Service out of the jurisdiction and ‘damage’ – our take on Four Seasons Holdings Incorporated v Brownlie

In this blog post, Kate Boakes of 12 King’s Bench Walk provides a fresh perspective on the implications of the Supreme Court’s decision in Four Seasons Holdings Incorporated v Brownlie [2017] UKSC 80. The entire judgment, including in particular the Court’s lengthy obiter discussion of the functioning of the CPR’s jurisdictional gateways, is required reading for private international lawyers.

Background

On 3 January 2010, Sir Ian Brownlie QC was killed in a road traffic accident in which his wife, Lady Brownlie, was injured. They had been on holiday in Egypt along with other members of their family and were staying at the Four Seasons Hotel in Cairo. The accident took place during a chauffeur driven excursion, which had been booked separately by Lady Brownlie, who had telephoned the hotel concierge from England to make the booking in advance of the holiday.

Lady Brownlie issued claims for (1) her own injuries (in contract and tort), (2) damages under the Fatal Accidents Act 1976, and (3) damages on behalf of her husband’s estate under the Law Reform (Miscellaneous Provisions) Act 1934. Two defendants were named on the Claim Form. The first was Four Seasons Holdings Inc (“FSH”), a Canadian corporation and the holding company of the Four Seasons hotel group. The second was Nova Park SAE, an Egyptian company which owned the hotel building. The claim was not served on Nova Park SAE.

Lady Brownlie sought permission to serve the proceedings on FSH. Permission was granted by Master Yoxall but his Order was set aside by Master Cook. On appeal, Mr Justice Tugendhat restored Master Yoxall’s order. The Court of Appeal upheld Tugendhat J’s decision insofar as it related to the personal injury claim in contract and the claim under the 1976 Act, but overturned it in relation to the personal injury claim in tort and the claim under the 1934 Act.

FSH appealed to the Supreme Court and Lady Brownlie cross-appealed.

The Issues

Lady Brownlie had to establish:

• that the case fell within at least one of the jurisdictional gateways in CPR 6BPD, para 3.1;
• that she had a reasonable prospect of success, and
• that England and Wales was the proper place in which to bring the claim.

It was agreed that if (i) and (ii) were established, (iii) would be met.

In relation to the contractual claim, the jurisdictional gateway relied upon was CPR 6BPD, para 3.1(6)(a): “the contract … was made within the jurisdiction”.

FSH’s case was that that:

• Lady Brownlie had not established that the contract with the hotel was made in England;
• Wherever the contract was made, it was not made with FSH

In relation to the claims in tort, the jurisdictional gateway relied upon was CPR 6BPD, para 3.1(9)(a): “damage was sustained … within the jurisdiction”.

FSH’s case was that:

• the damage which formed the basis of the claim in tort was not sustained in England;
• Lady Brownlie did not have a “reasonable prospect of success” in her tort claim.

The Correct Defendant

For Lady Brownlie to succeed, she had to show that she had contracted with FSH and/or that FSH was vicariously liable for the driver of the excursion vehicle. At first instance, some evidence was provided regarding the corporate structure of FSH its relationship with the hotel. The Judge found this evidence to be lacking and his comments in this respect were endorsed by the Court of Appeal.

The hearing before the Supreme Court took an unconventional turn. Leading Counsel for FSH was invited to ask his client to provide further evidence to clarify the position. A witness statement was served which made it clear that FSH is a holding company which did not own or operate the hotel. The hotel was owned by Nova Park (i.e. the defendant which had not been served), which had no corporate relationship with any Four Seasons company.

In the face of this evidence, the Supreme Court held that Lady Brownlie had no realistic prospect of proving that she contracted with FSH, or that FSH would be held vicariously liable for the negligence of the driver. Accordingly, she did not meet the requirements of either gateway relied upon and it was unanimously held that the English courts had no jurisdiction to hear the claim against FSH.

However, the Supreme Court gave lengthy obiter judgments on the points raised by the appeal and cross-appeal, which make fascinating reading for all practitioners acting in cross-border cases, particularly in relation to the following three issues.

1. Where was the Contract Made?

Under CPR 6BPD, para 3.1(6)(a) it is necessary to show that “the contract … was made within the jurisdiction”.  Since the contract in question in this case was made by telephone, the argument turned on the question of who uttered the words which marked the point at which the contract was concluded and where the counterparty was physically located when he or she heard them. Lord Sumption described the deployment of this rule for the purpose of determining when or where a contract was made as “not at all satisfactory” and “arbitrary” when applied to near instantaneous modes of communication. He also highlighted the practical difficulties which arise in the absence of a recording or a total recall of the sequence of exchanges and the exact words used at each stage. He commented that this sort of analysis “may be unavoidable” under the current wording of gateway 6(a), but he raised the possibility of this issue being re-examined by the Rule Committee. This suggestion was endorsed by Lady Hale, who stated that the factual problems of the sort which arose in Lady Brownlie’s case could be avoided by adopting a broader formulation.

2. The Evidential Standard and the Canada Trust Gloss

 Some of the jurisdictional gateways, including both of those on which Lady Brownlie relied, require the court to be satisfied of a jurisdictional fact. The evidential standard is not the civil burden of proof. Rather, the court must be satisfied that the applicant has a “good arguable case”. In Canada Trust Co v Stolzenberg (No 2) [1998] 1 WLR 547,  this test was glossed by Waller LJ in the following terms:

“‘Good arguable case’ reflects … that one side has a much better argument on the material available. It is the concept which the phrase reflects on which it is important to concentrate, ie of the court being satisfied or as satisfied as it can be having regard to the limitations which an interlocutory process imposes that factors exist which allow the court to take jurisdiction.”

This analysis was cited with approval but without full argument when the case reached the House of Lords ([2002] 1 AC 1, 13). It has been specifically approved twice by the Judicial Committee of the Privy Council. However, the gloss has posed some difficulty for practitioners and judges, and although the legal test was not strictly in issue in Lady Brownlie’s case, its application was, and it was therefore addressed in the judgment.

In relation to this point, Lord Sumption held as follows:

In my opinion it is a serviceable test, provided that it is correctly understood. The reference to “a much better argument on the material available” is not a reversion to the civil burden of proof which the House of Lords had rejected in Vitkovice. What is meant is (i) that the claimant must supply a plausible evidential basis for the application of a relevant jurisdictional gateway; (ii) that 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; but (iii) the nature of the issue and the limitations of the material available at the interlocutory stage may be such that no reliable assessment can be made, in which case there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it. I do not believe that anything is gained by the word “much”, which suggests a superior standard of conviction that is both uncertain and unwarranted in this context.

Lady Hale added:

For what it is worth, I agree (1) that the correct test is “a good arguable case” and glosses should be avoided; I do not read Lord Sumption’s explication in para 7 as glossing the test.

The status of the Canada Trust gloss remains unclear, with Lord Sumption and Lady Hale apparently disagreeing about its utility. Although everything the Supreme Court said about jurisdiction in this case, including the above two passages, was obiter dicta, it is likely that the guidance given by Lord Sumption will be relied upon by judges applying the “good arguable case” test in future applications for service out.

3. Was ‘Damage’ Sustained in the Jurisdiction?

The issue as described by Lord Sumption was whether “when a tortious act results in personal injury or death, “damage” is limited to the direct damage, ie the physical injury or death, or extends to the indirect damage, ie the pecuniary expenditure or loss resulting.”

By a majority of 3-2, it was held – obiter – that ‘damage’ could extend to indirect damage in this context.

Lady Hale (with whom Lord Wilson and Lord Clarke agreed) would have held that Lady Brownlie’s tortious claims did fall within the gateway insofar as they sought damages for her own personal injury and on behalf of her late husband’s estate, for the following reasons:

1. There is a consistent line of first instance decisions (starting with Booth v Phillips [2004] EWCA 1437 (Comm)) permitting claims in tort to be brought in England and Wales if damage is suffered here a result of personal injuries inflicted abroad. The judges in those decisions carefully considered and rejected the “ever more sophisticated” arguments against them. They did so correctly.
2. Although damage was a necessary element of some torts, including negligence, there are many torts which are actionable per se. There is no reason to think that the authors of paragraph 3.1(9) were contemplating anything but the ordinary and natural meaning of the word “damage”. The various judges who have held that “damage” refers to actionable harm are supported by the approach of the New South Wales Court of Appeal towards a similar jurisdictional rule in Flaherty v Girgis (1985) 63 ALR 466.
3. Damage can be suffered by the same person in more than one place and the distinction between direct and indirect damage is not easy to draw in all cases. For example, a victim of permanent disability resulting from a road traffic accident would suffer pain, suffering and loss of amenity wherever they were.
4. Finally, the discretion retained by the Court in relation to jurisdiction was robust enough to prevent a claimant from being in the position of being able to choose where to bring their claim.

Lord Sumption (with whom Lord Hughes agreed) would have held that the tortious claims did not fall within the gateway, for the following reasons:

1. There is an important distinction between the damage done to an interest which the law protects, which in the context of an action for personal injury is bodily integrity, and subsequent expenditure which is merely evidence of its amount.
2. The wording of the Practice Direction could have provided that “damage” should extend to the financial or physical consequences of the damage, but it did not, and two policy considerations strongly suggest that that was not intended:

• the current rules were intended to assimilate the test to that which applies in Brussels Regulation cases, which has always disregarded the secondary consequences of physical damage; and
• if the test were satisfied by the occurrence of any of the subsequent physical or financial consequences of the damage in England, the result would in practice be to confer jurisdiction by virtue of the claimant’s place of residence, which would “produce a test for jurisdiction so wide as to conflict with the purpose of the rule”.

A final point of interest is the Supreme Court’s united view on the relationship between the jurisdictional gateways and applicable law under Rome II. In the Court of Appeal, Arden LJ had in part relied on Rome II and the related ECJ case law as basis for finding that consequential damage could not be used to found jurisdiction in Lady Brownlie’s personal injury claim in tort and her claim under the 1934 Act. In the case of Lazar v Allianz SpA (C-350/14) EU:C:2015:586, the ECJ held that for the purposes of establishing the proper law under Rome II in a dependency claim arising out of a fatal road traffic accident, ‘damage’ meant the ‘direct’ damage, namely the death or injury sustained in the accident, rather ‘indirect’ damage such as the damage sustained by the close relatives of the deceased.

Thus, if the majority, obiter, decision of the Supreme Court is followed, there will be an inconsistency between the meaning of “damage” in the contexts of jurisdiction and applicable law. One point on which the justices of the Supreme Court agreed was that such an inconsistency did not matter.

Lord Sumption was “not persuaded that Rome II has any bearing on the construction of the jurisdictional gateways in the Practice Direction or indeed the corresponding provision of the Brussels Convention and Regulations governing the position as regards EU-domiciled defendants.”

Lady Hale held that “…the argument based on the Rome II Regulation, accepted by the Court of Appeal in this case, should be rejected. Applicable law and jurisdiction are two different matters. There is no necessary coincidence between the country with jurisdiction and the country whose law is applicable. It is accepted that in this case Egyptian law is applicable to the tort claims. Furthermore, there can only be one applicable law, whereas even in European law there can often be more than one country with jurisdiction.”