Jurisdiction challenges: Court of Appeal rules on formal validity requirements of exclusive jurisdiction agreements and sounds the alarm over costs
The Court of Appeal has affirmed the formal validity requirements of exclusive jurisdiction agreements in a case of considerable public interest (Public Institution for Social Security v Banque Pictet & Cie SA & Ors  EWCA Civ 29).
The Public Institution for Social Security (“PIFSS”) is a public institution in Kuwait which operates the national social security and pension scheme. During the course of 2019, PIFFS brought proceedings by way of a series of different claim forms against thirty-seven defendants for sums totalling US $847.7 million in respect of (at least) seven allegedly corrupt schemes pursuant to which it alleges that funds have been misappropriated in breach of duty and in violation of Kuwaiti ant-bribery laws. The substantive proceedings remain at a relatively early stage, notwithstanding the appeal of threshold jurisdictional issues relating to some of the defendant cohort. Even so, there are already Re-Re-Amended Consolidated Particulars of Claim in play which provides an indication of the likely scale of the proceedings.
In its Judgment, the Court of Appeal (Lady Justice Carr, Lord Justice Peter Jackson and Lady Justice Simler) addressed important issues of law concerning jurisdiction challenges where the Lugano Convention 2007 (“Lugano Convention”) or equivalent provisions in the Brussels Recast Regulation (“Brussels Recast Regulation”) continue to apply. These developments are likely to be of particular interest to parties with pending jurisdiction challenges in respect of claims instituted prior to the end of the transitional period. The decision will also be relevant to future cases concerned with formal validity of exclusive jurisdiction clauses (“EJCs”) under English law and fully exclusive jurisdiction clauses under Articles 5 and 6 of the Hague Convention on Choice of Court Agreements (“Hague Convention”), which now assumes greater prominence in this specific context and was implemented in the UK by the Private International Law (Implementation of Agreements) Act 2020 following the UK’s accession in its own right (although in general terms the Hague Convention is narrower in scope than the European regime).
The line of authorities would also come back into sharper focus from a Lugano perspective in the event the UK’s re-accession to the Lugano Convention is pursued in future (unanimous consent to invite the UK to accede is required from all parties). There is currently a negative outlook due to political stalemate stemming from a hardening of bi-lateral relations following the UK’s departure from the European Union evidenced, most recently in June 2021, by the statement from the European Commission that “the European Union is not in a position to give its consent to invite the United Kingdom to accede to Lugano Convention”, which does not promote certainty either way but led to the Swiss Federal Council acting as Depositary notifying the same to the Parties of the Lugano Convention. At best, there is ambiguity surrounding any re-accession by the UK to the Lugano Convention and, in some quarters, a general acceptance that the EU’s consent may never be forthcoming.
The default position in the absence of any new agreement between the UK and EU coming into force is that: (1) the Hague Convention will play a greater role in jurisdiction claims between signatory states (with the signatories set to increase over time and all eyes on the People’s Republic of China) so far as fully exclusive jurisdiction agreements are concerned; and (2) the common law rules incorporating the forum non conveniens test will generally apply to other jurisdiction challenges instituted in this jurisdiction after the withdrawal date, so far as the Hague Convention does not apply.
In the PIFFS litigation, on 6 November 2020, the Commercial Court (Mr Justice Henshaw) declined to exercise jurisdiction in respect of challenges made by ten of the defendants. Three of those ten defendants are banks based in Switzerland or Luxembourg. These banking entities contended, successfully at first instance, that PIFSS was bound by EJCs to bring the claims in Geneva or Luxembourg (albeit one of the defendants undertook to consent to Geneva jurisdiction for the purposes of the claim, which was a sensible and pragmatic step).
Article 23 of the Lugano Convention provides that “if the parties, one or more of whom is domiciled in a State bound by this Convention, have agreed that a court or the courts of a State bound by this Convention are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. Such an agreement conferring jurisdiction shall be either: (a) in writing or evidenced in writing…”
So far as the general banking conditions (“GBCs”) set by Banque Pictet are concerned, it was found that “on every occasion that PIFSS opened an account with Banque Pictet, PIFSS signed account opening documentation confirming that PIFSS had taken note of or agreed to Banque Pictet’s GBCs” and that “it also signed a number of other agreements and documents incorporating Banque Pictet’s GBC’s by reference”. PIFSS’s position at first instance was that it did not accept that Banque Pictet had provided PIFSS with access to its GBCs in 1998 when PIFSS first opened an account with Banque Pictet. PIFSS maintained that no copy of the GBCs was ever signed by PIFSS and that the GBCs were only ever provided to PIFSS in 2021. That was disputed by Banque Pictet. The Judge at first instance found that Banque Pictet had the better of the argument that PIFSS received copies of the GBCs prior to 2012.
In a carefully considered Judgment, Mr Justice Henshaw ruled (amongst other things) that the claims against these three banking entities (specifically in relation to the “Pictet Scheme” and “Mirabaud Scheme”) fell within the scope of valid and binding EJCs in favour of the courts of Geneva or Luxembourg. As regards incorporation and formal validity of the EJCs, Mr Justice Henshaw ruled that under EU law Article 23 was satisfied where a party agrees to a written contract incorporating by reference general terms including a jurisdiction clause.
The validity and effect of the EJCs was subsequently contested before the Court of Appeal by PIFSS. A central issue on appeal for Banque Pictet and Mr Bertherat, for the purposes of the formal validity requirement in Article 23(1)(a) of the Lugano Convention, was whether the Judge was right to conclude that it was unnecessary for the GBCs containing the EJCs to have actually been communicated to PIFSS.
The practical meaning of and requirement for “actual communication” raises an interesting point that is often engaged in practice. Notably, Article 23 of the Lugano Convention is materially identical to Article 25 of Brussels Recast, save where domicile issues are engaged, and analogous to Article 5 of the Hague Convention such that these general themes are likely to continue to be relevant notwithstanding the uncertainty surrounding the future of the Lugano Convention in this jurisdiction.
The Court of Appeal only addressed formal validity requirements so far as Banque Pictet was concerned. There was no equivalent dispute in relation to Pictet Europe and Banque Mirabaud as PIFSS pursued separate grounds of appeal in respect of material validity and scope of the exclusive jurisdiction clauses, which were substantive appellate grounds in their own right.
The question of whether the formal requirements of Article 23 of the Lugano Convention were met is an autonomous question of EU law. In order to establish the necessary agreement, it was common ground between the parties that the exclusive jurisdiction clause must be “clearly and precisely demonstrated”, consistent with authorities.
The Court of Appeal found that, contrary to the submissions for PIFSS, communication of the GBCs (containing the EJCs) is not necessarily required in order for that consensus to be established in circumstances where the parties have clearly agreed to terms which themselves expressly refer to GBCs which include the EJCs. The Court of Appeal observed that the European Court of Justice had emphasised in relevant authorities that what mattered was the real consent of the parties. The contract signed by the parties needed to make express mention of the acceptance of the EJCs or to contain express reference to the prospectus. By way of example, in Profit Investment, the Court of Appeal noted that “the ECJ held (at ) that an EJC contained in a bond prospectus satisfied Article 25(1)(a) if the contract signed by the parties “expressly mention[ed] the acceptance of that clause or contain[ed] an express reference to that prospectus” [our emphasis].
This is a critical point of delineation with significant practical consequences which is often disputed by parties seeking to establish jurisdiction in complex and multi-party claims. The Court of Appeal held that “whilst respecting the need to adopt a strict approach to the requirements of Article 23, the Judge was correct to reach the conclusion that he did, namely that, as a matter of EU law, no requirement of actual communication exists where the counterparty has signed a contract that includes express reference (and hence agreement) to the GBCs which contain the EJC. In short, real consent does not necessarily require actual communication of a particular term; express agreement to incorporation can be enough”.
The Court of Appeal endorsed commentary from Professor Adrian Briggs (who is highly respected in this field and the author of a leading textbook on Jurisdiction Agreements and Choice of Law) that “if a party signs a document which refers plainly enough to trading conditions which themselves contain an agreement on jurisdiction, this should satisfy the requirements of [Article 23]…”
The Court of Appeal noted that analysis was “consistent with a clear line of English appellate authority” which it examined further in paragraphs 73 – 77 of its Judgment and found to be a compelling line of reasoning. The Court of Appeal positively endorsed Lord Justice Rix’s statement in Sherdley v Nordea Life and Pension  EWCA Civ 88 that “where there is an express reference in the contract itself by way of incorporation of other written terms which include a clause conferring jurisdiction, art 23 is fulfilled even if the party signing did not have a copy of those conditions in their possession or readily available or did not understand that it was incorporated … it is not necessary for there to be a specific reference to the jurisdiction clause itself for the requirements of art 23 to be fulfilled”.
In paragraph 145 of the Court of Appeal’s Judgment, highlighting issues of general importance, Lady Justice Carr held that “as a matter of EU law, there is no requirement of actual communication of an exclusive jurisdiction clause where the counterparty has signed a contract that includes express reference (and hence agreement) to general business conditions which contain the clause. “Real consent” for the purpose of Article 23 does not necessarily require actual communication of a particular term; express agreement to incorporation can be enough. There is in any event no sufficient basis on which to depart from well-established English appellate authority to this effect”.
The Court of Appeal’s Judgment serves to strengthen the existing line of authorities in this area and provides significant support to foreign domiciled defendants seeking to rely on exclusive jurisdiction clauses in similar circumstances. Crucially, the Court of Appeal ruled that the risk of irreconcilable judgments was unavoidable and not a sufficient basis on which to establish jurisdiction against the Respondents. That line of argument is often the central point run by parties seeking to establish jurisdiction.
The application of exclusive jurisdiction agreements to international disputes involving different parties and competing interests across multiple borders ought to be at the forefront of the parties’ minds when first encountering a new claim. It is critical for defendants to fully engage with the claim and seek professional advice at an early juncture in order understand the potential consequences of jurisdiction challenges. To do so properly, the parties must grapple with the factual matrix of the claim and assess the relative merits of making a jurisdiction challenge (within time in the prescribed way under CPR 11 and without inadvertently taking steps which may be found to constitute submission to the jurisdiction).
Exclusive jurisdiction clauses are intended to mean just that: and the existing regimes are designed to provide for certainty so far as possible where formal and material validity requirements are satisfied. The mandatory provisions of Article 23 of the Lugano Convention, Article 25 of the Brussels Recast Regulation and Article 5 of the Hague Convention are an important consideration in determining jurisdiction issues because, where they apply, they can serve to override other provisions and are automatic, thus narrowing the scope for judicial discretion that exists under the common law regime (save in limited circumstances where the agreement is null and void as to its substantive validity).
The Court of Appeal upheld the first instance judgment in what can fairly be described as resounding terms. That said, the Court of Appeal imposed a de facto costs sanction on the Respondents given the scale of costs claimed which were some £13.5m at first instance and £4.5m on appeal (excluding PIFSS’s costs) i.e. £18m in total on the jurisdiction phase between a quarter of the defendant cohort.
The Court of Appeal expressed its concerns as to the level of costs incurred on threshold issues (where the Commercial Court Guide states that jurisdiction hearings ought to be measured in terms of hours not days) and ordered only a 23% interim payment of costs. That signals there may be low levels of costs recovery on assessment and is a stark reminder to parties engaged in jurisdiction challenges that the Court is taking an obviously firmer stance on costs. The Court signalled that it is not acceptable for parties, even involved in litigation of this scale, to incur in the region of £18m costs on threshold jurisdictional issues alone.
Gresham Legal has substantial experience of jurisdiction challenges in complex and high value commercial claims. As an agile disputes boutique, we are able to provide more cost-effective legal representation than larger and more traditional firms without compromising on service levels or the quality of advice.