August 12, 2014

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Ryley Carlock Litigator Resolves Jurisdictional Rules Dilemma United Kingdom Courts Have Grappled with for Decades

The dispute spanned 12 years, involved parties in five countries, and yielded two important court rulings, but Ryley Carlock litigator James O. Ehinger ultimately helped to establish new definitive rules governing how judgments from foreign countries are recognized and enforced in the United Kingdom.

In Desarrollo Inmobiliario v. Kader Holdings Co., Ltd., following a 5-day trial, the ruling favorable to Ehinger's Mexico-based client resolved a number of unsettled questions about when a defendant would be deemed to have voluntarily submitted to a foreign court's jurisdiction as a matter of British law.

The Case That Started It All

In 1992, Ehinger's client had built a maquiladora factory in Hermosillo, Mexico for use by a Hong Kong toymaker, which was leased to the toymaker's Mexican subsidiary, and the Hong Kong parent executed a Guarantee of its subsidiaries obligations. Because the lease had been pledged to an Arizona bank as collateral for the construction loan, the lease contained a "forum selection" clause which required that all disputes regarding the leasehold be litigated in Arizona, but the Guarantee was silent on that issue, and the parent/guarantor argued that it was not bound by its debtor's choice of forum.

Ehinger prevailed in both the trial court and the Arizona Court of Appeals regarding this issue of a guarantor's consent to jurisdiction. The Court of Appeals held, as a matter of first impression, that the parent/guarantor was bound by the lease's forum selection in favor of Arizona because the Guarantee did not itself expressly specify a different forum for litigation. The Court of Appeals also clarified Arizona's law regarding a guarantor's continuing obligations in situations where the creditor and debtor have had made work-out agreements to resolve interim defaults in the tenant's performance and held that the guarantor generally remains liable despite such interim arrangements.

The Subsequent Case That Settled an Issue Plaguing the UK Courts

Ryley Carlock's efforts to enforce and collect that judgment against the toymaker's assets in England, Hong Kong, and Bermuda led to the recent holding in Desarrollo Inmobiliario v. Kader Holdings Company, Ltd. that clarified the grounds on which the UK courts will recognize and enforce judgments rendered by the courts of foreign countries.

Unlike the United States, when enforcement of a foreign country's judgment is challenged in Britain on the grounds that the foreign court did not have jurisdiction over the defendant, the plaintiff must show that the foreign court properly exercised jurisdiction both in accordance with its own local laws as well as in accordance with the dictates of British law.

The arguments presented during the British trial led the London High Court to conclude that: 1) the Arizona Courts had properly exercised jurisdiction over the Hong Kong toymaker under Arizona's local rules; 2) the toymaker had voluntarily consented to Arizona's jurisdiction under the terms of the lease and guarantee; and 3) as a matter of British law, the toymaker had voluntarily submitted to Arizona's jurisdiction by virtue of the nature and scope of its participation in the Arizona lawsuit.

Outcome for Client

Based on this ruling, the London High Court entered judgment in favor of Ryley Carlock's client for more than $12 million (USD), and the enforcement actions in England, Hong Kong, and Bermuda were resolved shortly thereafter on terms extremely favorable to our client.

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