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."
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