applies for permission to serve the proceedings on a defendant outside the jurisdiction) or when a claimant has managed to serve a defendant without needing to seek the permission of the court and the defendant subsequently seeks to argue that England is not the proper venue for the litigation. The difficult question, though, is how the court goes about determining whether England is the only "proper place" for the litigation.
In summary, the principles are that:
- the burden is on the claimant to persuade the court that England is clearly the appropriate forum for the trial of the action;
- the appropriate forum is the forum where the case may most suitably be tried in the interests of all the parties and the ends of justice;
- this requires first consideration of what is the natural forum;
- if the court concludes that the natural forum is not obviously England (or at any rate that there is another forum which is as suitable as, or more suitable than, England), it will normally refuse to allow the case to proceed in England;
- even then, though, if the claimant can establish that there are circumstances that mean that the interests of all the parties and the ends of justice require the case to proceed in England, the court will allow the case to continue (i.e., even though England may not be the natural forum for it).
In applying the principles stated above, where there is an exclusive jurisdiction clause that selected English jurisdiction to resolve disputes between the parties, it is highly unlikely that the court would refuse to allow English proceedings to continue. Conversely, a prior exclusive choice of a foreign jurisdiction would be likely to be upheld in the absence of very powerful reasons.
For those less straightforward cases (i.e., where the parties have not previously agreed on an exclusive jurisdiction), it is essential to understand the sort of factors that the court takes into account when considering the italicised expressions above (natural forum and may most suitably be tried in the interests of all the parties and the ends of justice) and how the court approaches the question of whether England is the proper place to bring the claim.
Natural forum means where the litigation has its most real and substantial connection. Relevant factors include matters concerning convenience and expense, such as where the witnesses are, what language the documents are in, what languages are spoken by those who are likely to be witnesses at trial, the ease with which likely witnesses can travel to England for the trial, and so on. Other factors include the law governing the relevant transaction (although that is not necessarily determinative), where the parties themselves reside, and where they conduct business.
The factors that can be taken into account in assessing where a case may most suitably be tried in the interests of all the parties and the ends of justice do not appear to be rigid. However, they would include, where it can be established objectively by cogent evidence, the fact that the claimant will not receive justice in the foreign jurisdiction that has been held to be the natural forum.
It is instructive to see how the courts have applied the above principles in practice in two of the cases mentioned earlier in this article, where contrasting conclusions were reached by the same judge at more or less the same time; and in a more recent decision of five Supreme Court judges sitting as the Privy Council (the highest court of appeal from a judgment of the Isle of Man courts).
In the Cherney case, the judge concluded that the natural forum for the case was Russia. His reasoning was that the case concerned the ownership of interests in a major part of the Russian aluminium industry; Mr Deripaska's response to the claim (he alleged extortion) related to what did or did not occur in Russia; Mr Deripaska is himself Russian and Mr Cherney originally operated from Russia; if Mr Deripaska's claim that he was paying protection money was correct, the protection was being provided in Russia as was at least some of the payment; and finally, the judge was not persuaded that the contract was governed by English law, so as to make that a basis for asserting jurisdiction.
Despite the conclusion that the natural forum was Russia, that was not the end of the matter, because, as already explained, the court had to consider where the case could most suitably be tried in the interests of all the parties and the ends of justice. A substantial amount of written evidence was presented to the court on that issue from each side. The judge was persuaded that Cherney could not be expected to litigate in Russia and that made "England the forum in which the case can most suitably be tried in the interest of both parties and the ends of justice." When Mr Deripaska appealed against this ruling, the Court of Appeal rejected the appeal and refused to interfere with the judge's conclusion.
As already explained, in the Yugraneft case, decided shortly after the Cherney judgment was delivered, the same judge refused to allow the case to proceed in England because he was not satisfied that the claims stood a reasonable prospect of success (nor, moreover, that Mr Abramovich would be a necessary and proper party to any claims). However, the judge went on to say that even if he was wrong about that and the claims did stand a reasonable prospect of success, England was not the most appropriate forum to resolve the dispute; Russia was. His conclusions were based on the claim’s being about the conduct of Russians in Russia under Russian law and the fact that, unlike Cherney, Yugraneft (a Russian company in which the City of Moscow held shares) was an experienced litigator in Russia and had not been without success in its litigation there.
In other words, the judge could not find reasons in this (as opposed to the Cherney) case to displace the presumption that the natural forum for the case was where it should be heard.
AK Investment CJSC v Kyrgyz Mobil Tel Ltd
More recently, in 2011, the Privy Council had to resolve a jurisdictional battle between two Russian groups concerning a telecommunications business in Kyrgyzstan previously owned by BITEL, a Kyrgyz company. Proceedings were commenced in the Isle of Man by BITEL to enforce a Kyrgyz judgment against three Isle of Man companies, all of which were owned by the largest mobile telecommunications operator in Russia. The Isle of Man companies counterclaimed against BITEL and sought and obtained permission to add thirteen additional defendants to the counterclaim and serve them outside the jurisdiction. Six of those defendants challenged that decision and it was that issue that eventually came before the Privy Council.
The question then was whether the counterclaim should proceed against those defendants in the Isle of Man or Kyrgyzstan, which was the natural forum, given that the counterclaim related to matters that occurred outside the Isle of Man and primarily in Kyrgyzstan. The practical reality was that if the Isle of Man companies were left to proceed in Kyrgyzstan, they would be unable to pursue any of their claims there.
The Privy Council allowed the counterclaim to proceed in the Isle of Man because substantial justice would not be achieved if the Isle of Man companies were left to a remedy in the Kyrgyz courts.
It may be helpful to draw some conclusions from the above analysis by way of guidance for the future.
- If potentially complex jurisdictional battles are to be avoided, try wherever possible to contract for a suitable choice of law and for the courts which will determine any disputes.
- An exclusive jurisdiction clause in favour of the courts of England and Wales is unlikely to be capable of successful challenge.
- Ideally, if wishing to select the courts of England and Wales, consider also choosing English law to govern the relationship. It provides great flexibility and it is preferable to have the court determining the issue applying its own system of law.
- If no choice of jurisdiction was made in the contract, and you wish to litigate in England, can service of the proceedings be achieved without needing the court’s permission? If not, the court’s permission to proceed will be needed. It will only be granted if:
- the claims can be brought through one of the “gateways;”
- the claims have a reasonable prospect of success and either:
- England is shown to be the natural forum where the case can most suitably be tried in the interests of all the parties and the ends of justice; or
- powerful evidence is adduced to persuade the court that, though not the natural forum for the case, England is where the case should proceed in the interests of all the parties and the ends of justice.
- Any attempt to persuade the court that the case should proceed in England even though it is not the natural forum will have to be based on very case-specific and cogent evidence. Mere insinuations or general criticism of a foreign court will not be enough.