RECENT DEVELOPMENTS IN THE FIELD OF JURISDICTION CLAUSES: WHEN IS THERE A DISPUTE TO BE TRIED IN THE CONTRACTUAL FORUM?

• Author: CHRISTOPHER TAN
• Date: 01 December 2000
• Citation: (2000) 12 SAcLJ 396
• Published date: 01 December 2000

There is little controversy1 over what is the test to be applied by our courts when parties seek to bring an action in Singapore in breach of an exclusive foreign jurisdiction clause. The test, which has often been repeated by the authorities, is as follows2:

The courts of the forum have a discretion whether to grant a stay, which is exercised unless the plaintiff shows strong cause why a stay should be refused. In exercising its discretion, the court takes into account all the circumstances of the case, including the following factors:

1. (a) 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 forum and the contractually agreed jurisdiction.

2. (b) Whether the law of the foreign court applies and, if so, whether it differs from the law of the forum in any material respects.

3. (c) With what country either party is connected, and how closely.

4. (d) Whether the defendant genuinely desires trial in the agreed forum, or is only seeking procedural advantages.

5. (e) Whether the plaintiff would be prejudiced by having to sue in the foreign court because he would:

   1. (i) be deprived of security for his claim;

   2. (ii) be unable to enforce any judgment obtained;

   3. (iii) be faced with a time-bar not applicable in the forum; or

   4. (iv) for political, racial, religious or other reasons be unlikely to get a fair trial.

The purpose of the strong cause test is obvious. A party who has agreed to settle disputes in a particular jurisdiction should keep his word, and the courts ought to be reluctant to help him break his promise. However, it appears that recent decisions of the Singapore Court of Appeal have made significant inroads into the operation of exclusive jurisdiction clauses, through the expanding of the scope of factor (d), above.

Recent Decisions

The two most recent local cases in this area are The Jian He3 and more recently The Hung Vuong-24. In the former case, the defendant shipowners surrendered the plaintiffs’ cargo against the production of what turned out to be false bills of lading. When the plaintiffs sued in Singapore, the defendants relied on the jurisdiction clause in the bill of lading, which required disputes to be settled by the courts of and determined according to the laws of China. In refusing to grant a stay, the Court of Appeal held5:

The crucial question is whether the defendants are able to raise a genuine dispute to the claim. The manner in which the goods were lost is immaterial so long as liability cannot be disputed.

Reverting to the present appeal, in the light of these authorities, and on the evidence set out in the affidavits, there is really no defence to the claim, the defendants having released the goods against a forged bill of lading. There is nothing to proceed to trial in China.

In The Hung Vuong-2, the defendant shipowners released the plaintiffs’ goods to the buyers of the goods when no bills of lading had been produced. When the plaintiffs failed to retrieve payment from the buyers for the price of the goods, they sued the defendants. However, under the bill of lading, disputes were to be referred to the courts of and determined according to the laws of Vietnam. Here too, a stay was refused. The Court of Appeal held6:

It would be difficult for a party to contend that he seriously desires trial in the contractual forum if he was unable to show that there was a real dispute, or putting it another way, that he had a real defence to the claim.

The Court of Appeal then refused to grant a stay on the ground that “once it is shown that there is no defence to the claim, and thus no dispute, as in the present case, then there is really nothing to go for trial at the contractual forum.”7

It is patent from the facts of both these cases that there were hardly any other factors indicative of strong cause for trial in Singapore. The causes of action in these cases took place in countries other than Singapore, so

it could not be said that the bulk of the evidence was located in Singapore. In fact, there were very strong elements pointing in favour of trial in the contractual forum. These elements included the choice of law, the choice of jurisdiction and the principal place of business of the defendants concerned. Quite apart from the finding that there was no real or genuine dispute, these elements would otherwise have made it difficult for the plaintiffs to even satisfy the “balance of convenience” test8, let alone the “strong cause” test.

It appears that the principal determining factor in these two cases which tipped the scales in favour of a stay being refused was the finding that the defence did not raise any real or genuine dispute. That the ‘no dispute’ argument can, in the face of so many opposing factors, by itself push a plaintiff’s case beyond the strong cause threshold, shows that the argument is a very potent one indeed. It is the scope of this argument that will now be examined.

‘No Dispute’ In The Context Of The Strong Cause Test: Not An Issue Of Construction

For the avoidance of confusion, it is important that the scope of the ‘no dispute’ argument is appreciated. There are a number of cases which have construed the word ‘dispute’ to mean any situation where the defendant does not admit to the plaintiff’s claim.9 This broad definition of the word ‘dispute’ is markedly different from that adopted by the courts when applying the strong cause test.

The reason for the disparity is that the term ‘dispute’ is capable of bearing different meanings in different contexts. The cases on arbitration clauses provide a good illustration of this. As a matter of construction, the word ‘dispute’ in an arbitration clause encompasses all situations where a claim is not admitted, so that mere refusal to admit to the plaintiff’s claim brings the arbitration clause into play10. However, the word ‘dispute’ in s

1(1) of England’s Arbitration Act 197511, which gave the English courts the discretion to refuse a stay on the grounds of there being no ‘dispute’ to be referred to arbitration, was given a very different meaning. When exercising its discretion to refuse a stay under this provision, the English courts took the view that the strength of the defence would have to be examined in order to see whether there was in fact a ‘dispute’ to be referred to arbitration12.

Likewise, a defendant may well succeed in his argument that the word ‘dispute’ in a jurisdiction clause, as a matter of construction, was intended by the parties to apply to all situations where one party refuses to admit to the claim of the other. However, the existence of a ‘dispute’ in this context simply brings the jurisdiction clause into operation13— the court still has to decide whether, despite the operation of the jurisdiction clause, a stay should be refused. When the courts are applying the strong cause test and determining whether or not there is a ‘dispute’, the issue to be determined is not whether the jurisdiction clause applies to the case at hand, but rather whether the defendant has a genuine intention to litigate in the contractual forum. The court can and will look into the merits of the defence, and a mere refusal to admit liability will not in and of itself establish the existence of the requisite genuine intention. The following remarks by Sheen J in the Frank Pais14 aptly represent the attitude of the courts in this regard15:

I do no understand why it is inappropriate to discuss the merits of a claim if this can be done, thereby saving the cost of litigation. If the defendants have an answer to the claim put forward by the plaintiffs, I can see no reason why they should not say what that answer is.

If mere refusal to admit to the plaintiff’s claim is insufficient to found a ‘dispute’, the question then arises as to when a defendant will be taken to have successfully shown a ‘dispute’ to exist.

Instances Where The Courts Have Refused A Stay On The Grounds Of There Being No ‘Dispute’

An obvious instance is when the defendant, albeit not admitting to liability, fails to suggest any substantive defence to the plaintiff’s claim. Examples of such cases include The Pia Vesta16 and the The Jian He17. In the former case, the defendants tried to stay the action against them on the grounds that the contract with the plaintiffs required all disputes to be settled in the courts of and determined according to the laws of Denmark. The application for a stay was refused, as the defendants had throughout their correspondence with the plaintiffs “treated the matter only as a debate as to the quality of the evidence. At no stage did the defendants state what their defence was”18. As for The Jian He, all the defendants did was to ask for documents evidencing the plaintiffs’ title to the goods that had been lost by the defendants. As the defendants stopped short of asserting that the plaintiffs had no title to sue19, the Court of Appeal held that there really was no dispute to be referred to the contractual forum.

These cases do not appear to cause much trouble. When the defendant is unable to even state what defence he has, it would be quite legitimate for the court to infer that none exists.

The real difficulty arises when the defendant does raise a defence. An example is seen in the case of Standard Chartered Bank v Pakistan National Shipping Corporation20. In that case, the buyers of certain goods opened a letter of credit in favour of the sellers, and the plaintiffs were the confirming bank. The defendant shipowners and their agents caused the bills of lading to be ante-dated. The plaintiffs, who made payment on the letter of credit, subsequently brought an action against the defendants

in England for fraudulent misrepresentation. This was despite the fact that the bill of lading required all disputes to be settled according to...