No anti-suit although HK claims breach jurisdiction clause

Team Y&R Holdings v Ghossoub [2017] EWHC 2401 (Comm) is an interesting treatment of parallel proceedings. The exclusive jurisdiction clause was read to fulfil its purpose: the substance not the form of allegedly wrongful Hong Kong proceedings was important and third parties were not bound.  However, despite Mr Ghossoub being in breach of the jurisdiction clause, no anti-suit injunction was granted against him.  The decision should give parties pause for thought when drafting jurisdiction clauses and starting or resisting parallel proceedings. Chaos or at least inconvenience might be unavoidable without a clearly drafted jurisdiction clause. It also offers guidance on how to write a jurisdiction clause which bites on non-contracting parties.

The origin of the dispute

The case arose from a sale and purchase agreement (“SPA”) for the shares of Team Y&R Holdings (“TYRH”) and a service agreement (“SA”) between Mr Ghossoub and TYRH.  The SPA contained an exclusive jurisdiction clause as follows (the SA clause was less detailed).

“The English courts have exclusive jurisdiction to settle any dispute arising out of or in connection with this agreement and the parties submit to the exclusive jurisdiction of the English Courts.”

In April 2015, Mr Ghossoub brought an unfair prejudice petition against Team Y&R Holdings (“TYRH”) in Hong Kong (“HK”).  The SPA and SA formed “a significant platform for much” alleged in the HK petition.  TYRH wanted to stop Mr Ghossoub’s petition on the basis it was a dressed up claim for breach of the SPA and SA and should have been brought in England.

In December 2015, Cavendish (which had become party to the SPA by a novation) and TYRH issued a defaulting shareholder claim against Mr Ghossoub in England.

The English court (Lawrence Rabinowitz QC as deputy High Court judge) had to decide:

Had Mr Ghossoub breached the jurisdiction clause suing TYRH?

The tension in the case arose because the parties could not have intended that a Hong Kong law unfair prejudice petition should be brought in England.  The courts could have jurisdiction to entertain and grant relief in such a petition.

However, the material allegations on which the petition was based were substantially breach of contract allegations.  Those allegations would be normally be expected to be covered by the exclusive jurisdiction agreement.

The judge resolved the problem by interpreting “disputes” in the jurisdiction clause as describing an individual “aspect or element” of a claim rather than applying “only to a consideration of the overall nature or type of the claim”.  This accorded with commercial common sense because the alternative conclusion would permit abuse.  Parties could otherwise construct artificial forms for overseas proceedings where the issues in dispute were plainly contractual.

Although the judge eschewed simple application of the “one stop shop” presumption derived from, among other cases Donohue v Armco [2001] UKHL 64 and Fiona Trust v Privalov [2007] EWCA Civ 20), his decision fits well with the policy underlying those cases.

The result was that Mr Ghossoub was in breach of the jurisdiction clause in respect of “a very substantial part of the matters in dispute submitted to the HK court”.

Was there a breach in respect of non-parties to the SPA?

Mr Ghossoub was not, however, in breach of contract having brought the HK petition against three non-parties.

Resolving the issue required rationalising apparently conflicting decisions.  On the one hand was the dictum of Lord Scott in Donohue v Armco which suggested that a clause in similar terms would be breached by proceedings against a third party.  On the other hand was Rix J’s decision in Credit Suisse First Boston v MLC [1999] 1 All ER 237 that it would be “far-fetched to regard ‘any disputes’ as covering disputes between [the Defendant] and any one other than [its] contract partner…” and that clear language would be required to support another conclusion.  Lord Scott’s dictum had been followed by Norris J in Winnetka Trading v Julius Baer [2008] EWHC 3146 while, in Morgan Stanley v China Hasihen Juice Holdings [2009] EWHC 2409 (Comm) Teare J had reached the same conclusion as Rix J.

The judge effectively adopted Teare J’s analysis of how to distinguish the Donohue dictum.  That is: neither the Donohue nor Winnetka contract contained any provisions relating to third parties.  Further, the point was not argued in Donohue and none of the other speeches addressed the point.

Lawrence Rabinowitz QC held that the following principles could be discerned.

  • The jurisdiction clause must be considered as part of the whole contract; other clauses might shed light on the parties’ intentions.
  • The ‘one stop shop’ presumption could not apply with the same force where non-contracting parties were concerned. The starting point is that “absent plain language to the contrary, the contracting parties are likely to have intended neither to benefit nor prejudice non-contracting third parties.”
  • Clauses showing consideration of third parties’ position (including clauses expressly excluding their rights) meant that the absence of any express reference to third parties in the jurisdiction clause could indicate that the clause was not intended to impact on third parties.
  • If one interpretation produced a material imbalance, e.g., a restriction on a contracting party but not the third party as to venue of suit, this could indicate the interpretation was wrong.
  • No contractual indication of the identity of third parties might indicate that the clause was intended only to impact on the contracting parties.

In short, if parties wish a jurisdiction clause to apply to non-parties:

“clear words should be used expressly setting out this intention, the parties to be affected and, if relevant, the manner in which submission of any non-contracting parties to the jurisdiction of the chosen court is to be ensured.”

The judge therefore concluded that the jurisdiction clause in this case did not bite with respect to third parties.  Key points relied on were:

  • The clause started with wide words but then referred to only “the parties” submitting to English jurisdiction. The starting words were directed to identifying the scope of disputes.  The later words were directed to identifying the people bound.
  • There was nothing in the clause to rebut the starting point that parties to a contract are likely to intend it to apply only to disputes between them.
  • Other contract terms did refer to third parties.
  • The jurisdiction clause would produce an asymmetry if it did apply to claims against third parties.

The judge also rejected an alternative submission that Mr Ghossoub’s petition against the third parties was abusive (or vexatious or oppressive).  He reached this view on the facts and also noted that the Hong Kong courts had, following full consideration, held that the petition was not abusive or an obvious device.  In those circumstances, he would have needed “very strong reason” to reach a different view on abuse.

Should an anti-suit injunction be granted?

No anti-suit injunction was granted.  The judge reached his decision “with some reluctance given that Mr Ghossoub … [was, in the judge’s] view guilty of breach of contract…”

Anti-suit relief will not be granted if a strong reason can be identified (Dononhue v Armco, Star Reefers v JFC [2012] EWCA 14.  There was a strong reason because it was impossible to disentangle the HK and London claims to ensure that all the issues could be resolved in England.  This was at least in part a result of Mr Ghossoub having raised additional (albeit lightly particularised) claims in the HK petition and because of the involvement of the non-contracting parties in HK.

The judge considered whether Mr Ghossoub could be required to bring some claims in England but thought this was not “a desirable outcome” and that the HK court should be able to resolve all disputes it considered appropriate before deciding the unfair prejudice petition.

Should service on Mr Ghossoub be set aside?

The final issue was whether service of the defaulting shareholder claim and the anti-suit claim should be set aside.  Two issues arose: (1) incorrect use of CPR 6.15 to permit alternative service; and (1) failure to make full and frank disclosure.

Mr Ghossoub argued that he could and should have been served in Dubai though the usual diplomatic channels in accordance with the Service Treaty (treat of 7.12.06 between the UK and UAE on Judicial Assistance in Civil and Commercial Matters).  When service failed, the claimants should have corrected their error and restarted the process.

The judge rejected this view.

  • Mr Ghossoub was well aware of the claims at an early stage and so “the most important function of service “to ensure that the contents of the document service …is communicated to the defendant” had been accomplished.
  • Service under the Service Treaty had been attempted in relation to the anti-suit injunction and had failed; this was not a case of deliberately using CPR 6.15 to subvert the treaty.
  • The error which may have led to failure of service was minor.
  • By the time the defaulting shareholder claim was made it was “entirely understandable” that the claimant did not even attempt to serve in accordance with the Service Treaty.
  • There was no prejudice to Mr Ghossoub of the alternative service.

Further, the judge held that while there were “troubling” failures to comply with the important duty of full and frank disclosure on ex parte applications, these did not justify setting aside service.  Broadly this was because the failures were inadvertent and it would be a disproportionate response to set aside service and “exacerbate still further” the serious delay in affecting service.