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Judicial Interpretation of “Foreign Jurisdiction Clause” in Contract-Calls for Review: A Study in the Context of Bangladesh
By a clause commonly known as "foreign jurisdiction clause" the parties express their intention to institute all proceedings for the settlement of disputes before the agreed courts of a particular country although the cause of action may have arisen within the local limits of the courts located in a different country where the contract in question has been performed either wholly or in part writes Mohammad Abdur Razzak.

One of the cardinal principles of law of procedure is that a legal proceeding shall be instituted in the court having jurisdiction to entertain the same and the court will administer justice according to the laws   it is subject to. Adjudication of a matter not in congruent with the said fundamental principle is a nullity and no legal consequence shall flow from such proceeding. However, skepticism is prevailing as to whether the said principle relating to the jurisdiction of court is applicable in terms of adjudication of civil matters in its full vigor without any derogation.

In the backdrop of above legal prescription this long been practiced that when entering into international contracts parties thereto may agree as to what would be the legal regime to govern the contract, i.e., provisions of the contract would be construed and all disputes between the parties stems out of the contract would be resolved as per the agreed legal regime. Again, parties may agree that any dispute arising out of, or in relation to, the contract would exclusively be adjudicated by the courts of a specific country.

By such a clause commonly known as "foreign jurisdiction clause" the parties express their intention to institute all proceedings for the settlement of disputes before the agreed courts of a particular country although the cause of action may have arisen within the local limits of the courts located in a different country where the contract in question has been performed either wholly or in part [Dicey and Morris “conflict of laws” (Ed. Eleventh, P. 1162].

When a dispute arises out of such a contract, chances are there for a suit being instituted by one of the parties in a court other than those as agreed in the contract and this may lead to a legal battle over the assumption of jurisdiction by the court.  The issue of assumption of jurisdiction is further aggravated if, in the first place, the court agreed in the contract and the court assuming jurisdiction over the dispute are not located in the same country and, in the second place, the cause of action of the suit, either wholly or in part, has arisen within the territorial limit of the latter court. If, at all, the other party of the contract, being defendant enters appearance before the court assuming jurisdiction over the dispute, in majority of the cases, he by filing an interlocutory application raises a question as to the legality of assumption of jurisdiction by the court (within whose jurisdiction the cause of action has arisen). This is the time when the legal status of “foreign jurisdiction clause” comes under scrutiny.

One opinion adheres to the strict application of the notion of “national sovereignty”. Courts subscribing this view appear to be reluctant to dismiss the suit of the plaintiff having taken the view that statute confers upon the court authority to assume jurisdiction over the dispute; private stipulation in the form of “foreign jurisdiction clause” in a contract shall not have overriding effect towards the complete ouster of the jurisdiction of the local courts.

Another stream of opinion is ready to circumvent the application of legal principle reflecting radical notion of “national sovereignty” on the plea of national interest in the backdrop of globalization. It is argued in this paper that the last mentioned opinion seems to be more rational as this would help creating environment conducive to better trade and commerce in the country.

The article in section 1 gives a brief account of jurisprudence as to the legal status of “foreign jurisdiction and proper law clause” prevailing in Bangladesh and in section 3 this article attempts to put forward some suggestions that will make the laws of Bangladesh regarding “foreign jurisdiction and proper law clause” in an international contract congruent with the modern trend.

Section 1
Status of “Foreign Jurisdiction and Proper Law Clauses”

Cardinal Rules on Jurisdiction
As far as the matter of jurisdiction is concerned to be exercised by the civil Courts of Bangladesh, a number of statutes are there which prescribe rules to determine jurisdiction of civil Courts. Although Civil Courts Act, 1887 establishes Civil Courts and defines their pecuniary jurisdiction, however, the Code of Civil Procedure, 1908 defines the matters for adjudication and prescribes basic rules for fixing jurisdiction, in particular territorial jurisdiction, of Civil Courts. Generally, civil suits, often referred as “suits of civil nature”, are instituted in the civil Courts. Therefore, civil Courts are permitted to entertain all suits of civil nature if, in the first place, the cause of action of the suit has arisen within the territorial limits of the Courts; secondly, suit value falls within the pecuniary limits of the Courts and, finally, assumption of jurisdiction over the suit by the civil Courts is not barred by any statute.  

Foreign Jurisdiction and Proper Law Clauses
It is stated elsewhere that international contracts for sale/purchase of commodities/goods often contain a clause stating the forum and applicable law for settlement of disputes arising out, or in relation to, the international sale contract between the parties thereto. Seemingly, such “foreign jurisdiction and proper law clauses” tends to put restrictions on the jurisdiction of local civil Courts and such clauses, although private stipulations, are often in conflict with the statutory principles on jurisdiction as encapsulated above.

As far as the legal regime of Bangladesh is concerned, it appears that section 28 of the Contract Act, 1872 is having some rules regarding the “foreign jurisdiction clause” in a contract. Thus in an effort to evaluate the jurisprudence so far developed on the clauses concerning “foreign jurisdiction” and “proper law” legal decisions on section 28 of the Contract Act as well as section 9 of the Code of Civil Procedure ought to mainly be examined.

Judicial Interpretation of Foreign Jurisdiction and Proper Law Clauses
One of the early decisions on the status of clauses regarding “foreign jurisdiction” pronounced by a Court in Bangladesh was in the case of Abdul Razzak v. The East Asiatic Co.   Ltd. (reported in 5DLR 224). In that suit certain merchandise was sent to Pakistan under a bill of lading. Paragraph 2 of the bill of lading governed the right of the parties as regards the forum of the suit; and it was to the following effect:

“2. Jurisdiction. Any dispute arising under this Bill of Lading to be decided in Denmark according to Danish Law”

Dispute arose between the consignee and the carrier over the non-delivery of goods represented by the bill of lading and   consequently a suit was instituted by the consignee in a Court of Munsiff (now called “Court of Assistant Judge”) Chittagong. The carrier being the defendant made an appearance before the Court and filed an interlocutory application seeking an order for returning of the plaint for being filed in the proper court in Denmark. The learned Munsiff allowed the application of defendant against which an appeal was preferred before the then Dhaka High Court. The cardinal question in the said appeal before the Dhaka High Court was whether under the contract, the Danish Court, which was a foreign court, would be the proper forum for decision of the present dispute regarding non-delivery of the goods or whether the Chittagong Court would have jurisdiction to try the dispute in spite of the covenant in paragraph 2 of the bill of lading. Dismissing the appeal Dhaka High Court observed that when the parties to an international contract agree to settle their dispute by a particular court, the validity of such covenant would be decided by the court and legal regime agreed. The intention of the parties gathered from the transaction would be given effect to.

In the said appeal it was argued before the Dhaka High Court that clauses conferring jurisdiction to a foreign court are void under section 28 of the Contract Act and hence local Court should seize of the matter. To address this point Court observed: “Section 28 of the Contract Act makes void only that agreement which absolutely restricts a party to a contract from enforcing his right under the contract in the ordinary tribunals but has no application when a party agrees not to restrict his rights in the ordinary tribunal but only agrees to the selection of a particular tribunal in which the suit is to be tried.” And “In agreeing to bring a suit in one out of the two courts belonging to two foreign countries, both of which would be competent to try the suit, parties cannot be said to have contracted out of the jurisdiction vested in that court or to be depriving that court of its jurisdiction, which it otherwise possessed.”

It should be noted here that while delivering the said judgment, the Dhaka High Court had in its constant view, the cardinal principle that no one by private stipulation can confer jurisdiction upon the court which it otherwise does not possess; nor its jurisdiction can be taken away by private covenant. To surmount this formidable hurdle, the Court adopted a broader interpretation of the expression “court of competent jurisdiction”. Court observed: “according to the rules of Private International Law, ‘a court of competent jurisdiction’ ‘means a court which has the right to adjudicate upon a given matter. . . .  the ‘court of competent jurisdiction’ refers to extra-territorial competence of a court or rather to the extent to which the competence of a Court is admitted in any country other than the country to which to settle dispute,  the court belongs.”

The principle established by Dhaka High Court in Abdur Razzak vs. East Asiatic Co. as to the status of clause in contracts stipulating forum for settling dispute arising out, or, in relation to the contract, had been followed in a series of subsequent legal decisions pronounced by Dhaka High Court [9 DLR 197; 15 DLR 434; 17 DLR 659; 19 DLR 54; 21 DLR 343] and a liberal   and commercially responsive regime of rules relating to foreign jurisdiction clauses started to be formed. However, the efforts of Dhaka High Court had a set back when the principles settled by Dhaka High Court regarding “foreign jurisdiction” clauses were placed before the Supreme Court of Pakistan for reexamination. Pakistan Supreme Court disposed of a number of matters by a single judgment pronounced in 1965 reported in  22 DLR (SC) (1965) 334.

In all the said matters a common question of law: “What is the status of a clause in a contract conferring   jurisdiction to a foreign court to try any matter stems out of the contract” came up for consideration. Hamoodur Rahman, C.J. while speaking for the Pakistan Supreme Court said referring to the decision of Dhaka High Court in Abdur Razzak vs. East Asiatic Co. that exclusive jurisdiction clause in a contract like a bill of lading, whereby the jurisdiction of local court in the country is ousted in respect of any dispute referred to in the same being opposed to public policy and derogatory to country’s sovereignty is void.

However, in a recent decision [(namely, Bangladesh Air Service (Pvt. Ltd. vs.  British Airways PLC reported in 49DLR(AD) (1997) 187]   involving a question regarding the validity of an “arbitration clause” whereby the parties thereto agreed to refer any dispute arose between them to an arbitrator for settlement according to English Law the Appellate Division of the Supreme Court  made some observations which caste a shadow on the vigor of the said judgment of the Pakistan Supreme Court on “proper law” and “foreign jurisdiction” clauses in contracts.

The Appellate Division of the Supreme Court of Bangladesh questioned the propriety of the said judgment of Hamoodur Rahman, C.J and disagreed with   the observations he made to substantiate his judgment. However, the appellate division did not overrule the said judgment of Pakistan Supreme Court.

Section 2
Way forward

Notion of National Sovereignty and Foreign Jurisdiction and Proper Law Clause
One authoritarian judicial interpretation is still prevailing which favours the strict application of the rules based on notion of “national sovereignty” while dealing with “foreign jurisdiction” clause. Although the Appellate Division of Bangladesh Supreme Court is a critic of the said interpretation, however, it did not overrule the decision leaving rooms for the judges to act upon the nationalist approach as adhered to by the Pakistan Supreme Court.

The notion of “national sovereignty” might have provided impetus in the early part or in the middle of twentieth century to the policy makers to take the policy decision; but this notion  may not aptly  be used in the era of globalization of twenty-first century when the interdependency of the nations had ruthlessly been demonstrated and the prosperity of the countries largely depended on the management of inter state relationship in terms of trade  and commerce, information technology,  diplomatic relations etc.

The Chief Justice of the US Supreme Court Mr. Burger also agreed with above notion and called for a change in the attitude of the policy-makers for the expansion of international trade and commerce in the era of globalization [Zapata Off-Shore Co. v. The Bremen" and Unterweser Reederei G. M. B. H. (The "Chaparral"), reported in 1972 (2) Lloyd’s Law Reports at page 315: per Mr. Burger C.J, p.  318].  

As pointed out by Dicey and Morris, according to English law, if the parties have given expression to the intention that the law of a given country shall govern the contract, or if such an intention can be clearly inferred from the contract itself or from the surrounding circumstances, that intention will determine the proper law. Dicey and Morris further remark that where parties to a contract in international trade or commerce agree in advance on the forum which is to have jurisdiction to determine disputes which may arise between them, they may choose  a court in the country of one or both of the parties, or it may be a neutral forum; or  jurisdiction clause may provide for a submission to the courts of a particular country, or to a court identified by a formula in a printed standard form, such as a bill of lading referring disputes to the courts of the carrier's principal place of business. As a general rule, but subject to important exceptions, English courts will give effect to a choice of jurisdiction [“Conflict of laws”, above (Ed. Eleventh, Pp. 403-404 and 1162.].

Under European Economic Community law, it is the will of the parties to an international contract that will be decisive to fix as to which forum, and by what law, may settle disputes between the parties arising out of their covenant [article 17 of the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968 and article 3 of the Rome Convention, 1980].

It is noteworthy that the Appellate Division of the Supreme Court of Bangladesh also appreciates that time has come for our policy makers to revisit our earlier position and “foreign jurisdiction clauses” conferring jurisdiction to a foreign court ought no longer to be treated to be derogatory to the national sovereignty and Court should give effect to the “foreign jurisdiction clauses” as agreed by the parties in their contract [49 DLR 187, paras 26 and 56. Reference can also be made to a  decision reported in Union of India and another V Navigation Maritime Bulgare [AIR 1973 Calcutta 526 (V 60 C 122) para 3 where the Court observed that while dealing with a clause in a contract conferring jurisdiction to a foreign court, the court should also consider the present trend of international trade and commerce].

Procedural Safeguards for the ends of Justice
When the  Courts are found to have inclination towards giving recognition to the “foreign jurisdiction” clause, a further question may reasonably arise: whether the Court when    its assumption of jurisdiction is challenged (in reference to a “foreign jurisdiction clause”) shall simply decline jurisdiction on proof of the fact of “foreign jurisdiction clause” in the contract in question or require the parties to satisfy certain procedural criteria before the Court  declines jurisdiction over the matter.

The  prevailing view, as it seems to be, is that when it is argued before the court that the parties to the contract have already agreed to bring  the matter before another forum in a foreign country, the court may at its discretion, decline jurisdiction over the matter allowing the same to be adjudicated by the agreed forum if it appears to the court to be just and  fair to do so; i.e., the court  will consider the availability  of evidence, witnesses, procedural safeguard, balance of convenience etc to ensure that the plaintiff/petitioner is not prejudiced in the agreed foreign court and object of defendant  is not to frustrate the claim of the plaintiff/petitioner [Cheshire and North’s Private International Law  pp. 351-352; To see the approach of Indian Court see 1960 Cal 155; AIR 1962 Calcutta 601 (V 49 C 128) paras 8, 20; AIR 1973 Calcutta 526 (V 60 C 122) para 3].

Status of Local Proceedings
The next issue relates to the legal status of the proceedings instituted in the local Court having territorial jurisdiction under whose jurisdiction the cause of action either wholly or in part has arisen. Two legal trends can be found while examining the principles of private international law as developed by different legal regimes.

In the first place, if any legal proceeding is initiated in a local court in spite of a clause in a contract conferring jurisdiction to a foreign court, the court may, at its discretion, allow the party to institute legal proceedings before the   agreed foreign forum. The local court shall, while proceedings before the agreed foreign forum are pending, stay the proceeding before it. The stay on the local proceeding shall automatically stand vacated if the proceedings before the foreign forum is dismissed on the ground of limitation and local court shall adjudicate the matter accordingly [AIR 1962 Calcutta 601 (V 49 C 128) paras 23 and 25; 22 DLR (SC) (1965) 334 para 57].   

The other trend supports the complete ouster of the jurisdiction of the local courts. According to this trend, if the parties to a contract agree that any dispute arising out of, or in relation to, the contract shall be referred to a particular forum to settle the same according to a particular legal regime, such clause shall be decisive, i.e., no court/tribunal not named in the contract can assume jurisdiction over the matter unless the chosen forum has declined jurisdiction.

Again, if the parties have chosen the applicable law, the agreed forum shall give effect to such “proper law” clause as well and try the matter in accordance therewith. This legal trend is prevailing in the European Union. This was also the position of law which Dhaka High Court started to develop by a leading decision reported in 5 DLR 224 in 1953 and this position of law continued till 1965 before being overruled by Pakistan Supreme Court.

However, it seems to be questionable how far this trend of interpretation as to “foreign jurisdiction clause” in a contract is workable for the nations not being tied together under an umbrella like EU to adhere to such a liberal regime of law given the diversity in their procedural and substantive law. This concern cannot outright be rejected. But a few points to be noted to address this skepticism

(a) if the statute gives authority  to the Civil Courts  to decide whether or not to seize  of the matter and if the Courts exercise  their judicial discretion  on sound principles of law, this may, it is submitted, well preserve the national interest; because, in the first place, it is the local Courts which determine  whether the jurisdiction of the domestic Courts over the matter is or is not completely ousted and, secondly, before allowing the parties to initiate legal proceedings in their chosen   forum, the Court shall have an opportunity  to look at the national interest as well as the interest of the plaintiff.

(b) Further, this approach towards “foreign jurisdiction” clauses is in conformity with the cardinal principle of the law of contract which requires the parties to preserve the sanctity of the contract by performing mutual promises unless prevented by overriding cause.

(c) The attention of the reader may be drawn to one aspect of the decision of Pakistan Supreme Court reported in 22 DLR SC 334. While overruling a series of decisions of Dhaka High Court by which a liberal and rational regime of law started to be developed Pakistan Supreme Court adopted a strict interpretation of the expression “ordinary tribunal” as appearing in section 28 of the Contract Act holding the view that the expression includes the tribunals within the country and not any tribunal outside the territory.

It is plausible that section 28 of the Contract Act is designed to address the issues where there is a conflict as to which of the competing forums shall assume jurisdiction over the matter and try the same. This is a matter within the regime of private international law and hence the term “tribunal” used in section 28 of the Contract Act ought to be construed in conformity with the jurisprudence of private international law. The vigor of this submission lies in the fact that wherever forum for adjudication is referred in the Contract Act the word “court” has been employed except section 28 where the term “tribunal” has been used.

Use of the term “tribunal” in only one place in the Contract Act, i.e. section 28, it is submitted,  has a definite purpose to accommodate forums of various categories and should not be confined to local court alone. Therefore, the reasonable interpretation of such statutory postulation seems to be that the term “tribunal” used under section 28 of the Contract Act not only covers the local forum for adjudication but also encompasses similar forums beyond the territory of the country. Any divergent interpretation of the term “tribunal” used in section 28 to mean and include the forum within the country only may likely narrow down the ambit of the section which would be against the words and spirit of this section as contemplated by the framers of the Contract Act.

Conclusion
To conclude it is to be stated that uncertainty regarding the legal status of “foreign jurisdiction” clause in a contract needs to be settled with specificity. So it may be expected that if and when opportunity arises   our judiciary would play its proper role to shape the legal principles to be followed and be enforced in Bangladesh.  It may be recalled, as Justice Mustafa Kamal remarked: “. . . no country lives in an island these days.” In the backdrop of globalization interdependency among the nation states is a practical reality.

Judicial approach in deciding the issue of conflict of jurisdiction and proper law in terms of an international contract (which may have a negative impact on carrying free trade in a free market economy in particular, in terms of trade and commerce,) may not be desirable and this may also be regarded as opposed to public policy. In this context, the opinion put forward by the Dhaka High Court in a leading case to the effect that   Court should decide the question as to jurisdiction by making reference to the principles based upon “. . . common senses, upon business convenience, and upon the comity of nations. . . .” seems to be very significant

MOHAMMAD ABDUR RAZZAK has completed an LL.M from University of Dhaka and an LL.M from Nottingham University and is currently a Senior Lecturer with East West University, Dhaka, Bangladesh
 
 
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