Case alert - Does a submission to jurisdiction clause bind undisclosed principals?

Submission to jurisdiction clauses are important to ensure that you can bring a claim against defendants in your preferred jurisdiction (usually your home jurisdiction).  However, when the parties to the contract are insolvent, is there scope to bring the claim against undisclosed principals, on the grounds that they are also bound by a submission to jurisdiction clause?

In Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV [2019] EWCA Civ 10, [2019] 1 WLR 3398, the attempt to do so failed.  The High Court Judge held that the claimant had not satisfied the relevant evidential threshold to show that the two defendant companies were undisclosed principals.  The Court of Appeal agreed and dismissed the appeal.

Law on undisclosed principals

The Court of Appeal summarised the law on undisclosed principals, accepting that such parties would be bound by a contract (including a submission to jurisdiction clause).  For a party to be an undisclosed principal, it must be established that [55]:

  • the agent contracted with and within the scope of the actual authority of the undisclosed principal
  • at the time of the relevant contract, the agent intended to contract on the principal's behalf
  • there is nothing in the contract or surrounding circumstances showing that the agent is the true principal and which excludes the making of a contract with an undisclosed principal.

Entire agreement clauses

However, differing from the High Court Judge, the Court of Appeal considered that an entire agreement clause "pointed against" a conclusion that there could be undisclosed principals [112].  The contract terms were not neutral.  An entire agreement clause, whilst not dispositive, is evidence that the named contractual parties are to treat each other, and no-one else, as the parties with liabilities and rights under the agreement and hence the person to sue or be sued thereunder.

Evidential threshold for protests to jurisdiction

Much of the Court of Appeal's main judgment was devoted to examining the nature of the evidential threshold for determining protests to jurisdiction.  Interpreting the Supreme Court decisions of Brownlie v Four Seasons Holdings International [2017] UKSC 80 and Goldman Sachs International v Novo Banco SA [2018] UKSC 34, the Court of Appeal commented on the UK's current three limb analysis in the following way [62], [73], [78] and [80]:

  • Limb (i): the claimant must supply a plausible evidential basis for the application of the relevant jurisdictional gateway [ie showing the claimant has the better argument]
  • Limb (ii): if there is an issue of fact about it, or some other reason for doubting whether it applies, the Court must take a view on the material available if it can reliably do so [using judicial common sense and pragmatism]
  • Limb (iii): if this cannot reliably be done at the interlocutory stage, a good arguable case for the application of the gateway exists if there is a plausible (albeit contested) evidential basis for it [a more flexible test, which is not necessarily conditional upon relative merits]. 

The above English approach ostensibly evolved as a more detailed explanation of what the "good arguable case" test means in practical terms [62].  Regardless, the main limb (i) test is now one of relative merit (ie who has the better case), rather than the lower threshold of an absolute test (arguability) even if the defendant's case is the stronger one [61].

In New Zealand, a claimant must "establish" (among other things): (i) a "good arguable case" that the claim falls within one of the permitted grounds for service overseas without leave (HCRs 6.27 and 6.29(1)(a)(i)); and (ii) a "serious issue to be tried on the merits" (see James Hardie Plc v White [2019] 2 NZLR 49 (CA) at [19]).  For cases where leave is required, a claimant in New Zealand must "establish" that a claim "has a real and substantial connection with New Zealand" (HCRs 6.28(5)(a) and 6.29(1)(b)(i)), and that the wider discretionary factors support New Zealand as the appropriate forum and that a New Zealand court should assume jurisdiction.

There is scope to argue that the English cases are relevant to the New Zealand tests, to the extent that they reflect the current English approach to what constitutes a "good arguable case", and the proper evidential threshold for "establishing" that the relevant jurisdictional gateway is met.

Conclusion

This case is of practical value to clients, as a reminder to ensure that you have the right counter-parties signed up to your contracts, and sufficient assets within jurisdiction to back up their liability.  If you want other entities to be accountable in the event of breach (eg parent or related companies), then an entire agreement clause and failing to name them as parties might present a barrier.

The discussion about the evidential test for protests to jurisdiction might seem esoteric (and of interest only to a select few lawyers).  However, it has real policy implications in terms of whether New Zealand is regarded internationally as assuming "exorbitant" jurisdiction (see [85]-[86] of Kaefer Aislamientos).