Sax v Tchernoy

For service out of the jurisdiction, a claimant must show a good arguable case that the claim falls within the jurisdictional gateway, a serious issue to be tried, and that England is clearly or distinctly the appropriate forum.

Where the gateway depends on an English-law contract, the claimant must show a good arguable case both that a contract exists and that English law governs it. A memorandum which records points to guide lawyers in preparing future agreements will not ordinarily create present contractual obligations. The court will not enforce an agreement to agree, and an obligation dependent on unresolved security or other fundamental terms may lack certainty. Under the Rome Convention, a complex transaction may have no identifiable characteristic performance; where the presumption applies, it is displaced only if the contract is clearly more closely connected with another country.

Mr Sax brought claims against Mr Tchernoy arising from a proposed joint venture to acquire and develop property in Sardinia. He relied on a signed Memorandum of Understanding and obtained an order permitting service out of the jurisdiction.

Mr Tchernoy applied to set aside service. The issues were whether Mr Sax had a good arguable case that the MOU was a contract governed by English law, whether there was a serious issue to be tried on breach and damages, whether England was clearly or distinctly the appropriate forum, and whether there had been material non-disclosure.

1. Jurisdictional test. The applicable principles, summarised by reference to AK Investment CJSC v Kyrgyz Mobil Tel Limited and Others [2011] UKPC 7, required a good arguable case within the gateway, a serious issue to be tried, and England to be clearly or distinctly the appropriate forum. The good arguable case test required the claimant to have the better argument, not merely an evenly balanced case.
2. No contractual intention. Objectively construed, the MOU recorded the purpose, plan and terms intended for incorporation into a future partnership or shareholders’ agreement. Its provisions looked to the future and did not regulate the parties’ interim relationship. The fact that it was signed, and that Mr Sax added words referring to its ceasing to have force and effect, did not alter that conclusion in the circumstances.
3. Agreement to agree and uncertainty. The alleged obligation to purchase the property was an unenforceable agreement to agree. The proposed loan obligation depended on the purchase occurring and on security which had not been settled. There were no objective criteria for resolving the outstanding issues. The MOU therefore did not provide a sufficiently certain basis for contractual enforcement.
4. Governing law. The draft shareholders’ agreements and related transactions did not establish with reasonable certainty an implied choice of English law under article 3.1 of the Rome Convention. If a contract were assumed, its characteristic performance was the provision of the loan. The article 4(2) presumption therefore pointed to Russia, where Mr Tchernoy was habitually resident and based. The Russian connections were substantial, and the evidence did not establish a preponderance of English connections or that England was clearly the closer connection.
5. Breach and damages. The time for providing the loan never arose because the purchase did not proceed. Although there was a serious issue to be tried concerning an alleged later renunciation, that renunciation could not cause recoverable loss. The claimed sums depended on a closing, a final shareholders’ agreement, the purchase and the subsequent development, none of which Mr Tchernoy was contractually bound to achieve.
6. Disposition. Service of the proceedings out of the jurisdiction was set aside. It was unnecessary to determine the alleged failure of full and frank disclosure or the forum issue.