Interpreting service gateways and determining forum conveniens - Ditto Ltd v Drive-Thru Records LLC
Dispute Resolution analysis: Deputy Master Francis considered the jurisdictional gateways for service out in CPR PD 6B para 3.1 for contract claims, tort claims and property within the jurisdiction.
The Master considered: (i) that the contract claim gateway was met, concluding that the contract had been made in two jurisdictions (England and California) at the same time, and (ii) the tort gateway was satisfied. Having reached that decision, the property within the jurisdiction gateway point was not substantively determined. However, having concluded that the gateways for service out were met, the Master further held that the most natural forum for the claim was California, not England, notwithstanding that the defendants' counterclaim had not been commenced there (but rather had been commenced in New York). The service out order was, accordingly, set aside. The Master also considered, albeit briefly, the obligations of full and frank disclosure in ex parte applications and concluded that any failure to disclose information on the part of the claimant had been inadvertent and/or innocent, and not serious enough to warrant that the service out order be set aside (albeit that the Master did set aside the aside the order for other reasons). Written by Michael Rhode, senior associate at Trowers & Hamlins LLP.
Ditto Ltd v Drive-Thru Records LLC (a limited liability partnership registered under the laws of the State of California) and another  EWHC 2035 (Ch)
What are the practical implications of this case?
Ditto v Drive-Thru provides useful guidance on how the court will deal with the contract claim service out gateway (CPR PD 6B, para 3.1(6)).
Subsection (a) of the contract claim gateway states that it will apply where a contract 'was made within the jurisdiction'. In the modern 'post pandemic' world, where contracts are negotiated frequently by parties in different jurisdictions using electronic means of communication, well established (and historical) principles such as the 'postal rule' cannot be relied on in a practical sense. It is also difficult for the court to determine, at an early stage interlocutory hearing, who said what first and in what order, to reach a decision at which exact point in time a contract was 'formed'. It is legitimate for parties to adopt arrangements for entering into agreements so that neither party could seek advantage from the place the contract was 'made', and for a contract to be made in two jurisdictions (or even multi-jurisdictions) simultaneously.
If one of those jurisdictions includes England, then CPR PD 6B, para 3.1(6)(a) will be satisfied, the contract having been made within the jurisdiction (as well as in other jurisdictions).
Ditto v Drive-Thru is also authority that, when the court considers 'the forum in which the dispute could be most suitably be tried for the interests of all the parties and for the ends of justice' (per Lord Goff in Spiliada Maritime Corp v Cansulex Ltd  AC 460), it can identify a jurisdiction in which neither party has in fact commenced proceedings. Factors the court can look at in making this assessment include where the parties reside and carry-on business, where representations were made, the performance of obligations, the parties' conduct relevant to the claim, where losses are suffered and/or the governing law of the contract.
What was the background?
Ditto entered into two written agreements with Drive-Thru and War Road. The agreements were 'short form', with a view to long form agreements subsequently being signed.
The agreements permitted Ditto to exploit the music/artistic works owned by Drive-Thru and War Road, principally being music of pop punk and indie bands from the 90s and early 2000s. Ditto is a global distributor of music, including to music streaming services such as Spotify.
Under the agreements Ditto was to make certain advances to Drive-Thru and War Road in exchange for access to their portfolios, which Ditto could distribute. The parties could work together on marketing initiatives. Ditto would recoup the amounts advanced to Drive-Thru and War Road from royalties received from the exploitation of the recordings, and any further royalties would be shared on a percentage basis.
Having made two initial advances, Ditto encountered difficulties in accessing the recordings. A dispute arose as to who was responsible for providing/securing the recordings, and Ditto sought to terminate the agreements. The parties agreed to mediate but had both initiated proceedings in different jurisdictions separately (and without informing the other), Ditto in England and Drive-Thru/War Road in New York.
When the mediation failed the parties informed each other of their respective claims. Ditto applied without notice in England for permission to serve out of the jurisdiction, relying on the contract, tort and property within the jurisdiction gateways in CPR PD 6B, para 3.1. Master Teverson granted Ditto permission to serve out at the hearing of its application on 3 December 2020.
Drive-Thru and War Road subsequently applied under CPR 11.1 for an order setting aside the service out order and for declarations that the English court had no jurisdiction to try the claim or should not exercise any jurisdiction it does have.
What did the court decide?
To determine the CPR 11.1 application, it was common ground that (per the principles established in Altimo Holdings and Investment Ltd v Kyrgyz Mobile Tel Ltd  UKPC 7) Deputy Master Francis had to be satisfied that:
- there is a serious issue to be tried on the merits of the claim in respect of each cause of action in relation to which permission is sought
- there is a good arguable case that the case falls within one or more of the heads of jurisdiction for which leave to serve out of the jurisdiction may be given, as set out PD 6B, para 3.1, the 'jurisdictional gateways', and
- in all the circumstances England is clearly or distinctly the appropriate forum for the trial of the dispute
With regard to (i), the Master was satisfied that there was a serious issued to be tried. The case was sufficiently pleaded and it could not be said that the claim could be summarily dismissed at such an early stage of the proceedings.
As to (ii), the Master was satisfied that the jurisdictional gateway at CPR PD 6B, para 3.1(6) was met. He concluded (following obiter comments of Lord Sumption in Brownlie v Four Seasons Holdings Inc  UKSC 80, and the decisions in Apple Corps Ltd v Apple Computer Inc  EWHC 768 (Ch) and Conductive Inkjet Technology Ltd v Uni-Pixel Displays Inc  EWHC 2968 (Ch)) that the written agreements had been simultaneously concluded in California and England, and that the contract was therefore made in England (as well as in California).
The Master was also satisfied that the jurisdictional gateway at CPR PD 6B, para 3.1(9)(a) (relating to tort claims) was met because the damage suffered/complained of in Ditto's claim was in England (the damage having occurred when Ditto transferred money to Drive-Thru/War Road from its bank account in Liverpool).
With regard to (iii), the Master held that the claim had the closest connection with California (even though Drive-Thru/War Road had not commenced any proceedings there. Relevant factors considered were that:
- Drive-Thru and War Road are based in, and carry on business in California
- the disputes which are the subject of the claim are centred upon the conduct of DriveThru and War Road:
- in the representations made in California in the period before the two agreements were concluded, and
- in the performance of their obligations and discharge of their duties arising under or in respect of the two agreements, after they were concluded, in California
- the connection of the claim to England was not strong
- Drive-Thru and War Road's losses were suffered in California, while the extent of any connection between Ditto's losses and claims for other financial relief with England was less clear, and
- the governing law of both agreements was likely to be California
So while the court was satisfied that two limbs of the test were satisfied, the third was not. On that basis the order for permission to serve out was set aside.
Albeit that the application had already succeeded and the service out order set aside, for completeness the Master also considered Drive-Thru/War Road's application that the order be set aside due to a failure by Ditto to provide full and frank disclosure to the court when making its ex parte application for service out. This related to a failure to bring to the court's attention the existence of the New York proceedings. On the evidence the Master held that non-disclosure on both accounts by Ditto was innocent and not deliberate, and therefore not so serious so as to require the service out order to be set aside.
- Court: Business List (ChD), Business and Property Courts of England and Wales, High Court
- Judge: Deputy Master Francis
- Date of judgment: 17 November 2021
This article was first published by Lexis®PSL on 25/11/2021