PROPER LAW OF A CONTRACT AND THE EXCLUSIVE JURISDICTIONAL CLAUSE AS DISTINGUISHED BY THE INDIAN COURTS
At the prelude it is stated that this paper focus upon the explicit choice of proper law governing the contract and the explicit choice of jurisdiction in that contract. The issues and tests of implied choice is a discussion which is not forming a part of this paper. Therefore, it is pertinent to first establish what is the term governing law of a contract is and what is an exclusive jurisdictional clause.
The law governing the contract is also known as the proper law of the contract. Dicey & Morris in the Conflict of Laws formulate the following rule on proper law of contract as Rule 180: "The term "Proper law of a contract" means the system of law by which the parties intended the contract to be governed, or, where their intention is neither expressed nor to be inferred from the circumstances, the system of law with which the transaction has its closest and most real connection.” In contrast a jurisdiction clause limits disputes to courts of one jurisdiction, creating an exclusivity. Both the above clauses could be an effect to improve convince, accessibility, neutrality and foreseeability.
The debate herein is if there exists a law governing the contract which is not Indian law, and the dispute lies upon the validity of jurisdiction in the Indian Court, the question is how are the courts to decide upon the issue of jurisdiction, which law is applicable and how.
As per Section 9 of the Code of Civil Procedure 1908 (‘CPC’), all Courts have jurisdiction to try all suits of civil nature unless the jurisdiction is either expressly or impliedly barred. Section 20 of the CPC further lays down that a suit may be instituted either at the place where the defendant ordinarily resides or carries on business or where any part of the cause of action arises. Section 20 makes it clear that more than one Court can have the jurisdiction to try a suit (For example: When any part of the cause of action arises in a place other than where the defendant ordinarily resides or carries on business). There may also be situations where the cause of action arises in multiple places over which different courts have jurisdiction. Therefore if the cause of action has arisen in India and/or the respondent is residing or primarily doing business in India, the Indian courts then will have a jurisdiction to hear the suit.
However, the approach towards the issue of jurisdiction completely changes when the there is a change in the law governing the contract, in effect also governing the jurisdictional clause. Therefore, as the jurisdictional clause can only be read and interpreted in the light of the law that is governing it, the effect it may have may vary depending upon the applicable law.
Therefore to decide upon the issue of jurisdiction and the Bombay High Court in Rhodia Ltd. And Ors. vs Neon Laboratories Ltd. held :
“In the ultimate analysis, I hold that by virtue of Articles 15.1 and 8.1 of the respective agreements, the parties have expressly intended the subject agreements to be governed by and construed in accordance with the English law. And by virtue of Articles 15.2 and 8.2 of the respective agreements the parties have expressly agreed and so they would be bound by the condition that all differences on the interpretation or performance of the subject agreements which will not be settled by amicable means will be settled by the English Courts. Before we can decisively answer the question as to whether the English Courts have exclusive jurisdiction, it can be done only by construing the Articles 15.2 and 8.2 of the respective agreements by applying the English Law. For that it will be necessary to find out at least two relevant questions viz. :
a) Whether the intention of the parties is expressed bona fide and is not opposed to public policy as per the "proper law" of the agreements ?
b) Whether the purport and interpretation of Articles 15.2 and 8.2 of the respective agreements in accordance with the "proper law" of the agreements (i.e. the English law) is that the English Courts have exclusive jurisdiction over the subject-matter in this suit?”
However, to determine the sub-question above mentioned, the court went on to hold:
“In the case of Hari Shankar Jain v. Sonia Gandhi to support this proposition, the Apex Court in paras 27 and 28 of the said decision has noted that it is well settled that a foreign law ought to be pleaded like any other fact and must be proved by evidence of experts in that law being matters of evidence requiring proof as questions of fact, if a party wants to rely on the same. Reliance is also placed on the Halsbury's Laws of India, 10th Edition which reads thus :--
"75.237. Need for proof; Foreign law is a question of fact. It must be specifically pleaded by the party or parties relying upon it. It must be proved to the satisfaction of the court like other plea set up by the concerned party or parties. Thus, the onus of proof of foreign law lies on the party relying on it."
Reliance is also placed on para 75.238, which reads thus :-
75.238. Mode of proof: In general, an Indian Court will not research into foreign law or the concepts which have foreign origin. The foreign law or the concepts must be proved in civil proceedings by properly qualified witnesses, that is a person who is suitably qualified to do so on account of his knowledge or experience and who is competent to give expert evidence as to the law of any country, irrespective of whether he has acted or is entitled to act as a legal practitioner there. If his evidence is not contradicted, the Court will normally accept it, unless it is obviously unreliable or extravagant. Where the witnesses deposit materials as part of their evidence into Court, the Court is entitled to examine those materials, and where there is conflict of evidence as to the interpretation to be placed upon the materials, the Court must scrutinise them and form its own conclusion on them. Because foreign law or concepts of a foreign origin are questions of fact, courts may not generally at common law rely upon a previous Indian decision on foreign law."
However, interestingly the Apex Court in British India Steam Navigation vs Shanmughavilas Cashew had a rather interesting approach to the same question. Though the essence of the above Bombay High Court judgment and the Apex court judgement was the same, the Apex court went on to hold that in the present case the parties, though having an exclusive jurisdictional clause and a foreign law governing the contract, had chosen to also contest the matter on its merits, and hence in effect had chosen to submit themselves to the jurisdiction of Indian courts. However, the adjudication of the matter on its merits would only take place on the basis of the governing law chosen by the parties. Thus, the foreign law must be pleaded before the Indian court as a fact and proven with the help of evidences and expert witnesses.
Therefore the effect of the above judgements are as follows:
That if there is an explicit choice of law, all clauses/ articles of the agreement must be read in the light of that governing law.
That the issue of jurisdiction can only be determined by the governing law and not by the law of the forum.
That the intention of the parties making the choice of law and jurisdiction must be bonafide and must not violate the public policy of India.
That if the governing law is a foreign law, then the foreign law must be pleaded as a fact and must be proven with the help of evidences and experts.
That the parties must only contest the issue of jurisdiction and must not contest the matters of jurisdiction and on merits simultaneously. If done so, the parties risk of submitting themselves to the Jurisdiction of Indian Courts.