DAMAGES FOR BREACH OF JURISDICTION CLAUSES

• Date: 01 December 2002
• Citation: (2002) 14 SAcLJ 342
• Published date: 01 December 2002
• Author: DANIEL TAN

1 Parties often provide in commercial contracts for disputes to be litigated in a particular jurisdiction. Such agreements are not always honoured.1 Where a party wishes to break his agreement by suing elsewhere, the English and Singapore courts have consistently said that he must, if his opponent resists these proceedings, ordinarily show good reasons why this should be permitted — the would-be plaintiff bears the onus of demonstrating “strong cause” to justify the courts permitting him to breach the agreement.2 Conversely, where the innocent contractual counterparty is sued in an English or Singapore court in breach of such a jurisdiction agreement, the court would ordinarily stay the proceedings; unless, again, “strong cause” is demonstrated.3

2 In two recent cases,4 the Singapore Court of Appeal took the view that even if the plaintiff fails to demonstrate “strong cause”, the Singapore court will nevertheless proceed to exercise jurisdiction to hear the matter, if it could be shown that there was “no dispute” or “no defence” on the merits of the claim. This approach has been criticised.5 It has been argued that if the agreement of the parties is overridden in such a fashion, it should do so only if there is a public interest in doing so,6 and even then, the court should attempt to reconcile this with the private interest of upholding the jurisdiction agreement. Despite there being no reported case having done this, it has been suggested that a way to do this may be to award damages for what is nevertheless a plain and unwaived breach of contract.7

3 Surprisingly, the issue of whether damages can be awarded for the breach of an exclusive jurisdiction clause has not, until recently, been the

subject of judicial consideration.8 The issue arose in the recent decision of the English Court of Appeal in Union Discount Co Ltd v Zoller.9 It is argued that the case suggests that the courts may be inclined to award damages for the breach of a jurisdiction agreement in certain circumstances. This article attempts to analyse the implications of that decision and argues that, despite the possible complications in doing so, it is open to the courts to consider the possibility of an award of damages where such agreements are breached.

Union Discount Co Ltd v Zoller

4 In Union Discount, Zoller, the defendant in English proceedings, brought proceedings in New York against the English claimant, Union Cal. Zoller started these proceedings in breach of an exclusive jurisdiction clause. Union Cal then successfully applied to strike out the New York proceedings. They were, however, unable to recover their costs for doing this under New York law. Union Cal then initiated fresh proceedings in England to recover, as damages, the costs incurred in the New York proceedings. They argued that the exclusive jurisdiction clause was effective like any other contractual term and that its breach would result in damages being payable.

5 At first instance, Judge Heppel QC gave summary judgment for the defendant Zoller in respect of the claim for damages. He held that proceedings could not be brought before a civil court in England to recover costs incurred by a successful party in foreign proceedings, following the general rule that costs in previous proceedings could not be the subject of fresh litigation. This holding was reversed on appeal. The Court of Appeal held that the costs incurred in foreign proceedings could, in certain circumstances, be recovered in an English action between the same parties. It held that costs would be recoverable where:

1. (a) The costs which the claimant seeks to recover in the English proceedings were incurred by him when he was a defendant in foreign proceedings brought by the defendant in English proceedings;

1. (b) The claimant in the foreign proceedings had brought those proceedings in breach of an express term which had the effect of entitling the English claimant to damages for breach;

2. (c) The rules of the foreign forum only permitted recovery of costs in exceptional circumstances; and,

3. (d) The foreign court did not make any adjudication as to costs.

6 In holding that the bar against recovery of costs, whether as damages or otherwise, was not of universal application, Schiemann LJ noted that the bar on recovery of costs in previous proceedings was founded on public policy. This policy-driven need to inhibit recovery of costs incurred in prior civil proceedings was not, however, to be universally applied. There were cases in which the English claimant should not be deprived of his reasonable expenses incurred in litigating in the foreign forum and could be recovered by him by way of an action for damages. Schiemann LJ explained, citing Devlin LJ in Berry v British Transport Commission,10 that there is no need to prevent recovery of costs where an alternative cause of action exists to ground the damages claim. Also, by analogy with cases involving malicious prosecution, a person who starts totally unnecessary proceedings in a foreign jurisdiction in breach of an exclusive jurisdiction clause should not be able to take advantage of policy rules barring the recovery of costs.

Union Discount and damages for breach of exclusive jurisdiction clauses — support for the proposition?

7 Although the case does support the view that an award of damages may be had for the breach of an exclusive jurisdiction clause, this is not manifestly discernable on its face. This is for three reasons. First, the judgment itself is, unfortunately, tinged with costs analysis.11 It may be said that the case only addresses the issue of costs in foreign proceedings and not damages for breach of jurisdiction clauses. Second, the English Court of Appeal purported to go no further than deciding that costs of foreign proceedings were recoverable (arguably as damages) within the confines of the case before it. Third, Union Discount involved an appeal against summary judgment disallowing the costs claim. The procedural context is important because the defendant Zoller would have had to show that the claim for damages was unarguable to successfully resist the appeal. Clearly,

Union Cal may not have been equally successful at trial where the burden of proof is much higher.

Costs or damages?

8 From a cursory reading of the case, it may be thought that Union Discount decided nothing more than that costs incurred in foreign proceedings may be recovered in certain circumstances, notwithstanding the general bar against recoverability of costs in prior proceedings. The issue of whether the bar against recovery of costs in previous proceedings precluded recovery of foreign costs detained the Court of Appeal at some length. One might wonder why the Court of Appeal examined cases dealing with the bar on recovery of costs and endeavoured to distinguish them if it was only dealing with damages in its strict sense. It is clear that the Court of Appeal embarked on such a course of inquiry because it was cognisant that, in dealing with the damages claim, there was the danger of impinging upon the policy rationale underpinning the bar against recovery of costs.

9 Further, despite the numerous references to costs, it appears clear from several passages in the judgment that Schiemann LJ was addressing his mind to damages and not costs simpliciter.12 Regardless of the labels used, the real issue is whether other heads of damages other than costs can be recovered. This must be examined in some detail and cannot simply be answered by reference to the labels used.

10 Crucially, a central plank of the court’s reasoning was that Union Cal was entitled to bring the claim because they were able to plead an independent cause of action;13 quite aside from the mere fact that they were successful in prior proceedings. This gives rise to a strong inference that the decision in Union Discount cannot be attributed to a claim based on costs alone — ordinarily, a party seeking costs need show no more than he was successful in legal proceedings. It would appear, therefore, that a claim founded upon a breach of jurisdiction agreement may lend itself as a basis for the recovery of damages over and above a claim for costs alone.

The “unusual features”

11 The Court of Appeal, by restricting its observations to the facts of the specific situation before it, also created a further impediment to gleaning a more general principle.14 To ascertain the width of the general rule that the case can sensibly be said to sustain, these observations as to the features of the case must be examined and their doctrinal validity ascertained. This is to determine if the observations constitute principled restrictions, are indicators rather than boundary markers and if they may properly be discarded should the issue arise for consideration on different facts.

The costs which the claimant seeks to recover in the English proceedings were incurred by him when he was a defendant in foreign proceedings brought by the defendant in English proceedings.

12 It is strongly argued that the first feature of the case noted by the English Court of Appeal — that the costs were sought by and against parties15 to existing English proceedings — should not be regarded as detracting from a more general principle allowing damages for breach of jurisdiction agreements.

13 There seems to be no reason why the existence of proceedings in the forum where damages are sought should at all matter. Can a fresh action, based squarely on breach of the jurisdiction clause, be commenced in England or Singapore for the purpose of securing costs or damages suffered as a result of the breach? If, as the English Court of Appeal in Union Discount thought, a breach of a jurisdiction agreement constitutes a fresh and separate cause of action, the party who suffers loss as a result of a breach ought to be able to commence an action to recover this in any jurisdiction he so chooses.16...