- Transaction risk — Litigation risk — Forum non conveniens — Costs — Multi-state transactions — Jurisdiction under the Brussels I Regulation
I. Legal Risk and Commercial Disputes
1.01 Commercial activity depends on the assessment and management of risk. Risk determines transaction costs, and the willingness of the parties to contract. Some risks are financial, concerning a counterparty’s credit-worthiness or solvency. Others are legal, concerning the effectiveness of a transaction, the nature of the remedies for default, and the enforcement of those remedies. This is true of domestic transactions as much of multistate transactions—those involving a foreign counterparty or performance abroad. But the legal risks involved in multistate transactions are of a different kind, and perhaps of a different order. The effectiveness of a transaction no longer depends merely on the legal rights and duties of the parties, and the availability and enforcement of remedies. It depends on which country’s law governs those matters. It turns on the uncertainties and complexity of the choice-of-law process. Again, the risk of litigation is ever-present in contractual relations. It is expensive and disruptive in itself, and it adds to transaction costs. But litigation risk acquires a new dimension in multistate cases. It exposes the parties to the risk of proceedings in an unfavourable forum, and to the risk of parallel proceedings in different courts. Transaction costs are further increased, and at worst a contract may become a wasting or valueless asset, insofar as the parties’ rights cannot be vindicated without unsustainable expense. Even if judgment is obtained, the cost of effective enforcement may be significant if the defendant has assets abroad, or in several jurisdictions. And it may be impossible entirely unless execution is permitted where those assets are located.
1.02 As this suggests, multistate transactions involve two principal species of risk—transaction risk and litigation risk. Transaction risk is the risk that the parties’ expectations will be (p. 4) defeated by the application of a law which does not give effect to the object of the transaction. It is the risk that any governing law clause in a contract will be ineffective or overridden. And it is the risk, even in the absence of such a clause, that the parties’ expectations concerning the governing law will be ignored. Of particular concern is the risk that a contract’s governing law may be ousted in favour of the public policy or mandatory rules of the forum or a third state, such as the country of performance. In a trite sense, litigation risk is the risk to a claimant that it must sue at all to enforce its rights, and the risk to a defendant that it must defend proceedings. But in cross-border disputes it has a particular connotation. Here litigation risk is venue risk—the risk to each party that any dispute will not be resolved in their preferred forum. It is the risk that a claimant is prevented for suing in its preferred court, or that a defendant is forced to defend proceedings where it does not wish to do so. It is also enforcement risk—the risk that the rights of a claimant, even if validated by proceedings, cannot be effectively enforced. As it arises in international commercial litigation, this is the risk that a judgment is rendered ineffective, either because the judgment-debtor has removed its assets from the jurisdiction of the judgment court, or because its assets are in any event elsewhere.
1.03 In a sense, transaction risk arises only because litigation occurs. Only before a court do the rights and liabilities of the parties become an issue. In a trivial sense, all legal risk is litigation risk. But in a more important way, the risks associated with legal disputes are forms of transaction risk. The risks of litigation and ineffective enforcement are subversive, discouraging transactions or increasing their cost. Issues of private international law and international civil procedure—concerning choice of law, jurisdiction, the enforcement of judgments, and interim remedies—affect the operation of commercial markets as much as the resolution of disputes. They are not ends in themselves, but contribute to the efficient supply of goods, services, and finance across borders.
1.04 Legal risk invariably takes two forms—the risk of an unfavourable outcome, and the risk of an uncertain outcome. A favourable outcome is clearly optimal. But an unfavourable outcome which is certain may be preferable to uncertainty. The risk is then clear, and can be costed. This does not mean, however, that legal institutions which provide for an element of discretion are invariably unwelcome—not if the market can rely on the exercise of discretion to ameliorate risk.1
1.05 The following chapters are concerned with the law and practice of international commercial litigation in the English courts. They are concerned with the legal mechanisms for resolving such disputes. But they are also concerned with identifying the legal risk which such disputes generate, and with how it might be managed.
A. Species of legal risk
1.06 Transaction risk is the risk that a transaction will fail because it cannot be implemented according to its terms, defeating the parties’ expectations.2 More precisely, it is the risk that (p. 5) a counterparty has an excuse for non-performance (or varied performance). In multistate transactions it is the risk that a court seised of a dispute will treat an obligation as unenforceable by reference to a law other than that which the obligee expects to govern. As we shall see, the parties cannot insulate the content of the contractual law from change.3 But they can take steps to choose a stable governing law, and a forum with a choice-of-law regime which respects party autonomy, and only exceptionally gives effect to overriding mandatory rules, and considerations of public policy. The reduction of transaction risk therefore requires an effective choice of forum as much as an effective choice of law. The preconditions for an effective jurisdiction agreement are considered in Chapter 2.4 The validity of governing law clauses is considered in Chapter 3.5
1.07 In this sense, litigation risk is the primary threat to a transaction. It is only in the course of litigation that the risks to which transactions are prone will materialize. In the course of litigation transactions are potentially exposed to five types of risk:
(i) Negotiation risk is the risk that a party may have incurred liabilities in the course of negotiation which may directly or indirectly erode the effectiveness of the transaction.6 Most obviously, a pre-contractual misrepresentation may entitle the counterparty to rescission or damages.
(ii) Formation risk is the risk that a valid contract was not concluded, because of want of form, or consent.7
(iii) Counterparty risk is the risk that a counterparty lacked the capacity or authority to contract.8
(iv) Performance risk is the risk that a counterparty can excuse its default. It is the risk that a contract cannot be performed according to its terms, or that a remedy does not lie in the event of non-performance.9 Performance risk can exist at the outset—initial performance risk. A contract must for example be legally enforceable at its inception. But all contracts are exposed to subsequent changes in a relevant law, such as the contractual law or the law in force at the place of performance—supervening performance risk.
(v) Recharacterization risk is the risk that the legal nature of the transaction will be characterized in the course of litigation so as to deprive it of its intended effect.10 Typically, this involves recharacterizing a transaction as proprietary not contractual, or as one creating a security interest, with the result that it becomes unenforceable for non-compliance with some special requirement of such transactions.
1.08 Such risks may be direct or indirect. They may be direct insofar as a transaction is rendered ineffective. But they may be indirect insofar as a counterparty may have an arguable case for challenging the transaction by defaulting, or by litigating. Transaction risk is not so much the risk that a transaction can no longer be performed, as the risk that a counterparty will seek to excuse its non-performance.
(p. 6) 1.09 Transaction risk directly affects contracting parties when the stipulated performance is varied or prevented. But it also has significant indirect effects. It controls the extent to which legal advisers are able to give opinions concerning the legal effect of a transaction.11 Many transactions are dependent on such opinions. The advisers to the borrower and any guarantor of a loan, in addition to those advising any agent bank, may be required for example to confirm in writing the validity of the transaction, and its compliance with the laws of any relevant country. Those qualified to give an opinion as to the effect of the contractual law (English lawyers if English law governs) will confirm that the contract is effective under that law. In practice, the effect of transaction risk is not that those giving such opinions become exposed to liability. Rather, it limits the extent to which such opinions can be given without qualification. This has important consequences in markets, such as the international credit market, in which legal opinions have central importance. The more qualified a legal opinion, the greater the residual risk, the higher the cost of the transaction, and the less business is transacted. The second indirect effect of transaction risk is that rating agencies may rate down transactions litigated in countries where the contractual law is too readily overridden by other laws.12
1.10 To an extent, transaction risk may be minimized or removed in four ways. Three are legal. Legal risk may be addressed by obtaining warranties to ensure that a counterparty bears the risk; by drafting devices which provide for accelerated or substituted performance, or compensation, should the risk mature; and, by the giving of pre-contractual legal opinions which identify, assess (and shift) the risk, typically by advisers to a counterparty, or lawyers familiar with the governing law and the law of the stipulated forum. But it is not sufficient to rely upon such devices. In some cases, notably in connection with recharacterization risk, the risk is precisely that the documentation will prove inadequate. To provide for events of default is also no substitute for ensuring that default never occurs, and knowing in advance the risks to which a transaction is exposed. This suggests a final, commercial response to risk. Legal risk may be priced into the costs of a transaction. Where this occurs, however, the consequence is significant, insofar as it prevents the need for litigation. If the risk of loss is reflected in the price of a transaction, and a party defaults, the innocent party will not sue to recover its loss, because no loss will have been suffered.
1.11 Litigation risk comprehends several distinct types of risk.13 At its simplest, it is the risk that an obligee must resort to litigation to vindicate its rights, and the risk that it may be required to defend proceedings. But in multistate transactions, two particular risks arise—venue risk, and enforcement risk. Venue risk arises when a party is required to initiate or defend proceedings in an unfavourable forum. It arises where no ground exists for proceeding in a favourable forum, or where proceedings in a favourable forum may be challenged on jurisdictional grounds. And it arises because of the risk of litigation (or counter-litigation) in an unfavourable forum. Enforcement risk is the risk that a judgment-debtor with worldwide assets will disperse or conceal those assets, and the risk that a judgment obtained in one court will be unenforceable elsewhere. The extent of such risk depends on the effectiveness of jurisdiction agreements,14 on the rules of jurisdiction (p. 7) applicable where no agreement exists,15 on the scope for preventing proceedings in an unfavourable court,16 on the mechanisms for preserving assets,17 and on effective means of recovery18 and enforcement.19
1.12 Concerns about exposure to such risks have significant economic implications and may inhibit transactions. Market actors may be dissuaded from entering transactions because of litigation risk. Litigation risk may be reduced by the effective drafting of jurisdiction agreements. More exactly, it may be reduced by dispute clauses which provide both for jurisdiction and agreement on related matters, such as service of documents, waiver of any challenge to an agreed jurisdiction, and the enforcement of judgments. But in complex litigation it may be necessary to proceed against a non-party, typically if the counterparty is one of a group of companies, or to proceed otherwise than in contract. Often it may be necessary for a defendant to bring third-party proceedings for an indemnity. An effective jurisdiction agreement is not a panacea for avoiding litigation risk.
B. Risk, opportunity, and uncertainty
1.13 The concept of legal risk, as applied to the treatment of disputed commercial transactions requires refinement, however, in two ways. First, it is important to notice the connection between risk and opportunity. It is reasonable to assume that all parties to a transaction will identify with its objectives at the outset, and not wish to see it fail. The risk that it might fail is a common concern. Where one party defaults, however, the situation is more complex. All parties will be sensitive to some degree to the risks of litigation, but for the party in default the possibility that a court will declare any contract unenforceable, or discharged, or remove or minimize its exposure to remedies, becomes an opportunity. The risks that a transaction will fail, or that enforcement proceedings will prove unviable, are a shield not a threat. Legal risk is then a double-edged sword, of as much concern to the defaulter as to the party seeking enforcement. It is as much an opportunity for one party as a risk to the other.
1.14 Second, any discussion of legal risk is incomplete without consideration of legal uncertainty. If the law is certain, the risks are measurable, and may be costed and absorbed, if not always avoided. Uncertainty, however, creates its own risks. At its worst, such uncertainty may disincline the parties to conclude transactions, or cause them to be reluctant to litigate in the event of default. Again, however, uncertain may affect different to a dispute in different ways. Uncertainty can be advantage, especially to a better-funded party, which is better able to absorb the risk, or a defaulting party hoping that uncertainty will discourage the other party from responding.
A. The practical context
1.15 English law’s approach to the regulation of cross-border disputes responds to, and is explained by, the prominence of London as a centre for the resolution of international (p. 8) commercial disputes, and the role of the Commercial Court as an international forum. The Commercial Court, established to adjudicate ‘any claim arising out of the transaction of trade and commerce’,20 is regarded by litigants, and by the court itself, as an international not local tribunal. Consistently, a majority of disputes initiated concern at least one party which is not English, of which many are disputes involving two foreign parties.21
1.16 The popularity of litigation in the Commercial Court, and the considerable volume of international disputes there, is explained by a number of factors. The Commercial Court may be regarded by many foreign parties as a forum which is neutral, efficient, fair, and commercially orientated. It also serves as a local forum for resolving disputes related to prominent London markets in shipping, insurance, investment, and banking, whose business is international. Many commercial parties are also exposed to English jurisdiction, by having a branch in England, or because a transaction is expressly subject to English law, or to the English court’s jurisdiction. This is enhanced by several other factors. Many commercial transactions, especially in the areas of finance and reinsurance, are governed by English law. Many foreign parties may have English insurers, for whom London is their local court. Many such parties may have English lawyers, and the popularity of the Commercial Court owes much to the role of London-based global law firms in managing international litigation. The attraction of the Court is further enhanced by the range of global interlocutory remedies available, principally anti-suit injunctions, and worldwide asset-freezing injunctions.
1.17 As the international complexion of Commercial Court litigation suggests, most disputes are likely to involve the possibility of parallel proceedings elsewhere, and the existence of assets held by the defendant in another jurisdiction. In consequence, proceedings concerning the staying of actions, the restraint of foreign proceedings, and worldwide freezing injunctions are not exceptional, but the court’s staple diet.
1.18 As this suggests, disputes before the Commercial Court invariably concern cross-border contracts, and in particular claims in damages for breach, or for transactional torts, such as misrepresentation, inducing breach of contract, and conspiracy to defraud. To a lesser extent, disputes concern transactional restitution, such as claims for restitution following the nullity or discharge of a contract, and, if rarely, the proprietary effect of transactions. As CPR r 85.1 indicates, most disputes concern international trade (especially in commodities), the carriage of goods, investment disputes, joint ventures (especially concerning the exploitation of natural resources), banking and financial services, ship construction, insurance and re-insurance, and commercial agency. In addition, the Commercial Court exercises collateral jurisdiction to enforce foreign judgments and arbitral awards, to facilitate proceedings before arbitrators in England,22 especially by granting ancillary injunctive relief, and to grant interim remedies ancillary to foreign civil or arbitration proceedings.23
1.19 Because of the tendency of disputes to settle at the interlocutory stage, and the unlikelihood that a case will proceed to a trial on the merits,24 disputes invariably concern applications for (p. 9) one or more of the following orders and remedies: applications to serve a claim form out of the jurisdiction;25 applications to challenge jurisdiction, including applications to set aside foreign service, and for a stay of proceedings;26 applications to claim indemnity or contribution from a third party;27 applications to strike out an unfounded or hopeless claim;28 applications for freezing and disclosure orders,29 including those ancillary to foreign proceedings;30 applications for anti-suit injunctions;31 applications for negative declaratory relief;32 applications for summary judgment, including enforcement of a foreign judgment debt;33 applications for a case-management stay;34 applications for a consent order, giving effect to a negotiated settlement;35 applications for a default judgment.36
B. The dynamics of multistate litigation
1.20 The assumptions and practices which characterize international commercial litigation replicate those evident in all disputes. Most litigation is driven by each party’s concern to engineer capitulation or a favourable settlement, preferably with little or no resort to the courts.37 Multistate disputes, however, have distinct elements. One or more of the parties, or the substantive law, may be foreign. The subject matter (a tort, a breach of contract, title to property) may be connected with another country. The dispute may involve parallel proceedings abroad, or be subject to a foreign judgment, in another court, or the defendant’s assets may be located elsewhere. Such foreign elements introduce additional legal concerns, about jurisdiction, enforcement, abuse of process, and the applicable law. More importantly, they increase the cost and uncertainty of litigation, and thus the financial risk to the parties of pursuing or defending a claim. They also involve tactical considerations absent in domestic disputes. Which law should be relied upon if more than one is available? Where should a defendant transfer its assets to escape enforcement?
1.21 Four primary issues particularly inform the process of international commercial litigation. The first concerns venue. Where will proceedings occur? Where should a claimant sue? Where should a defendant counter-claim or launch a pre-emptive strike? The second concerns enforcement. Will any judgment obtained in one country be enforceable against a defendant’s assets elsewhere? Is it possible to preserve a defendant’s assets, especially if abroad, in anticipation of final judgment? The third concerns the management of disputes concerning venue and enforcement by means of contractual provisions. To what extent may those issues be regulated contractually by the parties themselves, particularly by employing jurisdiction and applicable law clauses? The fourth concerns the potential for unfairness (p. 10) inherent in multistate disputes. Will one party have an unfair advantage, as may arise if proceedings occur in a non-optimal forum, or if parallel proceedings are initiated for abusive purposes?
1.22 Of these concerns, venue and enforcement have paramount importance. Only once the location of proceedings is known can each party assess the risk of pursuing or defending a claim. Only once a dispute’s legal framework is clear—dependent on where it occurs, and under which law—can they measure their chance of success. Only then can they weigh that chance against the cost of litigating. Only then can they determine the possibility of securing capitulation or a favourable compromise. Only then can they identify the risk of investing in litigation. Most importantly, only then are the parties equipped to achieve the settlement which is almost certainly their objective. Again, once it is clear that a judgment obtained in one court will be enforceable, often against a defendant’s assets elsewhere, the likely outcome of the dispute will become clear. More precisely, this occurs once an order has been obtained freezing a defendant’s assets, so that effective resistance to the proceedings becomes fruitless.
1.23 Importantly, however, the issue of enforcement is often an aspect of the problem of venue, insofar as problems of enforcement bear on the choice of forum. A claimant will choose to sue where the defendant’s assets are located if it concludes that the courts of that country would not enforce a foreign judgment against the defendant. Again, enforcement and venue may appear to be distinct if a claimant can bring substantive proceedings in one state, and seek attachment of the defendant’s assets in the state where those assets are located.38 But not all legal systems permit such attachment proceedings in the absence of a substantive claim against the defendant. In that event the claimant would be forced to bring substantive proceedings where the assets exist. Effective enforcement would again determine the venue for proceedings. Similarly, fairness and venue are intimately connected. It is hard to maintain that proceedings are unfair or abusive if initiated in the most appropriate forum. So too, the reason why the management of such disputes by contractual provisions is important is because any problems of venue, enforcement, and fairness may thereby be resolved.
1.24 The overriding importance of venue is reinforced by the practical effect of decisions concerning jurisdiction.39 Such decisions very often conclude the dispute. They are often in reality final not interlocutory. Consider an example. Suppose that X sues Y in Utopia, X’s preferred forum. A court in Utopia accepts jurisdiction (or refuses to stay the proceedings). What is the consequence? Will the case go to trial on the merits in Utopia? This is unlikely. Y is likely to propose a compromise, on terms which no doubt reflect X’s probable reluctance to sue. Alternatively, suppose that the court in Utopia declines to exercise jurisdiction, perhaps because it considers the courts of Dystopia to be a more appropriate forum. Will X transfer its claim to the courts of Dystopia so that the dispute will be resolved there? This is unlikely, but the outcome will differ according to the circumstances. X may calculate that proceedings in Dystopia are pointless, perhaps because its chance of success is too small, or for any other of the familiar reasons which make a given court unattractive. In that event X will simply withdraw its claim. Alternatively, X may conclude that proceedings in Dystopia are viable if unattractive and pursue its action there. But this is unlikely to proceed (p. 11) to judgment, not least if X considers itself disadvantaged. Again, the dispute is likely to be settled, this time on the basis of the law in force in Dystopia, and in the light of the balance of advantage between the parties there.
What I am in fact deciding is not where the Spiliada action will ultimately be tried, but whether a settlement will be reached against the background of litigation pending in England or of litigation pending in Canada.41
Importantly, however, the parties would not be able to settle unless he determined whether to hear the case—‘it is the prospect of a trial which provides the sanction to induce a settlement’.42
1.26 As this suggests, disputes concerning jurisdiction, the restraint of foreign proceedings, and freezing injunctions lie at the core of cross-border litigation. Most multistate commercial disputes concern the allocation of jurisdiction or the grant of injunctive relief. This not only means that disputes about such interlocutory matters are numerous. It means that proceedings about the substance of a claim are few. Another consequence is that the role of the rules of private international law and civil procedure becomes clear. Such legal norms are significant in practice largely because they regulate where proceedings will occur. Consider the rules for choice of law applied in a given court, and how a forum differentiates between issues of substance (governed by the substantive applicable law, possibly foreign), and procedure (governed by the domestic law of the forum). These matter in practice not because they tell a court which law to apply to which issue. They matter because, by identifying the relevant law, they inform each party’s choice of preferred forum. Consider again the rules of domestic civil procedure, regulating such matters as evidence, or how costs are awarded. These matter not so much when proceedings occur in a given court, but because they determine whether a party will wish to sue there at all. Moreover, that the principal role of such rules is facultative, controlling the strategic decisions of litigants is reinforced by another consideration. Given the tendency of multistate disputes to settle, the stage is rarely reached at which they are ever applied.
1.27 As this suggests, courts may seldom in practice be required to address the substance of a dispute, and to identify and apply the substantive law applicable to liability. In that traditional sense the choice-of-law process is less important than might be supposed. The (p. 12) identity of the applicable law, and the rules governing choice of law and the proof of foreign law are, however, important in a different way. Which law applies, the outcome of any dispute in the matter, and the content of foreign law, may influence the choice of forum. Indeed, in the English courts, where multistate commercial disputes are frequent (and where the exercise of jurisdiction is often discretionary), the fact that foreign law governs the parties’ obligations is important principally because it suggests the location of the forum conveniens.43
C. Objectives of legal regulation
1.28 These considerations suggest, from a theoretical perspective, that the design of any procedural regime will be animated by three overriding concerns. Positively, it must promote the cardinal objectives of procedural justice and procedural efficiency. Negatively, it must guard against the abuse of that process by litigants.44 Such concerns affect all aspects of the legal process, and in any commercial dispute they are important because they regulate the process by which disputes are resolved by settlement. International commercial disputes are distinctive, however, in two senses. They are both commercial and international. The commercial character of such disputes is significant for three reasons. First, the risk of litigation is an aspect of transaction risk. Far from being distinct, litigation risk and transaction risk are intertwined. Transactions are threatened by litigation, and the risk of litigation is reflected in the pricing of contracts, and in whether or not parties choose to contract at all. How international commercial litigation is conducted is as material to a transaction as other factors which affect whether the parties will achieve the desired return from their transaction. It is no paradox to assert that commercial litigation is an integral part of any transaction from which it arises. Second, the collateral, remedial obligations which arise on non-performance of a contract may be seen as integral to a contract, just as much as the parties’ primary obligations to perform. Certainly, the effective enforcement of those secondary obligations is as important to a transaction, and as much part of the parties’ enterprise, as the parties’ primary obligations to perform. The resolution of any dispute may represent a phase in the life of the contract which the parties might have hoped not to see. But it is a phase in the transaction just the same.
1.29 Third, as this suggests, the parties will bring to any dispute the same commercial considerations which they brought to bear when concluding and performing their transaction. The commercial imperative of securing the best economic return is as important as when the contract was concluded. Commercial litigation is an investment. For commercial parties, to initiate or defend proceedings is an investment decision, not a means to right a wrong. The objective is a good return on that investment. The direct concern is not with winning or losing, but with the financial implications of either outcome. This is always so in commercial disputes, but multistate disputes generate special problems. Any investment decision involves comparing risk and return, but the assessment of risk is especially difficult in disputes involving foreign proceedings and foreign laws. Not least, where the dispute is to be resolved may be uncertain, itself a matter of litigation. Yet the location of the forum is (p. 13) the primary factor on which a comprehensive risk assessment will depend. Only once this is known will the legal framework of the dispute be clear, and thus the relative position of the parties.
1.30 As this further suggests, the fact that commercial litigation is but part of any transaction from which it arises means that negotiated settlement should be encouraged, insofar as negotiation and agreement are the principle dynamics of the contractual process. It also means that the law must ensure that party autonomy, the principle underlying the contractual process, must also be respected in the process of dispute resolution. Most obviously, this involves respecting any contractual provisions affecting the resolution of the dispute (such as, most obviously, a jurisdiction agreement). But it also means respecting the legitimacy of the steps each party may take to enhance their return from any litigation, and minimize their financial exposure—just as it is proper to respect those objectives in the negotiation, conclusion and performance of any transaction.
1.31 The international character of such disputes is significant in several ways. First, achieving the overriding theoretical concerns of civil justice involves distinctive considerations. For example, the exercise of jurisdiction over foreign parties or a foreign subject matter involves respect for distinctive due process considerations insofar as the exercise of jurisdiction must not be exorbitant. Preventing abuse of process may also involve preventing abusive parallel proceedings in another country, or restraining a defendant from moving its foreign assets. Again, procedural efficiency may not be served by entertaining proceedings in which, say, the parties and the applicable law are foreign. Second, multistate disputes are governed by an additional theoretical consideration which is necessarily absent in purely domestic proceedings. In multi-state disputes a court must always ensure compliance with the principle of comity.45 The laws in force in one country, and the decisions of its courts, must respect the laws of other countries and the decisions of other courts. A notoriously elusive principle, comity may be interpreted in several ways. It is in part a jurisdictional constraint, preventing the exercise of extraterritorial jurisdiction (itself an elastic concept), and in part a principle governing the exercise of a court’s discretion, limiting for example the grant of injunctive relief having effects abroad. Seldom seen as an absolute concept, though perceived as a durable constraint, at its simplest it demands a compromise between a court’s judicial duty, and respect for foreign legal sovereignty.46
1.32 Third, the practical objectives of civil litigation—settlement, enforceability, self-regulation by contractual disputes clauses, protection from abuse—have a distinctive aspect in multistate disputes. Settlement may be hard to secure unless the venue for proceedings is clear. Similarly, cost-effectiveness is here not simply a question of judging the efficiency of a single forum, but of locating the forum amongst two or more alternatives in which the dispute can most efficiently be resolved. Again, enforceability here means enforceability in an environment where a defendant’s assets may be located in a different country from that where liability is determined. Moreover, given the expense and complexity of international litigation, considerable importance attaches to enforcing contractual provisions regulating such disputes. Finally, the protection sought by a party may be protection from abusive foreign proceedings.
(p. 14) 1.33 In practice, therefore, litigants in international commercial disputes are likely to regard the achievement of a commercial outcome, as distinct from a just, or legally correct, outcome, as their overriding objective. In particular, if it is the most efficient solution, they will regard the possibility of securing a negotiated settlement as paramount. In pursuing that objective, however, they are likely to see four matters as being of particular importance: the issue of venue (where will proceedings occur?); the issue of enforcement (will any judgment be effective, especially in a foreign court?); the issue of management (to what extent may these issues be regulated contractually by the parties themselves, particularly by employing jurisdiction and applicable law clauses?); and, the issue of fairness (will the one party have an unfair advantage, as will arise if proceedings occur in a non-optimal forum, or if parallel proceedings are initiated for abusive purposes?). In particular, they will regard as paramount the need to litigate in the forum in which they have the greatest legal and tactical benefit, thereby securing the advantage in negotiating settlement.
(i) Ensuring that proceedings occur in the optimal forum, objectively judged, so as to promote the cost-effective resolution of disputes, and relative equality of arms.
(ii) Ensuring effective enforcement, principally by promoting effective interim measures and the enforcement of final judgments.
(iii) Promoting the contractual pre-management of such disputes, by upholding contractual provisions which purport to regulate such disputes (principally, jurisdiction and applicable law clauses).
1.35 Different legal systems will pursue these objectives in different ways, each will prize some over others, and each will find its own balance where they conflict. English law, however, provides an especially evolved and instructive example of how the fundamental problems of international commercial litigation might be approached. English law has responded in several distinctive ways to the problems of international commercial litigation.
1.36 First, the objective of ensuring the cost-effective resolution of disputes is directly served by the doctrine of forum non conveniens, in the distinctive form in which it operates in English law. The current test derives from the decision of the House of Lords in Spiliada Maritime Corporation v Cansulex.47 The forum conveniens is the court ‘having competent jurisdiction, in which the case may be tried more suitably for the interests of all the parties and for the ends of justice’.48 It is a pre-condition for declining to exercise jurisdiction that the alternative forum has jurisdiction in the matter—there must be another available forum.49 In principle, this is the forum in which the dispute can be adjudicated most cost-effectively—the ‘natural forum’.50 If the natural forum is abroad, however, an English court will not decline to exercise (p. 15) jurisdiction if to do so would be a denial of the claimant’s access to justice. In addition, English courts treat issues of foreign law as issues of fact, not law.51 This allows the parties to elect not to rely on foreign law, permitting the dispute to proceed under English domestic law, and giving the parties freedom to litigate on the most cost-effective basis.52
1.37 Second, the goal of ensuring enforcement of judgments in a multistate context is served in several ways. English national law approaches the enforcement of foreign judgments as a matter involving the enforcement of foreign judgment debts.53 This encourages a liberal approach to the enforcement of foreign judgments. It allows a foreign judgment to be enforced by employing existing mechanisms for debt enforcement, and ensures that enforcement may occur in the absence of any reciprocal treaty. It is also served in an especially potent fashion by the rules governing transnational freezing injunctions. An English court has the power not merely to freeze a defendant’s local assets in support of substantive English proceedings, but also to freeze a defendant’s foreign assets, even in support of foreign proceedings on the merits.54
1.38 Third, contractual pre-management of such disputes is respected in several ways. The law strongly favours upholding jurisdiction agreements, and recognizes the validity of provisions requiring a party which ignores such a provision to indemnify the other party. It also recognizes the existence of a claim in damages against a party ignoring a jurisdiction agreement. Again, at common law, and subsequently under the European regime, an express choice of law is invariably respected, and the disruptive effect of public policy and mandatory rules minimized.55
1.39 Fourth, the prevention of abusive proceedings finds distinctive expression in English law in the rules permitting the restraint of foreign proceedings. An English court is empowered, subject to important limitations, to prevent abusive foreign proceedings by restrain a claimant who initiates such proceedings in a foreign court.56
1.40 Importantly, each of these mechanisms additionally serves the objective of promoting settlement. Each does so in a different way by removing any distortion in the legal process which might inappropriately impede a compromise. The doctrine of forum non conveniens is directed at locating any given dispute in the forum where it can most cost-effectively be resolved. But in so doing it promotes settlement in a particular way, by ensuring that the parties may assess their relative strength and weakness without the distortion that exists if proceedings occur in a less than optimal forum. In particular, in such cases a relatively stronger or better-funded party is likely to benefit from any inefficiency, being better able to absorb the excess cost. Similarly, the restraint of foreign proceedings, and the courts’ wide power to freeze a defendant’s assets, prevent two forms of abuse of process, each of which might otherwise impair a fair settlement. Certainly, abuse of process is potentially as much an abuse of the settlement process as it is an abuse of the process of adjudication.
(p. 16) 1.41 Moreover, each of these mechanisms serves the higher order theoretical objectives of ensuring procedural justice and efficiency. The doctrine of forum non conveniens is explicitly directed at locating the forum in which the ends of justice may best be served. This is achieved in two ways. The rationale for remitting a dispute to the most cost-effective forum is that this is in principle the forum where justice can best be done. This ensures that a better-funded party cannot benefit from the distortion—or relatively greater distortion—of the legal process which results from litigation in a forum where the dispute can less cost-effectively be heard. In that way it contributes to ensuring at least relative equality of arms. Again, the doctrine guards against the unfairness that results if a defendant is forced to suffer from the inefficiency of defending proceedings in a non-optimal forum merely because the claimant has sued there. In this regard, it is important to notice the equation between efficiency and justice which underpins the outlook of English judges.57 However, the doctrine of forum non conveniens does not merely have the effect of promoting efficiency for the benefit of the parties. It ensures that disputes are heard in an English court only where it is the natural forum or, if it is not, if access to justice nonetheless requires that the case be heard. The effect is to ease any concern that the resources of the English legal system should not be deployed in a given case.
1.42 This approach is facilitated by three distinctive features of the English law of international civil procedure. First, matters concerning jurisdiction and injunctive relief are subject to the court’s residual discretion in procedural matters, ensuring flexibility, and judicial control. The important consequence is that rules of procedure, and the principles enunciated in judicial decisions, are not dispositive, but may be qualified, or overridden. This overriding discretion is not generally visible in standard cases concerning jurisdiction and injunctive relief, but it underlies the approach of the English courts, and highlights the central role of the judge in such cases. It is apparent, moreover, in cases where the merits of the case compel a result different from that suggested by the usual norms of decision. Although itself a product of judicial restraint rather than any prohibition, the courts will not exercise their inherent power where to do so would be inconsistent with explicit procedural rules.58 They may, however, do so to supplement the Civil Procedure Rules59 and (principle suggests) to implement or protect those rules, especially to prevent a litigant’s egregious behaviour. A court may, for example, in its discretion, decline to exercise jurisdiction, notwithstanding that a ground exists, and that the English court is the forum conveniens.60 A court may also order injunctive relief, even if the normal pre-conditions are not satisfied, where they are not satisfied only because the defendant’s evasive or abusive conduct.61 Again, a court, in the exercise of its discretion, may grant relief on terms, such as where proceedings are stayed,62 or an injunction denied,63 on condition that a party undertakes not to defeat the decision by its conduct.
1.43 The most important expression of this power, given a procedural framework by CPR Part 11, is the principle that the exercise of jurisdiction is discretionary.64 An English (p. 17) court has discretion whether to stay proceedings in which the claimant has established jurisdiction as of right, and discretion whether to exercise jurisdiction over a defendant domiciled in a non-Member State. In its present form, the discretion draws upon and conflates the court’s traditional power to stay vexatious or oppressive proceedings, and their discretion to ensure that a foreign defendant was only brought to an English court if it was the proper form. The exercise of adjudicatory discretion is the core of the English approach to jurisdiction, and accounts for a considerable number of cases before the Commercial Court.
1.44 Second, injunctive relief operates in personam. It has long been established that an English court has an equitable jurisdiction to restrain by injunction the unconscionable conduct of a party subject in personam to the court’s jurisdiction.65 In recent years the courts have fashioned this power into a formidable device for restraining a claimant from pursuing foreign proceedings,66 or from disposing of foreign assets.67 The in personam nature of the remedy ensures that such relief may be granted in respect of conduct abroad provided that the respondent is subject to the court’s jurisdiction.
1.45 Third, judicial orders are enforced in personam against a defendant or third party in default. Non-compliance is punished by penalties for contempt of court levied against any party subject to the court’s territorial jurisdiction. The width of this enforcement power gives practical effect to the court’s range of cross-border injunctive relief.68 Although controversial, such penalties may be directed even at a third party’s non-compliant conduct in a foreign country, provided that the defaulting third party is present in England.69
1.46 The role of the EU regimes governing jurisdiction and choice of law means that the principles of English national law cannot be described in isolation.70 The distinctive principles of English national law warrant analysis, however, for two reasons. First, much transnational litigation in the English courts concerns matters subject to national law, principally in those numerous cases where jurisdiction is asserted over a defendant not domiciled in an EU state, and in those involving cross-border injunctive relief not involving EU states. Second, the distinctness of English law’s approach brings into sharp relief the difficulty which sometimes surrounds the reception of the EU regimes into English law.71
1.47 Any legal system will seek to comply with three elemental principles which circumscribe the law regulating cross-border disputes—the principle of procedural efficiency, the principle of procedural justice, and the principle of comity. English law interprets these principles in distinctive ways, which define and explain English law’s approach.
1.48 The English court’s sensitivity to questions of procedural efficiency is evident in numerous ways. It underpins the search for the most cost-effective forum, the first limb of the familiar test for the staying of actions.72 It informs the decision about whether or not to grant a freezing order collateral to primary proceedings in another state.73 Such relief must not impair case management by the foreign court. It also determines whether a court should exercise its own power to stay proceedings on case management grounds.74 But, although the courts’ concern with procedural efficiency is evident and proper, it must be set in context. The familiar first limb of the Spiliada test is not concerned merely with efficiency, and not only with cost.75 It is apparent that the test is one of cost-effectiveness, which entails a concern for the effectiveness as much as speed and cost of proceedings. This is confirmed by those rare cases involving intractable issues of foreign law in which a stay may be granted, not because of the cost of proceedings, but because the issue cannot be resolved effectively in an English court.76 Again, it is clear (as considered in the following section), that the most cost–effective forum is regarded by the English courts as prima facie the forum in which justice can best be achieved.
1.49 More than might be expected in the context of complex, high-value commercial litigation, the approach of the English courts is informed by a strong sense of procedural justice. This is most evident in connection with the restraint of foreign proceedings, explicitly founded on the prevention of injustice,77 and may explain the reluctance of the courts to cabin their power to prevent injustice by insisting on a stronger conception of comity. The grant of freezing injunctions is also animated by a sense that it denies a claimant access to effective justice if a defendant disposes of its assets before judgment. Importantly, considerations of justice also inform the doctrine of forum non conveniens.78 This is clearly visible in the second limb of the traditional test. A stay will not be granted if the claimant would be denied access to justice in the alternative forum, but it implicitly informs the treatment of the first limb. Despite the apparent concentration on matters of efficiency, the objective is to locate the forum in which the dispute may be heard ‘in the interests of all the parties and the ends of justice’.79 The underlying assumption may be that the most cost-effective forum is prima facie the forum in which justice can best be achieved. It is the forum in which the optimal conditions exist for resolving the dispute, and neither party can complain that proceedings there would be unjust if indeed it is the most appropriate forum.
1.50 An aspect of the English court’s approach to procedural justice is their adherence to a relative rather than absolute theory of access to justice. Access to justice consists of ensuring that a claimant has access to a court. It is not necessary that the claimant be permitted to sue in its preferred court,80 nor that the claimant should obtain the same remedy available in that court. (p. 19) As the courts have emphasized, to be denied higher damages, or more extensive discovery, is disadvantageous, but not unjust.81 This approach is reinforced by the important consideration that a claimant will only be required to proceed in a court other than that in which it has sued if the alternative forum is the most appropriate forum. This reflects the assumption that a party required to litigate in the forum conveniens necessarily suffers no injustice. Suppose that a claimant sues in England, and maintains that it would be prejudiced if required to sue in an alternative court. If a stay is granted in favour of proceedings elsewhere, despite the claimant’s protests, this is for the telling reason that it is the natural forum.82 Again, suppose that foreign proceedings are restrained, requiring the claimant to proceed in England. This is only because it has been established that the English court is the proper forum, typically because the forum conveniens, or pursuant to a jurisdiction agreement.83
1.51 As this suggests, had the courts adopted an absolute approach to access to justice, the development of their adjudicatory discretion and the restraint of foreign proceedings would have been checked. It has been suggested, however, that ‘the mechanism associated with the forum non conveniens doctrine could be regarded as incompatible with the requirements of Article 6 of the European Convention on the protection of human rights and fundamental freedoms’.84 The same charge has been levelled at the restraint of foreign proceedings.85 The gravamen of the complaint is that merely to require a claimant to recommence proceedings, with the attendant cost and delay, is a denial of justice, irrespective of the safeguards required by the English courts.86 If this argument is taken literally, however, it means that any stay or dismissal of proceedings, even pursuant to Articles 27 and 28 of Regulation 44/2001, or Articles 29 and 30 of Brussels I bis, would infringe Article 6.87 In any event, it has been held that the second limb of the Spiliada test ensures compliance with Article 6 where a stay is granted,88 while the requirement of an alternative forum validates the restraint of foreign proceedings.89
1.52 Any regime which seeks to locate the appropriate forum for a dispute, and to restrain a defendant’s conduct abroad, inevitably encounters the principle of comity. Although the principle may be described in general terms as respect for the unique interest of foreign courts and foreign legislatures to regulate conduct within their jurisdiction,90 it has no fixed meaning. The English courts have encountered the principle in cases involving the staying of actions,91 anti-suit injunctions,92 and freezing injunctions.93 In each area they (p. 20) have affirmed their commitment to the principle, and have sought to comply with it. As Lord Hobhouse said in Turner v Grovit,94 ‘English law attaches a high importance to international comity’. The English courts have understood comity in a particular way, however, and in a way which enables the distinctive institutions of international civil procedure in English law to function.
1.53 Some legal systems, and perhaps some English judges, favour a broad or strong theory of comity, in which nothing less than deference to foreign law and a foreign court is sufficient.95 To adopt the strong approach would limit, perhaps to vanishing point, the power of a court to restrain conduct abroad. Where the restraint of foreign proceedings is concerned it would limit the power to cases where the foreign court has exercised an exorbitant jurisdiction (forfeiting the respect comity demands),96 or where the order restrains the breach of an English jurisdiction agreement (in which case it represents merely an injunction to restrain a breach of contract over which the English court has jurisdiction).97
1.54 For some time the correct approach in English law was obscured in the case law. This is sharply illustrated in cases concerning anti-suit injunctions. Despite frequent comments to the effect that comity should be respected, there was a tendency to assume in such cases that comity was complied with provided that the court had both personal jurisdiction over the defendant, and an interest in the dispute, typically because the applicant was a party to English proceedings. This tendency was seemingly at odds, however, with dicta favouring a strong conception of comity.98 Since the important decision in Star Reefers Pool Inc v JFC Group Co Ltd99 it is clear that a jurisdictional connection with England is a necessary, but not sufficient, condition for compliance with comity, and that a court must consider comity in the exercise of its discretionary power.
1.55 English law’s current approach has two established features, although a third remains controversial. These are most sharply revealed in cases involving worldwide injunctive relief. First, comity operates as a jurisdictional constraint. It does so in two distinct ways. It prevents the exercise of extraterritorial jurisdiction. This is narrowly defined, however, by reference to the court’s in personam jurisdiction, and whether the court has an interest in exercising its power, and permits for example the grant of injunctive relief affecting foreign proceedings, and foreign assets, where the respondent is within the court’s territorial jurisdiction. Comity also prevents a court from addressing again a question which the foreign court has already answered, although this constraint is also narrowly understood, being confined to cases where the principles employed by the foreign court are identical to those of English law, making any intervention by the English court a review of the foreign court’s decision.100 This relatively narrow reading of comity, requires further steps, however, to (p. 21) ensure deference to the principle. Second, therefore, compliance with comity is additionally a matter of discretion. A court will ascertain, in individual cases, whether the exercise of its powers is in fact consistent with comity. Third, it is possible, though uncertain, that in the exercise of that discretion, comity imposes a relative not absolute obligation. Arguably, it does not invariably override other considerations, but must be balanced against the court’s duty, and in particular considerations of justice. Each aspect of the English approach requires elaboration.
1.56 English law respects the principle that judicial power should not be exercised extraterritorially. The principle is, however, narrowly understood. Otherwise neither anti-suit injunctions nor worldwide freezing orders would be feasible. A remedy is not extraterritorial if the respondent is subject to the court’s in personam jurisdiction, and if the court has an interest in granting relief. Comity is complied with, even if such conduct is regulated by an English court, provided that the respondent is subject to the English court’s jurisdiction, and provided that the English court has an interest in granting the relief.101 Where an anti-suit injunction is sought, these requirements are satisfied, for example, if relief is sought to enforce an English jurisdiction agreement. The agreement supplies both the necessary jurisdictional connection and the necessary interest. They may also be satisfied if the respondent is domiciled in England, and if the English court is the forum conveniens for the dispute. Where a freezing injunction is sought, these requirements are satisfied if the relief is ancillary to pending English proceedings.102 Where such relief is sought in support of foreign proceedings, the necessary interest may be supplied if the defendant or an agent having control of the defendant’s assets is present in England. In that event, the order may be enforced against those parties in England.103
1.57 The English approach may be illustrated by reference to the contrast between ordering the attachment of foreign assets and appointing a receiver of such assets. Like a freezing order, a receivership order for the collection of receivables is equitable, protective, temporary, and operates in personam against the defendant entitled to the income. It confers no proprietary interest in the affected assets.104 It has the character of an injunction insofar as it merely restrains the defendant from receiving such income as the receiver is appointed to collect.105 These characteristics ensure that there is no objection in principle to their being granted in respect of foreign receivables. Receivership differs from execution by the attachment of a defendant’s debts. Attachment is a proprietary remedy. For that reason English law regards the attachment of foreign debts as impermissible insofar as it involves an attempt to regulate property extraterritorially.106 The appointment of a receiver is, however, unobjectionable, provided that the court has jurisdiction over the defendant, and a sufficient interest in granting relief. These requirements were satisfied in Masri v Consolidated Contractors International (UK) Ltd107 where a claimant obtained judgment in England establishing its interest in the defendant’s larger interest in an oil concession in Yemen. The defendants (p. 22) resisted payment of sums due under the judgment, and sought declarations in Yemen that they were not liable to satisfy the judgment debt. The claimant sought and obtained an order appointing a receiver of the revenues due to the defendant from the concession in Yemen. A receivership order does not operate extraterritorially in breach of comity, and the requirements of jurisdiction and interest were satisfied by the fact that the relief was sought to assist the enforcement of a judgment obtained in the English courts.
1.58 Again, the courts have declined to address issues already determined by a foreign court. It may be ‘a significant factor’ in denying an anti-suit injunction that the foreign court has already determined its jurisdiction by applying ‘principles similar to those applied by this court’.108 It is also established that a court should not grant a freezing injunction in support of primary proceedings abroad if the foreign court has already denied equivalent relief.109
1.59 As this suggests, English law has adopted a ‘thin’ or weak theory of comity for jurisdictional purposes, in which the principle is satisfied provided that the relief operates in personam, the respondent is subject to the English court’s jurisdiction, and the English court has an interest in granting relief. Necessarily, however, English law compensates by requiring a court to consider comity in the exercise of any discretion it has to grant relief. The effect of the Court of Appeal’s decision in Star Reefers Pool Inc v JFC Group Co Ltd110 is that such a jurisdictional connection with England can no longer be regarded as a sufficient condition for compliance with comity. Nor may courts any longer pay lip service to the principle, which is a necessary factor to be considered in the exercise of any discretionary power.
1.60 Comity may therefore inhibit the grant of an anti-suit injunction if the foreign court can stay its proceedings on forum conveniens grounds, because then its jurisdiction is not exorbitant, in principle entitling it to exclusive control over which cases it hears and preventing the English court from intervening.111 Alternatively, relief may be denied by reason of comity if targeted at an issue which the foreign court can more appropriately address. For example, an applicant is not required to exhaust its remedies in the foreign court before seeking an injunction (by challenging the foreign court’s jurisdiction, or seeking a stay or dismissal), but such considerations may affect the exercise of the court’s discretion.112 It may also be proper to wait for a decision by the foreign court. Where, for example, one party obtains an order from an English court limiting its damages to the other it is for the foreign judge to determine the English order’s effect, not for the English court to prevent it from doing so by restraining the foreign proceedings.113 Again, if English proceedings would very likely be completed before those in the foreign court, this would make an injunction unnecessary even if the Russian proceedings had been vexatious.114 Comity entails not restraining foreign proceedings unless necessity so requires.
Comity is neither a matter of absolute obligation, nor of mere courtesy and good will. It is a recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or other persons who are under the protection of its laws.
1.62 Cross-border commercial litigation in the English courts reflects, and is framed by, a cluster of tensions. One is structural. The province of national law remains to some extent contested because of the uncertain scope of the EU jurisdiction regime.116 Others are conceptual. Injunctive relief, because equitable in origin, serves the interests of justice. Where such relief operates across borders, however, considerations of comity and jurisdiction arise, which inevitably compete with the imperative to secure justice. An ‘equitable’ approach to anti-suit injunctions, expressing the belief that a court doing justice cannot be criticized, has now formally given way to an ‘international’ approach, in which the needs of justice are subservient to the requirements of comity.117 Nonetheless, the conflict between these imperatives remains, not least for a judge striving for the right outcome. Again, the scope of injunctive relief is made uncertain by a tension between substance and enforcement. There are competing strands in the case law concerning worldwide freezing injunctions, one of which defines the court’s jurisdiction by reference to the court’s ability to enforce any order against a defaulting party in England, and the other of which treats the location of the defendant’s conduct in England as decisive.118
1.63 Again, there are inherent tensions in any front-loaded approach to cross-border litigation which emphasizes disputes concerning jurisdiction and interim relief at the expense of addressing the merits of a dispute. Some are technical.119 Problems arise concerning the standard of proof when an interlocutory application turns on matters which can only be resolved finally at a trial on the merits, and the apparent circularity involved where jurisdiction depends on the existence of a valid contract when the contract’s validity, a substantive issue, is disputed. It is also uncertain whether, if at all, claimants may seek summary judgment on the merits, often the preferred remedy, when the court’s jurisdiction is contested. Again, it is uncertain to what extent a court can properly control the scale and complexity of interlocutory proceedings by exercising its case-management powers.120 Although in principle interlocutory, such proceedings invariably determine the final outcome of a dispute, (p. 24) creating a tension between the parties’ wish to litigate such issues fully, and the need to control the cost of proceedings ancillary to the merits.121
1.64 Finally, however, tension exists at a policy level. The EU jurisdiction regime promotes the swift resolution of jurisdictional disputes, with the supposed objective of permitting easy access to a resolution on the merits. English law, by contrast, has historically encouraged lengthy consideration of jurisdictional issues, on the assumption that venue matters most to the parties, who settle before any trial on the merits. This reflects in part the assumption, implicit in the EU regime, that no forum within the EU is better placed than any other to resolve a dispute, an assumption inapplicable in cases involving third states. In a series of decisions, however, the English courts have disparaged the scale of interlocutory proceedings,122 in some cases explicitly on the assumption that the parties should focus on disputing the merits.123 In principle, the avoidance of disproportionately complex and costly litigation is justified in any context, not least if the scale of proceedings becomes an instrument of oppression. It is uncertain, moreover, whether such strictures are directed merely at the excessive scale of some jurisdictional disputes, or reflect a wish to depart from English law’s front-loaded approach. In practice, however, such disputes are inevitably complex and protracted, and it is uncertain whether the court’s adjudicatory evaluation could sensibly be undertaken on the streamlined basis that some would wish. As this suggests, concerns about excessive jurisdictional disputes may challenge the very exercise of adjudicatory discretion. If so, an important question is exposed concerning the proper orientation of cross-border disputes. Is justice and efficiency best served by resolving the substance of any dispute, or by ensuring that proceedings occur in the optimal forum?124 In complex, high-value cases involving third states, it is hard to dispute the value of the traditional approach, despite its scale and cost.125
1.65 A particular feature of the English approach is the extent to which it minimizes legal risk, or at least allows it to be identified. This is apparent in English law’s approach to transaction risk, and the effectiveness and scope of governing law clauses. It is reflected in the principle, endorsed by the Rome regime governing choice of law in contract,126 that an express choice of law is effectively conclusive in commercial contracts.127 It is also visible, however, in cases where the contract contains no governing law clause. There the risk to the transaction is not that the parties’ chosen law will be ignored, but that the expectations of the parties (perhaps reflecting those of the market) will be frustrated. In such cases, working with the tools of implied intention and close connection, the English courts have fashioned results which capture expectations and ensure the commercial efficacy of the transaction.128
1.66 A similarly commercial approach is evident in the approach of the English courts to jurisdiction agreements. This may seem paradoxical, given that the enforcement even of exclusive (p. 25) jurisdiction agreements is discretionary not automatic.129 But the effect of that approach is that such agreements will be enforced, save in two cases. They will not be enforced when (in effect) frustrated by later events, so that the agreement cannot be enforced in the circumstances in which it was made. In that sense, the court’s approach reflects the contractual principles that contracting parties cannot properly take the risk of unforeseen events, and should not be held to a term which is no longer enforceable. Again, a jurisdiction agreement will not be enforced where the result would be parallel proceedings involving third parties. A claimant’s action against a counterparty to a contract may be permitted in England in breach of a foreign jurisdiction agreement if the English court is the only court having jurisdiction over the counterparty and one or more third parties to the agreement. Otherwise the claimant would be forced to sue the counterparty abroad, and the third parties in England. This approach jeopardizes the jurisdiction agreement, but avoids the risk of parallel proceedings, to the benefit of all parties. A similar commercial sensitivity is revealed in the manner, at first sight counter-intuitive, in which English courts give weight even to non-exclusive jurisdiction agreements. So far from having neutral status in the forum conveniens enquiry, the fact that the parties have agreed to a court’s jurisdiction (although non-exclusively) is influential in determining the appropriate forum.130 By doing so the courts seek to give effect to the parties’ expectation that the appropriateness of the agreed court cannot be questioned.
1.67 The proper avoidance of commercial risk is also evident in the width of a court’s power to restrain the disposal of a defendant’s assets pending judgment, even those abroad.131 The risk that a judgment might not be enforced is central to litigation risk, but avoided to the extent that such assets may be preserved. It might be thought, however, that different considerations apply to the adjudicatory discretion supported by the doctrine of forum non conveniens. Such a principle might be said to create uncertainty, rendering the risk of English proceedings unpredictable. But the doctrine contributes to the avoidance of litigation risk in other ways. It ensures that a third-state domiciliary will not be called to answer before an English court unless that court is the most appropriate forum.132 From such a parties’ perspective the possibility that it may be subject to the jurisdiction of a court other than its own (in the absence of a jurisdiction agreement) is an aspect of litigation risk which the English approach removes. The same applies when a defendant present in England, such as a third-state party having a branch there, seeks a stay of English proceedings. The doctrine removes the risk to the defendant that it must defend proceedings in an inappropriate forum. In a similar fashion, although subject to different principles, the grant of anti-suit injunctions ensures that a defendant is not exposed to the risk of injustice in foreign proceedings.133
1.68 The principles and objectives which animate Regulation 1215/2012 (Brussels I bis), and Regulation 44/2001 (The Brussels I Regulation) are considered in Chapters 8, 9, and 11.134 It is sufficient for present purposes merely to note a significant difference between the theoretical (p. 26) underpinnings of English national law and of the Regulations. In broad terms, English law is concerned with devising optimal rules, which achieve the best outcome in particular cases. This process is informed by principle, and shaped around the concepts available, but these have imposed few constraints on the law’s development. The evolution of English law in this area, especially in recent decades, reflects the freedom enjoyed in any system of judge-made law, largely untrammelled by statutory constraints. Importantly, in this process paramount considerations have been a desire to ensure justice and efficiency, and reflect commercial reality.
1.69 The context in which the EU regulations operate is significantly different. It would be an exaggeration to claim that the Court of Justice is unconcerned with the resolution of particular disputes, or with crafting the best solutions to particular problems. Justice, efficiency, and a commercial orientation are harder to achieve, however, in a uniform regime, with an internal logic, which embodies the higher institutional objectives. Of necessity perhaps, the approach of the Court to Regulation 44/2001 is both instrumental (serving the objectives of the EU), and institutional (preserving the logic of the Regulation itself).
The purpose of that regulation, and more particularly Chapter II thereof, is to unify the rules on jurisdiction in civil and commercial matters, with the objective of eliminating obstacles to the functioning of the internal market which may derive from disparities between national legislations on the subject.
1.71 Similarly, the approach of the Court is inevitably institutional, intended to serve the integrity and coherence of the common scheme imposed by the Regulation. This is most apparent in the Court’s unswerving adherence to the principle that irreconcilable judgments must be avoided.137 This reflects the Regulation’s origins in the 1968 Brussels Convention, intended to ensure the ‘free movement of judgments’ between Member States, and the objective underlying the Regulation’s rules preventing parallel proceedings. As might be expected, the twin requirements of uniformity138 and certainty139 are also of considerable importance when applying the regime. Again, being a reciprocal regime, mutual trust between Member States is required when handling the Regulations. No court may second-guess another court’s assertion of jurisdiction.140
1.72 This serves to explain two prominent decisions concerning the relationship between the EU regime and national law. One illustrates the instrumentalism of the Court’s approach, the other the power of the argument that the institutional integrity of the regime must be defended. In Owusu v Jackson141 the question was whether an English court was permitted, in a case in which its jurisdiction derived from the Brussels regime, to stay its proceedings (p. 27) on forum conveniens grounds in favour of proceedings in a non-Member State. Powerful arguments of principle suggested that such a stay was permissible. The regime is silent as to whether and on what basis national courts may decline to exercise jurisdiction opposite third states. It might have been supposed that the allocation of jurisdiction between a Member State and a third state should not be, and was not intended to be, regulated by EU law. Moreover, the animating purpose of the regime’s rules governing jurisdiction is the avoidance of irreconcilable judgments in two Member States, which leaves it no role in cases involving a third state. Yet the Court of Justice held that national law could not apply in such a case. Significantly, the argument that the regime’s defining objective would not be served by that conclusion was defeated by a higher-order, instrumental argument. The Brussels regime serves the objectives of the internal market, which require uniformity in all matters of jurisdiction, leaving no room for the subsidiary application of national law.142
1.73 In Allianz SpA v West Tankers Inc143 the question was whether an English court could restrain by injunction civil proceedings in Italy in breach of an English arbitration agreement. The Court had already prohibited such relief in principle,144 but West Tankers was different because Article 1(2)(d) of Regulation 44/2001 provides that arbitration is outside the Regulation’s scope. The Court held that relief enforcing arbitration agreements was in principle outside the Regulation’s scope, but this was not decisive. The effet utile of the Regulation demands that it cannot be overridden by national law. Such an injunction represented an indirect interference in the exercise of the Italian court’s jurisdiction pursuant to the Regulation. The argument from effet utile represents the purest argument for the institutional integrity of the regime. It neutralizes any suggestion that an issue is beyond the regime’s scope, because the scope of the regime is irrelevant. In doing so it potentially jeopardizes any feature of national law which might be said to affect the operation of the regime, however indirectly. As deployed in West Tankers it also suggests how closely the Court defends the regime’s integrity. As the English courts have repeatedly emphasized, restraining orders operate in personam to control the conduct of a claimant in foreign proceedings, and have no effect on the foreign court’s jurisdiction.145 Yet in West Tankers, even an indirect threat to the regime was unacceptable.146 Moreover, what might be regarded as a real threat to the regime did not arise in West Tankers. Given that arbitral proceedings, and civil proceedings for ancillary relief, are outside the scope of the Regulation, Articles 27 and 28 did not apply to allocate priority between the English and Italian proceedings. There was no sense in which those important rules were overridden by the grant of a restraining order. In that sense, the effet utile of the Regulation was jeopardized, not because of any threat to its operation, but because the rules of national law were different.
1.74 The difficulty of reconciling the approach of the EU private international regime147 with the assumptions underlying English national law represents a recurring theme in commercial (p. 28) litigation before the English courts. To many, the interpretation of Regulation 44/2001 by the CJEU is informed by considerations secondary to achieving the best outcome, and to fashioning the optimal regime for the regulation of international commercial disputes. Concern is often expressed about whether high-value, multi-party disputes, between tactically astute and well-funded parties, can be regulated effectively by a regime which encourages abusive forum shopping,148 undermines contractual jurisdiction agreements,149 prevents recourse to mechanisms for discouraging such abuse,150 and prevents the allocation of disputes to the most appropriate forum.151 Such misgivings should not be overstated, or the success of the EU regime in more straightforward cases minimized. Moreover, the problem of abusive proceedings in defiance of a jurisdiction agreement has been addressed in Brussels I bis,152 and the Brussels regime offers some scope for the discretionary element necessary in the regulation of complex disputes, not least in cases involving parallel proceedings in third states.153 Some doubt remains, however, as to the scope and success of these changes,154 and further initiatives to limit the role for national law cannot be discounted.155
1.75 Symptomatic of an approach seemingly at odds with practice is that parallel proceedings must at all costs be avoided, so as to guard against the spectre of irreconcilable judgments, the principle at the root of the EU jurisdiction regime.156 For those with experience of commercial litigation this preoccupation is puzzling, indeed misguided. It is very possible that two courts will be seised concurrently in a substantial dispute, given the likely importance to each party of maneuvering proceedings into their preferred forum, but the likelihood that proceedings will advance significantly in both places is remote. This is not because both courts are likely to agree that only one has competence. Even if the parties intend to pursue the dispute to judgment, the cost of fighting on two fronts is likely to deter them. Rather, litigants in costly cross-border disputes seldom have any intention of taking the dispute to judgment, or even to trial, certainly not to a trial on the merits. The jostling for position so common in transnational disputes, each party seeking to seise its preferred forum, is invariably intended to promote settlement, or surrender by the other party. The notion that either is seeking a judgment on the merits is unrealistic. Indeed, it is an axiom of cross-border litigation that to win the battle of forums is to win outright. As claimants know to their advantage, defendants sued in an inconvenient forum are apt to capitulate, and, as any defendant knows, claimants unable to sue where they wish are likely to withdraw. It is striking that the risk of irreconcilable judgments, the principal leitmotif of the EU regime, is a danger which is at best exaggerated, at worst illusory.
1.76 The seemingly uncommercial orientation of the EU regime, and of the CJEU in applying it, occasions unease amongst practitioners, and those who bear the risk of litigation. Commercial parties increasingly seek respite from the difficulties caused by the regime by (p. 29) opting for arbitration not litigation, exploiting the fact that arbitration is excluded from its scope.157 It is increasingly common either to favour arbitration instead, or to provide for arbitration as an alternative to litigation.158 This reflects the perception that the EU regime is too unsophisticated, too un-commercial in its assumptions, to regulate substantial commercial disputes. The effect is to allow a party to arbitrate in circumstances where the regime would hinder the effective resolution of the dispute.159 This promises a future in which commercial disputes in Europe are resolved largely by arbitration, leaving only other matters for the Brussels regime. It suggests a mixed economy, in which high-value, high-cost commercial litigation occurs beyond the regime, and in which the regime governs consumer complaints, debt collection, and personal injury claims. The arresting consequence is that a regime intended to harmonize the law on civil jurisdiction within the EU, by subjecting it to uniform rules, may have the effect of encouraging litigants to arbitrate, a matter beyond the regime’s scope, and subject to national law.
1.77 Commercial litigation is an extension of commerce, and the decision whether to initiate or defend proceedings is viewed by litigants as an investment decision. It follows that the risk of exposure to legal costs is of paramount importance in deciding whether, where, and how to litigate. The applicable costs regime will inevitably affect the choice of forum, and the parties’ decision whether to proceed, settle, or abstain from litigation. Claimants will be concerned with the extent to which the value of their claim will be diminished by their exposure to costs, even if they succeed, perhaps to the extent that it is no longer viable. Claimants and defendants alike will be concerned with their potential liability for their opponent’s costs in the event of failure. It may be of decisive importance whether techniques are available for reducing or laying off such risk, by concluding no-win-no-fee arrangements, buying insurance, or seeking third-party finance. Such considerations influence the choice of forum, and the decision whether to sue or defend at all. They also present litigants with a further range of choices concerning how best to proceed, perhaps influencing the decision to engage in relatively expensive procedures, such as relying on foreign law (which must be proved by costly expert evidence), and taking evidence abroad. It also requires litigants to make important decisions concerning how best to finance proceedings. English law’s evolving costs regime is considered in Chapter 19.160
1.78 Central to the framework governing international commercial litigation in English courts is the distinction between national rules regulating jurisdiction and the enforcement of judgments, and those of the several European regimes. The distinction is maintained by (p. 30) Regulation 1215/2012, Brussels I bis, insofar as the possibility of extending EU rules of jurisdiction to defendants domiciled in third states was rejected, while national rules governing the effect of judgments obtained in third states are unaffected by the EU regime.161 It is also possible, if uncertain, that national rules for declining jurisdiction retain a role in cases involving alternative proceedings in a third state.162 This does not, however, foreclose future initiatives that may extend the EU regime to embrace disputes involving non-EU defendants, and to the recognition and enforcement of non-EU judgments.163 This possibility is of considerable significance, especially for cross-border litigation before the English courts, in which disputes of considerable commercial importance and complexity arise, very frequently involving defendants from outside the EU. Indeed, the abolition of national rules of jurisdiction may have a more significant impact on English law than on any other EU legal system.
1.79 Article 6 of Brussels I bis currently confines the regime to defendants domiciled in a Member State. At first sight, the separation of national and EU law on this ground alone does not withstand scrutiny. The exercise of jurisdiction subject to a jurisdiction agreement, previously limited to cases involving an EU-domiciled party, now extends even to those where both parties are domiciled outside the EU.164 It is unclear why the exercise of subject-matter jurisdiction, where a connection with a Member State is established, should depend on the defendant’s origin. Article 7 of the Regulation, for example, provides that the courts of a Member State shall have jurisdiction inter alia in matters concerning a contract broken in that state or a tort committed there.165 It applies, however, only if the defendant is domiciled in a Member State. If such a connection is sufficient for exercising jurisdiction, however, why should the defendant’s origin matter? Again, it is undesirable that a claimant cannot be guaranteed access to justice on equivalent grounds in all Member States because different rules of residual jurisdiction apply. Moreover, the EU has a defensible interest in regulating jurisdiction in disputes the subject matter of which is connected with a Member State, irrespective of the defendant’s origin.
1.80 Extending the EU regime to non-EU defendants begs questions of policy and principle of some significance and complexity. Indeed, the difficulty of devising a comprehensive regime to govern such cases may in the end prevent any such change. In constructing such a regime, four questions arise:
1.81 First, should any extended regime operate to the exclusion of residual national rules, or in parallel? Should it prescribe the limits of jurisdiction over third-state defendants? Or should it serve as a uniform guarantee of access to jurisdiction on those grounds, irrespective of whatever residual rules remain? The latter solution may be preferable. It is consistent with the policy of assisting claimants apparently endorsed by the European Commission.166(p. 31) It guarantees a claimant access to jurisdiction on extended Regulation grounds, while also providing access to any additional grounds available under national law. To guarantee equal access to justice in the Member States requires only that common rules apply in such cases, not that existing residual grounds of jurisdiction should be abolished. Nor would the defendant be prejudiced. There is no suggestion that third-state defendants would be subject to residual grounds of jurisdiction which do not already exist. Any extended Regulation should prescribe minimum not maximum grounds of jurisdiction.
1.82 Second, should any such extension be universal, or confined to claimants domiciled in Member States? Such a limitation is consistent with the policy of strengthening the legal position of persons established in the EU, and with the principle that national law should not be eroded save where EU interest is clear. It also reflects the distinctness of cases involving two EU parties, which in a sense are not ‘international’, but ‘internal’, and those involving third-state parties, in which the EU has no interest. It may also be inconsistent with the established principle that the EU Regulations operate irrespective of the claimant’s domicile.167
1.83 Third, what adaptations to the existing rules are necessary if they are applied to third-state defendants? An important consideration is whether there should be additional requirements which limit the exercise of jurisdiction over third-state defendants. Arguably, such jurisdiction is an exorbitant jurisdiction, in the particular sense that such defendants are domiciled in states which by definition have not on behalf of their citizens submitted to the constraints of EU law. Nor would such a defendant be a party to a dispute in which the courts of a Member State have a unique interest (as under Article 22 of Regulation 44/2001, Article 24 of Brussels I bis), or to which it has submitted by agreement (under Article 23 of Regulation 44/2001, Article 25 of Brussels I bis). Such cases are already subject to the EU regime, for the important reason that they represent cases in which a Member State has a legitimate interest in resolving a dispute involving a third-state defendant. This is not to deny that, if subject-matter jurisdiction is exercised over a third-state domiciliary on grounds equivalent to Article 7(1) or 7(2) of the Brussels I bis, a jurisdictional connection exists. It warrants, however, additional safeguards on the exercise of such jurisdiction. English law has long recognized the need to protect a defendant against the assertion of subject-matter jurisdiction in cases involving service of a claim on a third-state defendant.168
1.84 A third-state defendant might be protected in two ways. A claimant might be required to seek permission before serving the claim, although such an approach might be thought to introduce unwarranted cost and delay. A claimant might be required to demonstrate, for example, that a ground for jurisdiction clearly exists, that there is an arguable case on the merits against the defendant, and that the forum is a proper one for trial. Even if such pre-conditions for the exercise of jurisdiction are not imposed, however, it will be necessary to prescribe when a court may or must decline to exercise jurisdiction in favour of proceedings in the state of the defendant’s (non-EU) domicile. Whichever approach is adopted, however, it will be necessary to determine the circumstances in which (and the methodology by which) proceedings may be stayed or dismissed in favour of proceedings in a third (p. 32) state. Whether the regime for allocating jurisdiction between an EU and non-EU court, introduced by Articles 33 and 34 of Brussels I bis, is adequate is uncertain, and its viability remains untested.169
1.85 Fourth, should an extended Brussels regime provide for the recognition and enforcement of third-state judgments?170 It is uncertain why the existing rules in force in Member States are regarded as insufficient for this purpose, and there is no reason why the extension of Regulation jurisdiction to defendants domiciled in third states should proceed without extending the Regulation’s rules for recognition and enforcement. Moreover, a new enforcement regime for third-state judgments would be unilateral not reciprocal, and would not encounter the difficulty of achieving agreement with third states which have in the past undermined initiatives to harmonize the enforcement of judgments worldwide.171 Significant problems arise, however, insofar as this absence of reciprocity means that the courts of a Member State can make no assumptions about the circumstances in which the judgment is obtained in a third state. The relatively mechanical rules for the enforcement of judgments between Member States is justified by legitimate assumptions concerning the grounds of jurisdiction and quality of justice provided in the court giving judgment. Such assumptions do not hold for third states. This suggests that an extended enforcement regime could not merely transpose the enforcement rules applicable between Member States. An extended regime would require more extensive grounds for non-enforcement than apply to the judgments of Member States, with a greater role for non-enforcement on public policy grounds than might be acceptable within the Union.172 Such a regime would also require additional rules establishing pre-conditions for enforcement, and in particular guaranteeing a sufficient connection between the defendant and the judgment court, so as to protect defendants from the exercise of exorbitant jurisdiction. It is possible that a third-state judgment should be enforced only if the defendant is domiciled in the judgment court, or has submitted to its jurisdiction by agreement or appearance.173
1.86 The possibility of abolishing national rules of international jurisdiction is arresting, but fraught with difficulty, with considerable room for disagreement, not least between those coming to the debate from differing legal traditions. It may be, however, than the central question, at least as regards the extension of the EU jurisdiction regime to non-EU defendants, is whether effective rules can be devised governing whether in a given case the exercise of jurisdiction would serve the proper administration of justice. In this respect, the scope for borrowing from the highly evolved English law rules applicable in such cases,174 and from the novel mechanism embodied in Articles 33 and 34 of Brussels I bis,175 will be a matter of particular importance.
1.87 This book is concerned with the law and practice of commercial disputes as they arise principally in the London Commercial Court. Many disputes of a broadly commercial character are heard in the Chancery Division, where many of the same issues arise, but to give purchase to the discussion its scope is defined in the same terms as the jurisdiction of the Commercial Court is prescribed, being concerned with commercial claims, defined as ‘any claim arising out of the transaction of trade and commerce’.176 Such claims are those ‘relating to a business document or contract, the export or import of goods, the carriage of goods, insurance and re-insurance, banking and financial services, the operation of markets and exchanges, the purchase and sale of commodities, business agency, and arbitration’. This is not to deny the commercial significance of disputes concerning other matters, such as those concerning securities, corporate control, intellectual property, or insolvency, amongst others. Nor is it to deny that the same issues may arise in such litigation. To anchor the discussion, however, this book is concerned only with such claims as are the staple diet of the Commercial Court.
1.88 This then is a book about international contracts, but its concern is not merely with the enforcement of contractual obligations. It addresses also such non-contractual obligations as bear on the effect of transactions, principally pre-contractual obligations of good faith in negotiation, and the restitutionary obligation to restore monies paid under a failed contract.
1.89 Reflecting the reality of Commercial Court practice, what follows centres on two matters: the extent to which any contract between the parties may foreclose disputes concerning jurisdiction and the applicable law;177 and, the issues relating to jurisdiction and injunctive relief on which transnational disputes almost exclusively turn. Those issues concern primarily the exercise of the court’s adjudicatory discretion pursuant to the doctrine of forum non conveniens, the rules for declining jurisdiction under Articles 29, 30, 33, and 34 of Brussels I bis, and on the grant of freezing orders and anti-suit injunctions.
1.90 This concentration on forum shopping and interlocutory skirmishing conceals, however, the importance of the substantive issues which animate such litigation. Self-evidently, a claimant cannot initiate proceedings, nor can a defendant contest them, in the absence of a case on the merits. The rules of procedure permit dismissal of an unfounded claim or defence,178 and civil litigation has not officially reached the stage where a dispute may be resolved merely by trial by combat at the interlocutory stage. Moreover, even if settlement is the most likely outcome in any dispute, this is not brought about exclusively by the resolution of interlocutory disputes. Such disputes may determine the outcome if the merits are evenly balanced, but many claims fail because one parties’ substantive case is clearly the stronger. Moreover, it is important not to ignore the importance of the effect of the enforceability of a transaction to the parties and their advisers. Even if no dispute arises, the cost and viability of the (p. 34) transaction depends on the risk to which it may be exposed in the courts. Suppose that the parties submit by agreement to the jurisdiction of the English courts, and agree that English law shall govern the contract. It becomes important to assess the effectiveness of the transaction on the assumption that litigation occurs in the English court. The price of the transaction and parties’ readiness to conclude it depend on the outcome of litigation in the English court. Importantly, so does the ability of the advisers to one or both parties to give a ‘clean’, unqualified opinion as to the effectiveness of the transaction in the event it is challenged—or at least one in which the risks can be clearly identified. For these reasons, this book addresses not only the procedural infrastructure of international commercial disputes, but the laws governing cross-border contracts, and associated non-contractual recovery.
1.91 Within these parameters this book ties the discussion to the concept of legal risk. This reflects the perspective of commercial lawyers and their clients, for whom risk in all its forms (commercial, reputational, as well as legal), defines their approach to litigation as it does to business—of which litigation is a part. It might be said, however, that litigation, and any transaction from which it derives, involves two parties. If one party defaults, the risk perceived by the innocent party seeking enforcement is for the party in default not a risk but an opportunity. The legal avenues for escaping liability, and for exploiting the vicissitudes of litigation to advantage, are benign. This is self-evident, but risk can be understood as an objective phenomenon, distinct from the enforcing party’s viewpoint, as synonymous with the possibility that a transaction or a dispute will fail. In any event, however, it is still appropriate to maintain the view of the innocent party seeking to enforce a transaction, and use the risk that a transaction will as the organizing concept. It is reasonable to assume that performance is the norm, and non-performance aberrant. Fairness, reflected in considerations of reliance and legitimate expectation, market stability, and economic efficiency, all argue for the stability of transactions. It is a matter of objective concern if they are exposed, by litigation, to legal risk.
1.92 The scope of what follows is, however, limited in an important respect. This work is concerned only with civil proceedings in the English courts, not with commercial arbitration, except insofar as the courts exercise jurisdiction ancillary to arbitration. This is not to deny the considerable, and increasing, importance of arbitration as a means of resolving commercial disputes, but it reflects the significant, and continuing, importance of civil proceedings in commercial matters, and the distinct problems to which such proceedings give rise. It is of course true, that the number of disputes submitted to arbitration is increasing, but at a time when the total number of disputes has increased, and the volume of disputes initiated in the London Commercial Court has increased also.179 The number of high-value commercial claims initiated in London increased by 16 per cent in 2013, with 1,353 claims issued in the Commercial Court compared with 1,167 in 2012.180 This reflects the inevitable time delay in bringing to court disputes born in the recession, and the desire of claimants to comply with the limitation period applicable to claims originating early in the economic downturn. Moreover, evidence suggests that such disputes are predominantly of an international character, with some 62 per cent of parties before the Commercial Court (p. 35) between 2008 and 2013 being foreign.181 The legal problems of Russian and CIS companies and their owners, and the consequences of recession, have assured the practical importance of international commercial litigation, and highlighted the intellectual significance of the cross-border legal issues which it generates.
1.94 First, even the most attractive legal solution may be commercially unrealistic. Consider, for example, the risk that an agile counterparty might immobilise a jurisdiction agreement in favour of the courts of one Member State by suing in another such State—the problem notoriously revealed in Gasser. The danger disappears if the potentially wrong-footed party sues first in the named court. But this apparently obvious precaution is unrealistic if the potential claimant hopes to preserve its commercial relationship with the counterparty, and foolhardy if the effect is to trigger the counterparty’s insolvency. Again, much attention is now focused on the extent to which breach of a jurisdiction agreement may be penalized by an action in damages, or by enforcing a counterparty’s contractual promise to indemnify the innocent party for any resulting loss. Such solutions are theoretically attractive, and comforting. But such rights are only effective if enforced, and few commercial parties will think that the answer to abusive proceedings lies in yet more litigation.
1.95 Second, the law must be seen in the light of the strategic choices of litigants and their advisers, especially in the matter of forum selection. The rules of jurisdiction, procedure, and choice of law, inherently fascinating as they are, are not ends in themselves, but a guide to choosing the most appropriate forum. The elemental distinction between substance and procedure, for example, matters in practice because it indicates which matters will be governed by the law of the forum, and controls their choice of venue.
1.96 Third, the purpose of litigation is settlement. No claimant claims, and no defendant defends, without thought of the final outcome, if only in the minimal sense that a claim or defence must be drafted. But nor do lawyers expect major commercial disputes to go to judgment, or even to a trial on the merits. Litigation provides the legal framework, and the technical levers, which prompt compromise or capitulation. The outcome of any jurisdictional dispute, insofar as it identifies the venue for proceedings, is likely to crystallize the parties’ strengths and weaknesses, and frame a negotiated solution. So too, whether a claimant can be assured of effective enforcement of any judgment, often by securing a freezing injunction, is often decisive.
1.97 Fourth, international commercial disputes are almost invariably interlocutory, concerning the two principal matters in any multistate dispute—venue, and the preservation of assets pending judgment. Such disputes are likely to be hard fought, because their outcome is invariably decisive. But their effect is normally to prompt settlement, so ensuring that few disputes migrate to a trial on the merits.
1.98 Fifth, opting to litigate is an investment decision, affecting each party’s balance sheet, and their commercial reputation. It is not an end in itself, or a matter of vindicating legal rights (p. 36) for their own sake. Whether to sue or defend, where to do so, and how to conduct proceedings, are issues which require litigants to measure the outlay against the return.
1.99 Sixth (as this suggests), litigation is about risk assessment. The importance of the legal rules regulating international commercial disputes is not merely that they govern the resolution of disputes (invariably by settlement). They allow the parties to assess the risk of their actions. Indeed, the success of those rules depends primarily on how readily they permit the assessment of risk.
1.100 Seventh, litigation risk is a species of transaction risk. Litigation, especially litigation in an inappropriate forum, generates cost and uncertainty. But, like all risks, litigation risk does not signify only when it crystallizes. It matters because it affects the price of transactions, and even the readiness of the parties to contract at all. This is a book about the conduct of international commercial disputes—about jurisdiction, injunctive relief, remedies, and enforcement. But it is also about how such matters affect the negotiation, drafting, and pricing of commercial contracts. It reflects as much the perspective of the transaction lawyer as the litigator.
1.101 Eighth, the law governing multistate disputes concerns not merely the risk associated with particular disputes, and particular transactions, but also systemic risk. It concerns how the threat to transactions from litigation affects the market, by increasing transaction costs and guiding the decision to lend or borrow, to buy or sell, to invest or not. This is in no sense a book about economics. It concerns legal principle and practice. But it is written in the knowledge that commercial litigation is not an end in itself, but has significant economic implications.
1.102 International commercial litigation is an aspect of international commerce. This has two implications. First, the parties bring to such disputes the same commercial assumptions and objectives that underpin any transaction from which the dispute derives. Their decision-making reflects the related assumptions that litigation is an investment decision, and that the object of legal proceedings is to preserve the value of the underlying transaction. More precisely, it concerns the assessment of risk and return. Second, the outcome of such disputes, viewed systemically, affects the shape and cost of transactions. To the extent that counterparties can escape the consequences of default by sheltering behind favourable rules of private international law, or deflecting liability to third parties, or avoid enforcement by concealing its assets, this represents a failure in any underlying transaction. Litigation is the cradle of transaction risk.
1.103 These considerations affect the structure and orientation of this book. What follows is an account of the law and practice of international commercial litigation, embracing the distinct legal categories of civil procedure and private international law. It is, however, as much an account of how the law defines the extent of the direct risks, financial and reputational, associated with litigation, and how litigation threatens the integrity, and so the value, of any underlying transactions. As this suggests, this is a book about black-letter law, and may be read as such, but it is also a book about the legal risks of international commerce, and may be read with that focus in mind. It is also, however, a book concerned both with the rules of civil procedure underpinning such disputes, and the substantive rules of private international law defining liability and recovery. It may be read, therefore, by litigators, concerned (p. 37) with the resolution of disputes, and transaction lawyers, concerned with effective transactions. As this suggests, there is no meaningful distinction between civil procedure and private international law in this context, nor between contentious and non-contentious business, nor between the concerns of the transaction lawyer, and those of the litigator.
1.104 Reflecting the concerns of practitioners and the courts, this work is not organized doctrinally around discrete obligations or concepts, but around intended outcomes. There are no omnibus chapters on, say, choice of law in contract, or tort, or property, nor on jurisdiction, or the recognition and enforcement of foreign judgments. The rules for identifying the law applicable to a contract are, for example, discussed in Chapter 5, but the discrete (and overwhelmingly important) question of the effect of governing law clauses is given prominence in Chapter 3, while the separate question of the law applicable to contractual remedies is considered in Chapter 6. Similarly, the uniquely important role of jurisdiction agreements is reflected in the separate treatment they receive in Chapter 2.
1.105 The paramount importance of managing litigation and transaction risk by contractual agreement explains the extended, separate treatment of those issues in Chapters 2 and 3. For transaction lawyers, the first question is whether the risks associated with litigation can be avoided by drafting measures; for litigators, the first question is whether the answer to questions of jurisdiction and enforcement lies in the documentation. In a sense, the balance of the book addresses issues which arise only when the drafting has failed or has reached its limits. It proceeds by grouping the practical operations which characterize cross-border commercial disputes under four broad headings—liability in multistate disputes, commencing and preventing proceedings, effective enforcement, and the conduct of multistate disputes.
1.106 Chapters 4, 5, and 6 together address different aspects of the choice-of-law process by considering how liability may be established, and a claimant’s loss recovered, in transnational disputes. Although substantial commercial disputes seldom go to trial on the merits, and more frequently settle, such questions play a central role in the interlocutory disputes at the heart of cross-border litigation. Moreover, even if issues of liability are seldom litigated, any claim (and any defence) must have its roots in substantive law. Certainly, litigants and their advisers are likely to devote considerable effort to considering their chances of success on the merits, if only to determine where to seek to claim or defend, or whether to litigate at all. Chapter 4 addresses the conceptual levers which control the choice-of-law process. Chapter 5 discusses the substance of any cross-border commercial dispute, represented by the rules of English law for determining the law governing the contractual and proprietary effectiveness of a transaction. Chapter 6 is concerned with the recovery of any loss consequent on a failed transaction, and considers the laws governing the remedies for breach of the various obligations which may arise in a transaction—those in contract, tort, for pre-contractual fault, and in restitution.
1.107 The remaining chapters are concerned with the legal operations with which international commercial disputes are mostly concerned—commencing proceedings, preventing proceedings, and recovery and enforcement. Chapter 7 opens discussion of the commencement of proceedings by considering the strategic choices facing litigants at the inception of proceedings, concerning principally the choice of forum. Chapter 8 introduces the two principal regimes governing jurisdiction in English law—Regulation 215/2012 (Brussels I bis), and the residual rules of English law. It examines the procedural mechanisms whereby (p. 38) in each system jurisdiction is established and contested, and the assumptions and principles underlying each regime. The grounds for jurisdiction in both regimes, arranged by the situations in which issues might arise, are described in Chapter 9.
1.108 The several steps that a defendant might take to prevent proceedings in England and abroad are considered in Chapters 10–16. Each of Chapters 10–15, concerning the prevention of English proceedings, represents a distinct practical problem, but the separation of the chapters reflects a conceptual distinction between excluding claims because no jurisdiction exists, declining jurisdiction in cases where jurisdiction exists in principle, and procedural objections which concern the admissibility of a claim not jurisdiction. The notion of declining jurisdiction embraces both the staying of actions and dismissal. Chapter 10 concerns excluded claims, principally those subject to the doctrines of non-justiciability and state immunity. Chapter 11 describes the approach of the EU jurisdiction regime to declining jurisdiction between EU states, an issue on which many disputes will turn. Chapter 12 examines the approach of the EU jurisdiction regime to the allocation of jurisdiction derived from EU law between an English court and the courts of a non-EU state, and in particular the uncertainties inherent in the new regime provided by Brussels I bis, a fruitful source of much future litigation. Chapter 13 addresses how and when jurisdiction might be declined under English law’s residual rules, and is principally concerned with the doctrine of forum non conveniens. Chapter 14 is concerned not with the existence or exercise of jurisdiction, but with procedural objections to proceedings, and examines dismissal for abuse of process, and the staying of actions on case-management grounds. Chapter 15 is concerned with the ways in which prior proceedings in one court may preclude claims elsewhere, with cause of action and issue estoppel, and with the role of pre-emptive proceedings for negative declarations. Chapter 16 concerns the restraint of foreign proceedings by injunction, a distinctive feature of English law with considerable practical importance, and a remedy at the heart of numerous cross-border disputes.
1.109 The final group of chapters is concerned with issues surrounding the enforcement of judgments across borders. The tendency of disputes to settle before any trial on the merits ensures that the enforcement of final judgments occurs less often than might be supposed. That tendency is perhaps less marked, however, in other jurisdictions, making the enforcement of foreign judgments in England a live issue, especially judgments given in default, in which the merits may not have been fully argued abroad. Moreover, the possibility of effective enforcement, coupled with the possibility of effective, pre-enforcement preservation of a defendant’s assets, is decisive in controlling whether, and where, a claimant elects to sue. Chapter 17 discusses the mechanisms whereby a claimant in English proceedings might ensure the preservation of assets pending judgment, by seeking orders for the disclosure and freezing of a defendant’s assets, and the appointment of a receiver. Chapter 18 is concerned with the enforcement of judgment debts, principally those arising from foreign judgments.
1.110 The final pair of chapters considers the procedural rules governing the conduct of multistate disputes before the English courts. Chapter 19 describes the law relating to costs, and the taking of evidence abroad. Chapter 20 examines the rules governing how the content of foreign law may be established in English proceedings, a matter of particular significance, partly because the parties’ rights and liabilities may turn on foreign law, but also because it may affect the identity of the forum conveniens.
1 As sometimes in English law; see para 1.67.
2 See ch 3.
3 See para 3.94 et seq.
4 See para 2.48 et seq.
5 See para 3.13 et seq.
6 See para 3.19 et seq.
7 See para 3.20 et seq.
8 See para 3.24 et seq.
9 See para 3.33 et seq.
10 See para 3.120 et seq.
13 See ch 2.
14 See ch 2.
15 See ch 9.
17 See ch 17.
18 See ch 6.
19 See ch 18.
24 See para 1.20 et seq.
37 At least this is true of litigation directed at obtaining a financial remedy. A final judgment is of greater concern in litigation concerned with a declaration of legal rights, as perhaps in some intellectual property disputes.
44 Not that these objectives are conceptually distinct. Preventing abuse of process is as much about fairness as it is about the integrity of the legal system. And it is widely recognized that efficiency contributes to justice, by ensuring that proceedings are not unfairly distorted by inefficiencies in the system.
45 See para 1.52 et seq.
51 Bumper Development Corp v Commissioner of Police  1 WLR 1362 (CA); see ch 20.
52 Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd  1 WLR 676 (CA); Fentiman, Foreign Law in English Courts (1998), ch 5; Fentiman  108 LQR 142; see para 4.38 et seq.
53 See para 18.11 et seq.
55 See ch 3.
56 See ch 16.
60 See para 13.08 et seq.
61 See para 17.26.
62 See para 13.46 et seq.
63 See para 16.09.
64 Spiliada Maritime Corporation v Cansulex Ltd  AC 460; see ch 12.
66 See ch 16.
67 See ch 17.
68 See para 17.46.
70 For analysis of the principles underlying the EU regimes see para 8.08 et seq.
72 See para 13.50 et seq.
73 See para 17.163 et seq.
74 See para 14.07 et seq.
75 See para 15.50 et seq.
76 The Nile Rhapsody  2 Lloyd’s Rep 399; see para 13.94 et seq.
77 See para 16.38.
78 See para 13.72 et seq.
80 The Kribi  1 Lloyd’s Rep 76; see para 16.107 et seq.
82 See para 13.10 et seq.
83 See para 16.30 et seq.
89 The Kribi  1 Lloyd’s Law Reports 76; see para 16.107 et seq.
91 See para 13.10 et seq.
92 See para 16.111 et seq.
93 See para 17.177 et seq.
98 See Barclays Bank Ltd v Homan (1993) BCLC 680; Deutsche Bank AG v Highland Crusader Offshore Partners  EWCA Civ 725; see paras 16.111 et seq.
99  EWCA Civ 14; see para 16.115 et seq.
101 Airbus Industrie GIE v Patel  1 AC 119; see para 16.111 et seq.
103 Republic of Haiti v Duvalier  1 QB 202 (CA); see para 17.128 et seq.
110  EWCA Civ 14; see para 16.115.
111 See para 16.126.
114 Star Reefers Pool Inc v JFC Group Co Ltd  EWCA Civ 14; see para 16.115.
117 See para 16.111 et seq.
118 See para 17.128 et seq.
119 See para 8.61 et seq.
122 VTB Capital plc v Nutritek International Corpn  UKSC 5, at , , ; see para 13.17.
124 See para 13.10 et seq.
125 See para 13.26 et seq.
126 The 1980 Rome Convention on the law applicable to contractual obligations,  OJ C027/34 (consolidated text); Reg (EC) 593/2008 of 17 June 2008 on the law applicable to contractual obligations,  OJ L177/6.
127 See para 5.47 et seq.
128 See eg Bank of Baroda v Vysya Bank Ltd  2 Lloyd’s Rep 87; see para 5.82 et seq.
129 See eg The El Amria  2 Lloyd’s Rep 119 (CA); see para 2.210 et seq.
130 See eg British Aerospace plc v Dee Howard Co  1 Lloyd’s Rep 368; see para 2.237 et seq.
131 See ch 17.
132 Pursuant to CPR PD 6B; see para 13.10 et seq.
133 See para 16.09 et seq.
135 See para 8.08 et seq; Fentiman, in Ahern & Binchy (eds), The Rome II Regulation on the Law Applicable to Non-Contractual Obligations (Martinus Nijhoff, Boston, Leiden, 2008), 85–112.
141 Case C-281/02  ECR I-1383; see para 12.45 et seq.
143 Case C-185/07  1 Lloyd’s Rep 413; see para 16.132.
145 See para 16.10 et seq.
153 See para 12.04 et seq.
154 See para 12.12 et seq.
160 See para 19.04 et seq.
162 See para 12.43 et seq.
163 Nuyts, Study on Residual Jurisdiction, General Report, Study JLS/C4/2005 (2007); European Parliament, Directorate-General for Internal Policies of the Union, Possibility and terms for applying Brussels I regulation (recast) to extra-EU disputes: Study for the JURI Committee (2014), by Pretelli, Heckendorn Ursheler, Bonomi, Romano.