Foize Africa (Pty) Ltd v Foize Beheer BV and Others

Foize Africa (Pty) Ltd, a South African company, concluded a licensing agreement in Johannesburg in December 2009 with Foize Sales BV (third respondent), a Dutch company. The agreement granted the appellant the exclusive right to sell, market and distribute the 'Foize on Mobile platform' (telecommunications software and hardware) in South Africa and other territories for five years until 6 December 2014. The first respondent (Foize Beheer BV), also a Dutch company, was described as the holder of all intellectual property rights and signed the agreement consenting to be bound by its terms. Business relations soured when the second respondent (Algemeen Beheer Nederland BV) announced that it, not the first respondent, held the intellectual property and marketing rights, and that it would market the product in South Africa through two South African companies owned by Mr Stephen van der Merwe (the seventh and ninth respondents). The appellant alleged that the respondents were parties to a fraud and sought to pierce the corporate veil. The appellant instituted proceedings in the North Gauteng High Court seeking interim interdictory relief against all respondents pending a final action. The licensing agreement contained clause 10 which provided that: (10.1) Dutch law would govern the agreement; (10.2) the parties irrevocably consented to the jurisdiction of the courts of Holland; and (10.3) disputes would be referred to arbitration in Amsterdam in accordance with ICC rules. The Dutch and other respondents (first to sixth and eighth) raised an objection in limine based on clause 10, arguing the South African court lacked jurisdiction. The seventh and ninth respondents did not oppose and an interim interdict was granted against them. The high court upheld the objection and dismissed the application. The appellant appealed with leave.

• Whether a foreign jurisdiction clause and an arbitration clause in a contract oust the jurisdiction of a South African court to hear a dispute arising from that contract
• Whether the effect of such clauses requires the exercise of judicial discretion as to whether to stay proceedings rather than constituting a jurisdictional bar
• What factors are relevant to the exercise of discretion whether to enforce a foreign jurisdiction or arbitration clause and stay South African proceedings
• Whether an interdict can be effectively granted against peregrini (foreign defendants) who have no presence in South Africa
• Whether parties who are not signatories to a contract containing a foreign jurisdiction/arbitration clause can invoke those clauses to resist jurisdiction
• Whether a court should exercise its discretion to enforce foreign jurisdiction/arbitration clauses at the interim interdict stage or leave it to the trial court
• What relief is available against parties who wrongfully interfere with contractual obligations to which they are not parties

The appeal succeeded with costs. The high court's order of 13 September 2011 was set aside and substituted with an order granting interim relief: 1. Interdicting and restraining the first to sixth and eighth respondents from: (a) being involved directly or indirectly in granting a licence to the seventh, eighth or any third party to sell, market or distribute the Foize on Mobile software in South Africa until 6 December 2014; (b) marketing, selling or distributing the product in South Africa until 6 December 2014. 2. Interdicting the seventh and ninth respondents from entering into licensing agreements purporting to grant rights to market, distribute or sell the product in South Africa for any period prior to 7 December 2014. 3. Costs of the application against the first to sixth and eighth respondents to be costs in the cause of the action to be instituted. 4. The applicant to institute an action by 31 October 2012 seeking to make the interim relief final. 5. If the applicant fails to institute action by that date, the interim relief will lapse unless the court grants an extension on good cause shown.

The binding legal principles established are: 1. Foreign jurisdiction clauses and arbitration clauses in contracts do not have the effect of ousting or excluding the jurisdiction of a South African court. Parties cannot by agreement deprive a court of its jurisdiction. 2. Where a party seeks to rely on a foreign jurisdiction or arbitration clause to prevent a South African court from hearing a matter, this must be raised by way of a special or dilatory plea seeking a stay of proceedings, not as an objection to jurisdiction. 3. When such a plea is raised, the court has a discretion whether or not to enforce the clause and stay the proceedings. This discretion must be exercised judicially, taking into account all relevant facts and circumstances. 4. Parties who are not signatories to a contract cannot invoke the protection of foreign jurisdiction or arbitration clauses contained in that contract to resist the jurisdiction of a court. 5. Where a claim is based on delictual conduct (such as wrongful interference with contractual relations) rather than enforcement of a contract, the defendant cannot rely on jurisdictional or arbitration clauses in that contract to resist jurisdiction. 6. The court retains jurisdiction to grant interdictory relief against peregrini (foreign defendants) where the contract was concluded in South Africa, is to be performed in South Africa, the breach or threatened breach would occur in South Africa, and the plaintiff is a South African resident seeking to enforce rights in South Africa. 7. Where an objection based on a foreign jurisdiction or arbitration clause is raised without proper supporting affidavits setting out the relevant factual circumstances necessary for the court to exercise its discretion, and where the other party has not had opportunity to respond to a properly formulated plea, it may be appropriate for the court hearing an interlocutory application to defer the question to the trial court rather than attempt to exercise the discretion on inadequate facts.

The court made several important non-binding observations: 1. On the factors relevant to the discretion whether to enforce foreign jurisdiction/arbitration clauses, the court (drawing on The Eleftheria and other authorities) identified relevant considerations including: the location of evidence and witnesses; the applicable law and whether it differs materially from South African law; the parties' connections to different countries; whether the defendant genuinely desires foreign trial or seeks procedural advantage; whether the plaintiff would be prejudiced (by losing security, inability to enforce judgment, time bars, or unfair trial); the sanctity of contracts and that parties should generally be held to their bargains; the desirability of avoiding multiplicity of actions and risk of conflicting decisions; considerations of time, expense and costs; the comparative cost of foreign vs domestic litigation; and whether the dispute is suitable for determination by arbitration (noting that if it involves complex questions of law rather than fact, arbitration may be inconvenient and impractical). The court emphasized this list is not exhaustive and each case is fact-specific. 2. The court observed that while historically it has been said that foreign jurisdiction/arbitration clauses should only be departed from where a very strong case is made out (reflecting the sanctity of contract), this must be balanced against other factors. 3. The court noted, without deciding the point, that it expressed no opinion on whether contempt of court proceedings could be brought against peregrini to enforce an interdict. 4. The court remarked that under Dutch law (unlike South African law which prohibits it under s 69(7)(a) of the Companies Act 71 of 2008), a company may apparently be a director of another company. 5. The court observed that if the costs of litigation in England are any guide, the costs of litigation in Europe may be astronomical compared to South Africa, and arbitration fees and charges may also be substantial - these being relevant factors in the exercise of discretion. 6. On piercing the corporate veil, the court noted it was unnecessary to decide whether this would be appropriate as the second respondent could be held liable on other grounds, but the issue was foreshadowed in the pleadings.

This case is significant in South African law for clarifying the effect of foreign jurisdiction and arbitration clauses in international commercial contracts. It authoritatively establishes that: 1. Such clauses do not oust the jurisdiction of South African courts - parties cannot by agreement deprive courts of their inherent jurisdiction. 2. The proper procedural mechanism is a special or dilatory plea seeking a stay of proceedings, not an objection to jurisdiction. 3. The court retains discretion whether to enforce such clauses and stay proceedings, to be exercised on proper facts and circumstances. 4. The judgment provides comprehensive guidance on the factors relevant to exercising this discretion, including the sanctity of contract, avoiding multiplicity of proceedings, costs considerations, and the practical suitability of arbitration. 5. It clarifies that non-parties to a contract cannot invoke foreign jurisdiction/arbitration clauses contained therein. 6. It confirms that interdictory relief can be granted against foreign defendants (peregrini) where the threatened conduct would occur within South Africa, even if enforcement through contempt might be problematic. 7. It demonstrates the importance of proper pleading and evidence when raising such objections - bare assertions from the bar are insufficient. The case is important for international commercial litigation in South Africa and provides a balanced approach that respects party autonomy and the sanctity of contract while preserving the court's ability to prevent injustice and deal with matters having significant connection to South Africa.