INTRODUCTION.The recent decision of the Supreme Court of India in Swastik Gas v. Indian Oil Corporation Limited[1] (“Swastik Gas”) has brought a degree of clarity to the vexed question of the interpretation of jurisdiction clauses in commercial contracts. The judgement, rendered by a three judge bench of the Supreme Court, finally laid to rest the controversy with regard to the specific wording of exclusive jurisdiction clauses..In this brief piece, we attempt to evaluate the impact of Swastik Gas, with particular regard to choice of jurisdiction clauses in domestic contracts. The first part of this article examines the legal provisions around the question of jurisdiction and the possible literal interpretations thereof. The second part of this article discusses the issues raised by the 1989 decision of the Supreme Court in ABC Laminart v. A.P. Agencies[2] (“ABC Laminart”), the position in other jurisdictions and the manner in which the controversy stands settled by Swastik Gas..JURISDICTION – LEGAL PROVISIONS.The principle legal provision regarding the jurisdiction of a court to entertain a suit, which does not involve immoveable property, is Section 20 of the Code of Civil Procedure, 1908 (“CPC”). This Section provides that courts where the cause of action arose, or where the defendants reside or personally work for gain, would be the appropriate fora for a suit against those defendants, and for that cause of action.[3] It is a widely accepted position of law that parties by agreement, cannot confer jurisdiction on Courts that would not otherwise have jurisdiction to entertain the dispute[4]..A related relevant provision is Section 2 (1) (e) of the Arbitration & Conciliation Act, 1996 (“Arbitration Act”), which defines a “Court” for the purpose of the Act, as the Court of original jurisdiction, which would have the jurisdiction to entertain the dispute if it were in the nature of a suit. This has implications for parties seeking relief from a Court in relation to arbitration proceedings, for example, for proceedings in the nature of interim relief in the aid of arbitration, appointment of an arbitrator, or setting aside of an arbitral award..JURISDICTION – EARLY DECISIONS.An early Supreme Court decision in Hakam Singh v. Gammon (India) Ltd [5] resolved the issue of the contractual validity of choice of forum clauses. The Supreme Court struck down an argument that when two courts had the jurisdiction to entertain a dispute, a choice of forum clause would amount to restraint of legal proceedings, or violate public policy, under Sections 28 and 23 of the Indian Contract Act, 1872 respectively..The issue that remained undecided and gave rise to much confusion, was that when parties chose a jurisdiction for resolution of their disputes, did they by implication exclude the jurisdiction of other courts, or would they have to specify that their choice of jurisdiction was exclusive. In simpler terms, the controversy that was resolved in Swastik Gas was whether a clause that read “The courts of place X shall have jurisdiction to entertain disputes between the parties” ought to be construed differently from a clause that read “The courts of place X alone, shall have the jurisdiction to entertain disputes between the parties”. Particularly, as there remained some doubt as to whether, by incorporating the former clause, the agreement between the parties was that if disputes arose they would be brought before the courts of place X alone, and no other place; or that if one party brought the dispute before the courts of place X, the other parties would not object, but retained their own right to commence proceedings before other courts..While the answer seems to be obvious, it is a question that has received judicial attention in various other countries as well. The position in India has been particularly clouded by the decision of the Supreme Court in ABC Laminart..ABC LAMINART AND RELATED DECISIONS.The case of ABC Laminart related to a contract entered into between the Appellant, who had its registered office within the jurisdiction of the courts at Kaira, Gujarat and the Respondent, who carried on its business from Salem, Tamil Nadu. The jurisdiction clause in their contract read as follows “Any dispute arising out of this sale shall be subject to Kaira jurisdiction”. When disputes arose between the parties, the Respondent filed proceedings before the court at Salem, Tamil Nadu. The Appellant challenged the jurisdiction of the Salem court, and the matter eventually reached the Supreme Court for resolution of this issue..The division bench of the Supreme Court noted that while there was no difficulty in construing exclusive jurisdiction clauses that used words such as “only”, “alone” and “exclusive”, in the absence of these words, the maxim “Expressio unius est exclusio alterius” (expression of one is exclusion of the other) may be applied. However, the Court held that the implied exclusion of the other jurisdiction would have to be inferred from the facts and circumstances of the case, and would not be an automatic exclusion. With regard to the particular facts of the case, the Court held that as the jurisdictions other than Kaira, having a connection with the contract were not “clearly, expressly and unambiguously” excluded, the Salem court would have jurisdiction over the dispute between the parties..The decision in ABC Laminart lead to a situation where even if the parties had expressed a preference for a particular court for resolution of their disputes, unless they had used language indicating exclusivity, the court would carry out an analysis of the facts surrounding the dispute before recognising the forum choice of the parties. This was reflected in a series of decisions of the Supreme Court thereafter, in which the lack of specific exclusionary words in the contract lead the Supreme Court to examine facts relating to the actual terms agreed between the parties, the place of execution of the contract and/or the place of making payments under the contract.[6].THE POSITION IN OTHER JURISDICTIONS.While at first look, the legal position after ABC Laminart appears anomalous, it is worth noting that courts in other countries have also grappled with this issue, though, often in the context of international contracts. For example, in UK, the controversy was first considered in the case of Austrian Lloyd Steamship Company v. Gresham Life Assurance Society Ltd,[7] where the parties had agreed to confer jurisdiction on the courts at Budapest, Hungary without the use of any language of exclusivity. In the course of its decision, the court noted that the question before it was to examine whether “the condition merely mean[s] that, if one of the parties to the contract is sued by the other in the court of Budapest, he will not take any objection to its jurisdiction; or, does it mean that the parties mutually agree that, if any dispute arises under the contract, it shall be determined by the court in Budapest?”. Eventually, the decision was in favour of jurisdiction being with the courts at Budapest based on the language used in other provisions of the contract..In spite of this early decision, the controversy persists and in the reasonably recent case of Bank of New York Mellon v. GV Films,[8] (“GV Films”) the High Court examined the question of the jurisdiction of English courts in relation to a clause that did not specify the grant of exclusive jurisdiction. In the course of the decision, the court referred to several earlier decisions, as well as the decision of the Court of Appeal in the case of Sabah Shipyard (Pakistan) Ltd. v Pakistan[9], which while interpreting a similar clause, had held that.“[the jurisdiction clause]..is not an exclusive clause in the sense of making it a breach of contract for either party to commence proceedings in a jurisdiction other than England”..In GV Films, the court once again looked to other provisions of the contract, to find that English courts did indeed have exclusive jurisdiction..In USA, certain state courts have characterised clauses that use specific language of exclusivity as “mandatory” clauses, while those that do not use such language as “permissive” clauses. The 2nd Circuit Court of Appeals has further held that.“The general rule in cases containing forum selection clauses is that [w]hen only jurisdiction is specified the clause will generally not be enforced without some further language indicating the parties’ intent to make jurisdiction exclusive.”[10].In a more recent decision, a trial court in North Carolina allowed an employee to bring proceedings in North Carolina, even though the contract between him and the employer provided for disputes under the agreement to be conducted in Michigan, on the ground that the forum selection clause was not mandatory.[11] There is also substantial literature on what language would render a jurisdiction clause “mandatory” in nature..In view of the above, the clarity brought by the Swastik Gas decision to the Indian domestic position on the issue is heartening. The next section discusses the Swastik Gas decision in detail..SWASTIK GAS.The Swastik Gas decision was rendered by a division bench of the Supreme Court in relation to the Appellant’s application for appointment of an arbitrator, under Section 11 of the Arbitration Act. The Appellant, whose registered office was in Jaipur, Rajasthan, had entered into an agreement with the Respondent, whose registered office was in Mumbai, Maharashtra for marketing of lubricants in Rajasthan. The jurisdiction clause in the Agreement stated that “The Agreement shall be subject to the jurisdiction of the Courts at Kolkata”..When disputes arose, the Appellant approached the High Court of Rajasthan at Jaipur for the appointment of an arbitrator. The Respondent contested the territorial jurisdiction of the High Court of Rajasthan, and the High Court dismissed the Appellant’s application, granting liberty to the Applicant to approach the Calcutta High Court. The Appellant appealed to the Supreme Court on this issue..In arriving at its decision, the Supreme Court carried out a detailed analysis of the decisions that followed ABC Laminart. In particular, Justice Madan B Lokur in his concurring opinion, separately discussed each of the Supreme Court’s decisions after ABC Laminart regarding contracts that did not use the language of specificity. Justice Lokur noted that apart from ABC Laminart and one other decision which turned on the lack of consent on part of one party, all the other four decisions eventually concluded that the court named in the contract did have exclusive jurisdiction to entertain the disputes. He also noted that the Supreme Court, in all these cases had inferred, that the parties either implicitly or explicitly intended that the court in question had exclusive jurisdiction, nothwithstanding the absence of the words “only”, “alone” or “exclusive”. Justice Lokur in his final observation stated “… the absence of words like “alone”, “only”, “exclusive” or “exclusive jurisdiction” is neither decisive nor does it make any material difference in deciding the jurisdiction of a court. The very existence of a jurisdiction clause in an agreement makes the intention of the parties to an agreement quite clear and it is not advisable to read such a clause in the agreement like a statute.”.The leading judgement authored by Justice R M Lodha and Justice Joseph Kurian, arrived at the same conclusion, but on the basis of the maxim “Expressio unius est exclusio alterius” (expression of one is exclusion of the other). The Supreme Court held that “Where the contract specifies the jurisdiction of the courts at a particular place and such courts have jurisdiction to deal with the matter, we think that an inference may be drawn that parties intended to exclude all other courts.”.In the facts of the case, it was held that only the courts at Kolkata had the jurisdiction to entertain the disputes between the parties, irrespective of the absence of exclusionary language in the jurisdiction clause in the contract between the parties..CONCLUSIONS.The decision in Swastik Gas has lent clarity to the Indian position on exclusive jurisdiction clauses, which may be of great assistance to lower courts and arbitral tribunals who are faced with interpreting such clauses without the language of exclusion. It would also grant relief to persons who have used or continue to use standard form of contracts, which do not have detailed and/or heavily negotiated dispute resolution clauses..It is however worth noting that having an exclusive jurisdiction clause does not in itself secure a party from proceedings in other courts. In a decision in 2003, the Supreme Court, in the context of anti-suit injunctions has held that a court may ignore a specific choice of jurisdiction, “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.”[12] Hence, it remains open to courts to ignore a specific choice of jurisdiction in certain limited circumstances..In view of the foregoing developments, it still remains advisable to draft clear and unambiguous jurisdiction clauses that clearly reflect the intention of the parties, with regard to exclusivity or non-exclusivity of the forum. To avoid prolonged litigation on preliminary issues, it is also advisable to ensure that the forum finally chosen is also a “natural” forum, in that first, it actually has jurisdiction in accordance with the CPC; and secondly, has some real link or connection with parties, their contract and the consummation of the transaction contemplated by the contract..Chakrapani Misra is a Partner and Meghna Rajadhyaksha an Associate at Khaitan & Co.[1] (2013) 9 SCC 32[2] (1989) 2 SCC 163[3] This Section analogous to Clause XII of the Bombay High Court Letters Patent Act, 1866 which is applicable to suits filed before the Bombay High Courts. The former presidency towns of Madras and Calcutta also have similar legislation[4] Bahrein Petroleum v. PJ Pappu AIR 1966 SC 634; Harshad Chiman Lal Modi v. DLF Universal Limited (2005) 7 SCC 791[5] (1971) 1 SCC 286[6] R.S.D.V. Finance Co. (P) Ltd. v. Shree Vallabh Glass Works Ltd (1993) 2 SCC 130; Hanil Era Textiles Ltd. v. Puromatic Filters (P) Ltd (2004) 4 SCC 671; Balaji Coke Industry Private Limited v. Maa Bhagwati Coke Gujarat Private Limited (2009) 9 SCC 403; Shriram City Union Finance Corporation Ltd. v. Rama Mishra (2002) 9 SCC 613.[7] [1903] 1 KB 249[8] [2009] EWHC 2338 (Comm)[9] [2003] 2 Lloyd’s Reports 571[10] John Boutari and Son, Wines And Spirits v.Attiki Importers And Distributors Inc., 22 F.3d 51[11] Roth v. Penguin Toilets, LLC, 2011 NCBC 45[12] Modi Entertainment Network and Anr.Vs. W.S.G. Cricket PTE. Ltd. (2003) 4 SCC 341
INTRODUCTION.The recent decision of the Supreme Court of India in Swastik Gas v. Indian Oil Corporation Limited[1] (“Swastik Gas”) has brought a degree of clarity to the vexed question of the interpretation of jurisdiction clauses in commercial contracts. The judgement, rendered by a three judge bench of the Supreme Court, finally laid to rest the controversy with regard to the specific wording of exclusive jurisdiction clauses..In this brief piece, we attempt to evaluate the impact of Swastik Gas, with particular regard to choice of jurisdiction clauses in domestic contracts. The first part of this article examines the legal provisions around the question of jurisdiction and the possible literal interpretations thereof. The second part of this article discusses the issues raised by the 1989 decision of the Supreme Court in ABC Laminart v. A.P. Agencies[2] (“ABC Laminart”), the position in other jurisdictions and the manner in which the controversy stands settled by Swastik Gas..JURISDICTION – LEGAL PROVISIONS.The principle legal provision regarding the jurisdiction of a court to entertain a suit, which does not involve immoveable property, is Section 20 of the Code of Civil Procedure, 1908 (“CPC”). This Section provides that courts where the cause of action arose, or where the defendants reside or personally work for gain, would be the appropriate fora for a suit against those defendants, and for that cause of action.[3] It is a widely accepted position of law that parties by agreement, cannot confer jurisdiction on Courts that would not otherwise have jurisdiction to entertain the dispute[4]..A related relevant provision is Section 2 (1) (e) of the Arbitration & Conciliation Act, 1996 (“Arbitration Act”), which defines a “Court” for the purpose of the Act, as the Court of original jurisdiction, which would have the jurisdiction to entertain the dispute if it were in the nature of a suit. This has implications for parties seeking relief from a Court in relation to arbitration proceedings, for example, for proceedings in the nature of interim relief in the aid of arbitration, appointment of an arbitrator, or setting aside of an arbitral award..JURISDICTION – EARLY DECISIONS.An early Supreme Court decision in Hakam Singh v. Gammon (India) Ltd [5] resolved the issue of the contractual validity of choice of forum clauses. The Supreme Court struck down an argument that when two courts had the jurisdiction to entertain a dispute, a choice of forum clause would amount to restraint of legal proceedings, or violate public policy, under Sections 28 and 23 of the Indian Contract Act, 1872 respectively..The issue that remained undecided and gave rise to much confusion, was that when parties chose a jurisdiction for resolution of their disputes, did they by implication exclude the jurisdiction of other courts, or would they have to specify that their choice of jurisdiction was exclusive. In simpler terms, the controversy that was resolved in Swastik Gas was whether a clause that read “The courts of place X shall have jurisdiction to entertain disputes between the parties” ought to be construed differently from a clause that read “The courts of place X alone, shall have the jurisdiction to entertain disputes between the parties”. Particularly, as there remained some doubt as to whether, by incorporating the former clause, the agreement between the parties was that if disputes arose they would be brought before the courts of place X alone, and no other place; or that if one party brought the dispute before the courts of place X, the other parties would not object, but retained their own right to commence proceedings before other courts..While the answer seems to be obvious, it is a question that has received judicial attention in various other countries as well. The position in India has been particularly clouded by the decision of the Supreme Court in ABC Laminart..ABC LAMINART AND RELATED DECISIONS.The case of ABC Laminart related to a contract entered into between the Appellant, who had its registered office within the jurisdiction of the courts at Kaira, Gujarat and the Respondent, who carried on its business from Salem, Tamil Nadu. The jurisdiction clause in their contract read as follows “Any dispute arising out of this sale shall be subject to Kaira jurisdiction”. When disputes arose between the parties, the Respondent filed proceedings before the court at Salem, Tamil Nadu. The Appellant challenged the jurisdiction of the Salem court, and the matter eventually reached the Supreme Court for resolution of this issue..The division bench of the Supreme Court noted that while there was no difficulty in construing exclusive jurisdiction clauses that used words such as “only”, “alone” and “exclusive”, in the absence of these words, the maxim “Expressio unius est exclusio alterius” (expression of one is exclusion of the other) may be applied. However, the Court held that the implied exclusion of the other jurisdiction would have to be inferred from the facts and circumstances of the case, and would not be an automatic exclusion. With regard to the particular facts of the case, the Court held that as the jurisdictions other than Kaira, having a connection with the contract were not “clearly, expressly and unambiguously” excluded, the Salem court would have jurisdiction over the dispute between the parties..The decision in ABC Laminart lead to a situation where even if the parties had expressed a preference for a particular court for resolution of their disputes, unless they had used language indicating exclusivity, the court would carry out an analysis of the facts surrounding the dispute before recognising the forum choice of the parties. This was reflected in a series of decisions of the Supreme Court thereafter, in which the lack of specific exclusionary words in the contract lead the Supreme Court to examine facts relating to the actual terms agreed between the parties, the place of execution of the contract and/or the place of making payments under the contract.[6].THE POSITION IN OTHER JURISDICTIONS.While at first look, the legal position after ABC Laminart appears anomalous, it is worth noting that courts in other countries have also grappled with this issue, though, often in the context of international contracts. For example, in UK, the controversy was first considered in the case of Austrian Lloyd Steamship Company v. Gresham Life Assurance Society Ltd,[7] where the parties had agreed to confer jurisdiction on the courts at Budapest, Hungary without the use of any language of exclusivity. In the course of its decision, the court noted that the question before it was to examine whether “the condition merely mean[s] that, if one of the parties to the contract is sued by the other in the court of Budapest, he will not take any objection to its jurisdiction; or, does it mean that the parties mutually agree that, if any dispute arises under the contract, it shall be determined by the court in Budapest?”. Eventually, the decision was in favour of jurisdiction being with the courts at Budapest based on the language used in other provisions of the contract..In spite of this early decision, the controversy persists and in the reasonably recent case of Bank of New York Mellon v. GV Films,[8] (“GV Films”) the High Court examined the question of the jurisdiction of English courts in relation to a clause that did not specify the grant of exclusive jurisdiction. In the course of the decision, the court referred to several earlier decisions, as well as the decision of the Court of Appeal in the case of Sabah Shipyard (Pakistan) Ltd. v Pakistan[9], which while interpreting a similar clause, had held that.“[the jurisdiction clause]..is not an exclusive clause in the sense of making it a breach of contract for either party to commence proceedings in a jurisdiction other than England”..In GV Films, the court once again looked to other provisions of the contract, to find that English courts did indeed have exclusive jurisdiction..In USA, certain state courts have characterised clauses that use specific language of exclusivity as “mandatory” clauses, while those that do not use such language as “permissive” clauses. The 2nd Circuit Court of Appeals has further held that.“The general rule in cases containing forum selection clauses is that [w]hen only jurisdiction is specified the clause will generally not be enforced without some further language indicating the parties’ intent to make jurisdiction exclusive.”[10].In a more recent decision, a trial court in North Carolina allowed an employee to bring proceedings in North Carolina, even though the contract between him and the employer provided for disputes under the agreement to be conducted in Michigan, on the ground that the forum selection clause was not mandatory.[11] There is also substantial literature on what language would render a jurisdiction clause “mandatory” in nature..In view of the above, the clarity brought by the Swastik Gas decision to the Indian domestic position on the issue is heartening. The next section discusses the Swastik Gas decision in detail..SWASTIK GAS.The Swastik Gas decision was rendered by a division bench of the Supreme Court in relation to the Appellant’s application for appointment of an arbitrator, under Section 11 of the Arbitration Act. The Appellant, whose registered office was in Jaipur, Rajasthan, had entered into an agreement with the Respondent, whose registered office was in Mumbai, Maharashtra for marketing of lubricants in Rajasthan. The jurisdiction clause in the Agreement stated that “The Agreement shall be subject to the jurisdiction of the Courts at Kolkata”..When disputes arose, the Appellant approached the High Court of Rajasthan at Jaipur for the appointment of an arbitrator. The Respondent contested the territorial jurisdiction of the High Court of Rajasthan, and the High Court dismissed the Appellant’s application, granting liberty to the Applicant to approach the Calcutta High Court. The Appellant appealed to the Supreme Court on this issue..In arriving at its decision, the Supreme Court carried out a detailed analysis of the decisions that followed ABC Laminart. In particular, Justice Madan B Lokur in his concurring opinion, separately discussed each of the Supreme Court’s decisions after ABC Laminart regarding contracts that did not use the language of specificity. Justice Lokur noted that apart from ABC Laminart and one other decision which turned on the lack of consent on part of one party, all the other four decisions eventually concluded that the court named in the contract did have exclusive jurisdiction to entertain the disputes. He also noted that the Supreme Court, in all these cases had inferred, that the parties either implicitly or explicitly intended that the court in question had exclusive jurisdiction, nothwithstanding the absence of the words “only”, “alone” or “exclusive”. Justice Lokur in his final observation stated “… the absence of words like “alone”, “only”, “exclusive” or “exclusive jurisdiction” is neither decisive nor does it make any material difference in deciding the jurisdiction of a court. The very existence of a jurisdiction clause in an agreement makes the intention of the parties to an agreement quite clear and it is not advisable to read such a clause in the agreement like a statute.”.The leading judgement authored by Justice R M Lodha and Justice Joseph Kurian, arrived at the same conclusion, but on the basis of the maxim “Expressio unius est exclusio alterius” (expression of one is exclusion of the other). The Supreme Court held that “Where the contract specifies the jurisdiction of the courts at a particular place and such courts have jurisdiction to deal with the matter, we think that an inference may be drawn that parties intended to exclude all other courts.”.In the facts of the case, it was held that only the courts at Kolkata had the jurisdiction to entertain the disputes between the parties, irrespective of the absence of exclusionary language in the jurisdiction clause in the contract between the parties..CONCLUSIONS.The decision in Swastik Gas has lent clarity to the Indian position on exclusive jurisdiction clauses, which may be of great assistance to lower courts and arbitral tribunals who are faced with interpreting such clauses without the language of exclusion. It would also grant relief to persons who have used or continue to use standard form of contracts, which do not have detailed and/or heavily negotiated dispute resolution clauses..It is however worth noting that having an exclusive jurisdiction clause does not in itself secure a party from proceedings in other courts. In a decision in 2003, the Supreme Court, in the context of anti-suit injunctions has held that a court may ignore a specific choice of jurisdiction, “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.”[12] Hence, it remains open to courts to ignore a specific choice of jurisdiction in certain limited circumstances..In view of the foregoing developments, it still remains advisable to draft clear and unambiguous jurisdiction clauses that clearly reflect the intention of the parties, with regard to exclusivity or non-exclusivity of the forum. To avoid prolonged litigation on preliminary issues, it is also advisable to ensure that the forum finally chosen is also a “natural” forum, in that first, it actually has jurisdiction in accordance with the CPC; and secondly, has some real link or connection with parties, their contract and the consummation of the transaction contemplated by the contract..Chakrapani Misra is a Partner and Meghna Rajadhyaksha an Associate at Khaitan & Co.[1] (2013) 9 SCC 32[2] (1989) 2 SCC 163[3] This Section analogous to Clause XII of the Bombay High Court Letters Patent Act, 1866 which is applicable to suits filed before the Bombay High Courts. The former presidency towns of Madras and Calcutta also have similar legislation[4] Bahrein Petroleum v. PJ Pappu AIR 1966 SC 634; Harshad Chiman Lal Modi v. DLF Universal Limited (2005) 7 SCC 791[5] (1971) 1 SCC 286[6] R.S.D.V. Finance Co. (P) Ltd. v. Shree Vallabh Glass Works Ltd (1993) 2 SCC 130; Hanil Era Textiles Ltd. v. Puromatic Filters (P) Ltd (2004) 4 SCC 671; Balaji Coke Industry Private Limited v. Maa Bhagwati Coke Gujarat Private Limited (2009) 9 SCC 403; Shriram City Union Finance Corporation Ltd. v. Rama Mishra (2002) 9 SCC 613.[7] [1903] 1 KB 249[8] [2009] EWHC 2338 (Comm)[9] [2003] 2 Lloyd’s Reports 571[10] John Boutari and Son, Wines And Spirits v.Attiki Importers And Distributors Inc., 22 F.3d 51[11] Roth v. Penguin Toilets, LLC, 2011 NCBC 45[12] Modi Entertainment Network and Anr.Vs. W.S.G. Cricket PTE. Ltd. (2003) 4 SCC 341
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