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21 September 2010
In Microsoft Ireland Operations Limited v EIM International Electronics Limited the High Court considered a jurisdictional challenge to proceedings brought in Ireland where the relevant contracts had a jurisdiction clause in favour of the Irish courts.
EIM – the defendants – were incorporated under the laws of Israel and carried on the business of the sale and supply of computer software exclusively in Israel. EIM entered into a standard form distribution agreement with Microsoft – the plaintiff – for the period between April 1 2003 and June 30 2005. A dispute arose and, having obtained leave of the court for service out of the jurisdiction, Microsoft proceeded to serve EIM pursuant to the Hague Convention on the Service Abroad of Judicial and Extra-Judicial Documents in Civil or Commercial Matters, November 15 1965. EIM claimed that the Israeli courts were the appropriate forum to determine the dispute between the parties and that Ireland was a forum non conveniens (ie, inconvenient forum). EIM sought an order pursuant to Order 12, Rule 26 of the Rules of the Superior Courts or pursuant to the inherent jurisdiction of the court, setting aside the service of the plenary summons or staying the proceedings on the grounds of forum non conveniens, as well as an order discharging the order which granted Microsoft liberty to serve notice of the plenary summons on EIM outside the jurisdiction.
EIM claimed that the order granting leave to serve the proceedings outside the jurisdiction should be set aside because it was erroneously expressed in the order that the intended proceedings fell within the class of action set out in "Order 11, Rule B" of the Rules of the Superior Courts.
EIM also claimed that it should be granted relief on the basis of forum non conveniens and that the balance of common sense favoured a trial in Israel over Ireland. EIM asserted that, in relation to the non-exclusive jurisdiction clauses in the agreements between the parties, the acceptance of Ireland as the appropriate jurisdiction for the resolution of any disputes was not exclusive of any other potentially more appropriate jurisdiction. EIM contended that there was insufficient evidence before the court to establish plainly that they agreed to the exclusive jurisdiction of the Irish courts. Further, EIM suggested that, for choice of jurisdiction purposes, a non-negotiated contract put forward by Microsoft – a powerful global corporation – should not be regarded in the same way as a freely negotiated contract between parties with equal bargaining power.
Ultimately, EIM contended that the jurisdiction clause should not of itself persuade the court that Ireland was the most appropriate forum. Rather, it contended that the court should consider whether Israel might be the more appropriate jurisdiction for the determination of the dispute. In this regard, EIM gave several reasons as to why it considered Israel to be the better forum:
Microsoft contended that the reference to "Order 11, Rule B" in the order which granted leave to serve outside the jurisdiction was made in error and was an administrative oversight. If necessary, it would seek to have this amended pursuant to Order 28, Rule 11 (ie, the 'slip rule'), whereby it was always Microsoft's intention, and was stated to the court, that the order sought was one pursuant to Order 11, Rule 1(e)(iii).
Microsoft also argued that Article 23 of the EU Brussels I Regulation (44/2001/EC) applied to the agreements in dispute between the parties because Microsoft was domiciled in Ireland, which satisfies the requirement that at least one party to an agreement must be domiciled within an EU member state. If Article 23 does apply, then its provisions are mandatory and the relevant courts of the country nominated in the jurisdiction clause must hear and determine the issue. Moreover, Article 23 makes clear that, in the absence of the parties' agreement to the contrary, the choice as to jurisdiction will be deemed exclusive.
Microsoft further submitted that the doctrine of forum non conveniens does not apply in cases where there is a jurisdiction clause, irrespective of whether Article 23 of the Brussels I Regulation applies. If, for whatever reason, Article 23 does not apply, common law principles apply to the issue of jurisdiction. In this regard, Microsoft argued that where parties have agreed to submit to the jurisdiction of a foreign court, this amounts to an unequivocal acceptance of the jurisdiction of that court and a party to a contract should not be permitted to evade an express contractual provision unless it could advance strong reasons to the contrary.
With regard to the status of the order granting leave, the court stated that it was clear that the reference in that order to "Order 11 Rule B" was an administrative error and that at all times the application was made and the order was granted pursuant to Order 11, Rule 1(e)(iii).
Looking at the clauses involved, Judge de Valera noted, citing a leading text, that common sense does not favour a trial anywhere other than the location agreed to in the relevant contracts. He further stated that:
"factors such as inconvenience for witnesses, location of documents, the timing of the trial and other related concerns cannot entitle a defendant to escape from a jurisdiction clause as these are all factors which are eminently foreseeable at the time they entered into the contract."
He recognised that EIM's claims as to the invalidity of the jurisdiction clauses were made for the first time in these proceedings in an attempt to extricate itself from its contractual obligations. He felt that, if those clauses were so objectionable, EIM should have raised them with Microsoft, particularly since, given the size and volume of EIM's business and the fact that the second defendant was publicly quoted, there might have been some negotiation. The court also found that the agreements between the parties as to the appropriate jurisdiction came within the terms of Article 23 of the Brussels I Regulation. Accordingly, it held that in such cases the chosen court has no discretion to decline jurisdiction and other courts have no power to override the jurisdiction agreement.
The court also considered the position were Article 23 not to apply and recognised that, although it would have a discretion not to give effect to a jurisdiction clause, this would be exercisable only upon demonstration of very grave cause. In that regard, de Valera did not consider that the logistical inconvenience and expense of witnesses warranted a departure from the express terms of the contracts, particularly where those factors were known to the parties at the time of entering into the agreements.
He added that, even if proceedings were to be conducted in a jurisdiction other than Ireland, given that Irish law is to govern any dispute, the involvement of Irish lawyers to put the relevant law before the court would entail as much, if not more, expense and impracticality in the bringing of witnesses from Israel to Ireland for the purposes of the trial. EIM's applications were therefore dismissed.
The decision, which has now been appealed to the Supreme Court, confirms that the Irish courts will seek to uphold jurisdiction clauses in commercial agreements and that, where Article 23 of the Brussels I Regulation does not apply, very grave reasons will be required to persuade a court not to uphold an express jurisdictional choice.
For further information please contact Gearoid Carey at Matheson Ormsby Prentice by telephone (+353 1 232 2000), fax (+353 1 232 3333) or email (email@example.com).
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