Non-exclusive jurisdiction clauses are common provisions in contracts. Typically, they allow the parties to agree to submit any dispute arising from the contract to a particular jurisdiction’s courts, while leaving the parties free to commence legal proceedings in any other jurisdiction’s courts. In contrast, exclusive jurisdiction clauses are more restrictive—in addition to agreeing on a particular jurisdiction, the clause will also stipulate that any dispute can only be submitted to that agreed jurisdiction.
The two types of jurisdiction clauses are clearly different in theory. As to their effect in practice, particularly in the context of how the Hong Kong Court may give effect to them when deciding whether to take jurisdiction over a dispute, the differences between them are not as straightforward, as explained in a recent Hong Kong Court of Appeal decision.
In Noble Power Investments Limited & Another v. Nissei Stomach Tokyo Co Ltd, CACV 398/2007 (decision handed down on 24 April 2008), the parties were all companies registered in places other than Hong Kong. None of the parties carried on business in Hong Kong. However, in a Hong Kong lawgoverned Cooperation Agreement made between the parties in June 2006, there was a non-exclusive jurisdiction clause providing for the parties to “submit to the non-exclusive jurisdiction of courts of Hong Kong”. The clause stated expressly that “[n]othing contained in this Clause shall limit the right of any party to take any suit, action or proceedings arising under this Agreement against the other parties in any other court of competent jurisdiction….” About one month after the Cooperation Agreement was entered into, the Defendant sent a letter to the Second Plaintiff effectively stating that the Defendant was not going to perform its obligations. The Plaintiffs regarded this as a repudiation by the Defendant and subsequently commenced proceedings in Hong Kong claiming damages. As the Defendant is a Japanese company based in Japan, under Hong Kong law the Plaintiffs had to get the Hong Kong Court’s permission to serve the writ on the Defendant in Japan. The Plaintiffs obtained such permission and served the writ on the Defendant. The Defendant then issued an application in the Hong Kong proceedings, amongst other things, to set aside the service of the writ, saying that the Hong Kong Court should not have granted the permission to serve the writ, on the basis that Japan was a more appropriate forum than Hong Kong for the trial of the matter.
At first instance, the Court considered the Defendant’s application on the usual forum non conveniens basis and regarded the non-exclusive jurisdiction clause simply as one of the factors to be weighed in its decision as to the appropriateness of Hong Kong as the forum for the dispute in question. The Court decided that Japan was the more appropriate forum for the dispute and granted the Defendant’s application.
The Plaintiff appealed successfully to the Court of Appeal. The Honourable Mr. Justice Ma, the Chief Judge of the High Court, gave the leading judgment. In summary, the Court of Appeal held the following:
- The basic premise is that, save in exceptional cases, the Court will hold the parties to their contractual bargains. In the context of a nonexclusive jurisdiction clause, the parties have agreed to submit to a named jurisdiction.
- Accordingly, where proceedings are commenced in the named jurisdiction, the party that contests the appropriateness of such jurisdiction will have a “very heavy burden to discharge”, since that party has agreed contractually to submit to that jurisdiction. To discharge this burden, the contesting party will have to show “strong or overwhelming reasons or exceptional circumstances… such as the existence of factors not contemplated by the parties at the time the relevant agreement was made.” The Court of Appeal commented that in this sense, the non-exclusive jurisdiction clause is in practice the same as the exclusive jurisdiction clause.
- However, where proceedings are commenced in a jurisdiction other than the named jurisdiction, although each case would depend on its facts, generally the above contractual submission issue will not arise, so the contesting party may well have a less heavy burden.
- Accordingly, in the present case, where there was a non-exclusive jurisdiction clause (providing for submission to the Hong Kong Court) and proceedings were in fact commenced by the Plaintiffs in Hong Kong, the Court of First Instance was wrong to regard the non-exclusive jurisdiction clause simply as one of the factors to be weighed in its decision on the appropriateness of Hong Kong as the forum.
- Instead, simply by referring to the non-exclusive Hong Kong jurisdiction clause, the Plaintiffs had already discharged their burden of showing that Hong Kong was an appropriate forum. Thereafter, the burden shifted to the Defendant to show “strong or overwhelming reasons or exceptional circumstances’ as to why the parties” contractual bargain should not be upheld. Since the Defendant has failed to do this, its application should have failed.
This case is a sound reminder to parties to think carefully when agreeing on any kind of jurisdiction clauses. It is over-simplistic to think that a non-exclusive jurisdiction clause maintains fully the parties’ freedom to conduct disputes in any jurisdiction they may wish. The Hong Kong Court has stated clearly that it will hold parties to their contractual bargains, including in a non-exclusive jurisdiction agreement.