High Court considers validity of jurisdiction clause in post-default security letter

The High Court has allowed an application by a foreign borrower and guarantor challenging its jurisdiction over a lender’s claim for sums due under a loan agreement. The lender had served the claim form outside the jurisdiction without the court’s permission, relying on a jurisdiction clause in a security letter signed after the borrower’s default: Denning v Arcem Resources Ltd [2026] EWHC 2426 (Ch).

The decision will be of interest to financial firms as it highlights the risks of relying on English jurisdiction clauses in post-default security arrangements where the requirement of consideration may not have been clearly met. A firm seeking to rely on such a clause to serve proceedings abroad without permission under CPR 6.33(2B)(b) or (c) must establish a good arguable case that the document containing the clause is itself a valid contract. It is not sufficient to rely on the jurisdiction clause separately from the containing contract. Where a firm relies on forbearance from suing as consideration, it must also provide a plausible evidential basis that the forbearance was undertaken in return for the relevant promise. 

In the present case, the underlying loan agreement was governed by English law but did not contain a jurisdiction clause. However, the security letter contained an exclusive English jurisdiction clause. The lender therefore relied on the jurisdiction clause in the security letter to serve out without permission. The court held that the security letter did not provide a valid basis for service without permission because the lender had not established a good arguable case that the security letter was supported by consideration. In particular, the evidence did not establish the necessary connection between the lender's forbearance from suing and the promises in the security letter, while the jurisdiction clause could not itself supply consideration. However, although the borrower and guarantor succeeded in their jurisdiction challenge, the lender ultimately obtained permission to serve out on the basis that the underlying loan agreement was governed by English law.

We consider the decision in more detail below. 

Background

In 2019, Mr Denning (the Lender) entered into an English law governed loan agreement (the Loan Agreement) with Arcem Resources Limited (the Borrower), under which he lent US$1 million to fund operations at a coal mine in Mozambique. Mr Main (the Guarantor) guaranteed the Borrower's repayment obligations. The Loan Agreement did not contain a jurisdiction clause.

The loan fell due for repayment in March 2020. Demands for payment were made in May and June 2020, but the borrower did not repay. No claim or enforcement steps were taken between those demands and June 2021, when the parties signed a security letter (the Security Letter). The Security Letter imposed various security obligations on the Borrower, including granting first ranking security over certain assets, but did not impose any obligations on the Lender. It also contained an exclusive jurisdiction clause in favour of the English courts in respect of disputes arising out of or in connection with the Security Letter or the Loan Agreement.

In 2025, the Lender issued proceedings seeking repayment of the principal and interest, totalling approximately US$2.9 million. The Lender served the claim form on the Borrower and the Guarantor outside the jurisdiction without the court's permission, relying on CPR 6.33(2B)(b) and (c). This was on the basis that the Security Letter constituted a contract containing a term conferring jurisdiction on the English courts. The Borrower and the Guarantor disputed liability and challenged the court's jurisdiction under CPR Part 11, contending (among other things) that the Security Letter did not constitute a valid contract because it lacked consideration, and that service was therefore not validly effected. As an alternative, if that challenge succeeded, the Lender cross-applied for permission to serve out under CPR PD 6B paragraph 3.1(6)(c), relying on the Loan Agreement’s English governing law.

Decision

The High Court allowed the Borrower and Guarantor’s CPR 11 jurisdiction challenge. However, it also allowed the Lender’s cross-application for permission to serve out of the jurisdiction.

The key aspects of the decision which will be of interest to financial firms are set out below.

CPR Part 11 application 

Service out of the jurisdiction

The court began by highlighting that, as per Dexia Crédit Local SA v Patrimonio del Trentino SpA [2024] EWHC 2717 (KB), the general rule is that a claim form cannot be served outside the jurisdiction without the permission of the court. However, CPR 6.33(2B) identifies certain circumstances in which service out of the jurisdiction is permitted without the court’s permission, including where: (a) the court has jurisdiction under the 2005 Hague Convention and there is an exclusive jurisdiction agreement conferring jurisdiction on that court; (b) a contract contains a term to the effect that the court has jurisdiction to determine that claim; or (c) the claim is in respect of a contract containing an English jurisdiction clause.

The court also noted that where a claimant is challenged on its entitlement to serve out without permission, the burden will be on the claimant to establish that entitlement (as per Dexia). The claimant will be required to do so to the standard of “a good arguable case”, which means it must have the better of the argument (and a plausible evidential basis) that CPR 6.33(2B) applies (as per Canara Bank v MCS International Ltd [2022] EWHC 2012 (Comm)).

The court also accepted that in order to invoke CPR 6.33(2B)(b) and (c), the Lender needed to satisfy the court that he had a good arguable case that there was a contract containing an English jurisdiction clause, not merely that he had a good arguable case that there was an English jurisdiction clause (as per Canara and Rimpacific Navigation Inc. v Daehan Shipbuilding Ltd [2009] EWHC 2941 (Comm)). In the present case, this meant that the Lender must have a good arguable case that the Security Letter as a whole amounted to a contract and that it contained a term providing for English jurisdiction. The Lender could not avoid that requirement by treating the jurisdiction clause as separable from the Security Letter. The key question was whether the Security Letter was supported by consideration. 

Forbearance as consideration

The court highlighted that a party must provide consideration, ie something in exchange for a promise, in order to be able to enforce that promise. Further, a bare promise, ie a promise in return for which there is neither benefit to the promisor nor detriment to the promisee, is not a contract.

The Lender argued that his forbearance from suing the Borrower constituted consideration: the Borrower and Guarantor promised to give security in June 2021 and therefore the Lender did not sue them for the money which had become due by then. The Lender relied on his contemporaneous record, which consisted of demands for payment, the Security Letter, and the absence of any further demands or proceedings.

The court rejected that argument. It underlined there must be a causal link between the borrower’s promise to give security and the lender’s decision to refrain from suing the borrower. In the court’s view, the whole point of the doctrine of consideration is what happens in return for a promise. Therefore, the crucial question was whether the Lender had forborne “on the strength” of the Borrower and Guarantor’s promise (as per Wigan v English & Scottish Law Life Assurance Society [1909] 1 Ch 291, Alliance Bank v Broom (1864) 2 Drew. & Sm. 289 and Combe v Combe [1951] 2 KB 215). The court also noted that, as per Brownlie v Four Seasons Holdings [2017] UKSC 80 (see our blog post): (i) actual forbearance can be induced by the express or implied request of the debtor, however, in order to satisfy the test for a good arguable case, the Lender must supply a plausible evidential basis for either; and (ii) bare forbearance is incapable of amounting to consideration.

In the present case, the court found that, beyond the bare sequence of events, no sufficient evidential basis had been supplied. There was no exposition by the Lender as to why the forbearance that had occurred both before and after the Security Letter took place. The court went on to highlight that the fact that the Lender’s argument that forbearance amounted to consideration failed for lack of evidence did not involve a decision that the Security Letter was meaningless.

Jurisdiction clause as consideration

The Lender also argued that the jurisdiction clause in the Security Letter, comprising a promise to sue in England, must have been something of value to the Borrower and Guarantor. 

The court rejected this argument. The court preferred the Borrower and Guarantor’s position that a jurisdiction clause cannot, by itself, constitute consideration for a contract that otherwise lacks it, ie a bare promise that was otherwise enforceable cannot become a contract merely because of a dispute resolution provision. 

In the court’s view, this position was consistent with DHL Project & Chartering Ltd v Gemini Ocean Shipping Co Ltd [2022] EWCA Civ 1555, which identified lack of consideration as a contract formation issue capable of invalidating an arbitration or jurisdiction clause in the contract in question. Where the containing contract failed for lack of consideration, a jurisdiction or arbitration clause did not change this.  

Conclusion

The court concluded that, on the evidence before it, the Lender did not, at present, have a good arguable case that the Security Letter as whole was supported by consideration. It was therefore unnecessary to determine the parties’ further arguments on separability.

Accordingly, the court allowed the Borrower and Guarantor’s CPR 11 jurisdiction challenge.

The Lender’s cross-application

The successful jurisdiction challenge did not prevent the Lender from seeking permission to serve out under CPR PD 6B paragraph 3.1(6)(c), which applies where a claim is made in respect of a contract which is governed by English law. The Loan Agreement contained such a provision. 

Applying the principles summarised in SMT Global Logistics v Georgian Airlines [2025] EWHC 739 (Comm), the court said it was satisfied that: (i) the Lender had established a good arguable case that the claim was made in respect of a contract governed by the law of England and Wales; (ii) the Lender had established there was a serious issue to be tried on the merits that the Borrower and/or the Guarantor owed money to the Lender under the terms of the Loan Agreement; and (iii) that England was the appropriate forum for trial and that the court ought to exercise its discretion to permit service out of the jurisdiction. 

Accordingly, the court allowed the Lender’s cross-application for permission to serve out of the jurisdiction.