English court jurisdiction and foreign defendants (Conductive Inkjet v Uni-Pixel Displays)

DR analysis: Roth J’s decision provides a useful reminder of the test to apply when seeking to serve out of the jurisdiction, however the value of the judgment comes in practical considerations raised when dealing with (1) difficulties associated with certain types of claims and what jurisdictional gateway may apply, (2) instructing experts to deal with foreign law and (3) forum non conveniens issues.

Practical implications

This case provides a number of helpful insights for practitioners:

  • it provides a warning to practitioners dealing with claims where the defendants are outside the jurisdiction and several types of relief are sought. If there is any concern at all that the defendant may seek to challenge the jurisdiction of the English courts, careful consideration must be given to the form in which relief is sought. The claim should be formulated such that each aspect falls within one of the jurisdictional gateways set out in CPR PD 6B. A failure to do so may mean that permission to serve out of the jurisdiction is not given. While it might be possible to amend your statements of claim at a later date, it is far more practical to set them out properly first time round and not be reliant on the discretion of the judge to be allowed to make such later amendments and to avoid the consequential costs implications that could ensue
  • when instructing experts, make sure that they are provided with all the salient information to enable them to reach a decision. In this case, where evidence was provided as to the proper interpretation of a non-disclosure agreement under the laws of Texas, key evidence provided in the opponents witness statements surrounding the entering into the agreement was not provided to the expert to review. However, witness statements from the instructing parties witnesses were
  • if there is an issue as to whether English proceedings should be stayed on the basis of forum non conveniens, the courts will need to consider the factors sets out in Spiliada. However, consider whether there are any other pertinent factors, which point very firmly to the matter being determined by the English courts. In this case, a dispute as to a European Patent Application could only be heard by the English court, the competing jurisdiction; Texas would have no jurisdiction. This meant that where the other factors under Spiliada were effectively neutral and therefore insufficient to enable the court to have jurisdiction over a foreign company, the additional factor regarding the EPA meant that the English court was clearly the most appropriate forum to hear the dispute. This was so even though some injunctive relief would need to be sought by proceedings in Texas

Court details

Court: Patents Court, Chancery Division
Judge: Mr Justice Roth
Date of judgment: 7 October 2013

Facts

Conductive Inkjet Technology (CIT), the claimant, an English company is now a wholly owned subsidiary of Carlo, also an English company. Uni-Pixel Displays (UPD), the defendant, is a Texan company based in Texas.

The main dispute between the companies is the subject of two separate claims—first that UPD breached its confidentiality obligations to CIT and, second, that UPD wrongly applied for patents resulting from its collaboration with CIT. Both parties initiated proceedings in different jurisdictions so that concurrent proceedings are taking place in England and Texas.

  • English proceedings—CIT initiated two sets of proceedings in the English courts for breach of confidence and for patent entitlement, which included claims for declarations and injunctive relief. It obtained permission to serve out of the jurisdiction and service took place on 14 December 2012, with UPD acknowledging service on 3 January 2013. UPD appealed against the permission unsuccessfully. UPD’s application to stay that case, pending a decision by the Texan court also failed
  • Texan proceedings—UPD issued proceedings against CIT on 18 January 2013 seeking, amongst other things, a declaration that it had not breached any confidence

The parties entered into various NDAs and agreements over a period of time:

  • 2005 NDA—no jurisdiction or applicable law clause
  • UPD contracts—no jurisdiction or applicable law clause
  • 2006 NDA—provided for Delaware law. However, UPD did not seek to rely on that second NDA in this application
  • 2010 NDA—provided that 'this agreement shall be governed by and construed in accordance with the laws of the state of Texas except for its rules concerning the conflict of law and the venue shall lie exclusively in the courts of Montgomery County Texas'

While this case arises out of complex facts surrounding two non-disclosure agreements and other communications about those contracts, this report centres on the application for permission to serve out of the jurisdiction. For those interested in the patent aspects of the case, see the report produced by our IP/IT LexisPSL team: Jurisdiction dispute over patents and confidentiality.

Recap on the test to apply for service out of the jurisdiction

The English court is being asked to exercise jurisdiction over a foreign company and therefore CIT, the claimant, has the burden of establishing that the court should exercise its jurisdiction over that company and only if it can do that will the permission to grant service out of the jurisdiction stand.

The test to determine this was set out by the Privy Council in AK Investment being the need for there to be:

(1) a serious issue to be tried on the merits

(2) a good arguable case and

(3) for the English courts to be the appropriate forum to hear the dispute.

It is also important to remember that when exercising its discretion the court is required to identify the forum in which the case can most suitable be tried in the interests of both the parties and justice. However, it is for the claimant to persuade the court that England is that appropriate forum (Spiliada).

It was accepted that there was a serious issue to be tried and so the court judgment focuses on tests (2) and (3).

What gateways apply under CPR 6.36 to show a good arguable case?

When considering what gateway applies it is important to bear in mind that the underlying concept is to show that there is a 'sufficient or appropriate nexus' of the foreign defendant to the English court.

Breach of confidence claim

Difficulty arises when dealing with a breach of confidence claim on the basis that it arises under the court's equitable jurisdiction; it is not a tortious claim (Douglas). There is therefore only one gateway under which a breach of confidence claim falls which is CPR PD 6B, para 3.1(2):

A claim is made for an injunction ordering the defendant to do or refrain from doing an act within the jurisdiction.

In this case, the alleged breaches of confidence predominantly took place in the US, which is where CIT would want the injunctions to have effect. The issue for Roth J to consider was therefore whether if injunctive relief was to apply both inside and outside the English court jurisdiction would the claim fall within this gateway. He held it would not. The scope of any injunction must only restrict acts in the jurisdiction as indicated by Megarry J in GAF (GAF Corpn v Amchem Products [1975] 1 Lloyd's Rep 601, para 61. Not available in Lexis®Library).

Roth J also pointed out that if several different types of injunction were requested and one fell within the gateway, this did not mean that permission would be granted for all the injunctive relief sought. Instead it was necessary to apply CPR Part 6 rules separately to each injunctive relief sought. Consequently, the English court may only be able to take jurisdiction over part, and perhaps a relatively small part, of the claim (see para 62). This follows the general principle set out in Donohue.

Roth J held that if CTI wished to continue with this aspect of its case, ie to prevent UPDI continuing to benefit from past breaches of the equitable duty of confidence and stop UPDI from enforcing any granted patents in question against CIT, it would need to 'reformulate' its claim taking a more restricted approach to enable it fall within one of the jurisdictional gateways. In doing so, the cause of action for equitable breach of confidence would survive.

Breach of contract claim

This claim centred on the 2005 NDA. This was only in place for a short duration and limited to the early stages of the relationship between the two parties. At this stage of the proceedings, it was not possible to determine its significance in this claim.

The issue was whether it fell within the following gateway as contended by CIT:

3.1(6) A claim is made in respect of a contract where the contract—

(a) was made within the jurisdiction...

(c) is governed by English law

Editorial note: the judgment refers to the above requirements but links them to para 3.1(a) and (b)—references which do not exist within the practice direction.

The principle that Roth J considered in this instance was whether a contract could be made in two different jurisdictions simultaneously. He referred to the decision in Apple Corps which held that it was possible. In so doing, he had relied in turn on the House of Lords decision in Gibson where it was observed that in exceptional cases it may be difficult to ascertain the offer and acceptance in relation to a contract, eg where it simply boils down to who speaks on the final discussion first. In such cases, 'it is very arguably a much more satisfactory analysis to say that the contract was made in both places at the same time'. (Gibson).

On the facts in this case, Roth J took the same approach finding that CIT had a good arguable case that the contract had been made in both Texas and England and therefore fell within the relevant gateway.

Unlawful means claim

CIT relied on gateway:

3.1(9) A claim is made in tort where—

(a) damage was sustained within the jurisdiction; or

(b) the damage sustained resulted from an act committed within the jurisdiction

Roth J noted two issues in relation to this gateway:

  • this gateway will apply even if damage is sustained elsewhere so long as some significant damage is sustained within the jurisdiction (Metall & Rofstoff). This case was decided prior to the CPR but the CPR rule now provides for 'damage was sustained within the jurisdiction' whereas previously it was 'the damage was sustained within the jurisdiction'. This change in wording supports the position that damage may be sustained elsewhere as well
  • when applying this gateway the damage referred to is to direct loss and not merely consequential loss. In this instance when dealing with a patent case, Roth J accepted that if UPD obtained an EPO this would impact on England where CIT uses the patent technology and this would cause direct harm to CIT. The claim therefore fell within the gateway

Should the court grant a stay on the grounds of an exclusive jurisdiction clause elsewhere?

A large part of the judgment deals with issues specific to patent claims and they are not covered in this report. However, Roth J also considered whether to stay proceedings on the basis that there had been a breach of the exclusive jurisdiction clause in 2010 NDA. In this case, the 2010 NDA was subject to the laws of the State of Texas. Both parties therefore sought expert evidence on the law of Texas as to whether this was an exclusive jurisdiction agreement for the purposes of the dispute under Texan law. The evidence was heard by use of the reports and submissions; the experts both based in the US did not attend. Roth J considered that UPD was trying to bring most of the breach of confidence claim under the remit of 2010 NDA to persuade the judge to stay the English proceedings in favour of the Texas court. This aspect of the judgment raises practical issues for those seeking to rely on experts especially those providing evidence as to foreign law.

Roth J disagreed with the conclusion given by UPD's expert. In doing so, he considered it clear that the expert's statement was 'demonstrably incorrect' and this was probably due to the fact that he had not been provided with the full factual basis of the agreement reached by the parties, ie he had not been given the CTI witness statements or contemporaneous documents surrounding the set up of the 2010 NDA. Roth J considered this failure by UPD to provide such evidence to their expert was 'surprising' given that the report was made some months after the witness statements had been served.

Roth J held that considering the facts and the submissions and found that there was no suggestion that the jurisdiction clause in the 2010 NDA provided the Texan courts with any form of exclusive jurisdiction and therefore the English court could reach its own conclusions. It seemed particularly important that the Texas court would not be hearing the trial or rendering judgment in the near future.

Should the English proceedings be stayed on the grounds of forum non conveniens?

Applying the tests in Spiliada, Roth J had to consider whether the English court was the appropriate forum to hear the dispute between the parties. He held that it was. He considered various factors, which are considered below, but in doing so the fundamental question he had to answer was that stressed by the Supreme Court in VTB Capital, which is: 'is the court satisfied that England is clearly the appropriate forum?'. Considering the question in light of the factors, he took the view that England was probably the more appropriate forum but that had not been demonstrated clearly enough such that the English court should exercise its jurisdiction over UPD. However, in this instance, there was another factor to consider apart from those set out in Spiliada and Roth J considered it to be a very significant factor, which was that the European Patent Application Claim could only be heard in England and many of the issues that would need to be considered by the court were the same issues that arose in the breach of contract claim. While other aspects of the case could be stayed, the EPA would have to continue in England and Roth J considered that this would cause CIT great inconvenience and expense, as they were having to litigate many of the same issues in two jurisdictions. Roth J therefore found that on balance, England was clearly the most appropriate forum. Roth J did note that some of the injunctive relief claims being made by CIT could not be pursued in the English proceedings, as they did not fall within the 'jurisdictional gateways'. CIT may therefore have to commence proceedings in the US to pursue such relief. However, Roth J did not consider that this should 'detract from the fact that the underlying issues which remain in the breach claim should appropriately be tried here with the EPA claim'.

The factors Roth J considered were mainly neutral, with the exception of the availability of witnesses:

  • place of business—neutral factor as one in England and one in Texas
  • place where factual elements of the dispute occurred—neutral factor in that the disclosure of confidential information was from England to the US. However, a further issue to consider was the fact that the wrongs being complained of predominantly took place in the US. Roth J considered this year's Supreme Court decision in VTB Capital in which it was held that the place of commission of events leading to the dispute are simply a factor but one which could be 'dwarfed' by other factors. Another issue which arose in the Supreme Court decision was that it was important for the court to know the issues which would be being dealt with at trial to enable it to compare differing jurisdictions. Taking this into account, Roth J held that this was a factor in favour of the US jurisdiction but was not a 'particularly powerful one in the particular circumstances of the case'
  • availability of witnesses—this was a neutral factor in so far as the party's employees or ex-employees were concerned. However, a number of the witnesses were third parties and Roth J considered that the availability of such witnesses was central to the determining factors as to forum. These witnesses were in England. In the US, neither the Federal US court or the Texan court can compel a foreign non-party witness to given evidence at trial—sworn deposition evidence may be taken and letters rogatory or Hague Convention procedures used. Roth J did not consider that this was as advantageous to the court determining a dispute as the witness testifying and being cross examined on their evidence. Roth J therefore considered the availability of the third party witnesses to be a 'not insignificant factor' in favour of English court jurisdiction
  • governing law—this was a neutral factor. This area required consideration of conflict of laws under English law to determine which law would apply to the dispute. Although there was much common ground between the parties as to what rules or tests applied, there was dispute as to how they would be applied. Roth J referred to the Supreme Court decision in VTB Capital again which considered that an application dealing with service out should avoid having to deal with the complexities of resolving issues as to the governing law. Roth J agreed and thought it both unnecessary and inappropriate to seek to deal with such complexities in this case. No evidence had been provided by the parties to show that the law of contract, tort or breach of confidence was materially different between England and Texas. He also considered it 'very relevant' that Texas was an anglophile common law jurisdiction, as this meant that there would be no practical difficulties in either the English court hearing Texan law or the Texan court hearing English law.

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