Technology &
Internet Law

Interpreting Exclusive Jurisdiction Clauses

Introduction 

The Court of Appeal in Sabah Shipyard ( Pakistan ) Ltd v The Islamic Republic of Pakistan [2002] EWCA Civ 1643 (14 November 2002) made some interesting observations about the exact effect of law and jurisdiction clauses in agreements. It suggested that unless such clauses are carefully drafted to achieve the desired effect of creating in a given jurisdiction exclusivity (if, indeed, that is desired), the court would not infer that such exclusivity existed. 

If the plain words of the clause do not lend themselves to the conclusion that the clause is indeed exclusive - that is to say in the sense of making it a breach of contract for either party to commence proceedings in a jurisdiction other than the chosen one - the court was not prepared to construe the words in a transitivesense to arrive at a conclusion that the clause is exclusive. 

To be exclusive, jurisdiction clauses must employ the word exclusive and/or demonstrate an intention that there should be a contractual obligation not to have any recourse to any other court, by employing a sentence construction which is transitive. 

The Jurisdiction Clause in Sabah Shipyard 

In Sabah Shipyard the jurisdiction clause read as follows: 

'Each party hereby consents to the jurisdiction of the Courts of England for any action filed by the other Party under this Agreement to resolve any dispute between the Parties and maybe enforced in England'. (Clause 1.9.1) 

The question that arose for the court was whether Clause 1.9.1 was an exclusive jurisdiction clause so as to make it a breach of contract for either party to bring proceedings in any other court but that of England. It was argued by the plaintiff that it was exclusive in that sense. It sought to rely on the judgment of the Court of Appeal in Austrian Lloyd Steamship Company v Gresham Life Assurance Society Ltd[1903] 1 KB 249 as authority for its contention. 

The Austrian Lloyd Case 

In Austrian Lloyd the court dealt with a jurisdiction clause which was as follows: 

'For all disputes which may arise out of the contract. all the parties interested expressly agree to submit to the jurisdiction of the Courts of Budapest having jurisdiction in such matters.' 

Romer LJ, in trying to construe the above clause, first asked whether it merely meant that, if one of the parties to the contract was sued by the other in the Court of Budapest, he will not take any objection to its jurisdiction; or whether it meant that the parties mutually agree that, if any dispute arises under the contract, it shall be determined by the Court in Budapest. 

His Lordship concluded that the latter was the proper construction to be given to the words of the clause. This was because both parties to the contract had mutually agreed to submit to the jurisdiction of the Budapest courts in respect of any dispute which may arise under the contract. 

Romer LJ concluded that: 

'[i]f there had been an agreement by the parties in similar terms to submit to the decision of a particular individual, I think there could have been no doubt that it would have amounted to an agreement to submit any dispute under the contract to the arbitration of that person. In this case, instead of nominating a particular individual as arbitrator, the parties agree to submit any dispute arising under the contract to the Courts at Budapest.' 

Cannon Screen Entertainment Ltd 

Waller LJ in Sabah Shipyard was unconvinced that Clause 1.9.1 was exclusive in the Austrian Lloyd sense. He preferred the view of Hobson J (as he then was) in Cannon Screen Entertainment Ltd v Handmade Films (Distributors) Ltd(July11 1989 QBD unreported). 

In the latter case, the court dealt with the following jurisdiction clause: 

'This agreement shall be construed and interpreted pursuant to laws of England and the parties hereby consent and submit to the jurisdiction of the Courts of England in connection with any dispute arising hereunder.' ('the Cannon Screen Clause') 

Hobson J took the view that the clause was not exclusive. He found that the words were words of submission not reference. That is to say that the parties submitted to the jurisdiction of the English courts but did not necessarily agree to refer their disputes exclusivelyto it. So, the parties in fact agreed that if one of them sued the other in England, the other will not take any objection to its jurisdiction (for example, as being an inconvenient forum) but not that if any disputes arise under the contract it can only be decided by the English courts. 

In Austrian Lloyd the parties "agree[d] to submit" and the court was prepared to construe it in a transitive sense as an agreement to submit disputes to a particular court in the same way as one can agree to submit disputes to the decision of the arbitrator. 

However, Hobson J held that the Cannon Screen Clause did not lend itself to a transitive construction. He felt that the sense of the Cannon Screen Clause was 'that the parties submit themselves to the jurisdiction of the court not that the parties submit disputes'.  

He concluded thus: 

'In the Austrian Lloydcase it was open to the court to construe the words as if they read "agree to submit all such disputes." I do not consider that it would be appropriate to make such an inferential insertion in [the Cannon Screen Clause]. Words are an accurate tool and relatively small differences in wording will produce different contractual effects. In these clauses the parties have used neither the word exclusive nor a sentence construction which is transitive. They have used words which are apt to demonstrate an intention to agree to submit to the jurisdiction of the English Courts and not [that] there should be a contractual obligation not to have any recourse to any other court. This is the natural meaning of the words used.' 

In other words, the Cannon Screen Clause was held to be non-exclusive in respect of the ability of the parties to send disputes to courts other than the English courts. This means that the only way that a party which is against proceedings in a non-English court can restrain or stay such proceedings is to successfully plead forum non conveniens. 

Waller LJ in Sabah Shipyard 

Waller LJ in Sabah Shipyard took the view that Clause 1.9.1 was not exclusive not only because it did not employ the word exclusive, but also because it did not lend 'itself to a transitive construction'. Clause 1.9.1 showed that the parties had intended to agree to submit to the jurisdiction of the English Courts, but not that there should be a contractual obligation not to have any recourse to any other court. 

Conclusion 

The lesson for commercial lawyers drafting agreements, especially with international elements, is that if they wish the English courts alone to be the forum of dispute resolution they must take pains to use the word exclusive and/or demonstrate clearly that the parties agree to submit all disputes arising under the agreement to the jurisdiction of the English courts. It is not enough that a jurisdiction clause merely shows an intention to agree to submit to the jurisdiction of the English courts. 

Drawing on the reasoning of Waller LJ (or in reality Hobson J in the Cannon Screen Case) a model clause desiring and demonstrating exclusivity could read as follows:  

'The parties to this agreement agree to submit all disputes arising under this agreement to the exclusive jurisdiction of the courts of England and Wales.'

Such a clause would have the result that if one party was to proceed with action in any court other than in England; it would be in breach of contract. This would also mean that an English court could more readily grant an injunction to restrain the non-English proceedings, even if it had been instituted first in time.

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