Lloyd's Maritime and Commercial Law Quarterly
BREAKING PROMISES TO LITIGATE IN A PARTICULAR FORUM: ARE DAMAGES AN APPROPRIATE REMEDY?
Union Discount
v. Zoller
Svendborg (trading as “Maersk Sealand”)
v. Akar
A fundamental principle of English contract law is that every unexcused breach of a contractual term grounds an action in damages. Until recently, there was a dearth of reported decisions applying this principle to breach of jurisdiction clauses, resulting in some uncertainty as to whether it applied with equal force to such breaches. A small body of accumulating case law now suggests that courts are prepared to award damages, instead of the usual equitable remedy, where jurisdiction clauses are breached.
The cases
Until Union Discount Co. Ltd
v. Zoller (Union Cal Ltd, Part 20 defendant),
1
the issue whether damages are available to redress the breach of a jurisdiction clause had not been fully explored in any reported case. In Union Discount,
Zoller, in breach of a jurisdiction clause, started proceedings in New York against Union Cal. Union Cal successfully argued for the dismissal of those proceedings in the New York courts but were unable to recover their costs of doing so under New York law. Instead, they sought to recover those costs by way of an action in England for damages. Zoller, in turn, applied to strike out that action. Zoller conceded for the purposes of the hearing that breach of a jurisdiction clause does, in principle, give rise to a right to damages, but argued that there were policy reasons which prevent the recovery of damages. The Court of Appeal refused to strike out the English action. While not expressly saying that costs would only
be recoverable when the following criteria were satisfied, it held that such costs could be recovered where:
- (a) the costs which the claimant seeks to recover in the English proceedings were incurred by him when he was defendant in foreign proceedings brought by the defendant in English proceedings;
- (b) the claimant in the foreign proceedings had brought those proceedings in breach of an express term;
- (c) the rules of the foreign forum only permitted recovery of costs in exceptional circumstances; and
- (d) the foreign court did not make any adjudication as to costs.
Although the Court of Appeal in Union Discount
purported to restrict its findings to the particular facts of that case, several of their Lordships in the almost contemporaneous case of Donohue
v. Armco Inc
.2
accepted, at least in principle, that damages were available for breach of a jurisdiction clause on a somewhat broader basis: not only to recover any greater expense (for example, unrecovered litigation costs, without any of the Union Discount
limitations) but also to recoup any greater liability in the foreign forum than would have been the case in England.3
Lord Hobhouse of Woodborough did, however, note that there may be circumstances in which the right to damages would have to be limited to prevent what he described as “circuity of action”.4
More recently, Julian Flaux, Q.C., sitting as a Deputy High Court Judge in A/S D/S Svendborg D/S af 1912 A/S Bodies Corporate trading in partnership as “Maersk Sealand”
v. Akar,
5
regarded Union Discount
as laying to rest any doubts over the issue of recoverability, as damages, of a party’s reasonable expenses of litigating in a jurisdiction selected by the other party in breach of a jurisdiction clause. In Akar,
the defendants issued proceedings against the claimant in Hong Kong and Guinea. Flaux, Q.C., held that the defendants had breached the jurisdiction clause, which was of an exclusive nature, by commencing those foreign proceedings. He awarded the claimant damages for his reasonable expenses incurred in defending these proceedings, where these could be quantified, and granted a declaration that the claimant was entitled to an indemnity in respect of any costs and expenses already incurred which could not then be quantified along with future costs and expenses.
Wider issues
If, as these cases illustrate, costs and expenses incurred in defending proceeding brought in breach of such clauses may be recovered as damages,6
is there any reason why the claimant should not be able to recover damages for the full extent of loss suffered as a
2. [2001] U.K.H.L. 64; [2002] 1 Lloyd’s Rep. 425
(“Donohue”)
.
3. Lord Hobhouse [2002] 1 Lloyd’s Rep. 425, 439. See also Lord Bingham (at 437) and Lord Scott (at 443). Their Lordships’ comments were in response to a concession made by counsel in reply, and were not the subject of any further analysis. In support of his argument that an anti-suit injunction should not be granted against New York proceedings notwithstanding a jurisdiction clause exclusively choosing English courts, counsel conceded that the applicant for the injunction would still have the right to sue for damages for breach of the jurisdiction clause once the New York proceedings were resolved.
4. [2002] 1 Lloyd’s Rep. 425, 439, para. [48].
5. [2003] EWHC 797 (Comm) (“Akar”)
.
6. Subsequent use of these authorities must take account of the following: (i) in Union Discount
the court was concerned merely with a strike out application, where Union Cal only needed to show that there were real prospects at trial of establishing its case for damages, albeit that the Court of Appeal clearly enunciated a new principle (see Practice Direction [2001] 1 W.L.R. 1001); (ii) the court in Akar
did not have the benefit of any argument either from legal representatives of the defendant or even from the defendant himself; and (iii) the court in Akar
determined the matter after a full hearing in the absence of the defendant, rather than simply by way of default judgment, applying Berliner Bank
v. Karageorgis
[1996] 1 Lloyd’s Rep. 426, which itself was determined without the court having the benefit of any argument from or on behalf of the defendant.
CASE AND COMMENT
437