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Provision of The Selection of Forum - Commercial Contracts

Provision of The Selection of Forum: Clause Related To Limiting The Jurisdiction In Case of Commercial Contracts

The Indian Contracts Act of 1872[1]has delineated under section 28, about the conditions when the clause of forum selection can make a contract void, leaving out room for two exceptions explicitly. Over the years, the hon'ble Supreme Court of India has also adjudicated a plethora of cases, while they interpreted the clause associated to the forum selection. This work deals largely with the same issue.

The initial part of this work will introduce the reader to the idea of limiting the jurisdiction in matter of possible dispute by instituting a clause in a commercial contract. The question of the derivation of validity of such clauses, according to the Civil Procedure Code[2] and the Contracts Act, will be dealt as well. Following the mentioned, the analysis of the provision will be done on the basis of the cases where the court in India interpreted the clause in the commercial contract which limited the jurisdiction of a forum which can be approached in the matter of the dispute. Also, the question of the limitation which needs to be imposed upon such clauses will be dealt along with it. The latter part of the work will deal with the extent to which the forum selection clause can be pulled off. The author will also try to draw some principles which can be adhered to, from the foreign jurisprudence on the same issue, where the question of circumstantial viability of such clauses would also be dealt with.

It has now been a settled law that the court which has no jurisdiction on the certain matter, cannot be conferred with the power to adjudicate the same under the purview of the forum selection clause. In the mater of Hakam Singh v. M/s Gamon[3], the court reached the same conclusion. Alternatively, in cases in which the jurisdiction in case of dispute lies with a particular court, no issue regarding the conflict with the jurisdiction arises usually.

But, when it comes to multiple jurisdictions on an issue, what legal way could be resorted to?
If the obligation and requirements under sections 15 to 20 has been fulfilled by the plaintiff, who is usually thedominus littis, it is seldom a scenario that questions are posed to him. Having said that, the question which still irks is, how the courts could approach the clause regarding the selection of a jurisdiction if the parties to the suit have already made a decision about the same? If we focus upon the wordings and interpretation of section 28 of the Contract Act, then it explicitly renders the agreement void in case, the agreement in any way absolutely bars the initiation of any legal proceedings, in either a direct manner, or an indirect manner. Ergo, when it comes to the clause of choosing the forum for the settlement of the dispute, the parties can neither confer the jurisdiction nor can take the jurisdiction away. They can only and only select one for themselves, making the whole process a pro-public policy.

The foundational reason for this largely comes from international commercial contracts as it gets pretty difficult to decide as to the laws, procedures and courts of which country would be applicable for the same. This proves to be an important factor too. Taking into account the same, the courts consider making the parties obligated to what they have agreed to according to the agreement and restrain itself from entertaining the matter regarding the forum selection. In the case ofSwastik Gasses Pvt. Ltd.v.Indian Oil Corporation[4], the High Court of Rajasthan iterated its judgment on the same line. Since, the issue dealt with are the ones in association to what the parties have agreed upon, therefore, the dispute regarding the selection of the forum should be raised at the court of first instance and cannot be raised later, otherwise does not get entertained.
Drawbacks of the principle of Forum Selection

Let us suppose an instance, where two parties get into an agreement which has a clause that restricts one of the parties from initiating a suit against the other, if in case a dispute arises. Can this agreement be said to be a valid one? Answering that in negative would be the most sane choice, considering the fact that agreement is absolutely restraining the possible legal proceedings.

Now consider a different scenario where two parties enter into an agreement and cause of action arises out of it. The parties have included a forum selection clause in their agreement and according to which the court near which one of the party resides shall have the power to entertain the suit, if it ever arises. Now, under normal circumstances, any court which have had the ability to entertain the matter could have adjudicated the dispute, but due to the incorporation of the forum selection clause, the parties can only approach the court which have been mentioned in the contract, and this will be considering the fact that it is not against public policy and does not absolutely debars any one of the party from initiating a legal proceeding. This has been laid down in the Hukum Singh[5]matter as well.

There are several questions which might emerge due to the above mentioned illustrations, such as, why the restrain in the first case is opposed to public policy unlike the second. Why the second case is said to be a case of aberration in the procedural right and unlike the first one which goes completely against public policy. Why is it that the courts do not object while making the parties in the second case to enforce their obligations in the second case, unlike they do in the first one. Would not it be difficult for a party who has got very limited resources and time and is at the receiving end of the table as in for the requirement of approaching the particular court to initiate a legal proceeding? Why the procedural inconvenience taken into account in such scenarios, as they might in an obvious manner restrain the proceeding of the suit.

The common fact tells us that mostly agreements are not made considering the fact that both the parties are at equal footing, so, should this be applied to the selection of the jurisdiction as well. The reason behind the courts being an adherent to the principle of non-intervention to the clause of selection of jurisdiction is because of the probability of it being the consideration for the contract which has taken place. This conundrum brings us back to the existence of a standard form of contract in such scenarios.

Let us talk about another possibility of a contract between alpha and beta which includes the clause of selection of jurisdiction. The cause of action arises in omega. Due to the inclusion of the clause which guides the selection of a forum, the dispute has to be sought and the suit needs to be raised at sigma. Considering this, is it wise for the court at omega to not to do anything here, due to the obligation conferred by the contract which has taken place between alpha and omega? The ruling of the court could be that since the parties were not under any kind of pressure to give their ascent to the agreement therefore they should respect their word and fulfil the obligations. In the case of Carnival Cruise the principle of non intervention with selection of jurisdiction clause was overturned due to the unequal footing of parties, as it resulted to problems for one of the parties[6].

Section 22[7]of the civil procedure code governs the transfer of suit by one court to another in case there exists a chance of multiple jurisdictions. This authority must be used cautiously keeping in mind the well-being of both the parties, especially the party bring the suit. If the execution of the power under this section causes problem to any of the parties involved, leaving the other without any problem, then the courts should use this power, and override the things mentioned under the forum selection clause of the contract.

Another tangent of the whole issue addresses the international suits. In the matter of company of Germany which was taken up in the Calcutta High Court, the court was left with no choice but to dismiss the initiated suit as according to the forum selection clause in the contract, the suit has to be initiated in Germany[8]. Now, the problem with this was that even though the suit could be initiated in Germany, but the presence of all the defendants could not have been guaranteed, as the companies were registered in two different nations, one in Germany and the other in Calcutta. In such scenario, the clause of selecting the appropriate forum must be overlooked for a while and should only be given due consideration after the application of judicial brain. As the application of the clause of the agreement might cause undue problems to either one of the parties, and such situations must be avoided for the dissemination of justice in the anti-partisan manner.[9]

In one of the cases[10]at the United Kingdom, the court blatantly denied to adhere to the clause of the selective jurisdiction due to the easy availability of witnesses in the country itself. Therefore, considering the fact that trying the suit in another country would be absurd and might not be helpful for the dissemination of justice to the parties. Therefore, the clauses of the contracts should not be adhered to blindly if they go against public policy in such a manner, especially, when they do not form a part of the consideration.

According to case in which Aditya Birla Nuvo, was made a party to the dispute, it was pronounced that:
"Once action was instituted in derogation of a forum selection clause and another party to agreement objects to suits of action on such ground, such objection, for all practical purposes, amounts to prayer or claim for specific performance of forum selection clause[11]"

This makes it pretty clear that the obligations bestowed by way of contract shall not come in the way of justice delivery, as at times some clauses might indirectly deny the natural law principle ofaudi alterm partemto one of the parties. Therefore, the courts should be considerate about such incidents and should not rule, like it did, in one of the cases where it said that:
"…the court has no jurisdiction to entertain suit as parties had established place of jurisdiction of court for any dispute or litigation to be decided arising out of work contract subject to Faizabad Court in view of Forum Selection Clause."[12]

Learnings which can be adopted from the Foreign Jurisprudence on the clause of selection of Jurisdiction.

If we have a look at the legislation which governs the jurisdiction selection in the United States, then the transfers are looked upon by the words which are:
"For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought[13]" Therefore, the courts are required there to take into consideration that people get justice and the broad picture of law, according to the broad interpretation of 28 U.S.C. 1404(a).

After the case of Zapatta offshore Co.,[14]courts were of the opinion that the court of a single nation cannot be the controlling agent of a transnational trade and contract, but soon, after sometime, in the matter of Maryland Casualty Co.,[15]the court of the United States looked into the matter of the ease of getting the witnesses and the corresponding ease with which justice could be delivered, making it refuse to adhere and not intervene to the contractual obligation to which the parties have bonded themselves into.

In one of the cases of Penguin Toilets[16], the defendant's plea was that the suit cannot be entertained due to the forum selection clause being included in the contract. The court said that the clause cannot be active in the current case, and even thought the matter would have appealed to them to invoke this clause and its functioning, it would not have had manifested well, as the clause did not exclusively gave the jurisdiction to a particular forum. In such situations, the jurisdiction could only be denied if it does not deny the right of the part to get heard before a forum in any manner. There cannot really be any methodology or test which can give sure shot results about the situation when the forum clause should be respected and adhered to. Therefore, keeping this factor into account the party should be given a legal remedy and it should be taken care that the clause does not hamper the rights of the parties to the contract.[17]

The courts, ergo, should deliberate upon the repercussions of their adherence to the principle of non-intervention in case of the emergence of the forum selection clause in the contract and should take into account the presence of the fact that whether or not the clause formed a part of consideration[18]

It is a fair conclusion to make that the adherence to the forum selection clause in case of commercial contracts could be detrimental considering the impartation of justice to the parties involved. It is not usual that the parties will be on equal footing at the time of making the contract. Therefore, the courts taking into account the shortcomings of the very clause is of paramount importance.

[1]Indian Contracts Act 1872
[2]Code of Civil Procedure, 1908
[3]Hakam Singhv.M/s Gamon, (1971) 1 SCC 286.
[4]Swastik Gasses Pvt. Ltd.v.Indian Oil Corporation, (2013) 9 SCC 32
[5]Supra, 3.
[6]Stanfor Journal of Law,, pp.31,32.
[7]S.22, Code of Civil Procedure, 1908
[8]Hi-Tech Systemsv.Dilo Amaturen
[9]Udit Narainv.Commissioner of Board of Revenues
[11]Isha Distribution House. v.Aditya Birla Nuvo, CS 88 of 2016
[12] Carbon Manaement Consulting Pvt. Ltd v. Yash Paper Ltd, CS 19 of 2011
[15]Central Contracting Co. v. Maryland Casualty Co, 367 F.2d 341 (1966)
[16]Rothv.Penguin Toilets, LLC,2011 NCBC 45.

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