Important Court of Appeal Decision – Kader

Important Court of Appeal Decision – Kader

An important decision came from the Court of Appeal this year relating to the issue of whether a party has submitted to the jurisdiction in proceedings outside of Bermuda. In Kader Holdings Company Limited v Desarrollo Inmoniliario Negocios Industriales De Alta Technologia De Hermosilio, S.A. De CV [2013] CA (Bda) 13 Civ (10 March 2014), the Court of Appeal reversed the Chief Justice’s ruling of July 2013 in which he granted Desarrollo summary judgment in respect of its claim to enforce a judgment given in the Superior Court of the State of Arizona in June 2011. The primary issue on appeal was whether Kader submitted to the Arizona proceedings by making a voluntary appearance, and counterclaiming in those proceedings.

The background and substance of the initial dispute between the parties is not relevant for the purposes of reviewing the Court of Appeal’s judgment. Desarrollo initiated proceedings in Arizona in February 2003. In January 2004, Kader moved to dismiss the proceedings on the grounds that the Arizona trial court lacked personal jurisdiction. The following year, the Arizona court denied Kader’s motion, holding that the forum selection clause in the amendment to a lease between the parties was binding on Kader. In March 2005, Kader filed a cross-claim against Desarrollo. In May 2005, Desarrollo followed with a motion for partial summary judgment which was ultimately granted in August 2007. The matter proceeded to a bench trial in April 2010 but only to deal with the issue of damages. Final judgment was entered on 11 June 2011 in the amount of approximately US$10.5 million.
Kader appealed to the Court of Appeals for the State of Arizona and argued that the trial court lacked personal jurisdiction over it. The Court of Appeals held that personal jurisdictional defence could be waived only where the defendant filed a permissive pleading before the trial court rules on the jurisdictional issue. Since Kader filed its cross-claim and counterclaim after the lower court had denied its motion to dismiss, the Court of Appeals held that the issue of jurisdiction had not been waived. They then went on to find that Kader was subject to the forum selection clause of the lease amendment as the lower court had done. Kader made a number of arguments in the appellate court which were all rejected on the merits. The Supreme Court of Arizona denied Kader’s petition for review.

A critical area of dispute between the parties before the Court of Appeal in Bermuda related to the content and effect of the affidavit of the Honourable Thomas A Zlaket, who was the Chief Justice of the Arizona Supreme Court from 1997 – 2002. The evidence of Justice Zlaket was key because he opined that Kader did not waive its jurisdictional challenge under Arizona law by defending itself and asserting affirmative claims against Desarrollo after its motion had been denied. Under American law, if a defendant had a claim against the plaintiff arising from the same facts as the complaint, the defendant must counterclaim or otherwise waives those claims.

The Court of Appeal confirmed that the bases upon which the Bermuda Court has jurisdiction to enforce a foreign judgment are those set out in Rule 43 of Dicey, Morris & Collins. Acting Justice Bell said, “It seems to me sensible that the position in Bermuda should mirror that in England…” (Paragraph 24). He then reviewed the position in the UK, including Lord Collins’ judgment in the most recent case of Rubin v Eurofinance SA [2013] 1 AC 236. Lord Collins said (at 161):

“The characterisation of whether there has been a submission for the purposes of the enforcement of foreign judgments in England depends on English law. The court will not simply consider whether the steps taken abroad would have amounted to a submission in English proceedings. The international context requires a broader approach…The question whether there has been a submission is to be inferred from all the facts”.

Lords Collins referred to Scott J in Adams v Cape Industries plc [1990] Ch 433, 461, who said, “If the steps would not have been regarded by the domestic law of the foreign court as a submission to the jurisdiction, they ought not…to be so regarded here, notwithstanding that if they had been steps taken in an English court they might have constituted a submission.”

Acting Justice Bell concluded that the test laid out in Rubin was the appropriate test to be applied and indicated that it “requires a broader approach than simply looking at whether the steps taken by Kader in the Arizona proceedings would have amounted to a submission in English or Bermuda proceedings.” He relied heavily on Justice Zlaket’s evidence and concluded that it was impossible in the circumstances to conclude that Kader’s defence has no real prospect of success. He held that “Kader’s defence on the issue of submission by voluntary appearance has a sufficiently real prospect of success that it merits ventilation at a full hearing”. He highlighted that although they had been taken through all of the authorities that would be used at a full hearing, matters would be considered on the basis of a different burden of proof and possibly further expert evidence. The appeal was allowed and the order for summary judgment made by the Chief Justice was set aside.

The decision is an important one as it makes clear the position on how the Bermuda Courts will deal with the issue of whether a party has submitted to the jurisdiction of another court.