Contractual Ouster Of Jurisdiction

CONTRACTUAL OUSTER OF JURISDICTION: A COMPARATIVE STUDY OF JUDICIAL ATTITUDE INTRODUCTION In order to effectively discuss the subject matter of contractual ouster of Jurisdiction which is the exclusion of jurisdiction of courts by agreement of contracting parties, it is necessary to first appreciate the meaning of the word ‘jurisdiction’ ‘Jurisdiction’, is a word which bears diverse meanings, depending on the purpose and nature under consideration. It is a word with too many meanings and all that can be done is to try to conjure the sense in its contextual meaning or essence. Under Conflict of Laws ‘Jurisdiction has been defined as the power of a state to create of effect legal interests which will be recognized as valid in other states’. This definition judgements through valid for interstate situations is inadequate for international problems since there exists no supranational authority, outside the treaty areas, which can compel one state to recognize or enforce rights created by the court of another state through the exercise of its Legitimate Power, as the jurisdiction of he Courts of each country is, in practice determined by the forum legislature of Courts with indifference to extra territorial recognition. What is so significant however is that the same term has always been employed, under the received English law and Common Law to describe extra territorial as well as intraterritorial competence of the Courts it may therefore be proper to

define ‘judicial jurisdiction for conflict of law purposes as the authority of a court to hear and determines an issue upon which its decision is sought. The significance of the question of jurisdiction lies in the extraterritorial enforcement of judgements under the common law systems generally the enforcement of foreign judgements depends almost exclusively on whether the judgement has been pronounced by a court of competent jurisdiction. Under the common law, the judgement of a court lacking jurisdiction is null and void and of no legal effect. CHOICE OF FORUM AGREEMENT It often happens that parties include in the terms of their contract, the particular tribunal, Court or foreign courts which should adjudicate over any dispute arising from the performance of the contract. This act of contacting

parties has been described by various

terminologies namely forum agreement, prorogation agreement the consequence of which can be further described as exclusive jurisdiction agreement, exclusive forum agreement and derogation agreement, conferring or ousting of jurisdiction etc. jurisdiction is exercised or withheld only by force of the law which gives effect to the terminologies should not mislead into thinking that parties can undermine or augment the powers of states or courts when they bargain away merely their own legal privileges.

Under the common law, the courts pay much regard to the parties stipulation conferring jurisdiction on foreign courts but they do not regard such stipulation as absolutely binding on them. As Lord Denning L.J puts it, “it is subject to the overriding principle that no one by his private stipulation can oust the courts of the jurisdiction in the matter that properly belongs to them. In considering the issue of forum agreement or exclusive jurisdiction agreement two types of problems must be distinguished first whether according to the law of the court, its jurisdiction can be excluded at all. Second what are the procedural consequences of such exclusion and in particular whether it compels or merely enables the court in its discretion to refuse a decision on the merits. This is against the background that the foreign jurisdiction agreement (prorogation fori alieni) or put the other way, the agreement not to litigate in the forum (derogation fori proprii) has overshadowed the agreement for litigation in the forum (prorogation fori proprii) A similar distinction must be made in relation to jurisdiction clauses. No matter whether, from the point of view of the law of a given country, such clause is a porogative fori proprill or prorogation fori alieni,, it must be valid by its proper law, by the lex causae which will most frequently mean the lex contractus. The capacity of each party to submit to a given jurisdiction must be judged by that law e.g. the question whether, by doing so, a corporation acts intra vires. So must the consequences of a disparity of bargaining power on the

effectiveness of a submission clause and generally all question of essential validity. ENGLISH & COMMONWEALTH COURTS English and Commonwealth Courts have considered on occasion the question whether proceedings otherwise properly instituted should be stayed by reason of a previous agreement of the parties to refer disputes to a foreign forum. The problem has arisen in various contexts; in partnership agreements, insurance contracts, contracts for service and for supply of goods, bills of lading contracts for commission as an agent, suits by seamen for wages under the articles of a foreign ship, claims for negligence for personal injuries and agreements appointing the plaintiff distributor of the defendant’s products in a specified area. It has ‘long been settled” that parties may agree to designate a forum of their choice. A choice forum clause first came before an English court in 1796 in the case of Grieenernar V. Meyer. It was a seaman’s action for his wages. The seaman’s ship had been stopped by an English warship and sold before completing its voyage. The defense was that the seaman had agreed to be bound by the adjudication of the courts of Holland. Both parties were dutch and the agreement had been made in Holland. The court upheld the defense. The Lord Chief justice considered the circumstances of the case and decided that it was “more reasonable to send the parties to their own country, there to pursue their remedy”. Further in 1811 in the case of Johnson V Machielsne, another seaman’s suit for wages, the plaintiff argued that “ the parties by their private agreement could not oust the jurisdiction of our

Courts” But Lord Eltenborough opined that it was impossible to say that the stipulation was void, and he refused to entertain the action. These two cases showed that the courts were prepared to compromise their jurisdiction in favour of a foreign court, at least where the parties foreigners and the agreement way made outside the jurisdiction A different approach had been taken to arbitration agreements and they had been held ineffective to displace the jurisdiction of the courts until i854 when the Common Law Procedure Act gave the courts power to stay an action brought in defiance of an arbitration clause. The cases immediately after the 1854 Act were less willing to grant a stay not until much later when the courts held that after the Act there was a prima facie duty to act upon and enforce an arbitration agreement. In 1856 in Scott V Avery it was held that quite apart from statute by the operation of the old common law doctrine an arbitration clause could be drafted so as to displace the jurisdiction of the courts, if the parties framed their agreement to arbitrate as a condition precedent to court proceedings. In such a circumstance it was held that the courts would not entertain any action until after the arbitrator had made his award. The courts continued to incant the time-honoured formula that their jurisdiction could not be ousted by agreement. But it was no longer a

rule of substantive policy but now merely a warning to conveyancers to use the Scott V Avery Clause to achieve their goal. When the question of clauses stipulating exclusive jurisdiction in a foreign court arose again, the earlier cases of Griener V Meyer and Johnson V Machielsue were forgotten. Instead choice of forum clauses were assimilated to arbitration clauses and held to be submissions within the arbitration legislation . according to Mackinnon L.J these decisions remain perfectly good authorities through need is no longer felt to justify the decisions by reference to arbitration legislation. This is law V Garrett the English Court declined its adjudicate in the winding up of a Russian Partnership. In Australian Lloyd Steamship Co V Gresham Life Assurance Society Limited the English Court refused its entertain proceedings on an Insurance policy issued in Budapast. In Kirchner V Gruban. The English court refused to hear a case arising out of a contract of confidential agency. The principle underlining the judicial deference to the contractual agreement of parties was fairly chearly stated by Eve J. in the case of Limerick Corporation V Crompton thus: “As a general rule these agreements to refer are often entered into without a full appreciation by the parties of the difficulties which may arise in the contractual relationship brought about by the very contract in which is incorporated the agreement to refer and without full consideration of the circumstances or the possible circumstances which may arise and render the reference

necessary. But at the same time it is part of the agreement of the parties and prima facie it is an agreement by which the parties are bound and upon which the court must act unless for some good cause there is reason to think that matter ought to be determined otherwise then by the tribunal to which the parties

have

deliberately

agreed

to

submit

their

differences” These principles were applied in the maritime cases that followed in the Cap Blanco Case, a bill of lading provided for the settling of the disputes in Hamburg according to common law. The plaintiff arrested the ship at Southampton and sued in respect of a shipment of goods from Hamburg to Mantle Video. The president, Sir Samuel Evans in ordering a stay said “It is right to hold the plaintiffs to their part of the agreement. It is probably more convenient and much more inexpensive, as the disputes have to be decided according to German Court” The first Plaintiff appealed to the Court of Appeal but withdrew the appeal on an undertaking from the respondents to waive the limitation period provided in the bill of lading. The first instance in which a stay was refused appears to be The Arthenee

Which concerned the carriage of goods from Alexandria to Hull. The bill of lading provided that any disputes arising under it should be brought to the Tribunal of Commerce of Marseives and should be settled according to French Law. The plaintiff sued for damage to the goods. The trial judge refused to order a stay and the Court of Appeal was not disposed to disturb his decision. Bankers L.J. said that the judge was entitled to take all the circumstances into account including the fact that the vessel was under arrest, that the dispute concerned the condition of the goods on arrival and the fitness of the ship to carry them. In The Fehmarn, which was a calm in respect of goods, 500 tons of turpentine carried on a German ship (The Fehman) from Russia to London. The bill of lading provided that disputes should be judged in the USSR according to the Merchant Shipping code of the USSR. The claim was brought in England through it was not a case within the British COGSA which only applies to outward voyages in any case, Wilmer J. refused to exercise his discretion to stay the action on the basis that he suspected that the defendants did not seek bona fide trial in Russia and that convenience was in favour of allowing the English action to continue; But this was after he had made the following pronouncement. “Where there is an express agreement to a foreign tribunal, clearly it requires a strong case to satisfy this court that agreement should be overridden and that proceedings in this country should be allowed to continue.

But in the end it is, and must necessarily, a matter for the discretion of the court, having regard to all the circumstances of the particular case” On appeal, Willmer J’s decision was upheld by the Court of appeal. Lord Denning went on to state that English Courts are in charge of their own proceedings and that one of the rules they apply is that a stipulation that all disputes should be judged by the tribunals of a particular country is not absolutely binding. Through at is a matter to which the English Courts will pay much regard and to which they normally give effect but it is subject to the overriding principle that “ no one by his private stipulation can oust these courts of their jurisdiction in a matter that properly belongs to them. Lord Denning went further to conclude as follows: “I do not regard the choice of law in the contract as decisive. I prefer to look to see with what country is the dispute most closely concerned. Here the Russian element in the dispute seems to me to be comparatively small. The dispute is between the German owners of the ship and the English importers. It depends on evidence here as to the condition of the goods when they arrived here in London. The correspondence leaves in my mind, just as it did in the judge’s mind, the impression that the German owners did not object to the dispute being decided in this country but wished to avoid the giving security. I think the dispute is more closely connected with

England than Russia, and I agree with the judge that sufficient reason has been shown why the proceedings should continue in these Courts and should not stayed” Whatever the basis of the jurisdiction it is clear, as a matter of common law, that the courts have a discretion to grant or refuse a stay. But specific statutory provisions may control, for example Section 9(2) of the Australian Sea carriage of Goods Act 1924 provides that a stipulation or agreement purporting to oust or lessen the jurisdiction of the courts of Australian in respect of any bill of lading relating to the carriage of goods from a place outside to place in Australian shall be illegal, null and void and of no effect, In compagnie des Messageries Maritimes V Wilson the high court of Astralia affirmed the decision

of the trial court in refusing a stay

where the case fell within the terms of the state As Dixon C.J. said “ it can hardly be doubted that its object was to insure that Australian consignees of goods imported might enforce in Australian courts the contracts of sea-carriage evidenced by bills of lading which they held” In Quebec in the case of Gordon and Gortch (Australasia) Ltd V. Montreat Australia-Newzealand Line Ltd where an action was brought in the Quebec Courts in face of a stipulation which selected an Australian jurisdiction as the exclusive forum. It was held that by reasons of the terms of Article 94 of the Code of Civil Procedure, an action might be instituted in the Quebec courts further in exercising its discretion, the courts will weigh the competing interests of the parties. The conclusion reached by the court in the Fehmern

has been criticized as going on said that unless the courts discretion is exercised sparingly there is “a danger that foreign merchants will lose faith in the efficiency of arbitration clauses’. However the general rule is that prima facie, be respected; the burden of proof lies upon that party resisting the application for a stay and he must convince the court that a stay should not be granted. USA COURTS In the United States the effect of a choice of forum clause dealing with future controversies is uncertain in the great majority of cases, the state courts have entertained suits brought in violation of such a clause. A number of recent federal court decisions, on the other hand, have enforced choice of forum clauses by refusing to hear the suit in situations where the clause was deemed to be fair and reasonable. The reasons stated by the courts for denying effect to choice of forum clauses are unconvincing. By and large, the courts have contented themselves with saying either 1. that the parties cannot by their agreement oust a court of jurisdiction or 2. that to allow the parties to change the rules relating to the place where suit may be brought would ‘disturb the symmetry of the law” and lead to convenience or 3. simply that choice of forum provisions are against public policy. The main question however, is whether the state courts are likely to follow the lead of certain federal court decisions which evince a more sympathetic attitude toward choice of forum clauses. Unfortunately, the federal decisions are in conflict and their meaning is not entirely

clear. In Wim. H. Muller & Co V Swedish American Lines Ltd a suit was brought in a federal court in New York to recover the value of a cargo of cocoa beans that was lost in transit between Sweden and Philadelphia on a vessel owned by the defendant, a Swedish corporation. Despite the fact that the Plaintiff consignee was a New York Corporation suit was dismissed in the District court by reason of a clause in the bill of lading which stipulated that any claims against the defendant should be decided according to Swedish law and in Swedish Courts. The decision was affirmed by the Court of appeals. It held first that the choice of forum clause was not contrary to the United States carriage of Goods by Sea Act, since its application would not result in a “lessening” of the “liability” imposed upon the defendant by the Act. The court then went on to say that, except when prohibited by statue, a choice of forum clause should be given effect unless unreasonable. The clause in question was held not to be unreasonable for the reason, interalia, that “most of the evidence as to unsea-worthiness will be more readily available in a Swedish court” since all members of the crew resided in Sweden and the vessel had been constructed in that country. Also “for aught that appears” the consent of the parties to the inclusion of the choice of forum clause in the bill of lading had been “freely given. This decision is very significant and appropriate. Dismissal of the suit had to based on the choice of forum clause since in view of Plaintiff’s incorporaton in New York and of other facts as well, reliance upon the doctrine of forum non convenience would not have been justified. Also the opinion can be read to support the view that a choice of forum clause will be enforced unless the party who wishes to escape from its

provision can convince the court that its application would be unreasonable in the circumstances of the case. Further there is some language which would support the view that the decision holds only, that a choice of forum clause will be enforced if the selected state is the most convenient place for the trial of an action. The Muller approach was generally welcomed by academic writers and was adopted in the Second Restatement of the Law; Conflict of Laws Section 80 provides “The parties agreement as to the place of action cannot oust a state of judicial jurisdiction, but such an agreement will be given effect unless it is unfair or unreasonable” The other cases in the second circuit may be described as conclusive in Takeinura V the S.S Tsuneshima Maru the District court holds squarely that choice of forum clauses are prima facie enforceable and that the burden is upon him who wishes to bring suit in violation of the clause to demonstrate that enforcement of the clause would be unreasonable. Other District Court decisions, on the other hand, seem to hold, that a choice of forum clause will only be enforceable if a selected state is a more convenient place for the trial of the action than the one in which the plaintiff has brought the suit, one other by the Court of Appeal in Cerro De Pasco Copper Corp. V. Knut Knutsan contains helpful language but involved a transaction that had little or no connection with the United States; hence dismissal of the action had been based solely on forum non convenience grounds.

Not all federal followed the Muller lead In Carbon Black Export V. The S.S. Monrosa by the Court of Appeals of the fifth circuit, the plaintiff, an American exporter, sued to recover for damages for nondelivery of a cargo of carbon black, which had been placed on board the S.S. MONROSA in the United States for shipment to Italy suit was instituted both in rem and in personam against the vessel and the vessel’s owner, an Italian corporation. The defendant sought to have the action dismissed because of provision in the contract that any action for loss or damage to the goods should be brought only in Genoa. A dismissal was granted by the trial court, but the Court of Appeals reversed and held that the in rem action against the vessel did not come within the language of the choice of forum clause. With respect to the action against the vessel’s owner, the Court stated that “the universally accepted rule is that agreements in advance of controversy to oust the jurisdiction of the courts are contrary to public policy and will not be enforced” The court went on to say, however, that it was not necessary on the facts of the case to “espouse or reject” the position taken by the Courts of Appeals of the Second Circuit in the Muller case. With respect to the dismissal of the action in personam the Court of Appeal said that the case did not afford” an appropriate instance to pass upon the extent to which effect can be given to…

stipulations in ocean bills of lading not to resort to the

courts of this country. However in 1972 the 5th circuit’s attitude to forum agreements was reviewed by the United States Supreme Courts in M/S Brewmen V.

Zapata off-shore Company. The Respondent, Zapata off-shore Company, a Houston based American Corporation, contracted with the petitioner, Unterweser, a German corporation, to tow Zapata’s ocean-going oil drilling rig, the “Chaparral” from Louisiana to the Adriatic sea. Among other terms, the contract provided that any dispute arising must be treated before the London Court of Justice. While Unterweser’s deep-sea tug, then “Bremen” was towing the “Chaparral” a storm arose in international waters in the Gulf of Mexico and the “Chaparral” was damaged. Consequently Zapata instituted proceedings in a Federal District court seeking damages against Unterweser in personam and the “Bremen” in rem alleging negligent towage and breach of contract. Unterweser, relying on the prorogation agreement, sought to dismiss the action for lack of jurisdiction on forum non conveniens grounds or alternatively to stay action pending submission of the dispute to the “London Court of justice”. The District Court, following the decision of its circuit court of appeals in Carbon Black Export Inc. V The S.S Monrosa declined to give the forum agreement effect and considered the motion to discuss purely on the general ground of forum non conveniens, and the court considered that Florida was a convenient forum on appeal a divided panel of the Court of Appeals (Fifth Circuit affirmed the decision of the District Court, concluding that Florida was a more convenient forum than England; because the place of the damage and the residence of potential witnesses were nearby in the Gulf area and the preparations for the voyage had also taken place in the Gulf area.

On further appeal the Supreme Court granted certiorari to review the judgement and vacated the judgement. The Supreme Court in a judgement given by Chief Justice Burger, declared that the Court of Appeals had given “far two little weight and effect” to the forum clause “the language of the clause is clearly mandatory and allencompassing” The court, after noting the traditional hostility of American Courts to forum agreements, summed up the more recent development evinced in Muller and other cases that “such clauses are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be unreasonable under the circumstances in the court’s view this was “the correct doctrine to be followed by federal District Courts silting in admiralty” One question that has arisen is whether its principle is confined to confined to admiralty cases. The decision in Copperweld Steel Co V. Demag-Mannesman-Boehler suggests that it is so confined. However it has actually been applied in Spartz V. Nascone a real estate case to stay proceedings brought in a Federal Court in Pennsylvania and to enable their trial in a Pennslavania State Court in accordance with a forum agreement. The status in the United States choice of forum clauses dealing with future controversies is at best uncertain. As shown, hitherto, most state courts decisions appear to hold choice of forum clauses unenforceable. As the Federal Courts are concerned, there appears to be conflict between the views of the Court of Appeals of the 2 nd and 5th Circuit. At best the Supreme Court intervention in the Zapata case

confines the principle of prorogation to admiralty cases, going by the verdict of the court itself. It is however, hoped that State and Federal courts alike will adopt a common rule that choice of forum clauses are prima facie enforceable and should be denied effect only upon a showing that their application in the given case would lead to manifest injustice. ARBITRATION AGREEMENTS While the effect choice of forum or prorogation agreements may be somewhat uncertain and in a state of flux in the United States, the position of arbitration agreements is rather clearer. Whatever their effect under American Common Law legislation exists in many American jurisdictions notably the Federal Arbitration Act and the Uniform Arbitration Act which has been enacted in a number of states some other states have their own non-uniform legislation. The American legislation is somewhat different to the provisions found in the English and Australian Arbitration Acts. Whereas the latter merely enable a stay of proceedings to be obtained, the American provisions generally contemplate a court order compelling arbitration Section 2(a) of the Uniform Act provides that “on application of a party showing an agreement described in Section 1 [a written arbitration agreement], and the opposing party’s refusal to arbitrate, the court shall order the parties to proceed with arbitration…” Similarly, Section 4 of the Federal Act provides that “A party aggrieved by the alleged failure, neglect or refusal of another to arbitrate under a written agreement for arbitration may petition any

United states District Court which save for such agreement, would have jurisdiction….. for an order directing that such arbitration proceed in the same manner provided for in the agreement. A stay proceeding brought in breach of an arbitration agreement can be obtained under most American acts. Section 3 of the Federal act provides “if any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been hold in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration” it has been held in International Refuge Organisation V.Republic S.S Corp that a stay can be granted under this provision where the agreement provides for arbitration in another jurisdiction and arbitration cannot be compelled. The wording of this provision suggests a mandatory duty to stay and not, as in the Anglo-Australian legislation, a judicial discretion to do so.

The terminology of the Uniform Arbitration Act suggests a duty to stay only in connection with an order compelling arbitration Section 2(d) of the Act states. “Any action or proceeding involving an issue subject to arbitration shall be stayed if an order for arbitration or an application therefore has been made under this section or, if the issue is severable, the stay may be with respect thereto only. When the application is made in such action or proceeding, the order for arbitration shall include such stay. NIGERIA The Nigerian judicial approach to choice of forum clauses in contractual agreements has to all intent and purposes followed the English Common law doctrine after an initial US type hostile altitude In Ventujoi V Compagnie Francaise De L’Afrique Occidental a case before the Nigerian High Court, a breach of contract which contained a stipulation conferring exclusive jurisdiction on the French Courts, Ames J held that the stipulation was an agreement to oust the jurisdiction of this court and so is of no effect. The learned justice opined that through the contract was entered into France, if performance was to be in Nigeria where the defendants had agenda who have been served with the writ of summons.

However, the Court of Appeal in the case of Sonner (Nig.) Ltd & Anor V. Patenreederi M.S Nordwind & Sons, to a different stance when it held that “Where parties have agreed to submit all their disputes under a contract to the exclusive jurisdiction of a foreign court, the court would require very strong reasons to induce it to permit one of the parties to go back on his words” the guiding principle had earlier been clearly stated by the Supreme Court in Adesanya V. Palm Line where it was held that the court has a discretion to uphold or reject a foreign jurisdiction clause and that the court will be rejected where the justice of the case so demands on matters of arbitration agreement, the Nigerian courts have always been guided by the Scott V Avery clause In Agbizounon V The Northern Assurance Co Ltd Paul J held that an agreement to refer dispute to arbitration before recourse to court did not amount to ouster of the jurisdiction of the court and should be upheld.