Introduction

In a recent decision in AdActive Media Inc v Mark Ingrouille [2021] EWCA Civ 313, the English Court of Appeal (the “CA”) considered the construction of co-existing jurisdiction and arbitration clauses within the same agreement and ruled that a US judgment could not be enforced in England because the judgment was contrary to the arbitration clause in the agreement.

Background

The defendant and the appellant, Mr Mark Ingrouille (“Mr Ingrouille”), a UK resident, entered into a consultancy agreement (the “Agreement”) with the plaintiff and the respondent, AdActive Media Inc (the “Company”) in 2014. The Agreement is by its express terms governed by Californian law and contains three provisions dealing with the issue of jurisdiction. Among which, two of the clauses confer jurisdiction on the US District and State Courts in California and the other clause provides for arbitration. In particular, the arbitration clause refers all disputes and claims to arbitration with two exceptions, one being disputes concerning the unauthorized disclosure of confidential information (the “Exception”).

The Company commenced proceedings against Mr Ingrouille in the US District Court (the “US Proceedings”). The claims alleged against Mr Ingrouille were based on breach of contract, breach of fiduciary duty, fraud, embezzlement, interference with contractual relations and interference with economic advantage, including the allegation that Mr Ingrouille shared confidential information with competitors of the Company. Mr Ingrouille did not participate in the US Proceedings and the Company obtained default judgment in California for US$11 million (the “US Judgment”).

The Company then commenced proceedings in the English court to enforce the US Judgment. In opposition, Mr Ingrouille relied on section 32(1) of the Civil Jurisdiction and Judgments Act 1982 (the “Act”), and argued that the US Judgment should not be recognised or enforced in the UK. Section 32(1)(a) of the Act provides that a judgment given by a court of an overseas country in any proceedings shall not be recognised or enforced in the UK, if the bringing of those proceedings in that court was contrary to an agreement, under which the dispute in question was to be settled otherwise than by proceedings in the courts of that country. The English High Court rejected Mr Ingrouille’s argument and permitted the enforcement of the US Judgment in the UK for the following reasons:

1.       the claims that the Company brought in the US Proceedings were related to the unauthorized disclosure of confidential information and could be construed as falling within the Exception under the arbitration clause; and

2.       the arbitration clause was inconsistent with the other two jurisdiction clauses and therefore not enforceable for the purposes of section 32(1) of the Act.

Mr Ingrouille appealed against this decision to the CA.

Issues

The major issues on appeal are as follows:

1.       whether the arbitration clause is inconsistent with the other jurisdiction clauses in the Agreement, thus making the arbitration clause ineffective?

2.       whether the arbitration clause apply to the claims brought by the Company in the US Proceedings?

Decision

First issue

The CA took the view that the starting point in considering whether an express term in the contract is ineffective is for the parties to be presumed to have intended for the entire contract to take effect. Accordingly, they would not have intended for an express term to be ineffective due to the presence of an irreconcilable conflict with other express terms in the contract.

The CA referred to Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, [2020] 1 WLR 4117 which stated that a purposive interpretation should be adopted to give effect to an arbitration clause so far as possible given that a significant clause could not have rationally been intended to be void and of no legal effect.

Considering the above principles, the CA concluded that there is no inconsistency between the jurisdiction clauses and that the arbitration clause is effective. The drafting of the Agreement refers some disputes to court litigation and others to arbitration. The reference in the choice of law and jurisdiction clauses to Californian Courts could be construed as only applicable to claims outside of the ambit of the arbitration clause, i.e. claims falling within the Exception, and are thus consistent with the other claims referable to arbitration.

Second issue

Although the fact that the misuse and unauthorized disclosure of confidential information formed an important part of the claims brought against Mr Ingrouille in the US Proceedings, some of these claims went beyond those falling within the Exception, encompassing the misappropriation of funds and the conspiracy to undermine and divert the Company’s business interests. The CA therefore held that the arbitration clause is applicable to such claims other than those relating to confidential information.

The arbitration clause mandates that all other claims under the Agreement except those falling within the Exception are to be arbitrated. In this connection, the CA held that the US Judgment could not be enforced in England by virtue of section 32 of the Act which precludes an overseas judgment being enforceable in England if the litigation commenced in the foreign country was contrary to an agreement that the dispute in question was to be settled otherwise than by proceedings in the courts of the foreign country. Only the allegation made based on confidential information should have been brought in the Californian Court. Thus, the appeal was allowed as the US Judgment was in breach of the arbitration clause and is hence unenforceable in England.

Takeaway

In Hong Kong, a similar statutory provision is present which precludes the enforcement of a foreign judgment made in breach of a dispute resolution agreement. Pursuant to section 3 of the Foreign Judgments (Restriction on Recognition and Enforcement) Ordinance (Cap. 46), the recognition and enforcement of a foreign judgment is also expressly excluded when the bringing of the proceedings in the foreign court was contrary to a valid dispute resolution agreement and the judgment debtor did not submit to such jurisdiction. Hence, even if proceedings were successfully brought in a foreign jurisdiction, the Court judgment obtained may still be rendered unenforceable in Hong Kong.

It is anticipated that the Hong Kong Courts will follow the CA decision when deciding whether a foreign judgment is enforceable in Hong Kong. Therefore, parties must be made aware that the Court would give effect to an express term in the contract even if its presence might create irreconcilable conflict with other express terms in the contract. Where it is the parties’ intention to allocate disputes between different forums, one may anticipate that in reality, parties would raise as much claims as possible on various grounds when disputes arise, meaning that complications would follow as parties may end up having to run two or more legal proceedings in parallel in different places. Where parties are unable to divide up the claims in accordance with the terms stipulated in the agreement, fatal consequences may be resulted. As this case demonstrates, a foreign court judgment obtained may still be rendered unenforceable in another jurisdiction. This judgment provides a reminder to the parties that their rights and obligations in relation to jurisdiction and dispute resolution should be drafted in a way that is clearly reflected in the contractual terms unambiguously and free from inconsistency. It is also suggested that all disputes should be referred to the same forum in order to avoid the necessity of commencing multiple legal proceedings in relation to disputes under a contract.