Applicants challenging jurisdiction must satisfy a single three-limbed test, rather than establish a ‘good arguable case’ and ‘better of the argument’.
By Oliver E. Browne and George Schurr
The English Court of Appeal has clarified the correct test to be applied by the English courts when adjudicating a jurisdictional challenge. In the recent case of KAEFER Aislamientos SA de CV v AMS Drilling Mexico SA de CV and others  EWCA Civ 10, the Court ruled that the correct test is that laid down by the UK Supreme Court in Goldman Sachs International v Novo Banco SA  UKSC 34, which is a single test composed of three limbs, replacing the old two-part test of ‘good arguable case’ and ‘better of the argument’.
KAEFER Aislamientos SA de CV (the Claimant) was retained pursuant to the terms of a Purchase Order dated 16 August 2013 (the Purchase Order) to carry out refurbishment works to a cantilever jack-up rig known as the Atlantic Tiburon 1. Although the Purchase Order was executed by Atlantic Marine Services BV (AMS, the Second Defendant), its terms indicated that invoices for work carried out thereunder should be addressed to AMS Drilling Mexico SA de CV (AMS Mexico, the First Defendant) for settlement.
Clause 21 of the applicable terms and conditions (printed on the Purchase Order) expressly specified English law as the governing law of the contract, and that the “High Court in London” had exclusive jurisdiction “for the resolution of any disputes arising in connection with the supply of goods under these Terms & Conditions and the relevant Purchase Order/Contract”.
The Claimant commenced its initial action for breach of contract against four defendants: (i) AMS Mexico, (ii) AMS, (iii) Atlantic Tiburon 1 Pte Limited (AT1, the Third Defendant), and (iv) Ezion Holdings Limited (Ezion, the Fourth Defendant). AT1 and Ezion contested jurisdiction on the basis that they were not parties to the Purchase Order. The Claimant argued that AMS Mexico and AMS entered into the Purchase Order as agents on behalf of AT1 and/or Ezion, and that AT1 and/or Ezion therefore amounted to undisclosed principals subject to the terms of the contract.
The Claimant unsuccessfully sought a declaration from the English High Court that jurisdiction existed in respect of AT1 and Ezion. In his judgment, Mr. Peter MacDonald Eggers QC (sitting as a Deputy High Court Judge) held that “… the Claimant has a good arguable case (or a sufficiently arguable case) that it contracted on behalf of ATI … . The Claimant’s case in this respect has substance and is more than fanciful” (at ). This notwithstanding, the Judge was of the view that “on the evidence available … AT1 has the better of the argument that it was not, i.e. AT1’s case that it was not an undisclosed principal is more plausible than the Claimant’s case that AT1 was an undisclosed principal” (at ). As for the Fourth Defendant, the Judge held “that there is no good arguable case that Ezion was an undisclosed principal to the Purchase Order contract and, it follows, Ezion has the better of the argument in this respect” (at ).
In light of these findings, the Claimant appealed from the High Court to the Court of Appeal.
Lord Justice Green, sitting alongside Lady Justice Asplin and Lord Justice Davis, dismissed the appeal in his lead judgment dated 17 January 2019 and confirmed that AT1 and Ezion are not bound by the exclusive jurisdiction clause in the Purchase Order.
Opening his analysis of the proper test to challenge jurisdiction, Green LJ confirmed that, in light of developments in the case law since the date of the first-instance judgment, the High Court Judge had been incorrect to apply a two-part test of whether the Claimant had (i) a ‘good arguable case’, and if so, (ii) ‘the better and more plausible argument’. In the judgment of the Court of Appeal, the Judge had arrived at the correct outcome (in declining jurisdiction over AT1 and Ezion) albeit through an incorrect formulation of the law. In this context, Green LJ openly acknowledged that “[t]he Courts have … struggled to find a formulation which encapsulates in readily workable language what the test is and how it should be applied”.
The Court of Appeal proceeded to consider the two leading authorities in this area (both being cases heard by the UK Supreme Court): Four Seasons Holdings Incorporated v Brownlie  UKSC 80 and Goldman Sachs International v Novo Banco SA  UKSC 34. In Goldman Sachs, the Supreme Court unanimously endorsed the test laid down by Lord Sumption in the earlier case of Brownlie (which was strictly obiter); and whilst the Court did not go further than Brownlie, it noted that Goldman Sachs is the binding legal authority in this regard.
The test, being a single test with three limbs, was set out by Lord Sumption in both Brownlie and Goldman Sachs as follows:
(i) The claimant must supply a plausible evidential basis for the application of a relevant jurisdictional gateway.
(ii) If there is an issue of fact about the relevant jurisdictional gateway, or some other reason for doubting whether it applies, the court must take a view on the material available if it can reliably do so.
(iii) However, the nature of the issue and the limitations of the material available at the interlocutory stage may be such that no reliable assessment can be made, in which case there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it.
The Court of Appeal used the opportunity of KAEFER v AMS Drilling to provide considerable guidance on how the three-limbed test in Goldman Sachs, being the proper test, ought to be applied. In respect of limb (i), Lord Justice Green stated that it was his “clear view” that the reference to ‘a plausible evidential basis’ is “a reference to an evidential basis showing that the Claimant has the better argument” (at ). This limb is therefore to be assessed on a relative basis, i.e. as between the merits of the parties’ positions, rather than by reference to an absolute standard. Limb (ii) ought also to be assessed on a relative basis, being “an instruction to the court to seek to overcome evidential difficulties and arrive at a conclusion if it ‘reliably’ can. […] [A]n instruction to use judicial common sense and pragmatism” (at ). Unlike the first two limbs, Green LJ was clear that limb (iii) is intended to introduce flexibility, being an assessment “not necessarily conditional upon relative merits”, which, to an extent, “moves away from a relative test and, in its place, introduces a test combining good arguable case and plausibility of evidence” (at ).
The judgment in this case confirms that an applicant seeking to challenge the jurisdiction of the English Courts must satisfy the single, three-limb, test laid down in Goldman Sachs v Novo Banco, and not the old two-part test of ‘good arguable case’ and ‘better of the argument’. Furthermore, given the limited case law in this area, the judgment in KAEFER v AMS Drilling provides some helpful guidance on how the test laid down in Goldman Sachs is to be approached and applied. Nonetheless, the three-limb test is not entirely clear and straightforward, and practitioners should continue to approach it with care.
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