Anchoring a claim in England requires passing a merits test

England and Wales

The English court has confirmed that, where a claimant brings a claim against an “anchor defendant” in order to secure English jurisdiction under the Recast Brussels Regulation, that claim must pass a “merits test” in order for jurisdiction to be established. Given the similarity in wording between Article 8(1) of the Recast Brussels Regulation and Article 6(1) of the Lugano Convention, it is expected that this decision will also impact claims under the Lugano Convention.

Background

An issue that often arises in relation to cross-border disputes involving multiple parties is whether or not the English court has jurisdiction and is the most appropriate forum for hearing the claim. There are various mechanisms for establishing the English court’s jurisdiction. One of these is to bring a claim against a party who is domiciled in England as an anchor defendant, whilst the other defendants are based outside England. This is recognised as a legitimate means to establish jurisdiction by:

  • Article 8(1) of the Recast Brussels Regulation

  • Article 6(1) of the Lugano Convention

  • if neither of the above are applicable, Rule 6.37 of the Civil Procedure Rules and Practice Direction 6B para. 3.1(3)

A question that has been the subject of some debate is whether the claim against the anchor defendant needs to pass a preliminary merits test or whether a claimant can bring a claim (however bad in law) against an anchor defendant simply for the purposes of establishing the English’s jurisdiction.

Previous decisions

On previous occasions obiter comments have been made in the Court of Appeal about the application of the merits test in the context of the Lugano Convention and the Recast Brussels Regulation but there was no definitive decision on it until now:

  • The view of Aikens LJ in Aeroflot v Berezovsky [2013] EWCA 784 was that the court is not concerned with the merits of the claim against the anchor defendant, just as it is not concerned with the merits of the claims against the non-anchor defendants (which was the point at issue in that case).

  • In Sabbagh v Khoury [2017] EWCA Civ. 1120, Patten and Beatson LJJ decided that there was a merits test whereas Gloster LJ held that there was no such test. In doing so Patten and Beatson LJJ drew a distinction between the merits of the claim against the anchor defendant and that against the other defendants. If the claim against one of the non-anchor defendants fell away it would not affect the other defendants whereas the claim against the anchor defendant was crucial to establishing jurisdiction over claims against other defendants.

  • In JSC v Kolomoisky [2019] EWCA Civ. 1708 David Richards and Flaux LJJ held that there was no prohibition in Article 6(1) of the Lugano Convention which prevented a claim against the anchor defendant which had the sole object of joining in the relevant non-anchor defendants. Newey LJ held there was such a sole object prohibition.

Merits test: the claim must be sustainable

In Senior Taxi Aereo & Others v Agusta Westland S.p.A & Others [2020] EWHC 1348 (Comm), the Commercial Court has confirmed that for the purposes of Article 8(1) of the Recast Brussels Regulation, there is a “merits test” to be applied, namely  that the claim against the anchor defendant must be “sustainable”. The court equated sustainability with “viability”, “a real prospect of success”, a “serious issue to be tried” or a “good arguable case”.

The application of the merits test is consistent with the requirement in CPR r6.37 and PD6B 3.1(3) which requires that between the claimant and the anchor defendant there is a real issue which it is reasonable for the court to try.

Application of merits test distinct from artificial fulfilment prohibition

The court recognised the argument that imposing a merits test could lead to conflicting judgments and lack of harmonisation. However, the court noted that where there is no viable claim at all against the anchor defendant, the claim simply does not get off the ground, and so the risk of irreconcilable judgements is either low or non-existent.

In addition, the court also distinguished the merits test from a scenario where there is firm evidence that the claimant has artificially put itself in a position to fulfil the requirements of Article 8(1) of the Recast Brussels Regulation. The example given in the judgment is of a straightforward debt claim in which the debtor has little or no funds and agrees with the claimant not to defend the claim in return for the claimant’s agreement not to enforce any resulting judgment or seek costs against the defendant. This agreement allows the claimant to bring the foreign guarantor into the English action. The court commented:

That scenario may well move into the territory of artificial fulfilment, abuse or bad faith. But the Merits Test would be satisfied and a different principle would be needed to prevent the operation of Article 8(1)”.

Conclusion

This decision provides clarity and certainty.  For a claimant it will be necessary to ensure that the claim is properly formulated, and the most appropriate forum is chosen from the start in order to avoid problems later and minimise costs liability. For a defendant, this judgment seeks to provide relief against spurious claims that can result in unnecessary costs being incurred simply to allow another party to pursue a claim in its preferred jurisdiction.