News

Exclusive Jurisdiction Clause – A Rose by any other name…

An exclusive jurisdiction clause sets out the parties’ agreement to submit their disputes to a particular forum or jurisdiction. This provides certainty to the parties as to the forum/jurisdiction in which their disputes may be determined, particularly where the parties are based in different jurisdictions.

However, what if such clause was not labelled an ‘exclusive’ jurisdiction clause?

The issue was considered by the Court of Appeal in United Overseas Bank Ltd v. United Securities Sdn Bhd & Ors [2021] MLJU 1363.

In that case, a dispute arose between United Overseas Bank Ltd in Singapore and its Borrower, a Malaysian company. By the loan agreement, it was provided that Singapore law would govern any disputes concerning the loan and also that the Borrower agreed to the non-exclusive jurisdiction of the Singapore courts to resolve any disputes arising from the loan and security documents (“the Jurisdiction Clause”).

Due to various issues in dispute, the Borrower commenced proceedings in Malaysia against the Bank (“the Malaysian Proceedings”). The Bank itself commenced proceedings in Singapore against the Borrower (“the Singapore Proceedings”) to determine largely the same issues.

The Bank applied to stay the Malaysian Proceedings pending the final disposal of the Singapore Proceedings, on the ground that the Malaysian Court ought not to hear the matter due to forum non conveniens and that the Jurisdiction Clause was an exclusive jurisdiction clause for the dispute to be resolved in Singapore (“the Stay Application”).

The Bank’s Stay Application was dismissed by the High Court but on appeal, allowed by the Court of Appeal on 26.4.2021.

The Borrower’s application for leave to appeal to the Federal Court was dismissed on 23.9.2021.

Principles on Exclusive Jurisdiction Clauses

Even though the Jurisdiction Clause in this case was stated to be non-exclusive, the Court of Appeal nevertheless held that it was an exclusive jurisdiction clause, by reference to other terms in the loan agreement.

These included clauses which provided that:

1)   the Borrower had irrevocably agreed to waive any objection to the forum to be selected by the Bank and the Bank had instituted action in Singapore; and

2)   the Borrower had agreed that a judgment made by the Singapore courts shall be conclusive and binding on the Borrower.

The Borrower also contended that the Jurisdiction Clause only related to suits filed by the Bank but not to suits filed by the Borrower. The Court of Appeal disagreed and held that, on the contrary, the non-exclusive nature of the clause permitted the Bank to resort to courts in any jurisdiction but not the Borrower, who had to submit to the jurisdiction selected by the Bank for the dispute to be resolved.

Having held that there was an exclusive jurisdiction clause, the Court of Appeal applied the principle that the party who brings an action in a non-agreed forum in breach of such exclusive jurisdiction clause, bears the burden to show strong cause as to why such action ought to continue – in this case, the Malaysian Proceedings. On the facts, the Court of Appeal found that the Borrower had failed to discharge such burden and ordered the Malaysian Proceedings to be stayed, pending the final disposal of the Singapore Proceedings.

Significance of this decision

This decision is the first appellate court decision in Malaysia which establishes that the courts will interpret the terms of a jurisdiction clause and ascertain if it is an exclusive jurisdiction clause even if the clause is not expressly stated to be exclusive.

Our Ms Yoong Sin Min, Mr Poh Choo Hoe and Mr Freddy Choy Kay Chun represented the Bank in this matter.

 

This article is intended for general information of the clients of our Firm. It should not be regarded as legal professional advice. If you need advice based on specific facts, please feel free to contact us.

 

Yoong Sin Min Senior Partner Tel: (603) 2031 1788 ext 242 [email protected]

Poh Choo Hoe Partner Tel: (603) 2031 1788 ext 207 [email protected]

Freddy Choy Kay Chun Associate Tel: (603) 2031 1788 ext 369 [email protected]