“..the jurisdiction of the High Court or any court for that matter, having been conferred by statute, is not capable of being ousted by agreement of the parties except by statute in explicit terms.”

The Court of Appeal of Tanzania at Dar es Salaam,

(Hon. Mkuye, J.A., Ndika, J.A., and Mwambegele, J.A.)

in Civil Case No. 133 of 2017;

Scova Engineering S.p.A & Irtec S.p.A

versus

Mtibwa Sugar Estates Limited & 3 Others

Jurisdiction clauses, otherwise known as choice of forum clauses, are fundamental in commercial contracts as they enable parties to agree on which courts would determine disputes when they arise under their contract. In cross-border transactions involving parties from different jurisdictions or where performance of the contractual obligations take part in different jurisdictions, it is important that parties agree on which court should determine their contractual disputes and the law governing such disputes (choice of law). In resolution of contractual disputes in which one of the contracting parties has referred the dispute to a court other than that which is agreed under the contracts, courts usually enforces and comply with the forum chosen in the jurisdiction clause in the contracts unless there are circumstances warranting a departure from the chosen forum.

Early this year, in Civil Appeal No. 133 of 2017, between Scova Engineering S.p.A & Another and Mtibwa Sugar Estates Limited & 3 Others (Appeal), the Court of Appeal of Tanzania at Dar es Salaam (CAT) had an opportunity to interpret a jurisdiction clause in the parties’ contract and determine its effect on the jurisdiction of the High Court of Tanzania. This note aims at giving a brief on the CAT’s decision and lessons learnt from it.

Background

In 2016, Italian companies, Scova Engineering and Irtec S.p.A (Appellants) instituted a suit against Tanzanian companies, Mtibwa Sugar Estates Limited (1^st Respondent), Kagera Sugar Limited (2^nd Respondent), Super Star Forwarders Company Limited (3^rd Respondent) and General Motors Investment Limited (4^th Respondent), in Commercial Case No. 43 of 2016, at the High Court of Tanzania (Commercial Division) at Dar -Es -Salaam (Commercial Court), seeking payment of approx. Euro 1.3 Million pursuant to a supply of agricultural irrigation machines with accessories made to the 1^st Respondent. The 2^nd, 3^rd and 4^th Respondents were sued as guarantors to the supply agreement between the Appellants and 1^st Respondent.

On 22^nd June 2016, the Commercial Court (Hon. Mruma, J.), had dismissed the Appellants’ suit, holding that it had no jurisdiction to determine the suit because its jurisdiction was ousted by the jurisdiction clause contained in the contract of guarantee between the Appellants and 2^nd, 3^rd and 4^th Respondents. The Appellants preferred an Appeal challenging the High Court’s finding that its jurisdiction was ousted by the jurisdiction clause.

The CAT decision

In its decision, the CAT had an opportunity to interpret the clause in the contract of guarantee which provided as follows:

“…. Without prejudice to cases when jurisdiction (competenza) may not be derogated from, the court of Rome shall have exclusive jurisdiction (including as to its existence, validity, termination or the consequences of its nullity) to settle any dispute which may arise from or in connection with it.”

Making reference to its earlier decision in Civil Appeal No. 98 of 2016, between Sunshine Furniture Co. Ltd and Maersk (China) Shipping Co. Ltd and Nyota Tanzania Limited (Sunshine Furniture’s case), the CAT stated that the above jurisdiction clause only allows parties to choose a forum out of competent courts which may determine their disputes. The CAT noted that the jurisdiction clause does not oust the jurisdiction of the other competent courts not chosen as the forum, including the High Court of Tanzania. The CAT therefore agreed, although on a different ground, with the Commercial Court’s refusal to entertain the suit on the reason that parties should resort to their agreed forum for settlement of disputes in their contract which is the court of Rome.

The CAT emphasized that since the jurisdiction of the High Court of Tanzania is conferred by statute/law, it can only be ousted by a statute/law in explicit terms. In principle, the CAT underscored the principle that the High Court’s jurisdiction is not capable of being ousted or conferred by an agreement of the parties. The CAT pointed out that the essence of jurisdiction clause is to indicate parties’ choice of forum for determination of disputes arising under their contract only and not to oust or confer jurisdiction on a forum which does not have powers to entertain their dispute. The CAT stated:

“.. it is also settled that parties cannot by agreement confer jurisdiction to a court which otherwise does not have jurisdiction to deal with a matter.”

Jurisdiction of the High Court

The High Court’s jurisdiction is provided under Article 108(2) of the Constitution of the United Republic of Tanzania, 1977, as amended, (URT Constitution). The article vests the High Court with powers to deal with any matter which, according to legal traditions obtaining in Tanzania, is ordinarily dealt with by a High Court. This jurisdiction is unlimited as provided under section 2(1) of the Judicature and Application of Laws Act, Cap. 358 R.E 2002, (JALA). The CAT therefore only confirmed this position that having been conferred by law, parties can neither confer nor oust such jurisdiction.

Lessons learnt from the CAT’s decision

The CAT’s decision should remind parties to commercial transactions to always have due regard to these jurisdiction clauses. These clauses normally go unnoticed especially when a commercial transaction is completed successfully. Parties are normally faced with challenges when a dispute arises, and they find that the forum chosen on the jurisdiction clause is either unfavorable to them or poses serious difficulties in compliance.

For instance, in Sunshine Furniture’s case, the party based in Tanzania realized that the forum chosen was the High Court of Justice of England in London. Likewise, in Scova Engineering’ case, parties based in Italy were forced to sue its Tanzanian counterparts in the court of Rome, Italy, while the Defendants are based in Tanzania with all their assets in Tanzania.   This may seem unjust, but it underscores the importance and sanctity of contract.  Further such choices pose serious difficulties especially if one considers that Italia is not part of the Reciprocal Enforcement of Foreign Judgments Act or any other law relating to foreign Judgments.  Enforcement of such Judgement in Tanzania would be very problematic.  

When parties agree to a forum, they are bound thereto until they agree otherwise or one of the parties waives its right under that clause. Parties, drafters and legal advisors of commercial contracts, especially those contracts with international element, should always make sure that their clients are protected economically when negotiating these contracts. They should always ensure their clients are protected by having jurisdiction and choice of law clauses that do not create economic hardship to the parties.

Factors which may be taken into account to determine choice of forum include the place where the parties ordinarily reside/work for gain or carry business, where the parties have substantial assets, where the subject matter is located, where whole or part of the transactions are to be performed, the possibility of enforcing of judgment from another jurisdiction without difficulties, costs and other relevant factors.

In some circumstances, parties may confer jurisdiction in more than one court so as to capture all the possibilities, including when faced with a dispute in which a party in default is not in the jurisdiction of the courts to which jurisdiction has been conferred. To capture that circumstance, the jurisdiction clause may be non-exclusive to enable each party to bring proceedings either in the chosen courts or in other courts with jurisdiction over the dispute.

This CAT decision recaps how courts of Tanzania give weight to the forum and choice of law clauses in contracts.