12^th September 2018

Exclusive Jurisdiction Clause

It is common for contracting parties to an international commercial contract to agree upon an exclusive jurisdiction to hear and adjudicate disputes arising from or relating to the contract. This is done by way of inserting an exclusive jurisdiction clause (or forum selection clause) into the contract.

Exclusive jurisdiction clause assist parties to avoid “preliminary” litigation merely to determine which of the contracting party’s country have the jurisdiction to hear the matter. Such a preliminary litigation is costly and time consuming, not to mention counter productive for dispute resolution.

However, does an exclusive jurisdiction clause automatically oust the Malaysian Court’s jurisdiction to hear disputes arising within the Malaysia territory or involving a Malaysian contracting party?

Forum Non Conveniens – Order 12 rule 10(2) of the Rules of Court 2012

In July 2018, the Malaysian Court of Appeal revisited the applicable laws relating to exclusive jurisdiction clause and its applicability in the case of World Triathlon Corporation v SRS Sports Centre Sdn Bhd [2018] MYCA 248.

The facts of the case in a nutshell are as follows:-

(a) The Appellant is a company established in Florida, USA and is the registered owner of several marks and trademarks for Ironman Triathlon (“IRONMAN trademark”). The Respondent is a company registered in Malaysia;

(b) The Appellant and Respondent entered into 2 Event License Agreements dated 15.02.2000 and 20.10.2003 where the Respondent obtained the right, license and/or authority to organize and/or host triathlon events in Malaysia under the IRONMAN trademark from the Appellant;

(c) The 2003 Agreement was amended by a Settlement Agreement and Mutual General Releases dated 24.05.2006 and further amended pursuant to the First Addendum to License Agreement dated 11.12.2008. The Agreements contained an exclusive jurisdiction clause:-

“This Agreement constitutes the entire understanding and agreement between the parties with respect to the subject matter hereof and supersedes any and all prior negotiations, understandings or agreements in regard thereto. This Agreement will be deemed to have been executed and delivered in the State of Florida, and will be construed and interpreted according to the laws of that State and of the United States of America. This Agreement may be amended only by written instrument signed by the parties hereto. In any litigation arising out of or relating to this Agreement, the parties agree that venue shall be in the United States District Court, Middle District of Florida, Tampa Division or the Circuit Court located in Pinellas County, Florida.”

          [Emphasis added]

(d) On 03.09.2009, the Appellant issued a Notice of Default to the Respondent outlining various defaults under the amended 2003 Agreement and demanded the same to be cured by 18.09.2009. Not receiving a response, the Appellant by letter dated 23.10.2009 terminated the Agreement;

(e) Subsequent to that, the Respondent discovered that the license and consent to organize the Triathlon was given to one of the Respondent’s director;

(f) The Respondent commenced legal action against the Appellant by filing the present suit in the Malaysian High Court instead of Florida, seeking essentially for a declaration that the termination of the Agreements was unlawful;

(g) On 19.05.2017, the Appellant filed an application pursuant to Order 12 rule 10 (2) Rules of Court 2012(“ROC”) to stay the proceedings on the basis that Malaysia is not the proper forum pursuant to the exclusive jurisdiction clause.

On 03.11.2017, the High Court dismissed the Appellant’s application and held that Malaysia is the most convenient forum and that the governing law of the Agreements is the laws of Malaysia notwithstanding the exclusive jurisdiction and governing law clauses.

The Appellant appealed.

Court of Appeal reversed the High Court Decision

On 02.07.2018, the Court of Appeal reversed the High Court’s Judgment.

At the outset, the Court of Appeal observed that there seem to be no dispute as to the jurisdiction of either the courts of Florida or the Malaysian courts to hear the dispute. Notwithstanding the same, the Court of Appeal made it clear that:-

“…even when there is a jurisdiction, a Malaysia court will nevertheless have the discretion based on the doctrine of forum non conveniens not to hear the dispute against a foreign defendant.”

The Court of Appeal referred to the landmark English House of Lord case of Spiliada Maritime Corp v Consulex Ltd [1986] 3 All ER 843 and explained the concept of “forum non conveniens” as:-

“Lord Goff, in that case, also noted that the Latin tag “forum non conveniens” does not mean the question is one of convenience but of the suitability or appropriateness of the relevant jurisdiction. In doing so, the court would look to the forum which has “the most real and substantial connection” with the action…

In establishing the forum which has the most real and substantial connection with the cause of action, Lord Goff observed that the court will look to several factors including convenience and expenses, availability of witnesses, the law governing the relevant transaction, and the places where the parties resided or carried on business.”

Whilst an exclusive jurisdiction clause does not generally oust the jurisdiction of the court, the Malaysian Court will nevertheless give effect to such clauses:-

“Although generally a forum selection clause does not oust the jurisdiction of the court, the court is nevertheless obliged to give effect to it as that is what the parties had agreed… Disregarding such a clause would effectively mean the courts condoning a breach of the agreement.”

On the question of how such discretion is to be exercised by the Malaysian Courts when confronted with a foreign jurisdiction clause, the Court of Appeal made reference to and adopted the approach in the English case of The Eleftheria [1969] 2 All ER 641 (which was accepted by the Federal Court in Globus Shipping & Trading Co (Pte) Ltd v Taiping Textiles Berhad [1976] 2 MLJ 154):-

“(I)     Where plaintiffs sue in England in breach of an agreement to refer disputes to a foreign court, and the defendants apply for a stay, the English court, assuming the claim to be otherwise within its jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not;

(II)     The discretion should be exercised by granting a stay unless strong cause for not doing so is shown;

(III)   The burden of proving such strong cause is on the plaintiffs;

(IV)    In exercising its discretion, the court should take into account all the circumstances of the particular case;

(V)     In particular, but without prejudice to (IV), the following matters, where they arise, may properly be regarded:-

(a)     In what country the evidence on the issues of fact is situated, or more readily available, and the effect of that on the relative convenience and expense of trial as between the English and foreign courts;

(b)     Whether the law of the foreign court applies and, if so, whether it differs from English law in any material respects;

(c)     With what country either party is connected, and how closely;

(d)     Whether the defendants genuinely desire trial in the foreign country, or are only seeking procedural advantages;

(e)     Whether the plaintiffs would be prejudiced by having to sue in the foreign court because they would-

(i)      be deprived of security for that claim;

(ii)     be unable to enforce any judgment obtained;

(iii)    be faced with a time-bar not applicable in England; or

(iv)    for political, racial, religious or other reasons be unlikely to get a fair trial.”

In conclusion, the Court of Appeal made a strong case for the enforcement of exclusive jurisdiction clauses and unless the party challenging such clauses demonstrates “exceptional circumstances amounting to a strong cause warranting a refusal”, the Court of Appeal ruled that Malaysian Courts should give effect to such clauses and stay the proceedings.

“So, to surmise, where there is an exclusive jurisdiction clause, effect should be given to it and a stay ought to be granted, unless the party challenging the exclusive jurisdiction clause is able to show exceptional circumstances amounting to a strong cause warranting a refusal. The burden is on the party challenging the exclusive jurisdiction clause to show why they should not be bound to honour the part of the contract where they had agreed to jurisdiction.”

Effect of Decision

The Court of Appeal’s decision once again demonstrated the Malaysian Court’s willingness to uphold parties’ bargain on the pre-agreed exclusive jurisdiction for dispute resolution. Corporate draftsmen should bear this in mind when drafting / finalizing contracts with international counterpart.

If the counterparty proposes a foreign jurisdiction as the exclusive jurisdiction for dispute resolution, one should consider the practicality and costs of litigating any dispute arising from or relating to the contract in such foreign jurisdiction.

As an alternative, one can always consider international arbitration as a neutral mode of dispute resolution so as to not give either party a “home ground” advantage.

Likewise, if a dispute is filed in the Malaysian Court notwithstanding the existence of a foreign jurisdiction clause in the contract, the Malaysian Courts’ willingness to uphold and enforce the exclusive jurisdiction clause is an encouraging sign for the international party to apply for a stay based on the principle of “forum non conveniens”.

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