Desarrollo Immobiliario Y Negocios Industriales De Alta v Kader Holdings Company Ltd [2014] EWHC 1460 (QB)

Case No HQ12X04479[2014] EWHC 1460 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 09/05/2014
Before
MRS JUSTICE ANDREWS DBE
Between
DESARROLLO IMMOBILIARIO Y NEGOCIOS INDUSTRIALES DE ALTAClaimantKADER HOLDINGS COMPANY LIMITEDDefendant
Jonathan Nash QC and Nicholas Craig (instructed by Fox Williams LLP, Ten Dominion Street, London EC2M 2EE) for ClaimantRobert Anderson QC and Shaheed Fatima (instructed by Clifford Chance LLP, 10 Upper Bank St, London E14 5JJ) for DefendantHearing Hearing dates: 17 th to 21 st and 28 th March 2014
Judgment
[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 (12th Edn 2012) (“Dicey”) Vol. 1 at Rule 43, namely: (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. 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?

[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 (5th 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 govern the Lease and the Guarantee when they were first made.[14]The Lease was executed in both a Spanish and English language version. It was signed by Attorneys-in-fact for the Mazon family as Landlord and for Kadermex as Tenant, and by Mr Kenneth Ting, Kader’s Managing Director, on behalf of Kader as Guarantor. There is only an English language version of the Guarantee. That was signed by the same Attorney-in-fact for the Mazon family and by Mr Ting on behalf of Kader. The English language version of the Lease provides, so far as is material, as follows:
“TWENTIETH GUARANTY KADER HOLDINGS COMPANY LTD parent company of the TENANT (herein referred to as the “Guarantor”) delivers at this date a guaranty duly signed by an authorized representative, as evidenced by the attached corporate resolution granting such authorization, through which it accepts to be jointly obligated with the TENANT, in the due fulfilment of each and all of the obligations arising from this Contract and accepts that such guaranty is valid and enforceable during the term of this agreement and any extension thereof. The Guarantor agrees to execute any documents necessary to make the guaranty enforceable in the country where the Guarantor is incorporated. TWENTY-FIRST MODIFICATIONS TO CONTRACTUAL DOCUMENT Except as otherwise provided herein, no modification, release or discharge of this Lease, or waiver of any of the provisions hereof, shall be in force or effect by an amendment hereto unless it is provided in writing signed by the LANDLORD and the TENANT. TWENTY THIRD APPLICABLE LAW AND JURISDICTION This Lease shall be interpreted in accordance with, and be subject to the provisions of the Civil Code for the State of Sonora, Mexico and both parties hereto submit to the jurisdiction of the Courts in Hermosillo, State of Sonora, Mexico, expressly waiving any other jurisdiction that may correspond to them due to their present or future domicile or due to any other reason whatsoever.”
TWENTY-FIRST MODIFICATIONS TO CONTRACTUAL DOCUMENT

TWENTY THIRD APPLICABLE LAW AND JURISDICTION

[15]The Guarantee recites that it was given to induce the Mazon family to enter into a contract, effective as of October 21st 1992, to construct and lease a production plant to Kadermex. Clause 1 contains an unconditional guarantee to the Landlord, its successors and assigns, of : “the prompt, full and complete payment and performance to Landlord of all the conditions covenants obligations liabilities and agreements of [Kadermex] as set forth in the [Lease] and any extension thereof between Landlord and [Kadermex]”.[16]The Guarantee also provides, so far as is relevant:
“(5) Modification of Agreement. The whole of this Guaranty is herein set forth and there is no verbal or other written agreement, and no understanding or custom affecting the terms hereof. This Guaranty can be modified only by a written instrument signed by Guarantor and Landlord. (7) Construction and Benefit. This Guaranty is made in and shall be governed by and construed pursuant to the laws of the state of Sonora, Mexico, or the laws of the British Crown Colony, Hong Kong, or the Laws of Bermuda, and is binding jointly and severally upon Guarantor, its legal successors and assigns, and shall inure to the benefit of Landlord, its legal representative, successors and assigns. (9) Acknowledgment of Assignment. In the event this Guaranty is assigned to a bank or other lending institution, the Guarantor shall furnish to such lender, upon the latter’s request, a letter stating that the Guarantor acknowledges receipt of notice of the assignment by Landlord of this Guaranty, that this Guaranty is in full force and effect; that no changes to the Guaranty as originally executed have been made without the written approval of Landlord pursuant to paragraph 5; that the Guarantor will not enter into any modification of this Guaranty without first obtaining prior written approval thereof from said lender, that said lender may rely solely upon this Guaranty with respect to the lender’s right to receive the rents in accordance with the terms of the Lease….”
It is clear from Clause 9 that Kader not only expected the Mazon family to raise finance from a lender but contemplated that the Guarantee would be assigned to that lender, and that the lender would be entitled to rely solely upon the Guarantee in order to enforce its right to collect the rents in accordance with the terms of the Lease.[17]The Lease Amendment contains a single clause:
“The parties decide and agree through their representatives that applicable law and jurisdiction in this lease shall be interpreted in the due fulfilling complaisance interpretation, also in accordance with, and be subject of laws and courts of Arizona, State in the United States of America. Based the above on the twenty-first clause of the contract herein modificated to change the text and interpretation of the twenty-third clause.”
It is signed, once again, by authorised representatives of “the Landlord” (the Mazon family), “the Tenant” (Kadermex) and by Mr Ting on behalf of “the Guarantor” (Kader). Unlike the wording of the jurisdiction clause in the Lease, the Lease Amendment uses the expression “the parties” not “both parties” (the Spanish version uses “las” rather than “ambas”).[18]Mexico is a Federal Republic composed of 31 States and a Federal District. The Mexican constitution is closely modelled on the constitution of the United States of America. Mexico is a civil law country. The Mexican constitution is the highest law in Mexico, not only because it says so in Article 133 of the constitution, but because the constitutions of each of the States and the Federal District expressly recognise it as such.[19]The highest Court in Mexico is the Supreme Court. Mexico is divided into 32 Circuits, each with a Circuit plenum (the highest court in that Circuit). Each Circuit has Circuit Courts with three judges each and District Courts with one judge each. Each State has its own local courts. The federal system oversees and has the ultimate review authority over decisions made by local judges. However, as the powers to regulate contractual and civil matters were not granted to the Federation, the States maintain the power to regulate them. Therefore the principles set out in the Civil Code of Sonora (“CCS”), and in particular Articles 110-116 thereof, are applicable to the construction of the Lease, Guarantee and Lease Amendment.[20]It was common ground that the principle of party autonomy is a fundamental principle of Mexican law. The general rule is that parties have contractual freedom to agree anything that affects their private rights, so long as it is not prohibited by law or contrary to public policy. Under the principle of pacta sunt servanda, a contractual relationship is governed by the agreement of the parties, with which they are obliged to comply. However, public policy norms may not be waived by the parties to a contract. Contracts or clauses in them that violate public policy norms are null and void ab initio.[21]Article 1927 of the CCS (mirrored in Article 1796 of the Federal Civil Code) provides that:
“contracts are binding by mere consent, except in those cases where they must follow certain legal formalities. Since the moment they become binding they oblige the contracting parties, not only to comply with what was expressly agreed to but also to the consequences that, by their nature, are the results of good faith, usage or law.”
[22]The two experts on Mexican (and Sonora) law, Mr Graham and Mr Torres-Landa, were in agreement that if the terms of a contract are clear and do not create any doubt regarding the intention of the contracting parties, the literal meaning of the clauses must be observed (Article 111 of the CCS) . If the terms are not clear, “the objective features deducted from the conduct displayed by the contracting parties before, during and at the execution of the contract must be observed, with the purpose of determining the true intention of the subjects, to fit their intention within any of the legal concepts provided by law”.[23]Mr Graham placed reliance on Articles 112 and 113 of the CCS: Art112. If any provision of a legal act allows for different meanings, it should be interpreted in a manner that it produces effects more adequately. Art113. The provisions of legal acts should be interpreted altogether in a manner where it gives meaning to the ones that had a questionable meaning. Mr Torres-Landa accepted in his evidence that the relevant provisions of the CCS make it clear that when construing a contract it is necessary to have regard to the purpose of the transaction in order to understand the meaning of the words used. The subjective intention of the parties is irrelevant.[24]The Civil Procedural Code of Sonora (“CPCS”) sets out the procedural rules by which a Sonora court will determine whether the parties have expressly or tacitly submitted to a particular judicial forum within the state of Sonora (as opposed to another Sonora court). Thus by Article 111 of the CPCS:
“The selection of the judicial venue by the parties should be set out in writing and refer to specific matters”
And by Article 97(IV) “There is an express submission when an interested person relinquishes clearly and expressly to [sic] the judicial forum that the law grants and designates the jurisdiction to which he is submitted.”[25]It is unusual, to say the very least, for a contract to purport to be governed by three different systems of law. It makes no sense to interpret Clause 7 of the Guarantee as meaning that three different legal systems simultaneously govern the substantive rights and obligations of the parties, or that one of the parties can decide which one of the three systems he wants to invoke. However, Clause 7 of the Guarantee is capable of making sense when read in conjunction with Clause 20 of the Lease, which envisages that the Guarantor has to take steps to ensure that the Guarantee is enforceable in its state of incorporation – in this case, Bermuda. It was Mr Ting who requested the reference to the laws of Bermuda to be added to Clause 7. In my judgment the only sensible construction of Clause 7 is that which was put forward by Kader itself, namely, that the law of Kader’s place of incorporation (Bermudan law) governs any issue about Kader’s constitutional capacity to contract; Hong Kong law, as the law of Kader’s domicile, governs any issues that in private international law would be reserved to that law, e.g. any matter concerning the authority of Mr Ting; and all other issues, including issues of construction and substantive validity, are governed by the laws of Sonora.[26]Despite the peculiarities of the “floating” choice of law clause in the Guarantee, it is noteworthy that it contains no express jurisdiction clause. On the face of it, if the Lease and Guarantee were to be construed separately, that might have been a deliberate omission, enabling the Landlord to have the choice to sue Kader anywhere that might have jurisdiction over it, including the courts of its domicile (or principal place of business). Both experts agreed that it is normally possible under Article 112 of the CPCS to bring ancillary proceedings against a guarantor in Sonora, if that is where the creditor sues the principal. Article 112 is an enabling provision that entitles a party to sue in a different jurisdiction from that mandated by the CPCS. The jurisdiction mandated by Article 108 of the CPCS for bringing an action against a Guarantor in default of express agreement would be the court of its domicile. However, Mr Torres-Landa was of the view that because this was a case concerning land, Article 108 was ousted and it was compulsory to sue Kader (and Sinomex) in Sonora anyway. I will address Mr Torres-Landa’s opinion on that issue when dealing with the public policy arguments below. I merely observe that if he were right, the express choice of jurisdiction clause in the Lease would have been surplus to requirements, and the absence of a similar clause in the Guarantee could not be explained on the basis that it was a deliberate omission to create freedom of choice for the Landlord.[27]In the course of his submissions, Mr Robert Anderson QC (who appeared with Ms Shaheed Fatima for Kader) placed heavy reliance on Clause 5 of the Guarantee, and particularly the first sentence. However, I find it telling that Mr Torres-Landa did not refer to that Clause in his report or appear to regard it as having any significance when the experts met, though he tried to adopt the argument in cross-examination after it had been put by Mr Anderson to Mr Graham. As a matter of Sonora law, Clause 5 does not exclude reference to other documents within the same overall transaction which are admissible to construe the language of the Guarantee by reference to the purpose of the transaction for which it was entered into. The Lease also contains an “entire agreement” clause, but it is plain that the two contracts have to be construed by reference to each other, not least because it is only by looking at the terms of the Lease that one can identify the obligations that the Guarantor has undertaken to see to it that the Tenant will perform. Mr Graham maintained that the two agreements had to be construed together and that Article 113 of the CCS mandated this. I prefer the evidence of Mr Graham on this point.[28]In my judgment, the key to this issue is Clause 20 of the Lease. Until that point, the document is drafted as though it were a bilateral agreement, even identifying the “parties” as the Landlord and the Tenant. However Clause 20, which is entitled “Guaranty”, is plainly intended to be binding on Kader, and there was no purpose in Kader signing the Lease unless it was intending to do so as a contracting party. Clause 20 refers to the simultaneous delivery of a guarantee “through which [Kader] accepts to be jointly obligated with the Tenant in the due fulfilment of each and all of the obligations arising from this Contract”. That is the function that the contracting parties, including Kader, have agreed the Guarantee will fulfil. Clause 20 then goes on to oblige Kader to execute other documents (if necessary) so as to ensure that the Guarantee is binding upon it.[29]Although Clause 23 refers to “both parties” submitting to the jurisdiction of the Courts of Hermosillo, Sonora, by Clause 20 Kader acknowledges that it has expressly agreed to be “jointly obligated” with Kadermex in the due fulfilment of “all its obligations” under the lease, including the obligation to submit disputes to the exclusive jurisdiction of the Sonora court. That must mean that Kader has also agreed to submit disputes relating to its liability under the Guarantee to the exclusive jurisdiction of the Sonora court. Put another way, Kader is agreeing to be treated as if it were a party to all the obligations of Kadermex/Sinomex under the Lease, as a joint and several obligor.[30]Objectively, and commercially, this makes sense. As guarantor, Kader’s liability is co-extensive with that of the tenant, and depends on the non-fulfilment of the tenant’s obligations under the lease; thus (subject to any specific defences available to Kader qua guarantor) exactly the same matters would have to be explored by the Court in order to determine the liability of Sinomex and Kader. Moreover, Kader was the tenant’s parent company and the party with the money, which was why it was required to give a guarantee in the first place. Given that Article 112 of the CPCS allows a claim against a guarantor to be brought in the same court as the claim against the principal, and at that stage any substantive disputes were going to be resolved by reference to the law of Sonora, it makes sense for Kader to have agreed to waive its right to be sued in Hong Kong. The Landlord would have had good reason to ensure that it did so.[31]Indeed it was Mr Graham’s view that Clause 20 sufficed to create a guarantee, and that the Guarantee was a “belt and braces” agreement entered into for the avoidance of doubt. There is a lot of force in that view, although I do not need to decide the point for the purposes of dealing with the issue of construction. By contrast, Mr Torres-Landa took the initial position that Kader was not even a party to the Lease, despite stating in his report that Kader would be a party if the contract established rights or obligations upon it and it had consented to being bound by the contract and evidenced that consent by a signature. In cross-examination, Mr Torres-Landa was forced to concede that Clause 20 did impose obligations on Kader to deliver a guarantee that fulfilled the legal requirements set out in that clause, and that if the guarantee fell short of those requirements, Kader would not have complied with those obligations. Clause 20 also obliged Kader to execute any other documents necessary to ensure that it was bound by its obligations as guarantor.[32]Ultimately Mr Torres-Landa accepted when pressed by Mr Nash that it was a “possible” construction of Kader’s signature to the Guarantee and the Lease that the parties objectively intended at that stage that Kader should be sued in the courts of Sonora with the tenant if that eventuality arose. In my judgment, that is the proper construction. There is no ground for attacking the validity of that agreement.[33]In the light of the fact that Kader was a party to the original choice of law and jurisdiction clause, and that clause conferred jurisdiction on the Courts of Hermosillo in Sonora over disputes arising under the Guarantee as well as disputes arising under the Lease, the Lease Amendment plainly and unequivocally evinces the intention of all three parties to substitute the law and jurisdiction of Arizona for the law and jurisdiction of Sonora. It amends Clause 23 and satisfies the requirements of Clause 21, to which express reference is made.[34]I reject Mr Torres-Landa’s argument that Kader was simply signing the Lease Amendment as a record that it was aware of and consented to a material variation of a term of the Lease. Kader signed this document as a party, just as it signed the Lease as a party; the matter is put beyond doubt by the fact that the Lease Amendment refers to “the parties” and not “both parties”. The Lease Amendment was insisted upon by Bank One, to whom the guarantee was to be assigned as security. Obviously the lender would have wanted to be able to sue the guarantor and the principal in the same court. By signing the amendment Kader clearly, expressly and unequivocally agreed to the variation of the choice of jurisdiction clause and to the variation of the underlying obligation to submit to the jurisdiction of the courts of Sonora, in respect of which it was “jointly obligated” with Sinomex. The Lease Amendment satisfied the procedural requirements of Article 97(IV) and Article 111 of the CPCS that the agreement as to the choice of jurisdiction should be “in writing and refer to specific matters” and that the party waiving the default jurisdiction must relinquish it “clearly and unequivocally”.[35]Thus unless the agreement to confer jurisdiction on the Courts of Arizona is null and void, the requirements of Ground 4 of Dicey Rule 43 are made out.[36]Kader’s public policy argument is that Mexican law mandates that real estate and lease agreements are governed exclusively by the law of the State where the real estate is located. Any agreement between two private parties which purports to apply another law is null and void. Mr Torres-Landa’s opinion to that effect was based upon(i) Article 121 of the Mexican Constitution;(ii) Article 568 of the Federal Code of Civil Procedure;(iii) Article 15 of the CCS and(iv) Articles 92, 98 and 109(3) of the CPCS.[37]Having raised the point at first instance in Arizona, Kader chose not to advance this argument fully before the Arizona Court of Appeal for tactical reasons, as Mr Szweda who represented them on the appeal frankly admitted. Indeed the sole reference to the public policy argument was in a footnote in the appeal brief referring to the declaration of a Mr Portal, a different Mexican lawyer, exhibited to that brief. The footnote began with the words “although not critical to this appeal…” which was tantamount to an invitation to the Arizona Court of Appeal to disregard it. It also described the validity of the forum selection clause as “highly questionable” rather than making a positive assertion that the clause was null and void.[38]Mr Torres-Landa was unable to cite a single authority (or even a commentary in an article or textbook) in support of his thesis. There is no provision of the law of Mexico (or the law of the State of Sonora) that expressly prohibits parties from including and enforcing a forum selection clause in a lease that chooses a forum other than that in which the land is situated. Mr Torres-Landa’s argument depended on the reading together of various pieces of legislation to create some kind of rule by inference. That is not a promising start.[39]Having considered the argument carefully I am unable to accede to it. I prefer the evidence of Mr Graham, who was a far more impressive witness. Mr Torres-Landa was so wedded to his thesis that he even sought to argue that it would be contrary to Mexican public policy for the parties to a lease agreement to include an arbitration clause, because the disputes fell within the exclusive jurisdiction of the court where the land was situated. Yet he accepted that there is a chapter within the Commercial Code that deals with arbitration, and that chapter does not state that leases or matters involving real estate cannot be the subject of arbitration. He said that the chapter did not state that criminal or family law matters cannot be the subject of arbitration either, but that is beside the point: arbitration clauses are regularly to be found in leases. The idea that a jurisdiction that recognises commercial arbitration should tacitly exclude leases from the scope of matters which may be arbitrated is somewhat far-fetched. There were times when I had the impression that although Mr Torres-Landa was trying to fulfil his obligations to the Court as an independent and impartial expert witness, he sometimes strayed a little too close to espousing the cause of the party who called him, even where on cursory examination the points he was making had little obvious merit.[40]It is difficult to improve upon the comprehensive demolition of Kader’s arguments in Mr Graham’s expert report at Paragraphs 36-72. I agree with his analysis and his opinion that there is no provision of Mexican public policy establishing that the State in Mexico where land is situated has exclusive jurisdiction over disputes related to leases of that land or that it is impermissible for the parties to a contract to choose a different system of law to govern such disputes.[41]The Mexican Constitution expressly prohibits certain acts or conduct which is contrary to public policy, such as torture, slavery, or discrimination on grounds of ethnicity or gender. The list of such prohibitions does not include agreeing to confer jurisdiction upon a foreign court to determine disputes arising under a lease of land situated in a Mexican State, or agreeing that a law other than that of the State in which the land is situated shall apply to the lease.[42]Article 121 of the Mexican Constitution is a “full faith and credit” clause which, like the US Constitution upon which it is modelled, regulates the co-ordination of the Federal system. It regulates matters as between the Federal Government and the States, but has no bearing upon the relationship between one of the Mexican States and a foreign jurisdiction, let alone upon the contractual relationship between two private individuals. It is therefore (on the face of it) irrelevant to the question of whether private parties to a lease are entitled to select a forum to govern their disputes or choose a system of law to govern their contract. Nevertheless Mr Torres-Landa relied upon Articles 121(II) and (III). These provide as follows:
“II Real and personal property shall be governed by the laws of the place of their location. III Judgments pronounced by the Courts of one State with respect to rights in rem or real estate property located in another State, may only be enforced in the other State when its own laws so provide.”
[43]Mr Torres-Landa was constrained to accept that Article 121 has no direct bearing on the rights and obligations of private parties. His argument was that if a particular State is prohibited from doing something by the Constitution, then private individuals cannot confer upon the State the right to do it, and a fortiori they cannot confer the right upon the courts of a foreign jurisdiction to do it. He began by arguing that if Article 121(III) prohibits a judgment in one State with respect to rights in rem or real estate property from being enforced in the State in which the property is located unless the latter State’s laws so provide (and Sonora law does not so provide) then the same prohibition must necessarily apply to a judgment of a foreign court relating to such matters. That does not follow either as a matter of law or of logic. One cannot draw such inferences from rules relating to the internal regulation of the relationship between States.[44]Further, Article 121(III) is concerned with rights in rem or real estate property, for example, questions about ownership of land, or buildings on it, and not with personal rights. Article 121 (II) provides that real property and moveable property shall be governed by the laws of the place of their location. That gives effect to the default rule that such matters may be governed by the lex rei sitae.[45]Mr Graham cited authority from the Mexican Federal Courts on the interpretation of Article 121 to the effect that it is legal and binding for parties to agree to a different jurisdiction to the one of the place where the real property is located; they ruled that:
“… such constitutional restriction is not an obstacle to agree to a different jurisdiction under Section III of the aforementioned provision, in reference to conflicts involving immoveable goods.”
That is a direct contradiction of Mr Torres-Landa’s thesis, to which he had no satisfactory answer.[46]Moreover, as Mr Graham explained, there is a significant distinction in Mexican law between personal rights, on the one hand, and immovable goods or tangible moveable goods on the other. The choice of law and jurisdiction clause in the Lease and Lease Amendment is concerned with the personal rights and obligations of the parties, not with rights over fixed or moveable property. Thus there is nothing in Article 121 of the Constitution which restricts the ability of the contracting parties to make that choice.[47]Article 568 of the Federal Code of Civil Procedure is equally irrelevant. It provides that National Courts have exclusive jurisdiction to handle disputes related to certain matters including “Lands… located in the national territory… whether it is in rem rights, rights arising from use… or leases of such property.” However that provision only applies to matters in which the Federation of Mexico has an interest, i.e. matters in which the Mexican government is involved. Mr Torres-Landa accepted that the matters in issue between Kader and Desarrollo were governed by State law, but contended that the Federal Code gave consistency to the argument based on his interpretation of Article 121. In my judgment Article 568 neither supports nor improves that argument and is of no assistance in determining the public policy issue.[48]The next provision relied on by Mr Torres-Landa was Article 15 of the CCS which provides that:
“The real estate located within the State and the moveable goods within it shall be governed by the provisions of this code and other laws of local jurisdiction and by federal laws, if that is the case, even where the owners are not Mexican, nor from Sonora or neighbours to the State.”
This provision appears to be a local enactment of the lex rei sitae principle, mirroring what is said in Article 121(II) of the Constitution. As Mr Graham said, there is nothing in Article 15 that prohibits the parties from choosing another system of law to govern a lease.[49]The high water-mark of Mr Torres-Landa’s thesis turns on various provisions of the CPCS. If there were a public policy prohibition on agreeing that a foreign law should govern provisions in a lease of land in a Mexican state, or on agreeing that disputes relating to such a lease should be determined by the court of some other jurisdiction, it would be strange to find it in a procedural code, rather than in the CCS which is concerned with substantive rights.[50]Moreover, the CPCS does not purport to deal with questions of international jurisdiction, or even with jurisdiction between different States, but only with the allocation of jurisdiction between the different courts within the State of Sonora. Kader itself so contended in its arguments before the Arizona Court of Appeals in answer to a point made by Desarrollo based on Article 112 of the CPCS. Its counsel submitted:
“The Code provisions now cited by Desarrollo establish at best only that suits may be brought on the underlying obligation and a guarantee in the same Mexican forum. These provisions apply to disputes in Sonora courts and have no international significance. The Sonora Code of Civil Procedure cannot confer jurisdiction on an Arizona court over an otherwise alien transaction between alien parties.”
It would be surprising, therefore if the Sonora Code of Civil Procedure operated so as to exclude parties from choosing to confer jurisdiction on the Arizona Court. As Kader acknowledged, it has no international significance.[51]Article 92 of the CPCS provides that any lawsuit must be brought forward before a competent judge. Article 98 provides that acts carried out by a judge declared to have been incompetent are null ab initio. The principle of party autonomy is given effect in Articles 96 and 97. Article 96 provides that:
“Jurisdiction may not be changed by agreement of the parties, unless it is related to territorial jurisdiction”
. Thus the parties, by agreement, are entitled to change territorial jurisdiction. Article 97 provides that:
“to select a judicial venue the following shall be observed… (II) The judge with competent jurisdiction is the one to whom the parties have expressly or tacitly submitted, when dealing with a renounceable forum.”
As Mr Anderson pointed out, that begs the question of whether the forum is renounceable. He relied on Article 109 (iii) which stipulates that the competent judge will be: “the one where the property is located, if the relief sought in the claim is related to real estate. The same rule applies for issues deriving from a lease agreement of real estate. Should they be located in two or more parts [i.e. counties], the competent one will be the one in which the larger portion of the property is located”.[52]Kader’s argument depends upon the identified judge being the only competent judge, which requires there to be an inhibition on the freedom of the parties to choose jurisdiction (and thus to designate the competent judge) under Article 97(ii). There can be no such inhibition unless the forum is not a “renounceable forum”. However there is nothing on the face of Article 109(III) to say that it mandates the forum. Mr Graham’s evidence was that this was the default position in the absence of an express choice of jurisdiction by the parties pursuant to Articles 96 and 97, and that Article 109 does not prohibit the parties from waiving that default provision and agreeing to a different forum. On the face of it, Mr Graham’s position appeared to be correct.[53]When I asked Mr Torres-Landa about how Article 109 (III) regulated the choice of judge or court as between Sonora and another state of Mexico, such as Mexico City, he gave a lengthy explanation beginning with the premise that the reference in Article 109(III) was linked to Article 15 of the CCS, which he assumed mandated the application of the laws of Sonora to any dispute about real estate in Sonora (including leases). Thus on Mr Torres-Landa’s analysis the reason why Sonora was not a “renounceable forum” for the determination of such disputes depended on Article 15 of the CCS; it was not to be found in Article 109 (III) itself. Therefore if, as I have already held, Article 15 does not mandate where disputes about personal rights and obligations arising under leases of real estate are to be tried, or the system of law by which they are to be determined, the whole of his argument based upon Article 109(III) of the CPCS falls to the ground.[54]So far as I could discern it, Mr Torres-Landa’s argument appeared to be that Article 109(III) stipulates the (only) competent judge to determine such disputes within Sonora. If a Sonora judge in a county within Sonora other than that in which the land is located is not competent to decide upon a lease dispute relating to Sonoran land, then neither is a judge in another Mexican state, and a fortiori neither is a non-Mexican judge in a foreign court.[55]It seems to me, with the greatest respect to Mr Torres-Landa, that his argument flies in the face of Articles 96 and 97 and that the inferences he seeks to draw are unnecessary and impermissible. Article 109(III) is not mandatory and it would not prevent a judge in Mexico City from determining a dispute about a lease in Sonora if the parties expressly agreed that the courts of Mexico City had jurisdiction over their dispute. Mr Anderson put the argument on the basis that Article 109 (III) necessarily implies that Mexican courts outside Sonora cannot assert jurisdiction over Sonora real estate. Mr Graham disagrees with that interpretation, and I prefer his approach.[56]I have no hesitation in rejecting Kader’s argument based on Article 109 of the CPCS, which is subject to the same fallacious reasoning as the thesis based on Article 121 (III) of the Mexican Constitution. One cannot legitimately infer from a legal provision dealing solely with how the courts within Sonora are to assume jurisdiction as between themselves, anything about the rules governing the relationship between the courts of Sonora and the courts of other States in Mexico, let alone anything about the rules of private international law governing how jurisdiction is to be approached as between the courts of Sonora and the courts of foreign jurisdictions. Procedural rules deciding which court or which judge should determine certain types of disputes within Sonora have no bearing upon the question of substantive law, namely, whether contracting parties are free to choose a foreign law to govern a contractual dispute or whether a clause conferring jurisdiction on the court of a foreign country and providing for the law of that country to govern the dispute is valid and enforceable. Mr Torres-Landa had to concede that his thesis depended on Article 15 of the CCS, and I prefer Mr Graham’s evidence about how that Article is to be interpreted.[57]Thus the agreement to submit to the jurisdiction of the Arizona court is valid and binding and the judgment of the Arizona court was made by a court of competent jurisdiction. In the light of my conclusion on this point it is unnecessary for me to determine whether the same result should have been reached in consequence of the application of the doctrine of issue estoppel.

Did Kader voluntarily submit to the jurisdiction of the Arizona court?

[58]In the light of my conclusion on Ground 4 of Dicey Rule 43 it is also unnecessary for me to make a decision on the alternative ways in which Desarrollo argued that the judgment of the Arizona Court was a judgment of a court of competent jurisdiction, namely, Grounds 2 and 3. However, in deference to the comprehensive arguments advanced by the parties and the expert evidence that they adduced, I will do so.[59]Grounds 2 and 3 of Dicey Rule 43 are separate grounds, though on the facts of this case they overlap to some extent. The short answer is that Kader not only counterclaimed against Desarrollo in a way which Kader itself characterised as being more than merely defensive, but also made a cross-claim against Sinomex for an indemnity, thereby becoming a claimant in the proceedings and submitting disputes to the jurisdiction of the Arizona Court. Thus its behaviour squarely fell within Ground 2. For reasons which I shall go on to explain, its behaviour in the Arizona proceedings after its initial challenge to the jurisdiction also fell squarely within Ground 3 and amounted to a voluntary submission to the jurisdiction of the Arizona courts for the purposes of the relevant English rules of private international law, despite the fact that the Arizona Court of Appeal held that its action in counterclaiming did not amount to a waiver of its right to challenge the exercise of personal jurisdiction over it.[60]A defendant will not be taken to have submitted to the jurisdiction of a foreign court by reason only of the fact that he appeared (conditionally or otherwise) in the proceedings to contest the jurisdiction of that court: s.33(1) of the Civil Jurisdiction and Judgments Act 1982. However, he may be taken to have submitted for the purpose of English private international law rules of enforcement, notwithstanding the fact that he did raise an objection to the jurisdiction. The 1982 Act does not set out what will amount to a submission to the jurisdiction: each case will turn on its own facts, and much will depend on the procedure of the foreign court. It is recognized in the authorities that the most problematic scenario is one in which the defendant in the foreign proceedings takes steps not only to protest the jurisdiction but to fight the case on the merits. That is the scenario here.[61]Both parties accepted that the leading case on what amounts to a submission to the jurisdiction of a foreign court for the purposes of enforcement is the decision of the Supreme Court in Rubin and another v Eurofinance SA and others, and other appeals [2012] UK SC 46, [2013] 1 AC 236 (“Rubin”). In a passage relating to one of the appeals that the court was considering (the “New Cap” case) under the heading “VIII Submission” beginning at paragraph 156, Lord Collins set out a comprehensive analysis of the principles and of the approach to be taken. He refers in paragraph 159 to the fact that the domestic rule governing whether a party has submitted to the jurisdiction of the English court is one of waiver, namely, has the party “taken some step which is only necessary or only useful if an objection to jurisdiction has been actually waived or if the objection has never been entertained at all”.[62]However, after referring to the fact that the same general rule has been adopted in the past to determine whether there has been a submission to the jurisdiction of a foreign court, and citing cases in which that approach was taken, Lord Collins went on specifically to disapprove it as being determinative. It is worth quoting paragraph 161 in full:
“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. Nor does it follow from the fact that the foreign court would have regarded steps taken in the foreign proceedings as a submission that the English court will so regard them. Conversely, it does not necessarily follow that because the foreign court would not regard the steps as a submission that they will not be so regarded by the English court as a submission for the purposes of the enforcement of a judgment of the foreign court. The question whether there has been a submission is to be inferred from all the facts.”
[63]Lord Collins went on to explain and put into context certain dicta by Scott J at first instance in Adams v Cape Industries Ltd. [1990] Ch 433 at 461, that might otherwise be misinterpreted as an indication that the fact that the foreign court would not regard the steps taken as a submission to its jurisdiction should be determinative. Lord Collins expressly approved the way in which Thomas J put the matter in Akai Pty Ltd v People’s Insurance Co Ltd [1998] 1 Lloyd’s Rep 90, at 97:
“The court must consider the matter objectively; it must have regard to the general framework of its own procedural rules, but also to the domestic law of the court where the steps were taken. This is because the significance of those steps can only be understood by reference to that law. If a step taken by a person in a foreign jurisdiction, such as making a counterclaim, might well be regarded by English law as amounting to a submission to its jurisdiction, but would not be regarded by that foreign court as a submission to its jurisdiction, an English court will take into account the position under foreign law.”
[64]In the event, the Supreme Court held that certain steps taken in a liquidation in Australia were a submission to the jurisdiction of the Australian court for the purpose of the rules of private international law, notwithstanding that the steps in question (submitting proofs of debt) would not be regarded by either the Australian court or by the English court as a submission, because on the facts of that case it held that the creditor should not be allowed to benefit from the insolvency proceeding without the burden of having to comply with orders made in that proceeding.[65]It is plain from the decision in Rubin that the issue is not one of waiver. For the purposes of Ground 3, a party may be taken to have submitted to the jurisdiction of the foreign court even if, under the laws of the foreign court, he is not to be taken to have waived his right to object to the jurisdiction of that court. This is important, because Mr Anderson understandably laid great store on the fact that the Arizona Court of Appeal did not regard Kader as having waived its right to object to the jurisdiction by reason of its filing of a counterclaim and cross-claim.[66]In Akai, at 97 Thomas J also stated that:
“A step that is not consistent with or relevant to the challenge to the jurisdiction or obtaining a stay will usually be a submission to that jurisdiction.”
However, that statement must be qualified to the extent that the party concerned must not be put in the invidious position of having to choose between losing his right to challenge the jurisdiction and losing his right to defend himself. If he has no choice but to participate in the hearing of the substance of the dispute and to wait to appeal a decision on jurisdiction until after the decision on the merits has been reached, his appearance at the substantive hearing will not, without more, be characterised as voluntary: see e.g. AES Ust-Kamenogorsk Hydropower Plant LLP v AES UST-Kamenogorsk Hydropower Plant JSC [2012] 1 WLR 920. On the other hand, a party who is seen to be “playing the system” by litigating the merits in the hope of getting a judgment in his favour and then cynically turning round to challenge the validity of the judgment on grounds of want of jurisdiction if he loses, will get short shrift from the English courts. In my judgment that is exactly what Kader was doing in the present case.[67]The relevant procedural chronology set out below is not comprehensive but sets out the key steps taken in the Arizona proceedings: 27.1.04 Kader issued a three-part motion(i) to dismiss the proceedings for lack of jurisdiction(ii) alternatively, for transfer of venue to Maricopa County Superior Court(iii) alternatively for judgment on the pleadings on the basis that Desarrollo had no valid claim against Kader. 24.1.05 Arizona court (Soto J.) dismissed Kader’s motions. 3.3.05 Kader filed an Answer to the Complaint, a Counterclaim for damages against Desarrollo, and a Cross-Claim against Sinomex for an indemnity in the event there was a finding of liability made against Kader. Paragraph 6 contained a denial that the court had subject matter or personal jurisdiction over Kader and a denial “that Kader ever contractually consented to jurisdiction in this court.” Kader also reserved all arguments raised in its three-part motion. 7.4.05 Desarrollo filed a motion to dismiss the Counterclaim 18.5.05 Desarrollo filed a motion for summary judgment on liability 2.12.05 Under advisement ruling of Soto J granting Desarrollo’s motion to dismiss Kader’s counterclaim. 2006 Kader and Desarrollo conducted discovery in relation to the matters raised by Desarrollo’s motion; Kader took a deposition from Desarrollo’s CEO, and the parties exchanged interrogatories and disclosure. 12.4.07 Kader filed an answer to Desarrollo’s motion for summary judgment and applied itself for summary judgment on the merits. No mention was made of its jurisdictional objections. 14.8.07 Soto J. gave summary judgment for Desarrollo on the issue of liability and dismissed Kader’s cross-application 12.9.07 First request by Kader for a new trial or review of the judgment on the basis that the Court had misapplied Mexican law. 8.1.08 Desarrollo filed its brief in response to the request for review 14.1.08 Kader filed its reply. The oral hearing took place on the same date. 14.3.08 Ruling by Soto J dismissing Kader’s motion for a new trial/review of the judgment 21.3.08 Second motion by Kader for a new trial or review of the judgment on liability 23.9.08 Desarrollo filed its reply to Kader’s second request for review 24.11.08 Kader filed its reply 10.12.08 Desarrollo objected to the reply because it raised new issues. 3.2.09 Desarrollo filed further submissions to deal with the new issues. 25.3.09 Oral hearing of Kader’s second motion for new trial/review 6.10.09 Ruling by Soto J. denying Kader’s second motion for new trial/review 7-13.4.10 Trial on the issue of damages 26.5.10 Parties filed closing briefs 8-9.6.10 Parties filed rebuttal briefs. 4.3.11 Under advisement ruling of Soto J on damages issue 17.6.11 Kader filed Notice of Appeal. 8.6.11 Final judgment of Superior Court 26.9.11 Kader filed written brief on Appeal. This contains a challenge to the jurisdiction and submissions on the merits. 8.12.11 Desarrollo filed its written brief in response. It took the point that Kader had waived its right to object by filing a permissive pleading and said that although it might be debatable whether the Counterclaim was permissive or compulsory, the cross-claim against Sinomex was clearly non-compulsory. 16.4.12 Judgment of the Arizona Court of Appeal. The waiver point was dismissed in a footnote on the basis that “a personal jurisdiction defense can be waived only where the defendant files a permissive pleading before the trial court rules on the jurisdictional issue.” 15.5.12 Kader filed a Petition for Review to the Supreme Court of Arizona. 14.6.12 Desarrollo filed its response to the Petition for Review 25.9.12 Supreme Court of Arizona denied the petition for review.[68]So far as the domestic law of the court where the steps were taken is concerned, this court was fortunate enough to have the expert assistance of two distinguished former Chief Justices of Arizona, the Hon. Thomas Zlaket and the Hon. Charles Jones. I am greatly indebted to both of them for their clear exposition of Arizona practice and procedure, and for the patience and courtesy with which they answered questions from leading counsel and the court. As one might expect, with expert witnesses of such credentials and integrity, the differences between them turned out to be of relatively minor significance concerning the issues that this court has to decide.[69]It is clear that in Arizona, provided that the defendant raises his objection to the jurisdiction timeously (as Kader did) he will not be taken to have submitted to the jurisdiction merely because, after his objection has been dismissed, he then fights the case on the merits: Peterson v Highland Music Inc 140 F 3d 1313, (US Court of Appeals, 9th circuit, 1998.) Arizona is part of the 9th circuit. To a similar effect the Arizona Court of Appeals said in National Mobile Homes v Totem 682 P.2d 439 (1984): “we have no problem in holding under Rule 12, that a defendant who has obtained an adverse ruling on its jurisdictional defense has not waived that defense on appeal even though he proceeds to trial on the merits and a judgment has been entered against him…. In such a case the defendant is under a compulsion to defend”.[70]This mirrors the principle applied in determination of the question whether a party has submitted to the jurisdiction of the English court, that a defendant who has protested the jurisdiction is entitled to defend himself to any extent necessary to avoid judgment being entered against him on the merits pending the final resolution of his challenge on jurisdiction, provided that he takes the objection at the earliest opportunity allowed by the rules and maintains that objection.[71]The Court of Appeal in Harada Ltd v Turner [2003] EWCA Civ 1695 adopted that principle from the decision of the European Court in Elefanten Schuh GmbH v Jacqmain [1981] ECHR 1671. The issue in Harada was whether a defendant who had taken the jurisdictional objection as a preliminary point, then appealed against the ruling dismissing the objection, and failed to persuade the employment tribunal to stay the proceedings before it pending the determination of the appeal on jurisdiction, had lost his right to object to the jurisdiction by appearing under protest before the tribunal and arguing the merits. The court held that he had not. Commenting on Elefanten Schuh, Mance LJ said at [50]:
“…it is absurd to suppose that the European or any other court would hold that a defendant was, after raising its initial challenge, unable to continue to defend itself to any extent necessary to avoid judgment being entered against it on the merits, pending final resolution of its challenge on the jurisdiction.”
[72]The normal procedure in Arizona is that any appeal against an adverse ruling on a motion to dismiss for want of jurisdiction should be brought at the same time as any appeal against the judgment on the merits. There is a procedure whereby the party whose objection to the jurisdiction has been dismissed can seek a review by the Arizona Court of Appeals by way of Special Action at an earlier stage, but that jurisdiction is discretionary and the process is rarely used. The experts cited only three cases in the last 23 years in which the Court of Appeals had agreed to exercise its discretion to hear a Special Action in relation to jurisdiction. In any event they were agreed that a defendant who does not file a Special Action does not thereby waive his jurisdictional challenge.[73]Having decided, as it was entitled to do, that it would wait to appeal the jurisdiction ruling in the normal way, under Arizona law Kader was entitled to litigate the lawsuit on the merits whilst reserving its jurisdictional challenge, as it expressly did in the first pleading it filed after the jurisdictional challenge was dismissed. In Peterson v Highland Music, the court held that the defendants’ inaction on the issue of personal jurisdiction after the denial of their motion to dismiss, without more, did not constitute a waiver of the issue for the purposes of an appeal. However, it recognised that the defence of lack of personal jurisdiction may be waived as a result of conduct pursued during the litigation. It gave the following example: “if a defendant were to engage in “sandbagging” by raising the issue of personal jurisdiction on a motion to dismiss, deliberately refraining from pursuing it any further when his motion is denied in the hopes of receiving a favourable disposition on the merits, and then raising the issue again on appeal only if he were unhappy with the district court’s ultimate decision, then we would not hesitate to find that the defendant had waived any right to pursue the defense”.[74]Justice Zlaket explained that “sandbagging” was a vernacular term for a tactical form of ambush, whereby the court and the opposing party are led to believe that the objection to the jurisdiction is no longer being pursued, and the party concerned then metaphorically pops up with a gun from behind a sandbag and fires a round of ammunition against jurisdiction on appeal. Neither he nor Justice Jones had encountered that sort of behaviour in their many years in practice and on the Bench.[75]In National Mobile Homes v Totem (a case about whether a party had waived a defence of defective service of process) the Arizona Court of Appeals said that:
“the authorities are uniform in holding that a defendant, even in the face of a properly raised insufficiency of process defense, may waive that defense by seeking affirmative relief from the court, which usually arises when a defendant files a voluntary counter-claim or cross-claim…. The rationale for the rule is that if a party invokes the power of the court for its own purpose, it cannot be allowed the inconsistent objection that the forum was personally inconvenient to it.”
In the light of those observations it is slightly surprising that the Arizona Court of Appeals cited that case when dismissing Desarrollo’s objection on the grounds of waiver by reason of Kader’s counterclaim and cross-claim. It does not appear to be authority for the proposition that a personal jurisdiction defence may be waived only if the permissive pleading is filed before a ruling on the jurisdictional issue. The court simply held that a party who allowed judgment to be entered on the merits without seeking a ruling on his jurisdictional challenge had waived the right to protest the jurisdiction, even though the jurisdictional challenge had been raised at the onset of the proceedings.[76]However, in another case that Mr Anderson put in cross-examination to Justice Jones, Gates Learjet Corporation v Jensen 743 F 2d 1324 (1984), the US Court of Appeals 9th circuit did state that a claim for affirmative relief in a permissive counterclaim was not a waiver when jurisdictional defences had been raised by motion prior to the filing of the answer in which the counterclaim was raised - or indeed when the jurisdictional defences are raised in that answer. The court said that if it were to find a waiver when a defendant files a permissive counterclaim in the same pleading in which he asserts jurisdictional defences, the purposes behind Rule 12(b) [the relevant procedural rule] – to avoid the delay caused by successive motions and pleading and to reverse the prior practice of asserting jurisdictional defences by “special appearance,” would be thwarted. The court noted that when the rule makers wanted to attach waiver consequences in certain situations they did so expressly.[77]It appears that in order for the conduct of a party who has taken the initial objection to jurisdiction and reserved his position after the motion was dismissed to amount to a waiver under Arizona law, he must do something more than simply participate in the normal trial process and fight the claim on the merits. Therefore, taking the usual procedural steps such as taking depositions and giving discovery would not be sufficient. However, deliberate “sandbagging” was just an example given by the US Court of Appeals (9th Circuit) of conduct that would amount to waiver. Both the distinguished experts were agreed that there is a spectrum between, at one extreme, simply taking all necessary steps to defend the action so as to avoid a default judgment, and, at the other, writing a letter to the opposing party saying that you have decided no longer to pursue your jurisdictional objection. It is a question of fact and degree in the particular circumstances of a given case whether the conduct of the party concerned is sufficiently inconsistent with his jurisdictional objection to amount to a waiver despite the initial reservation of the right to challenge the jurisdiction.[78]In the present case, Kader raised the jurisdictional objection on 3 March 2005, when it formally reserved all the arguments it had originally run under the three-part motion to dismiss (including the argument that the matter should be transferred to a different court in Arizona). That was its first pleading after it lost the motion to dismiss for want of jurisdiction. However, Kader set out no positive case in that pleading as to why it contended that the Arizona Court lacked jurisdiction; there was, as Desarrollo’s counsel in Arizona, Mr Ehinger, described it in his oral evidence, a “pro-forma” reference, i.e. the bare minimum. There was no further mention of that objection at any stage, and no request for reconsideration, until the matter was raised again in September 2011 in the context of Kader’s appeal to the Court of Appeal. There was no attempt to call any expert evidence on the issues on which I heard oral evidence from Mr Torres-Landa and Mr Graham, although evidence of Sonora law was adduced in respect of the substantive issues.[79]Kader did not file a Special Action. It did not need to go down that route in order to preserve its jurisdictional challenge under the local procedural rules, and it was under no obligation to do so. However, the fact that such a route of challenge existed is of some importance in evaluating Kader’s decision to carry on and fight the case on the merits for the purposes of determining whether its appearance was voluntary. This was not a case in which Kader had no choice but to defend the action on the merits before taking its jurisdictional challenge on appeal. It had the opportunity to make that challenge earlier and decided not to. It made that choice, no doubt, in the hope of getting a favourable judgment on the merits.[80]In the intervening six and a half years, quite apart from its counterclaim and cross-claim against Sinomex, Kader made its own cross-application for summary judgment on the merits, and two separate applications to the Court for reconsideration of the decision to award summary judgment to Desarrollo on the basis that the Court had misapplied Sonora law. That behaviour plainly invoked the exercise by the Arizona court of its jurisdiction to consider and rule upon the merits of the claim.[81]Kader was not compelled to take any of these further steps in order to preserve its challenge to the jurisdiction, and they were not necessary to avoid a default judgment being entered against it on the merits. The applications for reconsideration in respect of the summary judgment on liability, which occupied more than two years, wereneither consistent with, nor relevant to, the challenge to the jurisdiction: quite the opposite.[82]However, even if all those steps were to be regarded as no more than compulsory defensive steps (which I do not accept they were) Kader also raised a counterclaim and a cross-claim. In some foreign jurisdictions the rules of procedure may require affirmative defences to be brought by way of counterclaim – for example, set-off or abatement. It is therefore relevant when looking at a counterclaim to consider whether it is purely defensive in nature, or whether the party concerned is invoking the jurisdiction of the court to decide claims in its favour, in a manner that goes beyond what is reasonably necessary to defend itself. As I have mentioned, Kader’s primary line of defence was that it had been released from liability as surety by material variations to the Lease without its consent. It did not need to make a counterclaim in order to run that argument, but if the counterclaim did no more than repeat what was in the defence, or raise affirmative arguments that, if accepted, would reduce or extinguish Kader’s liability as guarantor, it would probably not suffice to indicate a voluntary appearance for the purposes of enforcement of a foreign judgment.[83]I agree with the observation in Desarrollo’s motion to dismiss the counterclaim that that document is not “a model of clarity” and that it does not specifically identify any particular causes of action upon which it purports to be based. However it is plain that the counterclaim is not confined to the “material variation” argument or to other defences available to a surety such as the alleged impairment of Kader’s rights of subrogation. It contains, among other matters, a positive averment that under the terms of the April 2002 Workout Agreement and upon multiple other occasions, Desarrollo allowed Sinomex to become delinquent on its obligations under the Lease Contract and the April 2002 Workout Agreement; a claim that Desarrollo interfered with, impaired, prevented or otherwise wrongfully conducted themselves as to the Lease Contract, the April 2002 Workout Agreement and Sinomex’s obligations in a manner which caused damage to or the loss of Kader’s rights, remedies, claims and other legal and equitable interests thereunder; and an allegation that Desarrollo allowed Sinomex to repeatedly damage the leased premises and did not require from Sinomex adequate repairs or security for such repairs. In essence, the complaint appears to be that Desarrollo acted in bad faith in various respects (including allowing the sums due from Sinomex to accumulate and extending the period of the lease despite Sinomex’s repeated defaults in payment) notwithstanding the fact that they knew that Kader no longer had any connection with or control over Sinomex. There is also a claim for damages and interest which is independent of the plea that the matters complained of reduce or extinguish Kader’s liability as Guarantor.[84]Desarrollo’s motion to dismiss the counterclaim took the point that the verbiage in the counterclaim seemed to consist solely of affirmative defences which, if proven, might reduce Kader’s liability under the guarantee. However, in response, Kader took issue with that characterisation. The response memorial included a passage headed “Kader’s independent claim”in which Kader raised the argument that there was nothing to preclude the misconduct of the creditor in derogation of the rights of the guarantor from being raised as an affirmative claim. For example, it stated:
“Here, Kader’s counterclaim is independently based upon the language of the Guaranty, as well as the underlying Lease, common law, and principles of equity…. The “counterclaim damages” are to some extent different than the damage reduction that would flow from the “defensive” use of the landlord’s misconduct. Kader claims that the improper renewal of the Lease, without complying with the terms of the Lease regarding renewal, caused Kader damage. Such damage includes the impact of Kader being forced against its will to carry a significant contingent liability on its financial statements which would have been avoided absent the wrongful conduct of the Landlord and the Tenant that occurred after Kader no longer had any ownership interest in the Tenant.” [Emphasis added].
[85]Judge Soto dismissed the counterclaim on the basis that it disclosed no arguable cause of action but that does not affect the fact that Kader was trying to argue that it did, and attempting to raise a positive claim for damages. By so doing, its behaviour went well beyond taking steps to defend itself. In the course of the trial on damages, and despite the fact that its counterclaim had been dismissed, Kader sought again to raise Desarrollo’s alleged bad faith in permitting Sinomex to exercise options to renew the lease and to call evidence about it. Judge Soto permitted this evidence to be adduced despite Desarrollo’s objections. It was used as the basis for the argument by Kader that Desarrollo failed to mitigate its loss. This was another example of Kader raising issues that it wanted the Arizona court to determine in its favour, on the merits.[86]Mr Anderson submitted that Kader’s counterclaim was no more than an affirmative defence. I cannot accept that submission, particularly in the light of Kader’s own characterisation of it as an affirmative claim. Viewed objectively, Kader’s behaviour in the Arizona proceedings was a clear indication that it was no longer actively pursuing its jurisdictional challenge but engaging in active participation on the merits (and raising its own issues for determination by the court). The counterclaim was an attempt to invoke the jurisdiction of the Arizona court that went well beyond taking steps that were necessary to defend the claim made against it under the Guarantee.[87]Further, there was the cross-claim brought against Sinomex. There was no compulsion on Kader to bring that cross-claim for an indemnity in Arizona, though there may have been good practical reasons for doing so, as Sinomex was already a defendant to the proceedings. The cross-claim plainly invoked the jurisdiction of the Arizona Court to determine the merits of the claim for an indemnity. Mr Anderson submitted that even if that were so, it only amounted to a submission to the jurisdiction of the Arizona Court vis à vis Sinomex. That submission ignores the realities of the situation and the underlying legal position. As the cross-claim expressly recognized, there would be no claim against Sinomex for an indemnity unless the Arizona Court had first determined that Kader was liable to Desarrollo under the Guarantee. The cross-claim could not exist unless and until the Arizona court had pronounced on the merits. Moreover that cross-claim was raised in the proceedings brought in Arizona against Kader and cannot be regarded as a completely independent claim for the purposes of determining whether or not Kader submitted to the jurisdiction in respect of those proceedings. Regardless of whether the fact that the counterclaim and cross-claim were raised in a pleading which simultaneously sought to reserve the jurisdictional objection sufficed to defeat an argument of waiver in Arizona, as apparently it did, the steps that Kader took went well beyond doing what was necessary in order to defend itself, and were plainly inconsistent with its objections to the jurisdiction.[88]Looked at objectively, anyone considering Kader’s behaviour from the time of the rejection of its initial motion to dismiss for want of jurisdiction to the time when it actively sought to argue the jurisdictional objection in its pleadings on appeal to the Court of Appeals would have been given the distinct impression that Kader was voluntarily participating in the proceedings and had given up its jurisdictional challenge. It is hardly surprising that Mr Ehinger was somewhat taken aback to see the jurisdictional challenge resurrected, even though Kader had technically done the bare minimum required to keep it alive. Whilst of course I pay attention to the fact that the Arizona Court of Appeals rejected the argument of waiver (which was confined to a narrow point about the counterclaim) that is not conclusive. Even if Kader did enough to preserve its right to continue to challenge the jurisdiction of the Arizona Court under the local procedural rules, it does not follow that the steps it took did not amount to a voluntary appearance for the purposes of enforcement in this jurisdiction.[89]Taking the approach set out in Rubin, on consideration of the facts and having regard to both English principles and the local procedural rules so helpfully explained by Justice Zlaket and Justice Jones, in my judgment what Kader did amounted to a voluntary appearance in the proceedings for the purposes of Ground 3 of Dicey Rule 43. Kader participated fully in the Arizona proceedings and took every point open to it at every stage save where it decided, for tactical reasons, to abandon an argument (such as where it decided not to run the Mexican public policy argument before the Arizona Court of Appeals). It was under no compulsion to act as it did; its behaviour was inconsistent with its initial objections to the jurisdiction, and the permissive effect of the local procedural rules does not derogate from the fact that its behaviour was voluntary.[90]For those reasons, even if my decision on the issue of construction of the relevant agreements and the Mexican public policy argument had been different, I would still have reached the conclusion that the Arizona judgment was made by a competent court by virtue of Kader’s voluntary appearance in the Arizona proceedings and by reason of its Counterclaim and cross-claim. Desarrollo is therefore entitled to enforce the judgment in England and Wales.

Cited in 1 later judgment