Exclusive jurisdiction or forum selection clauses are becoming increasingly common, especially in agreements involving cross-border transactions or where one or more parties come from different jurisdictions. At the stage of the formation of the contract before any dispute could arise, the parties often will include a choice of forum clause in the agreement, as well as the law to be applied to the agreement. This choice will be made by the parties based on varying considerations; such as which law would give them the most favourable position given the fact that any particular dispute may be resolved differently by courts in different jurisdictions applying different legal principles. The parties may also take into account other tactical and procedural advantage as well as cost considerations.

However, when a dispute does eventually arise, some plaintiffs will go back on their agreement and commence legal action in a forum other than the one previously chosen in the agreement. In response to this, the defendant would usually apply for a stay of proceedings by relying on the exclusive jurisdiction clause in the relevant agreement. This gives rise to the legal question of whether an exclusive jurisdiction clause ousts the jurisdiction of any other courts, and the principles to be applied in deciding whether to grant the application for stay.

In this article, we review the recent case of World Triathlon Corporation v SRS Sports Centre Sdn Bhd [2019] 1 CLJ 381, where the Court of Appeal was confronted with the question of the applicability of an exclusive jurisdiction clause. We discuss the legal position in this area of law as developed by case law, as well as analyse whether the Court of Appeal in the World Triathlon case had objectively applied the relevant legal principles in deciding the case.

THE LAW ON EXCLUSIVE JURISDICTION CLAUSE

It is a trite principle of contract law that the courts would generally honour an agreement that is entered into between parties at arm’s length. The courts do not have the power to rewrite a contract, substitute any clauses or improve a contract already agreed by the parties – see Berjaya Time Square Sdn Bhd (formerly known as Berjaya Ditan Sdn Bhd) v M Concept Sdn Bhd [2010] 1 MLJ 597; Spm Membrane Switch Sdn Bhd v Kerajaan Negeri Selangor [2016] 1 MLJ 464. With regards to exclusive jurisdiction clauses specifically, the legal position has been well settled by the Federal Court in Globus Shipping & Trading Co. (Pte) Ltd. v. Taiping Textiles Berhad [1976] 2 MLJ 154. The Federal Court in that case had referred to numerous English authorities and held as follows –

As regards the general principles in relation to jurisdiction where parties have agreed to submit exclusively to a foreign jurisdiction, in the case of The Fehmarn [1957] 2 All ER 707 Wilmer J. said at page 710:
Where there is an express agreement to a foreign tribunal, clearly it requires a strong case to satisfy this court that that agreement should be over-ridden and that proceedings in this country should be allowed to continue. However, in the end it is, and must necessarily be, a matter for the discretion of the court, having regard to all the circumstances of the particular case.
In the same case when it went up to the Court of Appeal [1958] 1 All ER 333 335 Lord Denning said:
The next question is whether the action ought to be stayed because of the provision in the bill of lading that all disputes are to be judged by the Russian courts. I do not regard this provision as equal to an arbitration clause, but I do say that the English courts are in charge of their own proceedings: and one of the rules which they apply is that a stipulation that all disputes should be judged by the tribunals of a particular country is not absolutely binding. Such a stipulation is a matter to which the courts of this country will pay much regard and to which they will normally give effect, but it is subject to the over-riding principle that no one by his private stipulation can oust these courts of their jurisdiction in a matter that properly belongs to them.

To summarise, the principles enunciated by the Federal Court are as follows –

  1. An exclusive jurisdiction clause could not oust any Malaysian court of their jurisdiction in a matter that properly belongs to them.
  2. Although Malaysian courts generally have jurisdiction, where there is an express exclusive jurisdiction clause, a strong case is required to justify departure from it.
  3. The courts have discretion in deciding whether an application for stay of proceedings in reliance of an exclusive jurisdiction clause should be granted.

The effect of an exclusive jurisdiction clause is that it creates a prima facie case that the chosen jurisdiction is the appropriate forum (Southern Acids (M) Sdn Bhd v Standard Chartered Malaysia Bank Bhd [2012] 2 CLJ 361). The parties are deemed to have waived any objection as to the appropriateness of the selected forum.

The burden of rebutting this prima facie case lies on the plaintiff. This was the decision of the Court of Appeal in Inter Maritime Management Sdn Bhd v Kai Tai Timber Company Ltd Hong Kong [1995] 4 CLJ 164, where it was held that in view of the exclusive jurisdiction clause, the burden of proving a strong case falls on the plaintiff who brought the proceedings in Malaysia instead of the agreed jurisdiction. This was distinguished from stay applications based on the doctrine of forum non conveniens, where the proceedings have been properly brought in Malaysia and the burden of proving that another forum is the more appropriate forum lies on the defendant. This principle had been applied in many subsequent decisions by the courts.

FACTORS TO BE CONSIDERED BY THE COURT

The judgment of Brandon J in Owners of Cargo Lately Laden on Board Ship or Vessel Eleftheria v Owners of Ship or Vessel Eleftheria [1969] 2 All ER 641 ( “The Eleftheria”) provided guidance on the factors to be considered by courts in granting or dismissing a stay application based on an exclusive jurisdiction clause –

"(5) In particular, but without prejudice to (4), the following matters, where they arise may properly be regarded: –
  1. In what country the evidence on the issues of fact is situated, or more readily available, and the effect of that on the relative convenience and expense of trial as between the English and foreign courts.
  2. Whether the law of the foreign court applies and, if so, whether it differs from English law in any material respects.
  3. With what country either party is connected, and how closely.
  4. Whether the defendants genuinely desire trial in the foreign country, or are only seeking procedural advantages.
  5. Whether the plaintiffs would be prejudiced by having to sue in the foreign court they would:
    1. be deprived of security for their claim;
    2. be unable to enforce any judgment obtained;
    3. be faced with a time-bar not applicable in England; or
    4. for political, racial, religious or other reasons be unlikely to get a fair trial"

WORLD TRIATHLON CORPORATION V SRS SPORTS CENTRE SDN BHD

In this case, the appellant was a company established in Florida, USA and was the registered owner of several marks and trademarks for the Ironman Triathlon. The appellant entered into two event license agreements with the respondent, a company registered in Malaysia, granting the respondent the right, license and/or authority to organise and/or host triathlon events in Malaysia under the Ironman trademark. The agreements contained an exclusive jurisdiction clause which provided that the venue for any litigation shall be in the Court of Florida, the USA. The appellant then terminated the license agreements following several defaults by the respondent and subsequently granted the license and consent to organise the triathlon event to one of the respondent’s directors. The respondent commenced a legal action against the appellant at the High Court of Malaya for a declaration that the termination was unlawful. The appellant applied for a stay of the proceedings.

The High Court held in favour of the respondent and dismissed the appellant’s application for a stay of proceedings. The High Court decided that the most convenient forum of the suit is Malaysia and that the governing law of the event license agreements is the laws of Malaysia. The reason given by the learned judge was that the witnesses to determine the dispute were all in Malaysia and the respondent will have to bear substantial expense and inconvenience to bring all these witnesses to Florida. The learned judge also took into account that the respondent was incorporated and carried out business in Malaysia and evidence relating to matters involving the event license agreement and triathlon has to be given by the respondent's representatives who reside in Malaysia. The learned judge then concluded that since "the evidence on issues of fact is situated or more readily available in Malaysia", the respondent had shown a strong case to override the forum selection clause and to have the suit tried in Malaysia.

The Court of Appeal overruled the decision of the High Court and allowed the stay. It was held that the proper forum for the suit is Florida and the law of the agreements is the laws of Florida. In giving this decision, the Court of Appeal reaffirmed the principle that a forum selection clause does not oust the jurisdiction of the court. The court is nevertheless obliged to give effect to the agreement of the parties and grant a stay. Otherwise, the court may be seen as condoning a breach by one of the parties by not enforcing an agreed clause.

It was also held that the respondent had failed to discharge their burden of proving a strong case against the forum selection clause. The considerations that were accepted by the learned judge in High Court was held to be insufficient as overriding the exclusive jurisdiction clause would require the plaintiff to show more than just inconvenience to witnesses and also with regards to costs. It was also held that despite the events being held in Malaysia, the act of termination took place in Florida and therefore the evidence and witnesses would be more readily available in Florida.

In its judgment, the Court of Appeal had identified the relevant legal principles to be applied in the matter. The court held that the respondent (i.e. the plaintiff) bears the burden of proving that Malaysia is the more appropriate forum instead of Florida, and the respondent would have to show ‘exceptional circumstances’ to discharge this burden. After finding that the respondent had failed to discharge its burden, the court went on to elaborate on the factors that would swing the balance in the appellant’s favour, such as the fact that the evidence and witnesses would be more readily available in Florida instead of Malaysia.

Despite the allegations of inconvenience raised by the respondent, the Court of Appeal found that inconvenience in fact works both ways – it would be inconvenient for the appellant to have the matter tried in Malaysia, likewise the respondent would face inconvenience to have the matter tried in Florida. Although this finding seems to suggest that the balance do not lie in any of the party’s favour, the court held that it is not open to the respondent to assert inconvenience when they have previously agreed to Florida as the proper forum for any litigation.

Although the Court of Appeal appears to favour the appellant, its approach and reasoning comes across as near infallible being consistent with the principle that an exclusive jurisdiction clause is prima facie evidence that the jurisdiction chosen is the most convenient forum. All things being equal, a stay ought to be granted by the courts to enforce an exclusive jurisdiction clause. However this begs the question – what circumstances would be considered sufficient in order to convince the court that the matter ought to be tried in Malaysia?

From the authorities, it appears that in order to override an express exclusive jurisdiction clause, the plaintiff would have to show that there is no sufficient link to the jurisdiction chosen that necessitates the matter to be tried in that particular jurisdiction. In Nutri Mills Products Sdn Bhd v CMA CGM Malaysia Sdn Bhd [2013] 8 MLJ 377, one of the factors that was considered by the court in refusing the stay application was that none of the parties to the agreement had any connection with the forum of choice i.e. France, except for the tenuous link that the 2nd Defendant is owned by a French company. Therefore it was held that the defendants do not appear to genuinely desire a trial in France and the stay application was merely an attempt to procure a tactical or procedural advantage.

A plaintiff may also be able to discharge its burden if the proceeding is brought in relation to a straightforward matter. In Intergraph Cardworx & Analysis Solutions, Inc v EDS Asia Sdn Bhd [2013] 8 MLJ 729, it was held that the costs of initiating the action in the forum of choice i.e. Texas would be excessive since the action involved a relatively straightforward matter of monies due and owing under a license agreement.

Comparing the World Triathlon case with the above examples, it appears that the Court of Appeal had made the correct finding that the respondent had failed to discharge its burden. The grounds raised by the respondent and considered by the learned judge were merely issues of practical inconvenience and difficulty, which in most circumstances would not suffice without more. The appellant in World Triathlon had a real and substantial connection to Florida, as the appellant was incorporated in Florida and had its business there. The proceeding also involved questions of law and was not straightforward in nature. The Court of Appeal had correctly and objectively applied the relevant legal principles, which places the burden on a plaintiff and favours a defendant if the plaintiff fails to discharge the same.