Desarrollo Immobiliario Y Negocios Industriales de Alta v Kader Holdings Company Ltd

JurisdictionEngland & Wales
CourtQueen's Bench Division
JudgeMrs Justice Andrews
Judgment Date09 May 2014
Neutral Citation[2014] EWHC 1460 (QB)
Date09 May 2014
Docket NumberCase No: HQ12X04479

[2014] EWHC 1460 (QB)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Mrs Justice Andrews DBE

Case No: HQ12X04479

Between:
Desarrollo Immobiliario Y Negocios Industriales de Alta
Claimant
and
Kader Holdings Company Limited
Defendant

Jonathan Nash QC and Nicholas Craig (instructed by Fox Williams LLP, Ten Dominion Street, London EC2M 2EE) for the Claimant

Robert Anderson QC and Shaheed Fatima (instructed by Clifford Chance LLP, 10 Upper Bank St, London E14 5JJ) for the Defendant

Hearing dates: 17 th to 21 st and 28 th March 2014

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Mrs Justice Andrews Mrs Justice Andrews
1

This is a claim for the enforcement of a money judgment in the principal sum of about US$10.5 million plus interest against the Defendant ("Kader") given on 8 June 2011 by the Superior Court of Arizona, Santa Cruz County ("the Arizona Court") in a claim made on a guarantee of a lease of property in the city of Hermosillo in the State of Sonora, Mexico (respectively referred to as "the Guarantee" and "the Lease"). The judgment creditor ("Desarrollo") is a Mexican real estate company and the successor in title to the original Landlords, members of the Mazon family. Kader is incorporated in Bermuda, but has its principal place of business in Hong Kong.

2

When the Lease and Guarantee were entered into on 21 October 1992, the Mexican corporation which became the tenant was named "Kadermex". Kadermex was the newly-incorporated vehicle for a joint venture between Kader and a Mr Henry Hu to manufacture and distribute toys, under which Kader provided capital, equipment and technical know-how, and Mr Hu oversaw the business operations and sourced and supplied the customers. At that time Mr Hu was a director of and a shareholder in Kader, through a company controlled by him. The intention of the joint venturers was to strengthen the Kader group's manufacturing operations with a base in Mexico which had ready access to the North American and South American markets. The lease provided that the Mazon family would construct a factory on the premises that they owned, and Kadermex would take a lease of that building for the purposes of its business. Kadermex subsequently changed its name to "Siempre Novedoso de Mexico" ("Sinomex") to reflect the fact that its operations were being managed independently of Kader.

3

In September 1993, an Amendment to the Lease was signed on behalf of the Landlord, the Tenant and the Guarantor. Shortly thereafter, in early October 1993, the Lease and the Guarantee were assigned to Bank One, an Arizona Bank which was providing the Mazon family with finance to build the factory. Kader knew in October 1992 that outside funding would be needed to facilitate the construction of the factory. Indeed, in the Arizona proceedings there was a finding that Kader was aware from the outset that the funding was going to be provided by Bank One. The Amendment to the Lease was made at the Bank's behest. It varied the choice of law and jurisdiction clause in the Lease " to the laws and courts of Arizona State in the United States of America". The Bank was later repaid, and Desarrollo regained the benefit of the Guarantee and the Lease, but the choice of law and jurisdiction clause remained as per the Lease Amendment.

4

Sinomex was consistently in breach of its obligations to make timely rental payments. Despite entering into various "workout" agreements with Desarrollo between 1996 and 2002, it eventually abandoned the factory premises in September 2003, owing substantial arrears. This gave rise to the Arizona proceedings. They were commenced on 3 February 2003 against both Kader and Sinomex, but Sinomex did not defend the claim and in due course a default judgment was entered against it. By the time that the proceedings began, the joint venture had long since come to an end and Kader had divested itself of its shareholding in Sinomex.

5

At an early stage of the Arizona proceedings Kader challenged the jurisdiction of the Arizona Court on a variety of grounds. The challenges failed. Kader also fought and lost on the merits, including on appeal. Kader's main defence was that there had been material alterations to the underlying contract without its consent, thereby releasing it from liability as guarantor: a fundamental principle of suretyship known to English lawyers as the rule in Holme v Brunskill, (1878) LR 3 QBD 495, which appears to be enshrined in many other legal systems, including the laws of Sonora and Arizona.

6

Desarrollo obtained summary judgment on liability under the Guarantee, and successfully resisted two separate applications made by Kader for a new trial and reconsideration of the decision to grant summary judgment. Desarrollo also succeeded in a motion to dismiss a counterclaim raised by Kader. There was then a full trial on quantum, occupying three days in April 2010.

7

After the trial and judgment on damages, Kader appealed on jurisdiction and on the substantive merits of its defence and on a "failure to mitigate" point taken in the trial on damages. Desarrollo unsuccessfully argued that Kader had waived its right to contest the jurisdiction because it had raised a counterclaim and made a cross-claim against Sinomex, but Kader's appeal was dismissed by the Arizona Court of Appeal on all substantive grounds on 16 April 2012. A petition for review to the Supreme Court of Arizona was dismissed on 25 September 2012.

8

The judgment can be enforced in England and Wales if, and only if, the Arizona Court was a court of competent jurisdiction. In determining that question, this court will apply domestic rules of private international law. Desarrollo relies on three of the four recognised grounds of personal jurisdiction summarised in Dicey Morris & Collins, The Conflict of Laws (12 th Edn 2012) ("Dicey") Vol. 1 at Rule 43, namely:

The issue of "voluntary appearance" and the effect of Kader's counterclaim are so inextricably linked that it is convenient to deal with them together.

Did Kader agree to submit to the jurisdiction of the Arizona Court?

(Ground 2)

If the person against whom the judgment was given was claimant, or counterclaimed in the proceedings in the foreign court;

(Ground 3)

If the person against whom the judgment was given submitted to the jurisdiction by voluntarily appearing in the proceedings;

(Ground 4)

If the person against whom the judgment was given had, before the commencement of the proceedings, agreed in respect of the subject matter of the proceedings, to submit to the jurisdiction of that court or the courts of that country.

9

However, the logical place to start is with the question whether Kader and Desarrollo had agreed that the Arizona Court should have jurisdiction over claims made against Kader under the Guarantee. As Dicey states at para 14–076:

"If a contract provides that all disputes between the parties shall be referred to the exclusive jurisdiction of a foreign tribunal … the foreign court is deemed to have jurisdiction over the parties…. The question is one of construction of the contract."

That issue was debated extensively in the Arizona proceedings and determined against Kader.

10

Mr Jonathan Nash QC, who appeared with Mr Nicholas Craig for Desarrollo, submitted that although it was raised in the context of a jurisdictional challenge, the question whether, on the proper construction of the relevant agreements, Kader had agreed to submit claims under the Guarantee to the jurisdiction of the Arizona Court, was a substantive issue which Kader had expressly submitted for the consideration of, and determination by, the Arizona Court and the Arizona Court of Appeals. Indeed, Kader had sought to have the issue determined by the Supreme Court of Arizona. Therefore, the decision gave rise to an issue estoppel precluding Kader from re-opening the matter before me. He relied upon the decision of the Court of Appeal in Desert Sun Loan Corp v Hill [1996] 2 All ER 847, which, despite being strongly criticised by the editors of Briggs & Rees, Civil Jurisdiction and Judgments (5 th Edn) at pp 738–739, is binding on this court.

11

However, although the issue turns on the interpretation of the Lease, the Guarantee and the Lease Amendment, it was determined in the Arizona proceedings by applying Arizona law, which is not the system of law that I have been invited by both parties to apply, or should apply, as a matter of the private international law of England and Wales. I will leave aside the issue estoppel argument for the time being, since my own decision on the underlying issue will determine whether it is necessary to consider it.

12

There are two matters that fall for decision:

i) Did Kader and Desarrollo (or its predecessors) agree that claims under the Guarantee would be subject to the jurisdiction of the Arizona Court?

ii) If so, was the jurisdiction clause in the Lease Amendment void as a matter of Mexican public policy, as Kader contends?

13

The Lease and the Guarantee were executed on the same day in Sonora. They related to real estate that is physically situated in Sonora. Two of the three parties were Mexican. Although the Lease Amendment purported to introduce Arizona law in substitution for the law of Sonora, the validity of that amendment is in issue. The law which English rules of private international law will apply to determine issues of construction of the relevant contracts (and validity of their terms) is the law of Mexico, or more properly, the law of the State of Sonora. Quite apart from being the system of law most closely connected with the contracts, it was also the system of law that the parties chose to...

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  • Don't Step In The Jurisdiction Accidentally
    • United Kingdom
    • Mondaq UK
    • 26 July 2021
    ...in England. A decision of the High Court (Desarrollo Immobililiario Y Negocios Industriales De Alta v Kader Holdings Company Limited [2014] EWHC 1460 (QB)) is a reminder of the danger of a defendant submitting itself to the jurisdiction of a US court, which makes a judgment of the US court ......

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