Not going to court
04/01/2005 The Star Articles of Law
with Bhag Singh
When two or more parties are involved in a
dispute, a civilised way of dealing with the situation is to ask a
third party to assist. In earlier times mediation by community
elders was the norm but later it became necessary to allow a third
party to make a decision.
In earlier times when a dispute could not be
resolved through mediation, the grievance could be taken to the
King.
Out of this resort to the King to seek relief, the
system of courts evolved to give relief and protection to people
within the country.
Yet people involved in commercial transactions
sometimes seek to place restraints against going to courts, some
unilaterally and others by mutual agreement.
When it is agreed that the matter should not go to
the courts, can such an agreement be binding?
In Rose and Frank Company and J. Garromption and
Brothers Limited and Others, the appellant carried on business in
the United States with the respondent company based in England. A
dispute arose but there was a binding contract and the court could.
The basis of the contention was a clause in the
agreement, which read: "This arrangement is not entered into, nor is
this memorandum written, as a formal or legal agreement, and shall
not be subject to legal jurisdiction in the Law Courts either of the
United States or England, but it is only a definite expression and
record of the purpose and intention of the three parties concerned,
to which they each honourably pledge themselves with the fullest
confidence - based on past business with each other - that it will
be carried through by each of the three parties with mutual loyalty
and friendly co-operation."
On appeal to the House of Lords the view taken was
that there was no intention to create legal relations and the
arrangement was a contract of honour only and unenforceable at law.
The House of Lords did consider whether such a
clause could defeat completely rights that had been created, in
which case such a construction would be repugnant.
However, the view taken was that a distinction
could be drawn between the two different situations. Lord Phillimore
went on to say: "I was for a time impressed by the suggestion that
as complete legal rights had been created by the earlier part of the
document in question, any subsequent clause nullifying those rights
ought to be rejected. This is what happens for instance in cases
where an instrument inter vivo purports to pass the whole property
in something either real or personal, and there follows a provision
purporting to forbid the new owner from exercising the disregarded.
"But I think the right answer was made by Scrutton
L.J. It is true that when the tribunal has before it for
construction an instrument which unquestionably creates a legal
interest, and the dispute is only as to the quality and extent of
that interest, then later repugnant clauses in the instrument
cutting down that interest which the earlier part of it has given
are to be rejected, but this doctrine does not apply when the
question is whether it is intended to create any legal interest at
all.
"Here, I think, the overriding clause in the
documents is that which provides that it is to be a contract of
honour only and unenforceable at law."
In the context of the laws of Malaysia, the
Contracts Act 1950 specifically provides that any attempt to
restrict in an absolute manner a person's rights under a contract in
terms of access to the usual legal proceedings is to be considered
as void.
There are of course limitations to this
restriction. The parties may opt to have their dispute arbitrated.
Similarly, an exception is made in respect of
scholarship awards between the Government and the awardees. The
provisions are specifically set out in Section 29, which allows such
restrictions where a sale of business involved or the relationship
between parties is one of partnership.
Somewhat different considerations seem to apply
where what is sought to be restrained is not a resort to the courts
but the right to appeal against a decision of the court.
Thus, Jurutera Consultant (SEA) Sdn Bhd & Two
Others v Eddie Lee Kim Tak & Two Others where a dispute arouse
relating to several matters it was decided to institute action in
the High Court.
However, the party which was dissatisfied with the
decision of the High Court sought to appeal against the decision,
but the term in the settlement agreement posed what amounted to an
insurmountable obstacle, although there were merits in the appeal.
The enforceability of terms agreed to as having
the effect of precluding in appeal was upheld by the Courts of
Appeal. In so doing, it was said: "I think it is beyond argument
that right of appeal, though a creature of statute, is a substantive
right. See, Lim Phin Khian vs Kho Su Ming. It is equally beyond
argument that like any other form the subject matter of a contract
and it may form the subject matter of a contract and may be
bargained away. Actual or potential litigants may therefore agree
that the decision of a court of first instance shall be final and
that neither of them shall appeal against it. This is entirely in
keeping with the doctrine of freedom and sanctity of contract."
These provisions and decisions do provide guidance
but they raise further questions on the need to reconcile what may
be a conflicting position with regards to whether there can be
restraints on legal proceedings.
It does appear that where an agreement stating
that a party to a dispute may not go to court to assert its rights,
then such a provision may be held to be void.
On the other hand, where parties expressly declare
that they have no intention to create legal relations, then it would
appear that enforcing the agreement through the courts of law may
not be possible.
In both cases the end result is the same because
an aggrieved party desirous of resorting to the court is deprived of
doing so. However, it is the manner in which the provision is worded
and the rationale for doing so that appear to make the difference.
This is because complete legal rights which have
been created by the earlier part of the document which is a
subsequent clause seeks to nullify would be regarded as being
repugnant.
This was clearly recognised by Lord Philimore in
Rose and Frank Company and J. Garromption and Brothers Limited and
Others when he said: "It is true that when the tribunal has before
it for construction an instrument which unquestionably creates a
legal interest, and the dispute is only as to the quality and extent
of that interest, then later repugnant clauses in the instrument
cutting down that interest which the earlier part of it has given
are to be rejected, but this doctrine does not apply when the
question is whether it is intended to create any legal interest at
all." |
