Exclusive jurisdiction agreements and anti-suit injunctions

Publication | March 2018

The High Court decision in Team Y&R Holdings Hong Kong Ltd v Ghossoub and Cavendish Square Holding BV v Ghossoub [2017] EWHC 2401 (Comm) provides a useful reminder of the discretionary nature of anti-suit injunctions: notwithstanding that proceedings have been commenced in breach of an exclusive jurisdiction agreement, injunctive relief will not always be available.

Further, the case is the second recent decision which has grappled with how dispute resolution agreements impact on third parties.

Background

The application for an anti-suit injunction arose following the purchase of a stake in Team Y&R Holdings Hong Kong Ltd (Y&R) by Cavendish Square Holding BV (Cavendish) from Mr Ghossoub. Mr Ghossoub retained a stake of 20 per cent in Y&R after completion of the sale and purchase agreement (the SPA) and had a service agreement with Y&R.

The SPA provided that the English courts had exclusive jurisdiction to settle any disputes arising out of it. Further, the SPA expressly excluded third party rights under the Contracts (Rights of Third Parties) Act 1999.

Mr Ghossoub brought a petition for unfair prejudice proceedings in Hong Kong against Y&R, Cavendish and two other companies (the WPP group companies). His complaints concerned, amongst other things, his alleged constructive dismissal from management of Y&R and the failure of Y&R to declare dividends. However, the grounds for the petition depended substantially on breaches of the SPA and Mr Ghossoub’s service agreement.

The claimants brought two actions in England: one seeking an anti-suit injunction restraining the Hong Kong proceedings; and the other seeking an order requiring Mr Ghossoub to transfer his shares pursuant to shareholder default provisions in the SPA.

The High Court also considered whether third parties were bound by an exclusive English jurisdiction clause in the SPA given that of the respondents to the Hong Kong petition, only Cavendish was a party to the SPA.

Judgment

Anti-suit injunction

The Court refused to grant an anti-suit injunction.

On the scope of the exclusive jurisdiction clause, the judge considered that absent clear language to the contrary, it was unlikely that the parties would have intended to submit to the English jurisdiction for disputes in which the English courts would not be in a position to resolve, or grant a remedy. The present case, which concerned a petition by a shareholder alleging that the affairs of a Hong Kong company had been conducted unfairly, was such an example. However, because the underlying disputes encapsulated by the unfair prejudice petition heavily involved alleged breaches of the SPA, Mr Ghossoub was nevertheless in breach of the exclusive jurisdiction clause in commencing the Hong Kong proceedings.

In conclusion, considering previous authority under English law that an injunction should be granted unless there were strong reasons for the foreign proceedings to continue, the judge accepted there was strong reason why an injunction should not be granted in the present case. In particular, the judge found it impossible to separate the issues that the English courts could exclusively consider (especially as non-SPA-contracting parties were respondents to the petition in Hong Kong). If parts of the wider dispute were heard in England there would be a possibility of conflicting judgments. Such reasoning is consistent with a general desire to avoid parallel proceedings or inconsistent decisions.

On balance, the judge preferred an outcome whereby the Court in Hong Kong deciding the unfair prejudice decision should be able to base its findings on the evidence that it itself had heard, as opposed to being directed by any such opinion of the English courts. This factor was important because the existence of unfair prejudice was to be determined by the courts of Hong Kong and any appropriate remedy was also solely within the Hong Kong court’s remit.

Third parties

The question also arose as to whether such breach of the jurisdiction agreement also extended to claims against parties that were not party to the SPA. In the judge’s view, the absence of an express provision in a jurisdiction agreement relating to third parties indicated such third parties were not bound by the exclusive jurisdiction clause; the absence of plain language to the contrary meant contracting parties neither intended to benefit nor prejudice non-contracting third parties. In the present case, the exclusion of third party rights generally (indicating the parties had considered third parties) led the judge to conclude the jurisdiction clause did not extend to claims against non-contracting parties, and therefore did not extend to the Hong Kong petition.

The judge concluded that if any claim relating to the subject of the contract, brought by or against a non-contracting party, should be subject to the jurisdiction clause then clear words should be used to demonstrate this intention. In the present case, and in the absence of such words, no breach arose by the bringing of the Hong Kong petition to the extent that it was brought against persons that were not party to the SPA.

It is notable that this is the second recent decision on the applicability of jurisdiction clauses to third parties. In Dell Emerging Markets (EMEA) Ltd v IB Maroc.com SA [2017] EWHC 2397 (Comm) (which was not cited in Ghossoub), the Court accepted that a jurisdiction clause was applicable to a company not party to the agreement containing the clause. While neither judgment refers to the other, a clear difference between the two cases was that in Dell, the third parties had been mentioned elsewhere in the contract and the court was able to conclude that the parties had envisaged that the jurisdiction clause would apply to claims against affiliates. In both cases, the question was approached as one of contractual interpretation. Indeed, in Ghossoub, the judge set out various principles that apply to this question including

  • When determining whether a party is obliged to bring claims against non-contracting parties in the chosen forum, the contract as a whole should be considered “including not just the language used in the exclusive jurisdiction clause but also all other terms in the contract that may shed light on what the parties are likely to have intended”.
  • “Whist it is well established that the language of an exclusive jurisdiction clause is to be interpreted in a wide and generous manner, the starting position in considering whether disputes involving a non-contracting third party might come within the scope of the clause must be that, absent plain language to the contrary, the contracting parties are likely to have intended neither to benefit nor prejudice non-contracting third parties.”
  • Where the parties have made clear in the contract that they have addressed whether third parties are to benefit or bear the burden of rights and obligations in the contract, “the absence of any express language in the exclusive jurisdiction clause that provides for the application of that term in relation to claims brought by or against third parties may be an indication that the clause was not intended either to benefit or prejudice such third parties”.
  • In summary, “where contracting parties intend that any claim relating to the contract be subject to the exclusive jurisdiction clause even where it is one brought by or against a non-contracting party, 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 noncontracting parties to the jurisdiction of the chosen court is to be ensured”.

Comment

The case provides a useful reminder that notwithstanding breach of an exclusive jurisdiction agreement, the English court will not always grant an anti-suit injunction, even where it has power to do so.

Moreover, the case also provides a good illustration of the approach on interpretation of jurisdiction agreements: both in terms of what disputes are covered by such a clause and also the extent to which such a clause covers claims involving third parties. While it may be purely coincidental that two cases involving dispute resolution clauses and third parties have been decided in quick succession, they nevertheless emphasise the need for careful drafting of dispute resolution clauses and a consideration not just of claims between the immediate parties but also the potential or likelihood of claims involving third parties as well.


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