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By Dr Alan Ma, Founder & Partner, Maxwell Alves Solicitors

In today’s globalised world, customer demand for higher quality, more reasonably priced and local speciality items has increased the procurement of materials from overseas. When making purchases abroad, buyers should be aware of several issues relating to cross border contracts. One of the most important of these is the question of whether home court or foreign tribunal should hear the case when things go wrong. In an ideal world, these issues would be clearly spelled out on paper, signed by the parties (aka a contract). The English legal principle of “party autonomy” means that parties are free to enter into a contract defining where the dispute is to be heard and decided. As long as it is completely clear, the court will usually follow the terms of the contract. However, in reality, contracts are routinely formed via e-mail, therefore it is not always clear which documentation represents the contract or whose terms govern the deal.

The English court’s approach

As many factors can benefit a party during litigation, it is not surprising that jurisdictional issues often arise between parties, even where an unambiguous provision exists. In England, rules have been developed which (a) permit English courts to exercise jurisdiction (permit cases to be heard in England) and (b) permit English courts to decline jurisdiction (i.e. to not hear the case) so that the case is heard in a foreign court. Jurisdiction of the English Courts is governed by 2 broad regimes: (a) Brussels I Regulations (EU related cases):  (b) all cases do not fall within the Brussels I Regulations – (the rest of the world). Hence the first question to ask is whether the dispute falls within the rules of the Brussels I Regulation.

In general, the Brussels I Regulations relate to contracts with EU connections. For matters with non-EU connections, the jurisdictional issue must be resolved at an early stage of proceedings, when there has been no full disclosure of the evidence and only the statement of claim is available. To prevent parties from incurring substantial litigation costs, the claimant has only limited evidence to show in support of the jurisdiction application.

English courts decide whether they have jurisdiction to hear the case using the well-established principle of Forum Conveniens.

The guiding principle is set out in the classic case of Spiliada Maritime Corp v Cansulex Limited [1987]

“… to identify the forum in which the case can be suitably tried for the interests of all parties and for the ends of justice ….. The burden of proof rests on the Claimant to persuade the court that England is the appropriate forum for the trial of the action, but he has to show that this is clearly so.”

The application of such a principle is to be illustrated by reference to a recent case, Surrey (UK) Limited v Mazandaran Wood & Paper Industries [2014] English courts

The facts

Contracts were entered into between the seller and buyer for the sale and transportation of wood products from Russia, China and Chile to the buyer’s paper mill in Iran. Disputes between parties erupted, with the seller claiming:

  • non payment of £105,000 for goods and services provided;
  • £880,000 damages due to repudiatory breaches by the buyer.

Including costs and interest, the size of the total claim came to £3.3m.

The buyer rejected the seller’s allegations, claiming that (a) the seller was not a party to any contract and therefore was not entitled to sue; (b) there were no sums due or outstanding; (c) the buyer was entitled to cancel orders because the material delivered was not of the agreed specification. Whether in an English or Iranian court, the resolution of such a dispute requires detailed evidence to be heard. The UK-based seller applied to an English Court for a service of claim form onto the buyer (in Iran) so that the dispute would be heard in England. Firstly, the English court needed to decide on the appropriate forum. The seller claimed that it should be in England on the grounds that (a) the contract(s) were made in England, (b) they were governed by English law.

Firstly, the court had to consider whether these two “gateways” were made out. Rather than courts deciding this by resolving disputed issues of fact, the applicant (i.e the seller in this case) had to show that they had the “better argument”. If the gateways could not be made out by the applicant, the court would then move on to consider Forum Conveniens and to decide whether discretion should be exercised.

Relying on Forum Conveniens, the buyer said that the English court should not exercise any jurisdiction it may have had because the seller could not show that England was clearly the appropriate forum. In support of the seller’s case that England was the appropriate forum, the seller submitted the following points:

  • England was the seller’s domicile;
  • England was the place where the contract was concluded
  • All the contractual documentation as well as contemporaneous communications between the parties were in English.
  • All relevant employees of the buyer spoke and wrote English.
  • If the case was to be trialled in Iran, all written materials had to be translated into Farsi.
  • It was more costly to initiate proceedings in Iran, which was 2% of the claimed value. The buyer could also pursue personal claims against the seller in Iran. Hence the buyer would have had an unfair judicial advantage.

The documents received in England did not legally constitute an acceptance; hence no contract was concluded there. The judge considered that no conclusions could be made as to when and where contracts were ultimately made. The court decided that the contracts were more closely connected with Iran than England and therefore were governed by Iranian law. It could not find any independent evidence to support the seller’s allegation that a trial in Iran would be unfair. All other points raised by the seller were rejected by the judge as well.

Concluding remarks

When drafting your contracts, be sure to insert a clear provision specifying which court has exclusive jurisdiction in the event of a dispute. In the absence of this, the court will take into account all of the relevant factors in deciding which country’s courts are the most suitable to hear the case. An understanding of the court approach as illustrated in this example will certainly assist parties to formulate a proper strategy from the outset.

Dr Alan Ma, Founder & Partner

Maxwell Alves Solicitors, London | Edinburgh | Hong Kong