Non-Exclusive Jurisdiction Clauses: Are They Exclusive Instead?

A. Introduction

Is there a distinction between exclusive jurisdiction clauses and non-exclusive jurisdiction clauses? Some may argue that in the latter, parties still have the option to not comply with the jurisdiction clause in the agreement. The Court of Appeal in United Overseas Bank Limited v United Securities Sdn Bhd & 6 Ors (“UOB v USSB“) dealt with the interpretation of a non-exclusive jurisdiction clause in the context of a loan agreement. It was held that a non-exclusive jurisdiction clause is still an exclusive jurisdiction clause. The only distinction between an exclusive and a non-exclusive jurisdiction clause is that both parties are bound by the former and only the borrower is bound by the latter.

B. UOB v USSB

Background Facts

United Overseas Bank (“UOB“) granted a loan to United Securities Sdn Bhd (“USSB“). In turn, USSB granted a Deed of Debenture charging all of its assets to UOB. These assets include USSB’s shares in City Centre Sdn Bhd (“CCSB“). USSB defaulted. UOB appointed Receivers over the charged assets of USSB. Both CCSB and USSB were subsequently wound up.

There was a liquidation surplus in CCSB. The liquidators of CCSB applied to Court for the distribution of the surplus proceeds. In the matter concerning the said distribution, the High Court directed that the surplus proceeds be paid to UOB nominees. However, this decision was overturned by the Court of Appeal.

USSB then filed this suit in UOB v USSB to seek declarations that the surplus assets are not subject to USSB’s loan or debenture to UOB (“Malaysian Suit“). Shortly thereafter, UOB filed a suit in Singapore to seek for an order that UOB can exercise its rights over the surplus assets pursuant to USSB’s debenture (“Singapore Suit“). UOB then filed an application to stay the Malaysian Suit pending the disposal of the Singapore Suit.

Key Issue

The critical issue before the High Court was the interpretation of the jurisdiction clause in the loan agreement between UOB and USSB. The jurisdiction clause reads:

"25.1 This Agreement and the Debenture shall be governed by and construed in all respects in accordance with the laws of Singapore.

25.2 The Borrower hereby irrevocably agrees that any legal action or proceedings against it with respect to this Agreement and the Debenture may be brought in the courts of Singapore and the Borrower hereby-

(a) irrevocably submits ... and unconditionally to the non exclusive jurisdiction of the aforesaid courts ...;

...

25.6 The Borrower hereby irrevocably waives any objection which it may now or hereafter have to the venue of any suit, action or proceeding arising out of or relating to this Agreement and Security Documents selected by the Bank and hereby irrevocably waives any claim that the venue so selected is not a convenient forum for any suit, action or proceeding."

The High Court’s Decision

The High Court held as follows.

First, that the jurisdiction clause is only operative in an action commenced by UOB against USSB. However, since the Malaysian Suit is a suit commenced by USSB against UOB, the jurisdiction clause is inapplicable. In determining whether the Malaysian Court is the appropriate forum, the High Court held that the factors laid out in Spiliada Maritime Corp v Cansulex Ltd [1986] 3 All ER 843 (“Spiliada“) applies.

Second, that UOB had submitted to the jurisdiction of the Malaysian Courts through the participation of the UOB nominees in the winding up proceedings of CCSB where the issue therein concerned the distribution of the surplus assets.

Analysis by the Court of Appeal

UOB appealed. The Court of Appeal allowed the appeal and overturned the High Court’s decision on two grounds.

First, on the interpretation of the jurisdiction clause. The Court of Appeal held that a non-exclusive jurisdiction clause is still an exclusive jurisdiction clause. The only distinction between both clauses is that in the former, both parties are contractually bound whereas in the latter it is only the borrower who is bound by it. In arriving at this conclusion, the Court of Appeal expressed its agreement with the rationale behind a non-exclusive jurisdiction clause as explained by Richard Fentiman in When Non-Exclusive Means Exclusive:

"In loan agreements, to take one example, jurisdiction clauses are drafted, from the lender's viewpoint, with two main aims in mind: first, to ensure that the borrower cannot challenge the jurisdiction of the lender's preferred forum; and secondly, to give the lender the maximum freedom to sue elsewhere as well, normally in pursuit of the borrower's assets..." (emphasis ours)

As such, the Court of Appeal held that “only UOB has the option to refer to other jurisdictions but not USSB“. On the facts, the Court of Appeal held that this interpretation is also fortified by clause 25.6 of the jurisdiction clause, where USSB waives any claim that the venue selected by UOB is not convenient forum.

Given that the jurisdiction clause between UOB and USSB is an exclusive one, the Court of Appeal held that it is not necessary for UOB to prove the factors in Spiliada. Instead, the burden now falls on USSB to show why it ought to be allowed to continue with the Malaysian Suit. As case law shows that exclusive jurisdiction clauses ought to be complied with, USSB is required to show strong reasons from departing from one.

Second, on the participation of UOB’s nominees in CCSB’s winding up proceedings. The Court of Appeal held that the UOB nominees were served with the Application for Directions by CCSB liquidators and hence, are compelled to defend their rights to the surplus proceeds. It was also made clear by the Court of Appeal in the winding up proceedings that UOB was not a party to those proceedings. It therefore follows that the grounds of judgment in CCSB’s winding up proceedings have no bearing on the Singapore Suit. As such, it cannot be said that UOB had submitted to the jurisdiction of the Malaysian Courts through the participation of UOB’s nominees in CCSB’s winding up proceedings.

C. Conclusion

Critically, a non-exclusive jurisdiction clause is still an exclusive one. The Court of Appeal in UOB v USSB when interpreting a non-exclusive jurisdiction clause in a loan agreement held that a borrower is bound by any jurisdiction clause, whether present or absent the term ‘exclusive’. On the other hand, the bank has an option to pursue its claim against the borrower in a jurisdiction of choice in pursuit of the borrower’s assets.