Breach of jurisdiction clause – High Court protects company and affiliate by way of anti-suit injunction

Posted by Ben Clark on
An anti-suit injunction is an equitable remedy available to parties to a contract in which the parties have agreed the jurisdiction (i.e. in the English Courts or by arbitration to be held in England) for the resolution of any disputes arising out of the contract.  If a party commences proceedings in relation to matters arising from the contract in a different jurisdiction to that stipulated, the English Courts have the power to restrain the pursuit of proceedings which have been commenced in breach of the contract.

A recent High Court decision highlights how the English Courts may construe parties' intentions when interpreting jurisdiction clauses in contracts, as well as the protection that can be afforded by way of anti-suit injunctions (especially when dealing in jurisdictions outside of the EU).

The position within the EU

Anti-suit injunctions remain a tricky subject when dealing with proceedings within the EU.  The European Court of Justice famously held in Gasser GmbH v MISAT srl Case C-116/02 [2003] ECR I-14693 and Turner v Grovit Case C-159/02 [2004] ECR I-3565 that anti-suit injunctions are not compatible with the Brussels Regulation on jurisdiction, and that rather the Court first seised of proceedings must decide whether it has jurisdiction to hear the dispute.

That position has potentially softened somewhat following the introduction of the Recast Brussels Regulation which was adopted in January 2015.  Article 31 of the Recast Brussels Regulation states that where there is an exclusive jurisdiction clause in a contract, any Court of a Member State shall stay proceedings until such time as the Court seised on the basis of the agreement declares that it has no jurisdiction under the agreement.  Where the Court designated in the contract establishes jurisdiction in accordance with the contract, any Court of another Member State shall decline jurisdiction in favour of that Court.   

Blake Morgan has recently obtained declaratory relief for a client who has been subjected to proceedings in Italy in breach of an exclusive English jurisdiction clause.  Whilst the High Court in that instance was not willing to go behind the Gasser and Turner cases and grant an injunction, it did have sympathy with the 'Italian torpedo' suffered by the client and made appropriate declaratory relief with costs.  Essentially the High Court declared that the English Courts hold the exclusive jurisdiction to hear the dispute in accordance with the contractual terms agreed, and that commencement and any continuance of the Italian proceedings amounted to a breach of the exclusive jurisdiction clause in the contract and Article 31 of the Recast Brussels Regulation.

The position outside the EU

Anti-suit injunctions are more readily available in proceedings commenced in jurisdictions outside of the EU in breach of jurisdiction clauses.

Indeed, recently the High Court in the case of Dell Emerging Markets (EMEA) Ltd and another v IB Maroc.com SA [2017] EWCH 2397 (Comm) went so far as to hold that anti-suit injunctions can be granted to protect affiliate entities who are not a party to the contract, but who may, subject to construction of the jurisdiction clause, rely on the jurisdiction clause of the contract which is the subject of the proceedings.

The question as to whether an affiliate can rely on a jurisdiction clause in a contract to which it is not a party is fact specific, and will depend on the interpretation of the construction of the contract and its jurisdiction clause.

The facts

In February 2010, Dell UK (the first claimant) entered into a distribution contract (the "Contract") with IB Maroc (the defendant).  The Contract contained an exclusive English Court jurisdiction clause.  The Contract stated that it was not intended that any third party should enforce it and that accordingly, the terms of the Contracts (Rights of Third Parties) Act 1999 did not apply. 

Dell Maroc (the second claimant) was an affiliate of Dell UK for the purposes of the Contract, albeit it was not a party to the Contract.

A dispute arose and IB Maroc issued proceedings against Dell UK in Casablanca, Morocco.  IB Maroc indicated that it also intended to bring a claim against Dell Maroc in that jurisdiction.

The decision

Dell UK and Dell Maroc applied in the English High Court for an anti-suit injunction restraining the defendant from pursuing proceedings other than in England.  An interim injunction was granted and the claimants applied for a continuation order (i.e. that the injunction be continued pending disposal of the proceedings). 

Due to the contractual position, it was accepted before the English High Court that Dell UK was entitled to an injunction, but it remained in dispute as to whether Dell Maroc was entitled to an injunction restraining IB Maroc from pursuing a claim against it other than before the English High Court.

It was held that both Dell UK and Dell Maroc were entitled to injunctive relief with respect to the Moroccan proceedings against them.

The question considered by the Court concerned whether the jurisdiction clause in the Contract extended not only to claims that IB Maroc wished to bring against Dell UK, but also to claims against Dell UK's affiliates.

The jurisdiction clause conferred exclusive jurisdiction on the English Courts to hear any dispute arising out of or in connection with the Contract.  In interpreting the construction of the Contract and the parties' intention as to the jurisdiction for resolution of issues arising from the Contract, the English High Court considered the effect of a clause in the Contract that read as follows:

"No claim may be brought by [IB Maroc] against [Dell UK] or any of its Affiliates or licensors pursuant to this Agreement unless such claim is brought within (1) year of the date on which the cause of action accrued ("Limitation Period") and any claim which is made shall, if it has not been previously satisfied, settled or withdrawn, be deemed to have been withdrawn and shall become fully barred and unenforceable on the expiry of the Limitation Date".

As a matter of construction, it was successfully argued that the parties could not have intended that proceedings against Dell UK were to be brought in the English Courts, but that claims against Dell UK's affiliates (arising out of the Contract) could be brought in different jurisdictions.  The English High Court stated that the reason why the jurisdiction clause could be enforced by an injunction is that it would be inequitable or oppressive for a party to a contract to seek to enforce a contractual claim arising out of that contract without respecting the jurisdiction clause within that contract.

Summary

This case serves as a reminder that other clauses in contracts may be taken into consideration when construing a jurisdiction clause.  Parties must always seek to be clear in their drafting and, if in doubt, seek advice both at the drafting stage and also once a dispute has arisen.

There are clear advantages in seeking to agree that the English Courts have jurisdiction to hear disputes arising out of contracts.  Not only will the English Courts take steps to protect the agreed jurisdiction as highlighted above, other benefits would include (amongst others) the established and well regarded law and legal framework, the prospect of cost recovery in the event of a successful outcome, broad privilege rules (which extend to legal advice given by in-house counsel) and broad disclosure principles.

Ben Clark or any member of Blake Morgan's dispute resolution team would be happy to discuss any questions you may have arising from issues discussed in this article.  

About the Author

Ben works on commercial and contractual disputes, both domestic and cross-jurisdictional. He is experienced in high value insolvency litigation.

Ben Clark
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