“Weighing Anchors”: assessing the merits of claims against “anchor defendants” after Sabbagh v Khour

Thu, 03 August, 2017

The Court of Appeal’s 28 July 2017 decision in Sabbagh v Khoury [2017] EWCA Civ 1120 is compulsory reading for anyone involved in cross-border cases where EU domiciled defendants are joined to proceedings in England and Wales under the ancillary jurisdiction rules of the Brussels I Regulation.

“Weighing Anchors”: assessing the merits of claims against “anchor defendants” after Sabbagh v Khoury [2017] EWCA Civ 1120? - Michael McParland QC

Rules

Those rules, formerly found in Article 6(1) of the original Brussels I Regulation (44/2001) and which are now found in identical terms in Article 8(1) of the Brussels I (Recast) Regulation (1215/2012), provide that:

 “A person domiciled in a Member State may also be sued:

  1. where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings;”

Within the Brussels I jurisdiction regime this rule serves a similar function to the “necessary or proper party” jurisdiction joinder rule found in CPR 6.37 and PD6B para. 3.1(3). But the Regulation’s rule is much narrower than the common law. One defendant has to be domiciled in the UK (the so-called “anchor defendant”) and the exercise of ancillary jurisdiction under the Regulation is subject to the proviso that the claims brought against that anchor defendant and the other EU domiciled defendants are “… so closely connected” that it is “expedient” to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.

In cross-border litigation, this rule have provided a fertile source of dispute, and there has been repeated concerns expressed about it being used abusively to deprive EU defendants of the right to be sued in their Member State of domicile. How can such abuse be avoided? The European Court of Justice (“CJEU”) has provided guidance of sorts on the operation of Article 6(1) in a series of piecemeal and occasionally Delphic judgments. For example, in Reisch Montage AG (C-103/05) [2006] E.C.R. I-6827, at [32], the CJEU Stated that Article 6(1):

 “… cannot be interpreted in such a way as to allow a plaintiff to make a claim against a number of defendants for the sole purpose of removing one of them from the jurisdiction of the courts of the Member State in what that defendant is domiciled”.

But in Freeport plc v Arnoldsson (Case C-98/06) [2008] QB 34, the CJEU stated (at [54]) that Article 6(1) can be applied

 “without there being any further need to establish separately that the claims were not brought with the sole object of ousting the jurisdiction of the member state were one of the defendants is domiciled”.

But should a national court apply a “merits test” in evaluating the claim against an anchor defendant before exercising its ancillary jurisdiction over defendants domiciled in other EU Member States?

In Aeroflot – Russian Airlines v Berezovksy [2013] EWCA Civ 784, [2013] 2 Lloyd’s Rep. 242, the Court of Appeal considered that there was no place in assessing the merits of the claims against the other foreign defendants who had been joined to the action under Article 6(1). But what about the merits of the claim against the anchor defendant himself?

In Sabbagh, the Court of Appeal engaged in a very detailed obiter discussion of this question, with the majority opinion being that the merits of the claim against the anchor defendant is a relevant consideration for the national court when considering whether ancillary jurisdiction should be exercised under Article 6(1).

The Majority

The majority (Lord Justices Patten and Beatson) considered that if the claim against the anchor defendant was “hopeless or presents no serious issue to be tried”, then it could be inferred from the “bringing of an unsustainable claim” against the anchor defendant that the claimant’s real purpose was to remove the co-defendants domiciled in other Member States from the jurisdiction of the courts of those states. It would amount to “a misuse of Article 6(1) to allow hopeless claims to oust the jurisdiction of domicile of foreign co-defendants”, something which they considered was prohibited under “sole purpose” or “sole object” analysis that is found in the CJEU’s existing case-law, especially the decision in Reisch Montage AG (C-103/05) [2006] E.C.R. I-6827 highlighted above. Their Lordships observed (at [69]) that:

 It is important, and the CJEU is clearly concerned to ensure, that Article 6(1) is not misused. In our judgment, it would be a misuse of Article 6(1) to allow hopeless claims to oust the jurisdiction of domicile of foreign co-defendants. To allow the claim to proceed in the present appeal would undermine the   principle that a defendant may be sued only before the courts for the place where he is domiciled. It is said that the merit of an approach which eschews any examination of the merits of the claim absent evidence of abuse or fraudulent intention to artificially fulfil the requirement of connection under Article 6(1) is that it avoids the risk of irreconcilable judgments and protracted disputes about the substance of a claim at the jurisdiction stage. But it does so by a bright line binary rule which does not address the fact that derogations from the general principle that civil actions are to be bought against defendants in the courts of the place where they are domiciled must be restrictively interpreted. It is open to question whether this is justified or whether this is the true import of the decisions of the CJEU which have not directly addressed the question that is before us. It is also said that defendants may, subsequently, if they wish, attempt to strike out the claims. That, however, would simply shift to strike out and summary judgment applications what is said to be undesirable and impermissible in the context of jurisdiction”.

The Vice-President, Lady Justice Gloster, dissented from the majority’s obiter conclusions. In a detailed and careful analysis of the existing authorities, Her Ladyship held that there was clear authority that Article 6(1) could be used to establish jurisdiction against non-anchor defendants even if the claim against the anchor defendant will not proceed, unless the claimant is engaged in a fraudulent abuse of Article 6(1). That qualification of the operation of Article 6(1) would only arise when a national court was satisfied there was firm evidence to demonstrate fraudulent abuse. There was no scope for an evaluation of the merits of the claim against the anchor defendant.

Her Ladyship also considered that English courts could not incorporate a merits test in relation the claim against the anchor defendant within the requirement in Article 6(1) of establishing a close connection between the claims. Gloster LJ considered that the defendant’s submissions in support of the adoption of a merits test were inconsistent with the CJEU’s decisions, especially that of Reich Montage. Her Ladyship then made a number of observations on the decision in Aeroflot – Russian Airlines v Berezovksy [2013] EWCA Civ 784, [2013] 2 Lloyd’s Rep. 242, which concerned the application of a merits test to the claims against the foreign, non-anchor, co-defendants. Gloster LJ considered Aeroflot must be “approached with a degree of caution”.

Benefits

There is much benefit to be gained from a reading of the conflicting conclusions in Sabbagh. The difference between the two positions is both important and subtle. In practical terms, defendants challenging the exercise of jurisdiction may well wish to argue that a merits test should be applied. Claimants, especially those asserting jurisdiction based on relatively weak claims against an anchor defendant, who may well not be the main target of their claim, are likely to argue the opposite. But it is abundantly clear that the issues raised in these obiter conclusions in the Court of Appeal will have to be fought out in future cases. There may well have to be a lot more “weighing anchors” before the issue as to the correct approach to the exercise of this ancillary jurisdiction is finally resolved.

 

Michael McParland QC

Michael McParland QC is an international lawyer, with a wide ranging practice in commercial, civil and international advocacy and advice in the courts, arbitral and regulatory tribunals of England and Wales and overseas.

Michael has been described by clients in the Chambers UK and the Legal 500 legal directories as “phenomenal”, “incredibly knowledgeable and a tremendous advocate who is a very powerful person to have on your side” , “a thorough, knowledgeable and intelligent advocate”, “incredibly bright and hardworking, a real team player”, “a really powerful operator” with “complete control of the facts of a case” who “really thinks about things and then steamrollers the opposition”.  He is said to have “real commercial intelligence and an easy client manner”, his advocacy is “effective and persuasive” and his “attention to detail prepares him for all eventualities in the course of litigation”.

Michael is a recognised international law expert. He is the author of The Rome I Regulation on the Law Applicable to Contractual Obligations (Oxford University Press, 2015), a leading textbook on private international law that is cited with approval by the Advocate-General in the European Court of Justice and by judges in the Commercial Court. “

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