In the recent decision of Vitol Bahrain EC v Nasdec General Trading & Others, the Commercial Court reaffirmed the need for caution when considering whether to bring foreign defendants within the jurisdiction of the English courts.
The jurisdiction challenge arose out of a dispute concerning the ownership of two cargoes of oil purportedly sold by the first defendant company, Nasdec, to the claimant company, Vitol, for $120m pursuant to contracts entered into in March and May 2012.
Vitol is a Bahranian company which carries on business trading and refining oil and petroleum products. Nasdec is a Dubai company.
The contracts for sale included warranties by Nasdec that it had marketable title to the cargo free and clear of any lien or encumbrance and full right and authority to transfer and effect delivery of the cargo.
The contracts were subject to Dubai International Finance Centre (DIFC) law and to the exclusive jurisdiction of the courts of Dubai. However, the warranties of title were expressed to be governed by English law and subject to the exclusive jurisdiction of the English courts. The two cargoes were delivered by vessel and discharged at the VTTI terminal in Fujairah as required by the contracts. On receipt of proof of delivery, Vitol paid the contract price to Nasdec.
Subsequently, the second and third defendants, respectively companies called Fal Oil Dubai and Fal Oil Sharjah (together the Fal Oil parties), contacted VTTI asserting ownership rights over the cargoes. VTTI informed the Fal Oil parties that it was the terminal storing the oil and that the cargoes in question were stored in tanks leased to Vittol.
Notwithstanding the information provided by VTTI, Fal Oil Sharjah issued civil proceedings against VTTI in Fujairah in June 2012 alleging that VTTI was holding the cargoes on trust for Fal Oil and as such was liable to deliver them back to Fal Oil unless it could demonstrate that Fal Oil did not have title to the cargoes. In this respect the claim against VTTI raised the issued as to whether the cargoes belonged to Vitol or the Fal Oil parties.
The Fal Oil parties also commenced criminal proceedings against their former general manager, Mohammed Osman, who they said set up Nasdec to misappropriate dishonestly the cargoes.
In October 2012, Nasdec petitioned to intervene in the Fujairah proceedings asserting that Fal Oil had never had title to the cargoes and, that it, Nasdec, had purchased them from a third party, the Sudan Petroleum Corporation, and that it had acted lawfully in selling them on to Vitol. The petition was granted and Nasdec became a party to the Fujairah proceedings.
On 9 November 2012, Vitol commenced proceedings in England against Nasdec and, amongst others, the Fal Oil parties, for a declaration that Nasdec had and had passed good title to the cargoes. Vitol sought and obtained permission to serve the proceedings on the defendants out of the jurisdiction a week later on the basis that they were necessary and proper parties to the proceedings. The claim form was served on the Fal Oil parties through diplomatic channels on 30 September 2013. The Fal Oil parties filed an acknowledgement of service indicating an intention to contest jurisdiction on 22 October 2013.
In the meantime, the Fal Oil parties applied successfully to join Vitol to the Fujairah proceedings. This prompted Vitol to make an application to the English court for an anti-suit injunction which was granted on an interim basis. The application for continuation of the injunction came before the court on 25 October 2013.
The judge dismissed that application on 1 November 2013 on the grounds that Fujairah was the natural forum for the determination of the question of title of the cargoes. He decided that this was determinative of the application because it is well established that the English court will not grant an injunction unless it has some interest of its own to protect, the typical example being where England is the natural forum, which was not the case.
Fal Oil subsequently issued its jurisdiction challenge application to its involvement in the English court proceedings, which was heard on 28 March 2014.
The issues on the jurisdiction challenge
Referring to Lord Collins’ recent summary of the law in Altimo Holdings & Investment Limited v Kyrgyz Mobil Tel Limited1, the judge identified the principles in relation to permission to serve out of the jurisdiction as follows:
- First, the claimant must satisfy the court that, in relation to the foreign defendant, there is a serious issue of fact or law, or both, to be tried on the merits. The current practice is to apply the same threshold as for summary judgment, namely whether there is a real prospect of success on the claim.
- Second, the claimant must satisfy the court that there is a good arguable case that the claim falls within one or more classes of case in which permission to serve out may be given. In this context “good arguable case” means that one side has much the better argument than the other. Vitol was seeking to rely on the gateway at paragraph 3.1(3) of CPR PD6B arguing that the Fal Oil parties were necessary and proper parties to its claim against Nasdec.
- Third, the claimant must satisfy the court that in all the circumstances England is clearly or distinctly the appropriate forum for the trial of the dispute, and that, in all the circumstances the court ought to exercise its discretion to permit service of the proceedings out of the jurisdiction.
The debate before the court focused on the third, “appropriate forum”, requirement. In this respect, the Fal Oil parties argued that an issue estoppel arose by reason of the judge’s decision in connection with the anti- suit injunction application that Fujairah, not England, was the natural forum for resolution of the dispute. The judge hearing the jurisdiction challenge rejected this argument on the grounds that an issue estoppel can only arise where the issue in each application is identical, whereas he found the issue before the previous judge was different in the following two respects:
- An application to set aside permission to serve out of the jurisdiction falls to be determined by reference to the position at the time permission was granted, not by reference to circumstances at the time the application to set aside is heard. By contrast, the application for an anti-suit injunction depended upon the circumstances at that time, including the particular state of the English and Fujairah proceedings at that date.
- The previous judge was concerned with the question of the appropriate forum for the resolution of the issues between Vitol and Fal Oil, whereas the instant application had to be considered against the background of the jurisdictional gateway of the Fal Oil parties being a necessary or proper party to Vitol’s claim against Nasdec.
As to the question of appropriate forum, Vitol argued that the starting point was to recognise that it had a contractual right to bring proceedings in England against Nasdec pursuant to the exclusive jurisdiction conferred by the warranties. The Fal Oil parties were necessary and proper parties to those claims because the issue of title to the cargoes required a single investigation between the parties, all of whom needed to be bound by the determination which the English court is bound to make in any event in connection with the claim against Nasdec.
Once it has been established that a person is necessary and proper party to a claim against one or more anchor defendants in England, that is a weighty factor in favour of granting permission to join them to the English proceedings. Vitol argued that, at that stage, the question was no longer whether England is the more appropriate forum for the resolution of the disputes between the claimant and the foreign defendant(s) viewed in isolation, but whether England is distinctly the more appropriate forum for the resolution of the disputes between them, which it is necessary and proper to determine together with the claims against the anchor defendant(s). The policy engaged is the undesirability of the duplicative proceedings and conflicting judgments.
Whilst acknowledging the force of Vitol’s argument, the judge was not persuaded that the test for the necessary and proper party gateway had been satisfied. In this regard, he reflected on the anomalous nature of this head of jurisdiction, which effectively throws the net of jurisdiction beyond any territorial connection between the claim, the subject matter of the action, and the English courts, and the caution with which it must be approached.
Whilst agreeing with Vitol that the starting point when considering the necessary or proper party head of jurisdiction is to examine the nature of the claim against the anchor defendant(s), on analysis the judge was not satisfied that the claim provided a valid platform for making the Fal Oil parties defendants to English proceedings. In this respect, the judge identified that the claims advanced against Nasdec in November 2012 would and could not have been pursued in the absence of the joinder of the Fal Oil parties: Vitol was not suing Nasdec for breach of the warranties; on the contrary, there was no issue between Vitol and Nasdec as to whether Nasdec had and passed good title to the cargoes to Vitol. This issue only arose because of the Fal Oil parties’ allegations. Indeed, Vitol’s damages claim would be struck out if Fal Oil were not a party to the proceedings because there would be no allegation of a defect in Nasdec’s title by anyone in the proceedings.
In the circumstances, the judge determined that Vitol had no claim that it could pursue in the English court independently of a claim against the Fal Oil parties and, hence, there was no independent claim to which it could be said to be a necessary and proper party. The judge also concluded that there was no risk of duplication of time and cost or inconsistent judgments because the only disputes requiring resolution were the claims between Vitol and the Fal Oil parties as to who had good title to the cargoes. Fujairah was clearly the most appropriate forum for the resolution of those claims.
This judgment provides a useful reminder of the limitations of the necessary and proper party head of jurisdiction and the English court’s reluctance to extend its jurisdiction to claims to which it has no territorial connection.
The case also exemplifies the importance of the formulation of a claim to the course of proceedings and strategy generally: the judge’s decision was driven by his analysis of the nature of Vitol’s claim against Nasdec and it is interesting to note that the outcome of the jurisdiction challenge could have been different if the claim against Nasdec had been for breach of the warranties rather than a declaration as to title.