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 intra-

territorial 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 extra-

territorial 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 non-

delivery 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 all-

encompassing” 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 2nd 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.