Key takeaways
A shareholder dispute involving offshore companies can be brought in the English courts if the parties have previously expressly submitted to their jurisdiction. Alternatively, a claimant will have to apply for permission from the court to start proceedings against an offshore company. This will require the claimant to show that their claim has a reasonable prospect of success, that their case falls within one of the prescribed jurisdictional gateways, and England is the proper place for hearing the claim. Therefore, offshore companies should be mindful when dealing with the English jurisdiction that they may be sued in the English courts.
Can offshore companies be sued in the English courts?
Offshore companies are often used in complex corporate structures, tax arrangements, and cross-border transactions. However, disputes may arise, not least in relation to shareholders: an offshore company may be involved in a contractual dispute or a claim for mismanagement of a company. Accordingly, when things do not go according to plan, action needs to be taken against such offshore companies, and many claimants may wish to use the commerce-friendly English judicial system and experienced legal services providers.
How to initiate proceedings in English courts for a shareholder dispute involving offshore companies
Proceedings in English courts start with serving a claim form. A validly served claim form gives the English courts authority, or jurisdiction, to rule on a dispute. Any company with a permanent place of business in England and Wales can be served such a form and become a defendant in court proceedings.
However, it is often the case that the prospective defendant may be based offshore and has no permanent ties to the English jurisdiction. In this case, a budding claimant will need to serve an offshore company with a claim form at their address abroad.
When is permission needed to serve an offshore company abroad?
Generally, a claimant will need permission to serve a foreign defendant with a claim form. The court will allow service of a claim form on a company based outside of England and Wales if the claimant can show that three conditions are met:
1. There is a serious issue to be tried;
2. There is a good arguable case that the matter falls within one of the jurisdictional gateways;
3. England and Wales is the proper place to bring the claim.
However, for some matters, a claimant does not need to seek permission from the court to serve outside of the jurisdiction. For example, if a claim is brought under a contract which contains a choice-of-court clause, a claimant can serve the defendant anywhere in the world without the need for permission from the court. Therefore, it is important to consider risks of litigation in England and Wales when signing contracts which submit disputes to English courts.
Read our article on preserving English assets pending foreign shareholder proceedings for related analysis of interim relief in cross-border shareholder disputes.
What is a serious issue to be tried?
A claimant must show that their case represents a serious matter to be tried. This means that their case against the defendant must have a reasonable prospect of success.
When considering this issue, the courts are mindful not to turn this determination of jurisdiction into a mini-trial. They do not go in-depth into the evidence and merits of a claim. Rather, they make a preliminary determination as to whether a claim is more than merely fanciful and has a chance of being successful on its merits. Therefore, any prospective claim should be supported by some evidence and argument before a claim form can be served on offshore defendants.
What are jurisdictional gateways?
A jurisdictional gateway is a category of cases over which an English court can seize jurisdiction. There are a multitude of these gateways specified in the Civil Procedure Rules, but the most prominent of these are:
1. Claims made in relation to contracts;
2. Claims in tort;
3. Claims about property within the jurisdiction;
4. Claims about trusts.
When do contract claims fall within a jurisdictional gateway?
A claim is made in relation to a contract where a contract was made within England and Wales, or concluded by the acceptance of an offer that was received within England and Wales, or made through an agent trading or residing in England and Wales, or where the contract is governed by English law.
A claim is also made in relation to a contract where it seeks a declaration that no contract exists, provided that, had the contract been found to exist, it would have satisfied one of these same conditions – for example, that it would have been made within, or the relevant offer received within, England.
Moreover, a claim is made in relation to a contract where a breach of the contract was committed or is likely to be committed within the English jurisdiction. Finally, a claim for unlawfully assisting in a breach of a contract will also fall within this gateway. Where a contractual obligation is breached by an offshore company, it can be brought to the English courts provided these conditions are met.
Offshore entities, therefore, should be aware of the risks of being sued in English courts when concluding contracts with connections to the jurisdiction of England and Wales.
Read our article on deceit claims in share sale disputes for related analysis of transaction disputes involving warranties, reliance and disclosure.
When do tort claims against offshore companies fall within English jurisdiction?
A claim is made in tort where the damage was or will be sustained in England and Wales, or results from an act committed or likely to be committed in England and Wales, or where the claim itself is governed by English law. Therefore, it is possible to sue someone for a tort in English courts even where the act complained of was committed abroad, but its long-term effects are substantial and detrimental to a person or entity located in England and Wales. This is particularly relevant where a shareholder’s position was materially damaged by negligent acts of an offshore company or its directors.
Read our article on when directors can face personal liability for related discussion of claims involving directors and corporate wrongdoing.
When do property claims against offshore companies fall within English jurisdiction?
Claims about property within jurisdiction are also admitted to the English courts. Offshore companies routinely deal with and own property in England and Wales and are required to be registered on the Register of Overseas Entities, which applies to companies that are based abroad but own property in the UK.
Therefore, an offshore company may be brought to the English courts if there is a dispute concerning a property that it owns.
Read our article on offshore company property and escheat for related analysis of UK property held through offshore company structures.
When do trust claims involving offshore companies fall within English jurisdiction?
Finally, a claim related to trusts may be served on an offshore company. As offshore entities often employ trusts in corporate structures, this gateway should be considered by potential claimants and guarded against by potential defendants.
There are many situations in which this gateway will be engaged. Some of them are where the trust in question is governed by the law of England and Wales, submitted to the jurisdiction of English courts, administered in England and Wales, or where a breach of the trust in question occurred in England and Wales.
In respect of all jurisdictional gateways, the claimant must show that they have a good arguable case that their matter falls within one or more of the gateways. This standard means that there should be a plausible evidential basis for the application of one of the jurisdictional gateways, even if it is contested by the defendant.
Therefore, prospective claimants must supply their application with evidence of the events that led to the cause of action accruing.
When is England the proper forum?
When a claimant applies for service outside of jurisdiction, it must show the English court that they are the proper forum of the dispute. This means that the English jurisdiction is the most appropriate place for the trial due to its connection to England and Wales, interests of the parties, and the ends of justice.
Therefore, claimants must show that their case should be heard by an English court because it would be just and convenient to do so. The court will look at factors such as:
• factual connections of events to England,
• whether the dispute is governed by English law,
• parties’ residence,
• availability of witnesses and
• evidence in England to establish connection to the English jurisdiction.
Additionally, the claimant can show that the most obvious, or ‘natural’, foreign jurisdiction where the claim would have been ordinarily heard can prevent the claimant from receiving a fair trial, either due to the courts in the foreign country experiencing massive backlogs or lacking independence and impartiality. However, English courts do not take such assertions lightly, and claimants must provide good, cogent evidence that a fair trial is impossible in the ‘natural’ forum.
What should parties to shareholder disputes involving offshore companies do to start or defend against proceedings in England and Wales?
As a claimant, consider whether England and Wales is the preferable jurisdiction to resolve the dispute. If so, consider if your case falls within the categories which do not require the courts’ permission to sue an offshore company. If it does not, consider applying for permission to serve the claim form on the company abroad.
Collate evidence which would support your case as to why the English courts should hear your claim.
As a defendant wishing to oppose proceedings in England and Wales, start by collecting evidence that would show that the claimant’s claim is too weak, does not fall within one of the gateways, or there is another jurisdiction where the claim should be heard.
If you are seeking to initiate a claim in the English courts or oppose an application for permission to serve a claim form out of the English jurisdiction, our team is here to help. Our dedicated litigation solicitors and barristers can advise and represent both claimants and defendants in these cases.
Contact Yulia Barnes and the Barnes Law litigation team to explore available options based on your circumstances.
This article is not a substitute for formal legal advice, which will vary according to your specific circumstances.
