Law Web: What are exceptions to Exclusive jurisdiction clause in contract?

I would like to set down the principles which emerge upon a reading of the judgments cited by the counsel.

11.1. First, parties cannot confer jurisdiction on a court to which CPC applies if it otherwise does not arise in law. However, if in law, two or more courts have jurisdiction in respect of disputes arising between the parties, parties by an agreement can confine jurisdiction qua disputes arising between them to one court and, thus, in effect, put fetters on approaching a court other than the agreed court i.e. the designated court or courts located in a particular territory. Such an agreement is not contrary to public policy, or in restraint of legal proceedings in terms of the provisions of Sections 23 and 28 of the Contracts Act. [See: AVM Sales Corporation1]

11.2. Second, merely because terms such as 'exclusive', 'alone' or 'only' are not used, would have no bearing on concluding as to whether or not the jurisdiction clause obtaining in a contract entered into between the parties confers jurisdiction upon a court to the exclusion of all other courts if the words used in the contract are otherwise clear and unambiguous. The important facet being that the court which is conferred with jurisdiction should, otherwise, in law, have jurisdiction in the matter.

11.3. Third, the parties can, in law, forge or cobble up contracts which have a clause that requires one of the two disputants to approach the courts located in a particular jurisdiction [designated court] even while granting leeway to the other disputant to approach, for agitation of its grievance, not only the designated court but other courts of competent jurisdiction as well. [See: Mauritius Commercial Bank2]

11.4. Fourth, in an international contract, parties often confer jurisdiction on foreign courts located in neutral venues which have nothing to do either with the parties or the contract obtaining between them. [See: Modi Entertainment3]

11.5. Fifth, the courts have jurisdiction to grant anti-suit injunction where it is found that the proceeding that the defendant has taken out or intends to take out is vexatious or oppressive. [However, as would be noticed from the facts narrated hereinabove, that is not the precise frame of the instant suit.] It is, however, submitted on behalf of the plaintiff that if the instant application is allowed, the fact that the plaintiff would then have to approach, perhaps, the Danish courts, would be both vexatious and oppressive.] [See: Modi Entertainment]

11.6. Sixth, the clause concerning governing law would, ordinarily, have no bearing on concluding as to whether or not a clause obtaining in the contract entered into between the parties confers exclusive jurisdiction on a particular court where suits are instituted in India based on the provisions of CPC concerning cause of action. [See: Laxman Prasad4 and Metal Distributors (UK)]

Applicability of the principles:-

18.4 The foregoing shall not, however, preclude B&O from obtaining interim injunctive relief on an immediate basis from a court of competent jurisdiction, pending the initiation, or outcome, of the legal proceedings regarding an alleged breach of confidentiality obligations or infringement of intellectual property rights."

13.1. A perusal of the aforesaid extract would show that Clause 18.1 of the MDA is, in effect, the governing law clause. In terms of the principles articulated hereinabove, this clause, in my view, can have no bearing on the decision as to whether or not Clause 18.2 requires the plaintiff to approach the Danish court in the event it decides to sue the defendant.

13.2. This is for the reason that even if I were to agree with the submission of Mr. Mehta that Indian court has jurisdiction in the cause, it would, then, easily apply the Danish law subject to proof as per the provisions of The Indian Evidence Act, 1872 as to what is the position in the Danish law qua the issue at hand. As to what is the foreign law vis-a-vis the issue arising between disputants is a question of fact which, then, would have to be proved, inter alia, by reference to expert testimony. [See: Hari Shanker Jain vs. Sonia Gandhi, MANU/SC/0551/2001 : (2001) 8 SCC 2335]

13.3. However, when Clauses 18.2, 18.3 and 18.4 are read together, what emerges is this, in plain words: In the event, the plaintiff seeks to agitate any controversy arising out of the MDA, it will have to approach the venue where the defendant is located i.e. Denmark, in other words, the Danish courts.

13.4. This is evident from the fact that while Clause 18.2 says that the parties agree that any controversy arising under this agreement [i.e. the MDA] shall be presented before the court located at the defendant's venue [and that parties hereby submit themselves to the jurisdiction of the said court], the next clause i.e. 18.3 explicitly states that "notwithstanding the aforesaid, the defendant may elect to take legal action against the Master Dealer at the Master Dealer's venue" i.e. the Indian courts.

13.5. Likewise, Clause 18.4, in no uncertain terms, states that the foregoing i.e. clauses 18.1, 18.2 and 18.3 shall not preclude the defendant from obtaining interim injunctive relief, on an urgent basis, concerning matters involving breach of confidentiality or infringement of intellectual property rights from a court of competent jurisdiction pending initiation or outcome of legal proceedings.

14. Thus, what comes forth, is that, while the plaintiff can be sued by the defendant both in Danish courts and in Indian courts, the plaintiff can sue the defendant only in Danish courts. Concededly, both the Danish courts and Indian courts have jurisdiction and, therefore, it cannot be said, in this case, that parties have foisted jurisdiction on one or the other courts where none, in law, arises. Admittedly, a part of the cause of action has arisen in Denmark.

14.1. The defendant is, admittedly, situated in Denmark. Therefore, the parties could agree on confining the jurisdiction concerning disputes arising out of the MDA in the Danish courts even while giving leeway to one of the disputants i.e. the defendant to approach courts in India as well Danish Courts for agitating its grievance.

14.2. The logic and rationale of giving the defendant the leeway to approach Indian courts is obviously for the reason that the plaintiff's assets would be located in India and the goods which the defendant was required to supply under the MDA would possibly be sold in stores/shops located in India. The defendant, therefore, perhaps, required such play in the joints to ensure that the remedy available to it is efficacious.

14.3. Clauses 18.3 and 18.4 envisage a situation which is often captured in international contracts that enables a foreign party [in this case, a foreign supplier] to approach courts of competent jurisdiction [i.e. in this case, the Indian courts] for securing its interest having regard to the fact that the assets of the opposite party are often located in jurisdictions other than where the foreign party is situated.

14.4. These are, to my mind, clauses which provide, in a manner of speech, two strings to a bow to one of the parties [in this case, the defendant]. It is no one's case and none has been pleaded that the plaintiff was coerced into executing the MDA, in particular, concerning the provisions of Clause 18 of the MDA.

14.5. The fact that no grievance qua the same was made in the first 5 years only fortifies my view. These clauses, in my opinion, are neither against the public policy of India nor can be construed as clauses which fetter the plaintiff from taking recourse to a legal proceeding.

Ratio: the Court held that the law permitted the parties to an international contract to confer jurisdiction on foreign courts located in neutral venues which did not have any nexus either with the parties or the contract between them, and that as an extension of this autonomy the parties could further contract between themselves to require one of them to approach only the courts located in a particular jurisdiction in the case of dispute, even while granting leeway to the counter-party to approach not only the said identified court but other courts of competent jurisdiction as well.

IN THE HIGH COURT OF DELHI

I.A. No. 4174/2020 in CS (COMM) 122/2020

Decided On: 24.08.2020

Beoworld Pvt. Ltd. Vs. Bang & Olufsen Expansion

Hon'ble Judges/Coram:

Rajiv Shakdher, J.

Citation: MANU/DE/1593/2020

I.A. No. 4174/2020

Preface:-

1. This is an application filed by the defendant under the provisions of Order VII Rule 10 of the Code of Civil Procedure, 1908 [in short "CPC"].

2. For the ease of narration, the plaintiff and the defendant will be collectively referred to as parties unless the context requires otherwise.

3. The captioned application is pivoted on a singular clause i.e. Clause 18 of the Master Dealer Agreement dated 19.03.2014 [in short "MDA"].

3.1. Based on this clause [in particular, Clauses 18.1 and 18.2], the defendant asserts that the disputes raised in the instant suit can be presented by the plaintiff only before the Court where the defendant is located i.e. The Danish Court.

3.2. The plaintiff disputes this contention. The plaintiff claims that this Court has concurrent jurisdiction. In this behalf, provisions of Section 20 of the CPC are relied upon by the plaintiff. In other words, in sum, the plaintiff claims that Clause 18.2 of the MDA does not vest exclusive jurisdiction on the Courts in Denmark. This argument is sought to be buttressed by referring to Clauses 18.3 and 18.4 of the MDA.

3.3. Therefore, the core issue which requires adjudication in the present application is the scope and effect of Clause 18 of the MDA.

Prefatory facts:-

4. Before I proceed further, it would be relevant to note the broad contours of the case so that the issue at hand is seen in the correct perspective.

4.1. On 19.03.2014, the plaintiff and the defendant executed the MDA. Under the MDA, the plaintiff was appointed as an exclusive dealer vis-à-vis the subject territory i.e. India qua products manufactured by the defendant. The initial period of engagement was 5 years.

4.2. The MDA contained a renewal clause i.e. Clause 12.2. The defendant, instead of renewing the MDA for a further period of 5 years, six (6) months before its expiration, on 20.12.2018 via an email, informed the plaintiff that it was, generally, wanting to update its distributorship agreements across jurisdictions and, therefore, instead of renewing the subsisting MDA, it would enter into a "new agreement".

4.3. The record shows that on this aspect correspondence was exchanged between the parties followed by the defendant dispatching a Framework Agreement on 26.07.2019 [hereafter referred to as "Framework Agreement"] to the plaintiff.

4.4. In the interregnum, by sheer efflux of time, the MDA expired on 30.06.2019. Since parties were still negotiating, they entered into a Prolongation Agreement on 02.09.2019 [in short "PA"] which, in a nutshell, carried forward the rights and obligations under the MDA till such time parties could forge a new agreement.

4.5. However, the relationship between the parties frayed, which led to the defendant issuing a notice of termination dated 23.04.2020 [in short "Termination Notice"]. In the Termination Notice, the defendant adverted, broadly, to three grounds which, according to it, mandated that the plaintiff's distributorship should be brought to an end:

i. First, the business was not being carried out by the plaintiff as required under the MDA. According to the defendant, the stores/shops were closed. In support of this assertion, the defendant appended photographs of the stores/shops which were taken in September 2019 and March 2020.

ii. Second, the minimum stock-level [as provided in Clause 7.14 of the MDA] was not maintained.

iii. Third, the plaintiff had failed to fulfil the annual minimum purchase obligation as contemplated in Clause 9.1 of the MDA. According to the defendant, the plaintiff's minimum purchase obligation for the financial year 2019-2020 stood at Euro 1,771,875/-, and that, after adjustment was made for the value of products purchased by the plaintiff i.e. Euro 6,34,447.16/-, there was still a deficit of Euro 1,137,427.84/-.

4.6. The plaintiff refuted these allegations made by the defendant, albeit, via its reply dated 29.04.2020.

4.7. Since the parties were unable to resolve their differences, the plaintiff approached this Court. The suit came up for hearing before the Court for the first time on 11.05.2020. On that date, the plaintiff's counsel, after obtaining instructions, offered to furnish, voluntarily, an unconditional bank guarantee of a nationalized bank drawn in favour of the Registrar General of this Court for an amount equivalent to Euro 1,137,430.00 [rounded off from a figure of Euro 1,137,427.84, which was, as per defendant the amount in deficit qua the minimum purchase obligations undertaken under the MDA by the plaintiff].

4.8. The bank guarantee, thus, was required to be furnished within 10 days. In the interregnum, it was directed that the parties will maintain status quo and, in particular, the defendant was restrained from entering into a Master Dealer Agreement with a third party qua the subject territory i.e. India till the next date of hearing. The matter was made returnable on 29.05.2020.

4.9. The plaintiff, however, moved an application i.e. I.A. No. 3978/2020 before the said date which came up for hearing on 22.05.2020. On that date, at the behest of the plaintiff, order dated 11.05.2020 was modified to the extent that the bank guarantee had to be furnished in favour of the defendant as against the Registrar General of this Court and the timeframe for this purpose was extended till 29.05.2020.

5. Admittedly, the plaintiff failed to comply with the directions contained in the order dated 11.05.2020 as modified by the subsequent order i.e. order dated 22.05.2020.

5.1. The failure of the plaintiff to furnish a bank guarantee should have led to vacation of the interim order, however, based on the entreaties of the counsel for the plaintiff, the plaintiff's application under Order XXXIX Rule 1 and 2 of the CPC i.e. I.A. No. 3837/2020 along with the defendant's application under Order XXXIX Rule 4 of the CPC i.e. I.A. No. 4434/2020 were heard on merits as well.

5.2. Having perused the record and heard arguments in the aforementioned applications, I was persuaded to vacate the interim order. This order was passed on 28.07.2020.

5.3. Insofar as the captioned application was concerned, it was fixed for hearing along with I.A. No. 4083/2020 which is also preferred by the defendant, albeit, under Order VII Rule 11 of the CPC.

6. It is in this backdrop that submissions were heard on 06.08.2020, in the usual course, in I.A. No. 4174/2020 given the fact that counsel realized that arguments in I.A. No. 4083/2020 would have to be advanced, if at all, depending on the outcome of the said application.

Submissions of Counsel:-

7. Arguments on behalf of the defendant were advanced by Ms. Nandita Rao while submissions on behalf of the plaintiff were made by Mr. Tanmaya Mehta.

8. The arguments of Ms. Rao were, broadly, as follows.

i. Clause 18.2 read with Clauses 18.1, 18.3 and 18.4 of the MDA was indicative of the fact that parties had, in no uncertain terms, agreed that if the plaintiff was required to agitate any controversy which arose out of the MDA, it could only approach those courts that were located at the defendant's venue i.e. Denmark. However, if the defendant elected to take recourse to a legal remedy against the plaintiff, it could approach either the courts in Denmark or the courts where the plaintiff was located. In case the defendant was required to secure urgent interim injunctive relief concerning the alleged breach of the obligation to maintain confidentiality or infringement of intellectual property rights, it could, under the MDA, approach a court of competent jurisdiction pending initiation or outcome of legal proceedings.

ii. The plaintiff cannot be heard to say that Clause 18 of the MDA was a non-exclusive jurisdiction clause unless relevant averments, in that behalf, were made in the plaint.

iii. Simply because the defendant had a right to approach the courts in India, it did not morph an exclusive jurisdiction clause into a nonexclusive jurisdiction clause if the clause was, otherwise, clear and unambiguous in expressing the intent of the parties. Such a clause was not violative of Section 23 and 28 of the Indian Contracts Act, 1872 [in short "Contracts Act"] as is sought to be contended on behalf of the plaintiff.

iv. The plaintiff had not assailed Clause 18 of the MDA; therefore, it would bind the parties. The intent of the parties would have to be ascertained from the plain words used in Clause 18.

v. Clause 18.2 read with Clauses 18.3 and 18.4 contemplates two scenarios. First, when the defendant is required to institute an action against the plaintiff. Second, where the plaintiff is required to initiate legal proceedings against the defendant. In the first situation, while the defendant can sue the plaintiff both, in courts located in Denmark and India, the plaintiff can sue the defendant only in courts located in Denmark. In other words, the defendant can be sued only in Danish courts while the plaintiff can sue both in Danish courts as well as Indian courts. Such clauses are often incorporated in international contracts. Since both the Danish courts as well as Indian courts will have jurisdiction in the matter, confining the jurisdiction to Danish courts in situations where the defendant is to be sued under the MDA is not against the public policy of India. In support of this contention, reliance was placed on the judgment of the English Court in Mauritius Commercial Bank Limited vs. Hestia Holdings Limited Sujana Universal Industries Limited, MANU/UKCM/0046/2013 : (2013) EWHC 1328 (Comm.) [in short "Mauritius Commercial Bank"] and the judgment of the Division Bench of this Court in Spentex Industries Ltd. vs. State Bank of India [in short "Spentex Industries"].

vi. As to whether Clause 18.2 conferred exclusive jurisdiction on Danish courts had to be construed from the language of the provision. The fact that the clause did not use words such as 'exclusive', 'alone' or 'only' was irrelevant as long as the words, otherwise, unambiguously conveyed the intent of the parties in that behalf. Reliance in support of this submission was placed on Swastik Gases Private Limited vs. Indian Oil Corporation Limited, MANU/SC/0654/2013 : (2013) 9 SCC 32 [in short "Swastik Gases"].

vii. Where two courts have concurrent jurisdiction, confining jurisdiction to one court and excluding that of the other was not violative of Section 23 and 28 of the Contracts Act if the words used in the jurisdiction clause of the contract obtaining between the parties are otherwise clear and unambiguous. Reliance, in this behalf, was placed on AVM Sales Corporation vs. Anuradha Chemicals Private Limited, MANU/SC/0033/2012 : (2012) 2 SCC 315 [in short "AVM Sales Corporation"]; and Bharat Heavy Electricals Limited vs. Electricity Generation Incorporation and Others, MANU/DE/3372/2017 : (2018) 246 DLT (DB) [in short "Bharat Heavy Electricals"].

viii. The argument articulated on behalf of the plaintiff in the reply to the application that if the plaintiff is compelled to approach the Danish Court, it would involve expenses and difficulties since evidence both, documentary and oral, was available in India and, hence, in a sense, make the entire exercise vexatious and oppressive was not available, at this juncture, to the plaintiff. The plaintiff is an entity having requisite wherewithal. On its showing, it had the capacity to purchase stock worth Euro 8 million [i.e. Rs. 70,21,41,888/- approximately]. The plaintiff's representative had executed the MDA with their eyes open and, therefore, if the "foresee ability test" which is articulated by the Supreme Court in Modi Entertainment Network vs. WSG Cricket PTE Limited, MANU/SC/0039/2003 : (2003) 4 SCC 341 [in short "Modi Entertainment"] is applied, this argument would not be available, at this juncture, to the plaintiff.

9. On the other hand, Mr. Mehta refuted the submissions advanced by Ms. Rao. Mr. Mehta's submissions, thus, can, broadly, be paraphrased as follows.

i. Ms. Rao's interpretation of Clause 18 of the MDA was erroneous. Clause 18.2 did not oust the jurisdiction of Indian courts. This was evident upon a bare perusal of Clauses 18.3 and 18.4. The parties had agreed to have their disputes being adjudicated by Indian courts in addition to the Danish courts. In this behalf, reliance was placed on the PA which adverted to the fact that Clauses 18.1, 18.2 and 18.3 would apply to the said agreement as well.

ii. The MDA does not recognize the exclusive jurisdiction of the Danish courts. The MDA confers jurisdiction not only on Danish courts under Clause 18.2 but also on Indian courts via Clause 18.3. Besides this, it also confers jurisdiction for obtaining interim relief on any other court via Clause 18.4. The competent courts, given the circumstances obtaining in the instant case, would only be the courts in India.

iii. Since an overwhelming part of the cause of action arises in India, Danish courts will be an inconvenient forum for the plaintiff.

(iii.a) In support of this submission, which is, that cause of action arose in India, it was contended that the plaintiff executed the MDA in India, the shops/stores were located in India, the goods/products of the defendant were delivered in India, the consideration was transmitted by the plaintiff to the defendant from India, the Termination Notice was served in India, and the alleged breach took place in India.

(iii.b) Given the fact that the breach took place in India, the evidence both, in terms of documents and otherwise, would be available in India. The plaintiff may have to summon documents which are in the custody of government officials and, therefore, would present insurmountable difficulties if the plaintiff was compelled to approach the Danish courts.

(iii.c) Besides this, the relief that the plaintiff seeks in the present suit is not available under the Danish law and, thus, the plaintiff, in effect, would be rendered remedy less.

(iii.d) The Danish courts are a forum non-conveniens also for the following reasons.

a) International flights are shut on account of COVID-19.

b) It is not possible to choose a lawyer sitting in India.

c) The evidence for proving the case of the plaintiff is available largely in India as indicated above.

d) There is only a miniscule part of the cause of action arising in Denmark.

iv. The fact that the MDA is governed and is to be interpreted as per the Danish law can have no bearing on the question as to whether the plaintiff could approach for agitation of its grievance only the Danish courts.

v. The plaintiff verily believed, at the time when it instituted the suit, that Clause 18 of the MDA conferred jurisdiction on Indian courts and, therefore, neither a challenge was laid to the said clause nor were any averments made as to how the jurisdiction of this Court was triggered in terms of the said clause.

9.1. In support of his submissions, Mr. Mehta relied upon the following judgments.

a. Spentex Industries.

b. Judgment dated 27.08.2008, passed in FAO (OS) No. 138/2005, titled Metal Distributors (UK) Limited vs. Emmsons International Limited & Another [in short "Metal Distributors (UK)"].

c. Laxman Prasad vs. Prodigy Electronics, MANU/SC/4571/2007 : (2008) 1 SCC 618 [in short "Laxman Prasad"].

d. Shridhar Vyapaar Private Limited vs. Gammon India Limited [in short "Shridhar Vyapaar Private Limited"].

e. Control Print (India) vs. Cab Machines S.A. [in short "Control Print (India)"].

9.2. In addition, thereto, Mr. Mehta submitted a compilation containing another 12 judgments i.e.,

a. Rasmala Trade Finance vs. Raman Gupta.

b. Transport Corporation of India vs. Ganesh Polytex, MANU/SC/1014/2014 : (2015) 3 SCC 571.

c. Rockware Glass Ltd. vs. MacShannon, MANU/UKHL/0009/1978 : [1978] 2 W.L.R. 362 (House of Lords).

d. Maharashtra State Road Development Corporation Ltd., Pune vs. Larsen and Toubro Ltd., MANU/MH/0039/2004 : 2004 (3) Mh.L.J. 285.

e. Naziruddin vs. P.A. Annamalai and others, MANU/TN/0252/1978 : AIR 1978 Mad 410.

f. Satya Jain and Others vs. Anis Ahmed Rushdie and Others, MANU/SC/1063/2012 : (2013) 8 SCC 131.

g. LIC of India & Anr. vs. Consumer Education & Research Centre & Ors., MANU/SC/0772/1995 : (1995) 5 SCC 482.

h. Bank of India and Anr. vs. K. Mohandas and Ors., MANU/SC/0491/2009 : (2009) 5 SCC 313.

i. Chrisomar Corporation vs. MJR Steels Pvt. Ltd., MANU/SC/1173/2017 : (2018) 16 SCC 117.

j. Rhodia Limited & Ors. vs. Neon Laboratories Limited, MANU/MH/0464/2004 : (2005) 107 (1) Bom LR 178.

k. M/s. Hadia Abdul Latif Jameel Co. Ltd. v. Punj Lloyd Ltd. & Anr., MANU/DE/4749/2017 : (2017) SCC Del 6933.

l. Mayar H.K. Ltd. vs. Owners and Parties, Vessel M.V., MANU/SC/8083/2006 : (2006) 3 SCC 100.

Analysis and reasons:-

10. I have heard learned counsel for the parties and perused the record and also closely examined the judgments cited by the counsel in support of their submissions.

11. Since the facts, insofar as they are necessary for adjudication of the instant application, are not in dispute, I would like to set down the principles which emerge upon a reading of the judgments cited by the counsel.

(UK)]

Applicability of the principles:-

12. Thus, having regard to the aforesaid principles, one would have to ascertain as to whether the relevant provisions of Clause 18 of the MDA bring out the intent of the parties as propounded on behalf of the defendant and that if the plaintiff were to sue the defendant it would have to approach the court where the defendant was located i.e. the Danish court.

13. To appreciate the true scope and effect of the provisions of Clause 18 of the MDA, the said clause, in its entirety, is set forth hereafter.

"18. GOVERNING LAW AND DISPUTES

18.1 This Agreement is governed by and will be interpreted in accordance with Danish law.

18.2 The Parties agree that any controversies arising under this Agreement shall be presented before the court located at B&O's venue, and the Parties hereby submits themselves to the jurisdiction of the said court.

18.3 Notwithstanding the aforesaid B&O may elect to take legal action against the Master Dealer at the Master Dealer's venue.

15. At this juncture, I must advert to the judgment rendered by the Division Bench of this Court in Spentex Industries.

15.1. Mr. Mehta relied upon this judgment to contend that the jurisdiction of Indian courts was not ousted.

15.2. A close perusal of the facts obtaining, in that case, would show that like in the instant case a leeway was given to one of the parties which had financed the transaction i.e. the State Bank of India [referred to as the finance party in the agreement] to approach the Indian courts in addition to the designated courts i.e. courts in England. As per the provisions of the clause in issue in that case i.e. Clause 43.1 (c) and (d), SBI had approached the Debts Recovery Tribunal under the Recovery of Debts [Due to Banks and Financial Institutions] Act, 1993. This was assailed by the petitioner i.e. Spentex Industries Ltd. The Court repelled the plea on the ground that under the provisions of the agreement i.e. Clause 43.1(c) such leeway had been given to SBI. In my view, this judgment, if at all, would further the cause of the defendant rather than that of the plaintiff.

15.3. The other argument advanced by Mr. Mehta that if the plaint is returned, as is contended by the defendant, the plaintiff will be constrained to approach the Danish courts which would impose, not only a heavy financial burden on the plaintiff but would also involve insurmountable difficulties such as having to ferry the evidence to the Danish courts when it is largely available in India-is an argument of convenience.

15.4. The plaintiff, while executing the MDA, should have foreseen that if it was required to take recourse to a legal remedy it would have to incur costs and also ferry evidence to Denmark. The situation in which the plaintiff is put in is no different from that which arises in almost all international contracts. The plaintiff was required to show something more to persuade me to conclude that if the plaintiff was required to approach Danish courts such an exercise would be both vexatious and oppressive. The plaintiff has not been able to discharge its burden, in that behalf. For the very same reason, I am not impressed with the argument that the Danish Courts, on account of the Corona virus pandemic or otherwise, present a state of forum non-conveniens. The pandemic has attained ubiquity. Difficulties faced by the plaintiff would be no more than that the defendant would have to face if it were to defend this cause in India. For the Court to sway in favour of one party i.e. the plaintiff based on this plea when the plain language of Clause 18 suggests otherwise would tantamount to aiding the breach of the contract in the absence of a robust justification.

15.5. The other argument of Mr. Mehta that the plaintiff cannot seek specific performance of the MDA under the Danish Law does not impress me for two reasons. Firstly, because it has been argued by Mr. Mehta that the clause pertaining to governing law i.e. Clause 18.1 of the MDA would have no bearing on the issue as to whether or not Indian courts have jurisdiction in the matter. I have proceeded on this very assumption in deciding the captioned application. Secondly, the articles appended by the plaintiff with its reply on this aspect of the matter are suggestive of the fact that although Danish courts are slow in granting specific performance, it is not a relief which is completely excluded from the realm of law in Denmark. This observation, of course, comes with a caveat, which is that, as to what is the Danish Law is a question of fact that requires proof. However, in this case, one was not required to go that far as Mr. Mehta argued [an aspect noticed hereinabove] it has no relevance in determining as to whether or not Indian courts had jurisdiction in the cause at hand.

15.6. Importantly, to my mind, once contracts are entered into between the parties, which appear to be fair, reasonable and conscionable, the courts need to ensure that they are enforced in consonance with the provisions incorporated therein. This is truer of commercial contracts obtaining between a domestic and a foreign party. The enforceability of international contracts is one of the indices which foreign parties look for while deciding as to whether or not they should invest funds in businesses located in the country.

15.7. The other judgments, which were appended with the written submissions filed on behalf of the plaintiff, advert to propositions of law with which one cannot quibble. The judgments, in no way, in my view, would impact the conclusion reached by me in the instant case.

Conclusion:-

16. Thus, for the foregoing reasons, I am inclined to allow the prayer made in the captioned application. Consequently, the plaint will be returned with necessary endorsements by the Registry.

I.A. No. 4083/2020

17. Given the order passed by me hereinabove, orders need not be passed in this application. The application is, accordingly, closed.

CS (COMM) 122/2020

18. Having regard to the order passed in I.A. No. 4174/2020, the case need not proceed further.

19. Consequently, the date already fixed in the matter i.e. 28.09.2020 shall stand cancelled. The suit papers shall stand consigned to record.

1"15. This leads us to the next question as to whether, if two courts have the jurisdiction to entertain a suit, whether the parties may by mutual agreement exclude the jurisdiction of one of the courts, having regard to the provisions of Sections 23 and 28 of the Contract Act, 1872. Section 23 of the aforesaid Act indicates what considerations and objects are lawful and what are not, including the considerations or objects of an agreement, if forbidden by law.

16. Section 28 of the Act, which has a direct bearing on the facts of this case, clearly spells out that any agreement in restraint of legal proceedings is void. For the sake of reference, the same is extracted hereinbelow:

"28. Agreements in restraint of legal proceedings void.--Every agreement,--

(a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, or

(b) which extinguishes the rights of any party thereto, or discharges any party thereto from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to that extent.

Exception 1. --Saving of contract to refer to arbitration dispute that may arise. --This section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.

***

Exception 2. --Saving of contract to refer questions that have already arisen. -- Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to references to arbitration."

17. Basically, what Section 28 read with Section 23 does, is to make it very clear that if any mutual agreement is intended to restrict or extinguish the right of a party from enforcing his/her right under or in respect of a contract, by the usual legal proceedings in the ordinary tribunals, such an agreement would to that extent be void. In other words, parties cannot contract against a statute.

18. One of the earlier cases in which this question had arisen, was A.B.C. Laminart (P) Ltd. v. A.P. Agencies [MANU/SC/0001/1989 : (1989) 2 SCC 163: AIR 1989 SC 1239]. In the said case, the cause of action for the suit had arisen both within the jurisdiction of the civil court at Salem in Andhra Pradesh and in the civil court of Kaira in the State of Gujarat. The question arose as to whether since by mutual agreement the jurisdiction had been confined only to the courts within Kaira jurisdiction, the suit filed at Salem was at all maintainable? This Court, inter alia, held that: (SCC p. 170, para 10)

"10. there [could] be no doubt that an agreement to oust absolutely the jurisdiction of the court will be unlawful and void being against public policy."

However, such a result would ensue if it is shown that the jurisdiction to which the parties had agreed to submit had nothing to do with the contract. If, on the other hand, it is found that the jurisdiction agreed would also be a proper jurisdiction in the matter of the contract, it could not be said that it ousted the jurisdiction of the court.

19. After considering the facts involved in the said case and the submissions made on behalf of the parties, this Court observed as follows: (A.B.C. Laminart case [MANU/SC/0001/1989 : (1989) 2 SCC 163: AIR 1989 SC 1239], SCC p. 174, para 18)

"18. Thus it is now a settled principle that where there may be two or more competent courts which can entertain a suit consequent upon a part of the cause of action having arisen there within, if the parties to the contract agreed to vest jurisdiction in one such court to try the dispute which might arise as between themselves the agreement would be valid. If such a contract is clear, unambiguous and explicit and not vague it is not hit by Sections 23 and 28 of the Contract Act. This cannot be understood as parties contracting against the statute."

20. A similar view was taken by this Court in Angile Insulations v. Davy Ashmore India Ltd. [MANU/SC/0338/1995 : (1995) 4 SCC 153], wherein the Hon'ble Judges while referring to the decision of this Court in A.B.C. Laminart (P) Ltd. case [A.V.M. Sales Corpn. v. Anuradha Chemicals (P) Ltd., First Appeal (AS) No. 1352 of 1999, order dated 18-1-2007 (AP)], inter alia, held that where two courts have the jurisdiction consequent upon the cause of action or a part thereof arising therein, if the parties agree in clear and unambiguous terms to exclude the jurisdiction of the other, the said decision could not offend the provisions of Section 23 of the Contract Act. In such a case, the suit would lie in the court to be agreed upon by the parties.

21. This Court has consistently taken the same view in several subsequent cases. We may refer to one such decision of this Court in Hanil Era Textiles Ltd. v. Puromatic Filters (P) Ltd. [MANU/SC/0348/2004 : (2004) 4 SCC 671: AIR 2004 SC 2432], where part of the cause of action arose at both Delhi and Bombay. This Court held that the mutual agreement to exclude the jurisdiction of the Delhi courts to entertain the suit was not opposed to public policy and was valid.

22. As indicated herein earlier, in this case also the cause of action for Original Suit No. 519 of 1991, filed by the respondent before the Principal Senior Civil Judge, Vijayawada, arose partly within the jurisdiction of the Calcutta courts and the courts at Vijayawada.

23. Having regard to the provisions referred to hereinabove, though the courts at Vijayawada would also have jurisdiction, along with the courts at Calcutta, to entertain and try a suit relating to and arising out of the agreement dated 23-12-1988, and the mutual understanding dated 15-5-1989, such jurisdiction of the courts at Vijayawada would stand ousted by virtue of the exclusion clause in the agreement.

The special leave petition has, therefore, to be allowed. The decree passed by the Principal Senior Civil Judge, Vijayawada in OS No. 519 of 1991, and the impugned judgment of the High Court dated 18-1-2007 [A.V.M. Sales Corpn. v. Anuradha Chemicals (P) Ltd., First Appeal (AS) No. 1352 of 1999, order dated 18-1-2007 (AP)], are set aside. The trial court at Vijayawada is directed to return the plaint of Original Suit No. 519 of 1991 to the plaintiff to present the same before the appropriate court in Calcutta having jurisdiction to try the suit."

2"37. It was contended on behalf of the Defendants that clause 24.1(c) confers a power on MCB to sue the lender and guarantor in any court in the world, rather than those courts which would otherwise regard themselves under their own rules of private international law as having competent jurisdiction. This is an erroneous reading of the clause. Sub-paragraph (c) merely provides that sub-paragraph (a) shall not prevent MCB from taking proceedings other than in England. It is not an agreement to confer jurisdiction on a foreign court where none would otherwise exist. It preserves MCB's right to sue in any court which would regard itself as of competent jurisdiction, notwithstanding what would otherwise have been the effect of clause 24.1(a), which, if it had stood alone, would have required MCB to sue in England.

38. I regard this as the natural construction of the sub-clause and the permissive language linking it to sub-clause (a) ("As a result the it would be necessary to keep in mind that it would be unlikely that the parties could have intended to submit their disputes to any court in the world however exorbitant. Indeed the Defendants' argument was that their construction, which bound them to litigation in any forum in the world of MCB's choosing, however inappropriate, was so unreasonable as to be invalid as contrary to English public policy. In the oft cited words of Lord Reid in Schuler (L) A.G. v. Wickman Machine Tool Sales Ltd. MANU/UKHL/0018/1973 : [1974] AC 235, at 251:

"The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear."

39. I have not overlooked an argument by the Defendants that their construction is supported by the different wording in the preceding Notice of Default and Waiver and Consent of 6 September 2012, which contained at clause 3 a Mauritian law and jurisdiction clause with a permissive provision akin to clause 24.1(c) referring to "courts with jurisdictions". It was argued that the omission in 24.1(c) of a reference to courts with jurisdiction indicated an intention to permit a wider range of courts to be available to MCB. This argument cannot bear the weight Mr. Forbes Smith seeks to put on it. Clause 24.1 is drafted in a different format from the previous clause 3, and the change in wording does not indicate any change of intention.

40. It was further contended on behalf of the Defendants that clause 24.1(a) confers no rights on Hestia or Sujana, because MCB's freedom to litigate in any forum under clause 24.1(c) applies regardless of whether MCB is sued or is being sued. The argument is that clause 24.1(c) operates defensively to enable MCB to resist any suit brought by Hestia or Sujana in England because it provides that 24.1(a) is only for MCB's benefit. Accordingly, it is said, the clause is entirely one-sided because it confers no rights on Hestia or Sujana to sue in any forum whilst subjecting them to any forum at the suit of MCB. That too is, in my view, an erroneous reading of the clause. Clause 24.1(c) refers to the lender taking proceedings. Clause 24.1 is for the benefit of MCB in the sense that Hestia and Sujana are obliged to sue in England but MCB is not. But that does not disapply clause 24.1(a) to MCB completely. Where it is Hestia or Sujana which brings suit against MCB in England, clause 24.1(a) is not disapplied by the operation of clause 24.1(c). MCB is thereby agreeing to be sued in England subject to the liberty conferred by clause 24.1(c). In those circumstances MCB has agreed to be subjected to the exclusive jurisdiction of the English courts, subject to its right to bring claims (which may overlap) abroad pursuant to clause 24.1(c). Were it otherwise, clause 24.1(a) would be superfluous: if clause 24.1(c) permitted MCB to insist on suing or being sued anywhere, or anywhere of competent jurisdiction, that would include England (given that this is an English law agreement and forum conveniens is conclusively determined by sub-clause (b)).

41. Mr. Forbes Smith relied on NB Three Shipping Ltd. v. Harebell Shipping Ltd. MANU/UKCM/0090/2004 : [2005] 1 Lloyds Rep 509 and Law Debenture Trust Corporation plc v. Elektrim Finance BV [2005] EWHC 1412 for the proposition that the beneficiary of a one-sided jurisdiction agreement may use it defensively as well as offensively. Expressed in such general terms the principle is unobjectionable. But the clauses in those cases were in materially different terms from clause 24.1, and the cases are merely examples of where that different wording had that effect. More relevant is the decision of Gloster J in Lornamead Acquisitions Limited v. Kaupthing Bank HF [2011] EWHC 2611 (Comm.), in which a clause in materially identical terms was construed in the way I have indicated clause 24.1 is to be construed.

42. That is sufficient to dispose of the Defendants' application, because Mr. Forbes Smith accepted that there is no basis for challenging clause 24.1 if it is to be construed in this way. Such asymmetric provisions have regularly been enforced by the court. As Professor Fentiman has observed in a recent article in the Cambridge Law Journal entitled "Universal jurisdiction agreements in Europe" (CLJ (2013) 72 (1) 24-27):

"Such unilaterally non-exclusive clauses are ubiquitous in the financial markets. They ensure that creditors can always litigate in a debtor's home court, or where its assets are located. They also contribute to the readiness of banks to provide finance, and reduce the cost of such finance to debtors, by minimising the risk that a debtor's obligations will be unenforceable. Such agreements are valid in English law. . . Indeed despite their asymmetric, optional character it is difficult to conceive how their validity could be impugned or what policy might justify doing so. . ." "

3"11. In regard to jurisdiction of courts under the Code of Civil Procedure (CPC) over a subject-matter one or more courts may have jurisdiction to deal with it having regard to the location of immovable property, place of residence or work of a defendant or place where cause of action has arisen. Where only one court has jurisdiction, it is said to have exclusive jurisdiction; where more courts than one have jurisdiction over a subject-matter, they are called courts of available or natural jurisdiction. The growing global commercial activities gave rise to the practice of the parties to a contract agreeing beforehand to approach for resolution of their disputes thereunder, to either any of the available courts of natural jurisdiction and thereby create an exclusive or nonexclusive jurisdiction in one of the available forums or to have the disputes resolved by a foreign court of their choice as a neutral forum according to the law applicable to that court. It is a well-settled principle that by agreement the parties cannot confer jurisdiction, where none exists, on a court to which CPC applies, but this principle does not apply when the parties agree to submit to the exclusive or non-exclusive jurisdiction of a foreign court; indeed in such cases the English courts do permit invoking their jurisdiction. Thus, it is clear that the parties to a contract may agree to have their disputes resolved by a foreign court termed as a "neutral court" or "court of choice" creating exclusive or non-exclusive jurisdiction in it.

xxx xxx xxx

24. From the above discussion the following principles emerge:

(1) In exercising discretion to grant an anti-suit injunction the court must be satisfied of the following aspects:

(a) the defendant, against whom injunction is sought, is amenable to the personal jurisdiction of the court;

(b) if the injunction is declined, the ends of justice will be defeated and injustice will be perpetuated; and

(c) the principle of comity -- respect for the court in which the commencement or continuance of action/proceeding is sought to be restrained -- must be borne in mind.

(2) In a case where more forums than one are available, the court in exercise of its discretion to grant anti-suit injunction will examine as to which is the appropriate forum (forum conveniens) having regard to the convenience of the parties and may grant anti-suit injunction in regard to proceedings which are oppressive or vexatious or in a forum non-conveniens.

(3) Where jurisdiction of a court is invoked on the basis of jurisdiction clause in a contract, the recitals therein in regard to exclusive or non-exclusive jurisdiction of the court of choice of the parties are not determinative but are relevant factors and when a question arises as to the nature of jurisdiction agreed to between the parties the court has to decide the same on a true interpretation of the contract on the facts and in the circumstances of each case.

(4) A court of natural jurisdiction will not normally grant anti-suit injunction against a defendant before it where parties have agreed to submit to the exclusive jurisdiction of a court including a foreign court, a forum of their choice in regard to the commencement or continuance of proceedings in the court of choice, save in an exceptional case for good and sufficient reasons, with a view to prevent injustice in circumstances such as which permit a contracting party to be relieved of the burden of the contract; or since the date of the contract the circumstances or subsequent events have made it impossible for the party seeking injunction to prosecute the case in the court of choice because the essence of the jurisdiction of the court does not exist or because of a vis major or force majeure and the like.

(5) Where parties have agreed, under a non-exclusive jurisdiction clause, to approach a neutral foreign forum and be governed by the law applicable to it for the resolution of their disputes arising under the contract, ordinarily no anti-suit injunction will be granted in regard to proceedings in such a forum conveniens and favoured forum as it shall be presumed that the parties have thought over their convenience and all other relevant factors before submitting to the non-exclusive jurisdiction of the court of their choice which cannot be treated just as an alternative forum.

(6) A party to the contract containing jurisdiction clause cannot normally be prevented from approaching the court of choice of the parties as it would amount to aiding breach of the contract; yet when one of the parties to the jurisdiction clause approaches the court of choice in which exclusive or non-exclusive jurisdiction is created, the proceedings in that court cannot per se be treated as vexatious or oppressive nor can the court be said to be forum non-conveniens.

(7) The burden of establishing that the forum of choice is a forum non-conveniens or the proceedings therein are oppressive or vexatious would be on the party so contending to aver and prove the same."

4"45. In the case on hand, we have referred to the relevant clauses of the agreement. Clause 18 provides for applicability of law and it specifically declares that the terms and conditions of the agreement shall be interpreted in accordance with "the laws of Hong Kong Special Administrative Region". That, in our judgment, does not mean that a suit can be instituted only in Hong Kong and not in any other country.

46. Territorial jurisdiction of a court, when the plaintiff intends to invoke jurisdiction of any court in India, has to be ascertained on the basis of the principles laid down in the Code of Civil Procedure. Since a part of "cause of action" has arisen within the local limits of Delhi as averred in the plaint by the plaintiff Company, the question has to be considered on the basis of such averment. Since it is alleged that the appellant-defendant had committed breach of agreement by using trade mark/trade name in Trade Fair, 2005 in Delhi, a part of cause of action has arisen in Delhi. The plaintiff Company, in the circumstances, could have filed a suit in Delhi. So far as applicability of law is concerned, obviously as and when the suit will come up for hearing, the Court will interpret the clause and take an appropriate decision in accordance with law. It has, however, nothing to do with the local limits of the jurisdiction of the Court."

5"27. Italian law is a foreign law so far as the courts in India are concerned. Under Section 57(1) of the Indian Evidence Act, 1872, the court shall take judicial notice of, inter alia, all laws in force in the territory of India. Foreign laws are not included therein. Sections 45 and 84 of the Evidence Act permit proof being tendered and opinion of experts being adduced in evidence in proof of a point of foreign law. Under Order 6 Rule 2 of the Code of Civil Procedure, 1908, every pleading shall contain a statement in concise form of the material facts relied on by a party but not the evidence nor the law of which a court may take judicial notice. But the rule against pleading law is restricted to that law only of which a court is bound to take judicial notice. As the court does not take judicial notice of foreign law, it should be pleaded like any other fact, if a party wants to rely on the same (see Mogha's Law of Pleadings, 13th Edn., p. 22). In Guaranty Trust Co. of New York v. Hannay & Co. [(1918) 2 KB 623: 87 LJKB 1223: 23 Comp Cas 399 (CA))] it was held that: "Foreign law is a question of fact to an English court the opinion of an expert on the fact, to be treated with respect, but not necessarily conclusive." In Beatty v. Beatty [(1924) 1 KB 807: 93 LJKB 750: 1924 All ER Rep 314 (CA)] it was held that the American law in English courts must be proved by the evidence of experts in that law. In Lazard Bros. and Co. v. Midland Bank, Ltd. [1933 AC 289: 102 LJKB 191: 1932 All ER Rep 571 (HL)] Their Lordships of the Privy Council observed that what the Russian Soviet law is, is a question of fact, of which the English court cannot take judicial cognizance, even though the foreign law has already been proved before it in another case. The court must act upon the evidence before it in that actual case. The statement of law by Halsbury in Laws of England (3rd Edn., Vol. 15, para 610 at p. 335) is that the English courts cannot take judicial notice of foreign law and foreign laws are usually matters of evidence requiring proof as questions of fact."

Print Page

Pages

Friday, 2 October 2020

What are exceptions to Exclusive jurisdiction clause in contract?

No comments:

Post a Comment