Monday, October 26, 2015

Exclusive and Non-Exclusive Jurisdiction

We have discussed the judgment of the Supreme Court in Swastik Gases on the construction of jurisdiction clauses. Its conclusion there is no rule of law that a clause cannot confer exclusive jurisdiction unless it uses words of exclusion (“only”, “exclusive” etc) is plainly correct. But this gives rise to a further question: how should the courts actually decide whether a particular clause does or does not confer exclusive jurisdiction? This is, of course, a question of construction, but there is a large body of case law on this topic that is of assistance. These cases were reviewed by the Court of Appeal earlier this year in its important judgment in Hin-Pro v Compania Sud Americana De Vapores SA.

Hin-Pro was a freight forwarder registered in Hong Kong. The respondent (‘CSAV’) was an international shipping company. Bills of lading issued by CSAV contained the following jurisdiction clause:

23      Law and jurisdiction

This Bill of Lading and any claim or dispute arising hereunder shall be subject to English law and the jurisdiction of the English High Court of Justice in London. If, notwithstanding the foregoing, any proceedings are commenced in another jurisdiction, such proceeding shall be referred to ordinary courts of law.

Notably, clause 23 did not say that the English High Court was to have exclusive jurisdiction.

In 2012, Hin-Pro commenced a number of actions in the Chinese courts for damages alleging that CSAV had released its cargo without the production of the original bills of lading. CSAV commenced an action in the English court. A number of orders restraining Hin-Pro from continuing the Chinese proceedings were passed but these were ignored. Andrew Smith J found Hin-Pro to be in contempt and committed its sole director to prison. Evidently not deterred by this, Hin-Pro commenced a further 23 actions in China; CSAV then sought a declaration in the English court that Hin-Pro was bound by the jurisdiction clause in the bills of lading to sue in England only. Cooke J made this declaration and granted a permanent injunction restraining Hin-Pro from pursuing the Chinese litigation. In the Court of Appeal, Hin-Pro argued that Cooke J was wrong to have made this order because clause 23 of the bills of lading was a non-exclusive jurisdiction clause; so Hin-Pro was not in breach of contract in commencing proceedings in China.

In the English case law on this point, a distinction has been drawn between ‘transitive’ and ‘intransitive’ jurisdiction clauses: this is the difference between saying “the parties agree to submit to the jurisdiction of the English courts” and that “the parties agree to submit disputes to the jurisdiction of the English courts”. It was suggested that the latter (transitive) clause was obligatory while the former (intransitive) was non-obligatory, that is, the agreement was merely that English jurisdiction would be recognised if proceedings were started there, not that proceedings had to be started there. This distinction may strike those attracted by Lord Hoffmann’s approach in Fiona Trust as uncommercial; there is, however, a substantial body of case law that draws it. In Hin-Pro, Christopher Clarke LJ came the conclusion that clause 23 of the bill of lading was an exclusive jurisdiction clause partly for this reason. He also gave six other reasons, some of which are of general importance. First, he rejected Hin-Pro’s submission that the clause should be construed in the light of the fact that a recipient of the bill of lading was unlikely to be English: “[i]n agreeing in English to an English law contract the parties must be taken to have agreed that it shall be interpreted with all the nuances of the English language and in the way that a speaker whose first or only language was English would do so.”

Second, Christopher Clarke LJ thought it significant that clause 23 clearly provided for a mandatory choice of law: English law. Although not conclusive, this makes it more likely that the parties intended the English court’s jurisdiction to be exclusive, because not all foreign courts would necessarily apply English law in accordance with the choice of law clause.

Third, the phrase ‘notwithstanding the foregoing’ in the second sentence only made sense on the basis that the first sentence created an obligation to sue in England rather than merely an option to do so. As a matter of ordinary language, saying “if C does X despite Y...” suggests that the effect of Y is that “X should not be done”.

Fourth, Christopher Clarke LJ rejected Hin-Pro’s attempt to invoke the contra proferentem rule, that is, the argument that any ambiguity in the bill of lading should be resolved against CSAV as the proferens of the clause. The usual consequence of applying this rule is to choose a construction of a clause that is adverse to the proferens (eg pay more, accept less) compared to an alternative construction (eg pay less, accept more). Christopher Clarke LJ made the important point that, even if the rule applies, it is impossible to tell at the time the contract is made which construction of a jurisdiction clause is adverse to one party. How could either CSAV or Hin-Pro have known in 2010 whether it would be to their advantage to sue in England or in China with respect to disputes that had not yet arisen? Which jurisdiction was advantageous would depend entirely on the nature of the dispute, the applicable limitation period, and many other factors that could have had no purchase on the date of conclusion of the contract. As a Canadian judge put it in a passage that Christopher Clarke LJ cites with approval, “[t]he proper interpretation of the contract must exist at the time it is made, and not change. It cannot come and go as the parties' fortunes wax and wane. It cannot be unknowable and shrouded in fog until after the event. For example one interprets an insurance contract the same way before and after a fire, and it has meaning before any fire”.

The upshot of this analysis is not just that a jurisdiction clause can be exclusive even if it does not use words of exclusion: it is that it usually will be exclusive as a matter of construction. One interesting difference between English and Indian law is, however, this: if a contract is governed by English law or contains an English jurisdiction clause (whether exclusive or non-exclusive), an English court has jurisdiction under the CPR even if no part of the cause of action arose in England. Contrary to what has been suggested in some cases, an Indian court does not: the Indian CPC does not recognise jurisdiction by agreement alone. This means that there is always a logically prior question to be answered in this country before turning to the jurisdiction clause: does the Indian court have jurisdiction under its own procedural rules? But the construction of the clause may still matter: for example, if a small part of the cause of action arose in India or the property is located in India (so that the Indian court has jurisdiction under the CPC/Letters Patent), and one of the parties seeks an anti-suit injunction in the Indian court restraining the other party from pursuing English proceedings, it is important to decide whether the jurisdiction clause in favour of the Indian court is exclusive or non-exclusive. So the question of construction is just as important in this country although one must be careful to not overlook these differences relating to underlying jurisdiction.

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