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  • Writer's pictureGavin Jayapal

The doughnut dilemma: A case analysis of jurisdictional clauses in contractual disputes



Assume a scenario.


The doughnut dilemma


Syldavia and Borduria are neighbouring countries.


Duke [a pastry manufacturer from Borduria], intends to execute a contract with Lassie [who is based in Syldavia]. The contract is for Duke to supply Lassie with a steady stream of top-quality doughnuts. Lassie intends to sell these doughnuts at all her pastry shops.


A very important term in their contract would be the dispute resolution clause. Duke opines that it should be the laws of Borduria, whereas Lassie insists that it be the laws of Syldavia (given that the doughnuts are supplied-to and distributed in Syldavia). After protracted negotiations, Lassie finally relents and agrees that the contract shall utilise the laws of Borduria.


Duke and Lassie ink their deal. Duke agrees to supply Lassie with a tonne of doughnuts per day and Lassie agrees to pay Duke £10,000 for each successful delivery.


The doughnut anarchist


Contract in-hand, the parties begin work in earnest. 3 years go by and everything appears hunky-dory. However, trouble is brewing.


A famed anarchist and guerrilla in Borduria, Snowy, destroys a number of Duke’s manufacturing facilities. He further laces several tonnes of Duke’s flour with itching powder.


Duke assesses the damage and puts in a claim with his insurers. To ensure that he does not fall afoul of his contract with Lassie, Duke innocently utilises the tampered flour. He sends a shipment of contaminated doughnuts to Lassie, which are all sold and promptly consumed.


Lassie’s customers have a (rather literal) fit. Incessant itching strikes the country and Lassie is faced with numerous complaints and lawsuits. Her shops rendered subject to a boycott.


Lassie v Duke: whose home ground?


Enraged, Lassie sues Duke for her losses. She takes-out a Writ and Statement of Claim as-against Duke in the Syldavian High Court. Duke, knowing that he stands a better chance of defending the claim in Borduria’s Courts (which are sympathetic to victims of Snowy), intends to have Lassie’s claim struck. He further intends for the claim to be determined in Borduria.


The legal position


A scenario such as that above recently played-out in the High Courts (sans the high drama). In Dhaneshvaran Baskaran & 2 ors. V Singapore Airlines Limited (BA-12ANCVC-58-04/2021), the High Court appeared to be dealing with a relatively humdrum appeal. A Sessions Court Judge had allowed a summary judgment for S$78,094.83, being a debt purportedly due under a Deed of Training.


On appeal, the High Court viewed the entire matter from a different angle. His Lordship Tee Geok Hock noted in the opening paragraphs as follows:

1. Conflict of laws, or private international law, is a field of law which is fraught with complexities and uncertainties and which is seldom well-understood by the practitioners of law.
2. This case is an example where the subordinate court as well as the solicitors for both parties overlooked the impact of the conflict of laws in the context of a foreign company suing in the Malaysian court a person resident in Malaysia under a contract which has an express term that the foreign law of contract shall apply to the contractual relationship between the parties. The oversight has led both parties’ solicitors to make submissions based on the Malaysian law of contract which culminated in a decision of the subordinate court granting a summary judgment based on the Malaysian law of contract.


The factual matrix of Dhaneshvaran


In Dhaneshvaran, the High Court noted respectfully that all parties had missed the fact that there was a conflict of laws at-play. The High Court noted firstly that in the contract between the parties, the parties had agreed that the laws of Singapore would prevail:

6. In clause 13 of the Deed of Training dated 21.02.2000, the parties agreed that the Deed shall be governed by the laws of Singapore.

The High Court then went on to note that if the Defendants intended to raise a challenge to the jurisdiction of the Court to hear the dispute, they ought to have filed an application pursuant to O. 12, r. 10 ROC 2012 to do so. The Defendant did not do so and as such, the Malaysian Courts were deemed to have jurisdiction:


17. In our present case, the Defendants did not make any application under O.12 r.10(1) of ROC 2012 in spite of the lapse of many months after entering appearance in the Sessions Court suit.
18. In the premises, by operation of the provisions of O.12 r.10(6) the parties are deemed to have submitted to the jurisdiction of the Malaysian courts and the Malaysian courts have jurisdiction over the subject-matter of the present suit.


The applicable law


The Court went on to note that despite the Malaysian Courts having jurisdiction, it would not automatically follow that Malaysian law would apply:


19. However, the fact that Malaysian courts have jurisdiction over a contractual dispute between a foreign company and a legal entity resident in Malaysia does not necessarily mean that the Malaysian court will inevitably apply the Malaysian law of contract to decide the dispute between the parties. It depends on the express or implied terms of the contract or, in the absence of the express or implied terms of contract, the principles on conflict of laws.

The High Court went on to narrate the law, as decided in the following decisions:


  • United Overseas Bank Ltd v. United Securities Sdn Bhd (In Liquidation) & Ors [2021] 9 CLJ 593 (COA)

  • American Express Bank Ltd v. Mohamad Toufic Al-Ozeir & Anor [1995] 1 CLJ 273 (Supreme Court)

  • World Triathlon Corporation v. SRS Sports Centre Sdn Bhd [2019] 1 CLJ 381 (COA) (establishing that the burden lies on the party challenging a choice-of-laws clause to disclose exceptional circumstances)


After undertaking this exercise, His Lordship noted that the laws applicable would be that as outlined in the contract:


21. The underlying principle common to all the abovementioned decisions of the appellate courts is that where the contracting parties agree to be governed by the foreign law of contract, the Malaysian court has to decide the contractual rights and obligations of the contracting parties according to that foreign contract law even if the Malaysian court were to exercise jurisdiction to hear and decide the case. Choice of forum does not deviate from the choice of applicable substantive law (i.e. contract law) which the contracting parties have agreed upon.
22. As such, the rights and obligations of the parties in our present case under their contract have to be decided in accordance with the Singapore law of contract. Although the Malaysia court has jurisdiction in this case, the rights and liabilities of the parties under their contract have to be decided according to the substantive law of contract of Singapore. In exercising its jurisdiction to hear and decide the dispute between the contracting parties, the court does not re-write the terms of the contract between the parties including the term as to which substantive contract law is applicable to govern the parties’ rights and obligations.

The Court’s conclusion


The High Court held applying the Plaintiff/Respondent had failed to show that under Singaporean contract law, the liquidated damages stated in the Deed of Training would be indisputably recoverable.


His Lordship held that this would constitute a triable issue, which would need evidence to be led by Singaporean lawyers:


29. In the present case, the Plaintiff has not shown that under the Singapore contract law (which is a question of fact under the laws of Malaysia), the Liquidated Damages stated in the contract between the Plaintiff and the 1st Defendant is indisputably recoverable. As such, this is a fact in dispute which is triable and has to be dealt with by witnesses (namely, lawyers who are knowledgeable and qualified to give evidence on the Singapore contract law by reference to the law book and law reports published in that country) in a full trial.
30. In our present case the Plaintiff in its application for summary judgment and in its submissions in support thereof has not produced any affidavit of any lawyer who is knowledgeable and qualified to give evidence on the Singapore contract law or any law book or law report of Singapore in respect of the question of liquidated damages under the Singapore contract law.

In concluding, the High Court allowed the appeal and set-aside the Summary Judgment. The High Court noted that the Sessions Court fell into an error of law for applying Malaysian law where the contract expressly stipulated Singaporean law.


Conclusion


Premised upon the above and looking at the Lassie v Duke scenario, it is likely that a Court would allow Duke’s application to strike. Having agreed that the contract would be governed by the laws of Borduria, that clause would serve to bind unless Lassie is able to demonstrate “exceptional circumstances” to displace the clause.


GAVIN JAYAPAL

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