Jurisdiction: how English does your dispute need to be?

In a recent judgment the Court of Appeal considered the test for establishing the natural forum for a dispute, for the purposes of authorising service of English proceedings out of the jurisdiction. In doing so, the court provided useful guidance on the extent to which a choice of law clause in a contract could determine the appropriate jurisdiction for hearing a claim in the absence of an express agreement on the issue.

Background

In Novus Aviation Limited v Onur Air Tasimacilik AS, the parties entered into an agreement (the “Agreement”) by which the claimant would, for a commission, secure business for the defendant leasing aircraft to Saudi Arabian Airlines. The claimant was a Bahamian company and the defendant was based in Turkey. The Agreement stated that it was to be governed by and construed in accordance with English law, but no choice of forum was specified for hearing disputes. A dispute arose as to whether the term of the agreement had been extended and, in particular, whether the defendant was in breach of contract by dealing with Saudi Arabian Airlines direct.

The claimant issued proceedings in the High Court and sought permission to serve those proceedings on the defendant in Turkey, relying on the contract being governed by English law. Where that is the basis relied on, the High Court will only permit such service if it appears that the claim has a reasonable prospect of success and that England is the “proper place” for bringing the claim. In Spiliada Maritime Corporation v Cansulex Limited, the House of Lords held that the proper place, or “natural forum”, for a dispute was where the action “had the most real and substantial connection” and where “the case may be tried more suitably for the interests of all the parties and the ends of justice”.

Permission was granted. The defendant appealed, arguing that the claimant had failed to establish that England was the natural forum: neither party had a place of business in England; none of the matters or facts giving rise to the dispute took place in England; and the contract was not concluded in England. They argued that Turkey was the natural forum: the defendant and their witnesses were resident in Turkey; correspondence originated and some meetings took place in Turkey; invoices were received in Turkey; and the aircraft leased by the defendant flew from Turkey. The defendant also claimed that the judge had erroneously equated the choice of English law and the use of the English language with a choice of an English forum for disputes.

Judgment

The Court of Appeal held that when considering the natural forum for a dispute the courts were entitled to consider numerous factors, including the availability of witnesses, the residence or place of business of the parties, the ground of jurisdiction relied on and the governing law of the agreement.

A claimant requesting service outside the jurisdiction, on the basis that a claim is made in respect of a contract governed by English law, has a heavy burden of proof to persuade the court that England is the appropriate forum. In these circumstances the court could take a wider approach and consider issues of public policy, whether the foreign forum would apply their local law instead of English law and if justice could be obtained by the claimant in the alternate forum without excessive cost, delay or inconvenience. Other factors considered by the courts include the nature of the dispute, the legal and practical issues involved, as well as any relevant local knowledge.

The importance of the parties choosing English law was of varying importance in the wider mix of relevant matters. The fact that English was used in the negotiations and agreement was usually, according to the Court of Appeal, largely irrelevant as English has become ubiquitous in international business. However, in this case the contract negotiations took place in English and, although all of the potential witnesses were not fluent in English (and therefore would not give their evidence in English), they would be questioned on their recollections of conversations held in English.

English law concepts of estoppel, the certainty of contractual terms, ostensible authority and the intention to enter into legal relations could have been raised in subsequent proceedings and the Court of Appeal held that the English (rather than the Turkish) courts were better equipped to deal with those issues.

On the other hand, the defendant and its witnesses were based in Turkey, although the facts of the dispute had no connection with Turkey. Furthermore, the contract was not performed or breached in England and there was no factual connection whatsoever with this country.

Taking all matters into account, the Court of Appeal held that, in this case, the appropriate jurisdiction was finely balanced, but the trial judge was nevertheless entitled to conclude that England was the natural forum. A Turkish court could have determined the dispute in accordance with English law, but in this case it would not be appropriate for it to do so. When deciding whether to allow service outside the jurisdiction, the court should consider the issues of a dispute and then determine the appropriateness of the competing jurisdictions.

Comment

This case is a useful reminder of the difficulties that can be encountered where parties to an agreement fail to consider the jurisdiction to which they will submit any dispute. In the absence of any agreement in that respect, the fact that the parties agree to be bound by English law will not necessarily be treated as a submission of disputes to the English court. To avoid litigating about where to litigate, parties should always insist on including a jurisdiction clause. Where international parties are involved, they should also consider including a service agent clause to allow the claim documents to be served in England without requiring further permission.

Case reference

Novus Aviation Limited v Onur Air Tasimacilik AS [2009] EWCA Civ 122
Spiliada Maritime Corporation v Cansulex Limited [1987] A.C. 460