Legal Blog: Jurisdiction and Ouster Clauses in Agreements : The Law

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Saturday, October 30, 2010

Jurisdiction and Ouster Clauses in Agreements : The Law

The Delhi High Court recently examined the law relating to ouster clauses in Agreements vis-a-vis jurisdiction of a Court to try and entertain a matter. Very often, one finds agreements which contain specific ouster clauses, limiting the jurisdiction of courts to try a matter. Per contra, agreements may contain clauses which actually confer jurisdiction on courts, which otherwise do not have jurisdiction to entertain a matter.

The law on this aspect is fairly well settled.The Supreme Courts in its judgment in ABC Laminart Pvt. Ltd. v. A.P. Agencies, Salem has upheld the validity of contracts ousting or conferring jurisdiction on courts. The findings may be summarised as under;

(a) Ousting jurisdiction of a court, which otherwise would have jurisdiction, by a contract, is void.

(b) Conferring jurisdiction on a court, which otherwise does not have any jurisdiction, by a contract, is void.

(c) Where 2 or more courts have jurisdiction to try a matter, then limiting the jurisdiction to a particular court is valid. However, such contract should be clear, unambigous and specific. Ouster clauses may use the words 'alone', 'exclusively' and 'only' and the same pose no difficulty in interpretation. Even in the absence of such words, the ouster may be inferred from the terms of the contract.

Following the above Judgment, the Delhi High Court in Khosla Machines Pvt. Ltd. v. Deepak Verma, while dealing with two interim applications has held;

17. Having considered the submissions of the counsel for the parties, it appears to this Court that the defendant will succeed in these applications. The question of jurisdiction has to be decided on the facts and circumstances of every case. In A.B.C. Laminart Pvt. Ltd. v. A.P. Agencies, Salem, Supreme Court in para 21 explained the position concerning the ouster clause as under (SCC @ p.175-76): "From the foregoing decisions it can be reasonably deduced that where such an ouster clause occurs, it is pertinent to see whether there is ouster of jurisdiction of other Courts. When the clause is clear, unambiguous and specific accepted notions of contract would bind the parties and unless the absence of ad idem can be shown, the other courts should avoid exercising jurisdiction. As regards construction of the ouster clause when words like 'alone', 'only, 'exclusive' and the like have been used there may be no difficulty. Even without such words in appropriate cases the maxim 'expressio unius est exclusio alterius' - expression of one is the exclusion of another - may be applied. What is an appropriate case shall depend on the facts of the case. In such a case mention of one thing may imply exclusion of another. When certain jurisdiction is specified in a contract an intention to exclude all others from its operation may in such cases be inferred. It has therefore to be properly construed."

18. In the instant case, the agreement to sell as well as the Non Compete Agreement both dated 19th November 2003 contain an identical clause which reads as under:-

"That both the parties irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the courts in Chandigarh."

19. What is significant is that an undertaking was given by the defendant not to design or develop a similar prototype/machine as was "an essential and fundamental condition of this agreement" and formed the basis of the present suit. Mr. Lal tried to impress upon the court that even irrespective of such an agreement to sell containing a negative covenant, the plaintiff would still be able to sue the defendant for violation of copyright. In a given case such a contention could be accepted. However, in the present case, the plaintiff has itself placed these documents on record and has come to the court claiming violation of the agreements by the defendant. The plaintiff cannot be heard to say that the court should now ignore the said two documents in determining whether the court has jurisdiction to try the suit.

20. The next contention of Mr. Lal is that a part of the cause of action arose within the jurisdiction of this court and therefore in terms of Section 20(c) CPC this Court has jurisdiction to entertain the suit. It requires to be noticed that the only averment in this regard is that the defendant has received a purchase order from Fena Pvt. Ltd., which has its office in Delhi. It is not in dispute that the allegedly offending machine made in Mohali to be delivered at Surajpur (UP). Mr. Lal states that this Court should not go by the place from where the machine is dispatched or even the place where it is delivered, it should only go by the address of the company which purchased the machine from the defendant.

21. There are two difficulties in the way of the plaintiff. The first is that by accepting the above plea of the plaintiff, this Court would be turning a blind eye to the two documents which have been included by the plaintiff in the list of documents being relied upon by it. Both these documents contain clauses, which have been inserted obviously at the instance of the plaintiff itself, conferring on the exclusive jurisdiction on the courts in Chandigarh. In light of the law explained by the Supreme Court in A.B.C. Laminart Pvt. Ltd. v. A.P. Agencies, Salem, the wording of the ouster clause is unambiguous particularly when it uses words like "exclusive". In those circumstances, no option is left to the court to still assert its jurisdiction. Once an ouster clause is clear that it is only the court in Chandigarh that will have the jurisdiction, it is not possible to ignore such a clause and still say that since a part of the cause of action has arisen within the territorial jurisdiction of this court, this suit should be entertained. This is what distinguishes the judgments of this Court in LG Corporation v. Intermarket Electroplasters (P) Ltd., Pfizer Products, Inc. v. Rajesh Chopra and of the Madras High Court in Base International Holdings N.V. Hockenrode 6 v. Pallava Hotels Corporation Ltd. in their application to the present case. Those cases seem to find jurisdiction on the basis that either a sale or a threatened sale was to take place within the jurisdiction of this Court. None of those decisions were rendered in cases where there was an ouster clause which conferred exclusive jurisdiction on some other court.

22. As regards the plea of estoppel, this Court is unable to appreciate how the plaintiff can seek to take advantage of the defendants averments in its written statement. The submission of Mr. Lal was that unless the defendant admitted the genuineness of the two documents which contained the ouster clause, the ouster clause cannot be used to estop the plaintiff from approaching the court. In the first place, this Court does not have to look into the written statement to see whether the suit is maintainable. At this stage this Court has to determine whether on the basis of the averments in the plaint, this Court has jurisdiction or not. The plaint has to be examined along with the documents for that purpose. It is incumbent on the plaintiff to satisfy the court that it has jurisdiction to entertain the suit. In the considered view of this Court, the question of estoppel does not arise. It is the plaintiff that maintains that its case on the basis of the two documents which are part of its reliance. As long as these documents remain on the record, it is not possible for this Court to ignore them. Therefore, it is not possible to accept the plea of the plaintiff that this Court has territorial jurisdiction to entertain the suit.

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