Enforceability of Exclusive Jurisdiction Clause
BANKING
The Lahore High Court dealt with a contractual dispute involving Sadiq Poultry Farms (Private) Limited and First Habib Modaraba under the Financial Institution (Recovery of Finances) Ordinance, 2001 (2024 LHC 4053). The Court upheld the enforceability of exclusive jurisdiction clauses contained in the agreements, concluding that the courts in Karachi had exclusive jurisdiction to adjudicate the dispute. Consequently, the plaint was returned to be presented before a court of competent jurisdiction in Karachi.
Background:
Sadiq Poultry Farms (Private) Limited filed a suit under Section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001, seeking the recovery of Rs. 285 million, along with profit, from First Habib Modaraba due to the latter's alleged failure to fulfill its financial obligations under various agreements. First Habib Modaraba contested the maintainability of the suit in the Lahore High Court based on exclusive jurisdiction clauses in their agreements, which stipulated that disputes would be adjudicated by courts in Karachi.
The plaintiff relied on sanction letters and agreements executed in Rawalpindi to claim that the Lahore High Court had jurisdiction. However, the defendant pointed out that the relevant agreements, including the Musharakah Agreement and the Moveable/Immoveable Property Finance Agreement, clearly stipulated that Karachi courts would have exclusive jurisdiction.
Key Issues:
Exclusive Jurisdiction Clauses: Whether the exclusive jurisdiction clauses in the agreements, which designated Karachi as the appropriate venue for resolving disputes, were enforceable, thereby limiting the jurisdiction of the Lahore High Court.
Enforceability Under Pakistani Law: Whether such exclusive jurisdiction clauses contravene public policy or violate the provisions of the Code of Civil Procedure, 1908 (CPC), or the Contract Act, 1872.
Court's Analysis:
Exclusive Jurisdiction Clauses in Agreements: The Court thoroughly examined the agreements between the parties and noted that multiple agreements contained explicit exclusive jurisdiction clauses, designating Karachi courts as the appropriate forum for dispute resolution. The Court referred to precedents, such as Eden Builders (Pvt) Ltd. vs. Muhammad Aslam (2022 SCMR 2044) and State Life Insurance Corporation of Pakistan vs. Rana Muhammad Saleem (1987 SCMR 393), which affirm that parties can validly agree to limit the jurisdiction of the courts to a specific venue, provided that venue has territorial and pecuniary jurisdiction.
Enforceability of Jurisdiction Clauses: The Court emphasized that exclusive jurisdiction clauses in commercial and financial agreements are enforceable under Pakistani law, unless they contravene public policy or statutory provisions. The Court cited multiple decisions where the Supreme Court of Pakistan held that such clauses are valid and binding, as they represent the mutual intent of the parties to resolve disputes in a specific forum.
Application of the Precedents: The Court reiterated that the inclusion of exclusive jurisdiction clauses does not violate Sections 9 or 20 of the CPC or Section 28 of the Contract Act, 1872. The Supreme Court has consistently upheld such clauses as lawful when the parties have voluntarily agreed to limit the jurisdiction to a specific court. Consequently, the Lahore High Court found that it lacked jurisdiction to hear the case because the agreements expressly designated Karachi as the exclusive forum.
Returning the Plaint Under Order VII Rule 10 of CPC: Given the clear wording of the agreements, the Court returned the plaint under Order VII Rule 10 of the CPC, directing the plaintiff to file the suit in a court of competent jurisdiction in Karachi. The decision was based on the binding nature of the jurisdiction clauses and the consistent judicial approach to such clauses in commercial contracts.
Court's Conclusion: The Lahore High Court ruled that the exclusive jurisdiction clauses in the agreements between the parties were enforceable. As a result, the Court lacked jurisdiction to hear the case, and the plaint was returned to be presented before a court in Karachi. The decision reaffirmed the enforceability of such clauses in financial and commercial agreements under Pakistani law.
Contact Us:
For legal advice on commercial and financial agreements, including the drafting and enforcement of jurisdiction clauses, contact AUJ LAWYERS LLP. Our team provides expert legal guidance on contractual disputes, ensuring compliance with applicable laws and protecting your business interests.
We are here to help
Talk to our lawyers today. We tailor our services around your legal needs so that we can reach the desired outcome together.