i

Team Code- 34

IN THE HO NBLE SUPREME COURT OF INDIA AT New DELHI,

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28TH BAR COUNCIL OF INDIA INTER UNIVERSITY MOOT COURT COMPETITION

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SLP NO. ****/2011

VECULA EXCLUSIVE CONSULTANCIES

v.

Appellant Respondent

PERSEUSS INC.

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MEMORIAL ON BEHALF OF THE RESPONDENT WRITTEN SUBMISSIONS ON BEHALF OF THE RESPONDENT

MEMORIAL ON BEHALF OF RESPONDENT

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TABLE OF CONTENTS

I. Clause 41 Of The Contract Dated August 2, 2007 Is Invalid............................1 A. Provisions Of Section 28 Of The Indian Contract Act, 1872 Render Invalidity To Clause 41 To The Extent Of Ousting The Jurisdiction Of The Court................................................................................................................ 1 B. Section 23 Of The Indian Contract Act, 1872 Renders Invalidity To Clause 41 To The Extent It Restricts The Parties Absolutely From Enforcing Their Rights Using The Ordinary Course Of Justice...................................................2 i. Exclusion of all remedies including those of seeking redressal from the Court by the losing party in an arbitration proceeding taints the agreement to that extent contrary to public policy and void..........................................2 II. Seuss Is Entitled To Invoke Clause 42 Of The Contract Dated August 2, 2007, And Can Claim Damages.................................................................................... 4 A. Seuss Has Not Waived Clause 42 By Continuing With The Contract And By Seeking VEXs Advise Post The Notice Dated October 16, 2010......................4 i. SEUSS being the innocent party, will retain the right to claim damages even where it seeks VEXs advice post the breach of contract....................4 Bentsen v. Taylor, Sons & Co [1893] 2 Q.B. 274; Hain S.S. Co. Ltd. v. Tate & Lyle Ltd. (1936) 41 Com. Cas. 350, 363; Chandris v. Isbrandtsen Moller Co Inc [1951] 1 K.B. 240, 248.................................................................................... 5

INDEX OF AUTHORITY INTERNATIONAL, NATIONAL AND REGIONAL CASES ABC Laminart Pvt. Ltd. v. A P Agencies, AIR 1989 SC 1239 Benett v. Benett [1952] 1 All ER 413
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Bentsen v. Taylor, Sons & Co [1893] 2 Q.B. 274 C Zarnjkow v. Roth (1922) 2 KB 478 Chandris v. Isbrandtsen Moller Co Inc [1951] 1 K.B. 240, 248 Construction Co. (PrivateLtd.) v. Chief Engineer, Eastern Command, Lucknow and Anr, AIR 1960 All 72 Coringa Oil Co., Ltd. v. Koegler (1861) 1 Cal 466-468 Denmark Production Ltd. v. Boscobel Productions Ltd. (1969) 1 QB 699 at 731 Doleman v. Asset (1912) 3 KB 257 Hain S.S. Co. Ltd. v. Tate & Lyle Ltd. (1936) 41 Com. Cas. 350, 363 Harbutts Plasticine Ltd v. Wayne Tank and Pump Co. Ltd . (1970) 1 QB 447 at 464465 Horton v. Saver 4 HN 643 Hyman v Hyman [1929] All ER Rep 245 International Correspondence Schools v. Ayres (1912) 106 L.T. 845 Lee v. Page 30 LJ Ch 857 Lee v. Showmen's Guild of Great Britain, [1952] 2 Q.B. 329 Rajendra setha v. P N Bank, AIR 1991 Del 285 Scott v Avery 10 ER 1121 (1856) State of Kerala v. Cochin Chemical Refineries Ltd , AIR 1968 SC 1361: (1968)3 SCR 556 Tredegar Iron and Coal Co Ltd v. Hawthorn Bros & Co (1902) 18 T.L.R 716 White and Carter (Councils) Ltd. V. Mc Gregor [1962] A.C. 413

BOOKS AND DIGESTS

Avtar Singh, Law of Contract & Specific Relief , 8th edition, Eastern Book Company, Lucknow (2002) Dr. R.G Padia, Mulla Indian Contract Act and Specific Relief Acts , Vol. I-II, 13th edition, Lexis Nexis (2006) Dr. R.G Padia, Pollock and Mulla Indian Contract & Specific Relief Act , 13th edition, Lexis Nexis (2006) Edwin Peel, The Law of Contract, 12th edition, Sweet & Maxwell (2003) H.G Beale, Chitty on Contract, Vol. I-II, 13th edition, Set & Maxwell (2008)

MEMORIAL ON BEHALF OF RESPONDENT

iv H.K Saharay, Dutt on Contract, 10th edition, Eastern Law, New Delhi (2006) Hari Dev Kohli, Arbitration and Conciliation Act, Universal Publishers, New Delhi (2008) J. Beatson, Ansons Law of Contract, 29th edition, Oxford (2010) Jill Poole, Casebook on Contract Law, 9th edition, Oxford (2008) M.P Furmstone, Cheshire, Fifoot and Furmstons Law of Contract , 15th edition, Oxford (2007) P.K Majumdar, Basu on Law of Arbitration and Concill iation, 10th edition, Orient Publishing Company, Allahabad (2008) Sutton Gill Gearing, Russel on Arbitration, 23rd edition, Sweet & Maxwell, London (2007) Walton, A. and Vitoria, M., Russell on the Law of Arbitration (London: Stevens & Sons, 1982)

STATUTES AND LEGISLATIONS Constitution of India, 1950 Arbitration and Conciliation Act, 1996 Indian Contract Act, 1872 Code of Civil Procedure, 1908

MEMORIAL ON BEHALF OF RESPONDENT

STATEMENT OF JURISDICTION The Appellants have the honour to submit before the Honourable Supreme Court of India the memorandum for the appellants in the Special Leave Petition no..../2011 under Article 136 of the Constitution of India, 1950. The Respondent humbly submits to the jurisdiction of this Honourable Court. The present memorandum sets forth the facts, contentions and arguments in the present case.

MEMORIAL ON BEHALF OF RESPONDENT

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STATEMENT OF FACTS 1. VEX is one of India's leading consultancy companies providing services to a large crosssection of the corporate sector clients including advice on resource allocation, project finance, financial management, staff training and public relations management. 2. SEUSS is a start-up venture which designs and manufactures a line of clothing and accessories. SEUSS got registered as a private limited company, and in July 2007, approached VEX to advise them on running their business. 3. VEX has hired the reputed lawyers to protect their legal interest who drafted a standardform contract that VEX insists every client should sign. The contract contains several negative covenants against VEX that prohibit its clients. Correspondingly, VEX also covenants with its clients to maintain client confidentiality. SEUSS's solicitors advised them that the amount of liquidated damages provided for in case of breach was an exorbitant sum. 4. SEUSS sent a letter to VEX asking how they have arrived at the amount of liquidated damages provided for in Clause 42. VEX replied that it was the pre-estimated loss, specific to the fashion industry if information regarding their business leaked by SEUSS. 5. The parties executed the contract on August 2, 2007. The relevant clauses of the contract are as below: 41. Any disputes and differences between the parties to this contract arising in relation only to the breach or repudiation of any of the confidentiality covenants in the contract will be solely decided by Mr. Rohan Hair (a reputed name in the fashion space) within 15 days of such disputes or differences arising between the parties. The decision of Mr. Rohan Hair shall be final and binding and shall exclude all other remedies including those of seeking redressal from a court of law by the unsuccessful party with respect to such disputes or differences. 42. Any breach committed by SEUSS of any of the covenants of

confidentiality appearing hereinbefore in the contract will make SEUSS liable for liquidated damages. The parties agree that the sum of Rs. 16,52,70,000/- is a pre-estimate of the damages likely to be suffered or be occasioned due to the breach of ANY of the confidentiality covenants contained in the contract.

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6. On October 10, 2010 SEUSS found that the names, contact information and billing details of SEUSS's retailers has been published on VEX's website, thus making a breach of confidentiality covenant. On October 16, 2010 SEUSS sent legal notice to VES stating that VEX had committed breach of the confidentiality covenant contained in the contract and that they were the innocent party to the breach of the confidentiality covenant committed by VEX and they had not accepted the repudiation of the contract by VEX and the contract continued in existence. SEUSS invoked Clause 42 of the contract claiming liquidated damages as stipulated by the said clause of the contract only for breach of confidentiality. 7. SEUSS approached VEX seeking advice on how to salvage SEUSS's public relations when they were strained with their retailers. SEUSS received advise from VEX of a circular letter to be written by SEUSS to all their retailers to salvage the situation. 8. On January 16, 2011 SEUSS, having received no reply to the notice, instituted the suit for damages for breach of confidentiality by VEX to which the Trial Court found in favour of SEUSS awarding damages to the tune of Rs. 16,52,70,000/- VEX challenged the decree before the High Court and averred that the Clause 41 is valid and that Mr. Rohan Hair was solely entitled to take a final and binding. VEX further contended that in any case SEUSS has waived Clause 42 by continuing with the contract and by seeking their advise post the notice. 9. The High Court held clause 41 of the Contract is invalid because of the provisions of Section 23 and 28 of the Contract Act and Clause 42 of the Contract could have been applicable in the present situation. However, on further consideration, the High Court found that because SEUSS had chosen to go to VEX for advice and VEX had provided that advice and SEUSS had acted on such advise, SEUSS had waived its right to claim damages and thus, the High Court overturned the finding of the Trial Court. 10. The matter has now been placed in appeal before the Supreme Court of India. The substantial questions for determination which are of general importance, broadly stated, are as follows: a) Whether Clause 41 of the Contract dated August 2, 2007 is valid? b) Whether SEUSS is entitled to invoke Clause 42 of the Contract dated August 2, 2007, and to claim damages?
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STATEMENT OF ISSUES

I. WHETHER CLAUSE 41 OF THE CONTRACT DATED AUGUST 2, 2007 IS VALID;

II. WHETHER SEUSS IS ENTITLED TO INVOKE CLAUSE 42 OF THE CONTRACT DATED AUGUST 2, 2007, AND TO CLAIM DAMAGE.

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SUMMARY OF PLEADINGS I. The clause of 41 of the contract dated August 2, 2007 is invalid as clause 41 mentions that the decision of Mr. Rohan Hair shall be final and binding and shall exclude all other remedies including those of seeking redressal from a court of law by the unsuccessful party with respect to such disputes or differences. Therefore the said clause has an effct of excluding the right of parties to invoke the redressal from the court of law and thus completely excludes the right of the parties to move to the Court and get their rights determined. An agreement to refer a dispute to arbitration couched in such language as entirely to oust the jurisdiction of the Courts is ultra vires to Sections 23 and 28 of the Indian Contract Act. Where parties, by agreement take the law out of the hands of the court and put it in the hands of private tribunal, without any recourse at all to the courts, then the agreement to that extent contrary to public policy and void. Hence there can be no doubt that an agreement to oust absolutely the jurisdiction of the court will be unlawful and void being against the public policy. II. SEUSS is entitled to invoke Clause 42 of the Contract dated August 2, 2007, and to claim damages. In the present case, the innocent party (SEUSS) treats the contract as still in force and gives clear information about this to VEX. When the innocent party takes such a decision, with full knowledge of the facts, makes it clear by words or acts, or even by silence that he refuses to accept the breach as a discharge of the contract, the effect is that the status quo ante is preserved intact. The contract remains in being for the future on both the sides. Each party has a right to sue for damages for past or future breaches. Thus, SEUSs act of affirming the Contract after breach leads to the continuity of the contractual obligation between SEUS and VEX. The advice sought by SEUS from VEX after the breach of confidentiality committed by VEX, does not disentitles SEUS of its right to claim damages from VEX for the breach of confidentiality caused by it. SEUS being the innocent party retains the right to claim damages in future even where it seeks advice from VEX and acts upon such advice post the notice dated October 16, 2010.

MEMORIAL ON BEHALF OF RESPONDENT

DETAILED PLEADINGS I. CLAUSE 41 OF THE CONTRACT DATED AUGUST 2, 2007 IS INVALID. A. Provisions Of Section 28 Of The Indian Contract Act, 1872 Render Invalidity To Clause 41 To The Extent Of Ousting The Jurisdiction Of The Court. The clause of 41 of the agreement between SEUS and VEX had double stipulation. Firstly, it provided that in case of dispute the parties shall go to Mr. Rohan Hair, who shall be the sole arbitrator and his decision, shall be final and binding. Secondly, the clause 41 excludes the right of parties to invoke the redressal from the court of law. 1 The, clause shall be void to the extent of the second stipulation as it completely eliminates the right of the parties to move to the Court and get their rights determined. An agreement to refer a dispute to arbitration couched in such language as entirely to oust the jurisdiction of the Courts is invalid. 2 In Russell on Arbitration3, the authors wrote: "While parties cannot by contract oust the jurisdiction of the courts , they can agree that no right of action shall accrue in respect of any differences which may arise between them until such differences have been adjudicated upon by an arbitrator. Such a provision is often termed a Scott v Avery4 clause." Section 28 does not apply to contracts which merely contain a provision for referring disputes to arbitration but to those which wholly or partially prohibit the parties from having recourse to a Court of law.5 Where a contract contains a double stipulation, that any dispute between the parties should be settled by arbitration and that neither party should enforce their rights under it in a Court of law, that would be a valid stipulation, so far as regards its first branch, viz. that all disputes between the parties should be referred to arbitration, because that by itself would not have the effect of ousting the jurisdiction of the Courts; but the latter branch of the stipulation would be void; because by that, the jurisdiction of the Court would be necessarily excluded.6 The contract to refer to arbitration is not void because that of itself could not have the effect of ousting the jurisdiction of the Courts but the stipulation making the award conclusive and final becomes void as it would restrict both parties from enforcing their rights under the contract in the ordinary legal tribunals.
1 2

See Clause 41, Factsheet 7 Horton v. Saver 4 HN 643; Lee v. Page 30 LJ Ch 857; Doleman v. Asset (1912) 3 KB 257 at 267: 84 LJ KB 1692, C Zarnjkow v. Roth (1922) 2 KB 478. 3 Walton, A. and Vitoria, M., Russell on the Law of Arbitration (London: Stevens & Sons, 1982), page 199-200. 4 10 ER 1121 (1856); or 25 LJ Ex 308; or 5 HLC 811 5 Coringa Oil Co., Ltd. v. Koegler (1861) 1 Cal 466-468 6 Ibid

MEMORIAL ON BEHALF OF RESPONDENT

Under Section 28 of the Contract Act, a stipulation that the decision of the arbitrator shall be final and conclusive, barring the jurisdiction of the ordinary tribunals from examining the validity of the award is void, and, notwithstanding that Clause, the Courts would have jurisdiction to examine the validity of the award in a properly framed proceeding. 7 The contract to refer to arbitration is not void because that of itself could not have the effect of ousting the jurisdiction of the Courts but the stipulation making the award conclusive and final becomes void as those words have the effect of excluding the jurisdiction of the ordinary Court. Clause 41 of the agreement between VEX and SEUS gave absolutely no liberty to the parties to challenge the arbitral award in the Court of law 8, thus ousting the jurisdiction of Court completely. This renders invalidity to the Clause under Section 28 of the Indian Contract Act. B. Section 23 Of The Indian Contract Act, 1872 Renders Invalidity To Clause 41 To The Extent It Restricts The Parties Absolutely From Enforcing Their Rights Using The Ordinary Course Of Justice. The jurisdiction of any court is conferred by the statute and can be taken away only by statute. The parties cannot by agreement divest the court of its jurisdiction to any dispute arising of an agreement. Any agreement restricting any party absolutely from enforcing his rights under a contract by the usual proceedings in this country, which right the other party otherwise has under section 20 of the CPC, shall be contrary to public policy and void under section 23.9 i. Exclusion of all remedies including those of seeking redressal from the Court by the losing party in an arbitration proceeding taints the agreement to that extent contrary to public policy and void. Where parties, by agreement take the law out of the hands of the court and put it in the hands of private tribunal, without any recourse at all to the courts, then the agreement to that extent contrary to public policy and void.10 A covenant in the separation deed providing that the wife would not apply to the divorce court for maintenance, was held as void as being opposed to public policy.11Similarly, a wifes covenant not to invoke the jurisdiction of the divorce court in respect of maintenance for the child and herself, was held as void as being opposed to public policy.12
7 8

Construction Co. (PrivateLtd.) v. Chief Engineer, Eastern Command, Lucknow and Anr, AIR 1960 All 72. See Clause 41, Factsheet 7 9 Rajendra setha v. P N Bank, AIR 1991 Del 285 10 Hyman v Hyman [1929] All ER Rep 245. See Benett v. Benett [1952] 1 All ER 413. 11 Ibid 12 Bennet v Bennet [1952] 1 All ER 143

MEMORIAL ON BEHALF OF RESPONDENT

In ABC Laminart Pvt. Ltd. V. A P Agencies ,13 the Honourable Supreme Court observed that an agreement which purports to oust the jurisdiction of the court absolutely is contrary to public policy and hence void. Each of the citizens has the right to have his legal position determined by the ordinary tribunal except, of course, in a contract (a) when there is an arbitration clause which is valid and binding under the law, and (b) when parties to a contract agree as to the jurisdiction to which disputes in respect of the contract shall be subject. "It has long been established", say Cheshire and Fifoot, "that a contract which purports to destroy the right of one or both of the parties to submit questions of law to the court is contrary to public policy and is void pro tanto." Where the agreement between the parties limits the jurisdiction to raise the dispute only in the Courts situated in another country, the contract is said to oust jurisdiction of the Indian Courts. However the Indian Court was not without jurisdiction. It was held that the agreement outing the jurisdiction was void as it was opposed to the public policy. 14 This case examined the restraint on legal proceedings under Section 28 of the Contract Act, 1872. The agreement ousted jurisdiction of the Indian Courts. The Courts otherwise had jurisdiction to entertain the dispute in question. It was held that such agreement ousting the jurisdiction was void since it was contrary to Section 20 of the Civil Procedure Code, 1908.15 In Lee v. Showmen's Guild of Great Britain ,16 Lord Denning said that Parties cannot by contract oust the ordinary courts of their jurisdiction. They can, of course, agree to leave questions of law, as well as questions of fact, to the decision of the domestic tribunal. They can, indeed, make the tribunal the final arbiter on questions of fact, but they cannot make it the final arbiter on questions of law. They cannot prevent its decisions being examined by the courts. If parties seek, by agreement, to take the law out of the hands of the courts and put it into the hands of a private tribunal, without any recourse at all to the courts in cases of error of law, then the agreement is to that extent contrary to public policy and void. Under Section 23 of the Indian Contract Act the consideration or object of an agreement is lawful, unless it is opposed to public policy. Every agreement of which the object or consideration is unlawful is void. Hence there can be no doubt that an agreement to oust absolutely the jurisdiction of the court will be unlawful and void being against the public policy.17

13 14

AIR 1989 SC 1239, (1989) 2 SCC 163 Supra note 7 15 Ibid 16 [1952] 2 Q.B. 329, 1181 : (1952) 2 QB 329 : 1952 (1) TLR 1115 17 Horton v. Saver 4 HN 643; Lee v. Page 30 LJ Ch 857; Doleman v. Asset (1912) 3 KB 257 at 267: 84 LJ KB 1692; C Zarnjkow v. Roth (1922) 2 KB 478

MEMORIAL ON BEHALF OF RESPONDENT

II. SEUSS IS ENTITLED TO INVOKE CLAUSE 42 OF THE CONTRACT DATED AUGUST 2, 2007, AND CAN CLAIM DAMAGES. A. Seuss Has Not Waived Clause 42 By Continuing With The Contract And By Seeking VEXs Advise Post The Notice Dated October 16, 2010. After the repudiatory breach caused by VEX which committed the breach of confidentiality agreement, SEUS being the innocent party, has the right to protect its position. SEUS, the innocent party has the right to exercise either of the two options: 1. A right to elect whether to affirm or to terminate the contract; and 2. The right to claim damages and will retain that right even where it affirms the contract. SEUS in the present case does not accepts the repudiation of the contract caused due to the breach committed by VEX. Rather, it elects to affirm the continuity of the contract and thus decides to be bound by the contractual obligations created by the agreement. i. SEUSS being the innocent party, will retain the right to claim damages even where it seeks VEXs advice post the breach of contract. In the present case, the innocent party (SEUSS) treats the contract as still in force and gives clear information about this to VEX.18 When the innocent party takes such a decision, with full knowledge of the facts, makes it clear by words or acts, or even by silence 19 that he refuses to accept the breach as a discharge of the contract, the effect is that the status quo ante is preserved intact. The contract remains in being for the future on both the sides. 20 Each party has a right to sue for damages for past or future breaches.21 The Supreme Court of India also upheld the same principle stating that breach of contract by a party does not automatically terminate the obligation under the contract; the injured party has the option to keep the contract alive and insist on performance. 22 The State refused to advance the loan which it had undertaken to advance; its obligation to purchase groundnut cake from the company came to an end. The Contract however, did not terminated unless the repudiation was accepted by the other party.23

18 19

See Factsheet 9 Denmark Production Ltd. v. Boscobel Productions Ltd. (1969) 1 QB 699 at 731: (1968) 3 All ER 513 at 527, per Winn LJ 20 See Tredegar Iron and Coal Co Ltd v. Hawthorn Bros & Co (1902) 18 T.L.R 716 21 Harbutts Plasticine Ltd v. Wayne Tank and Pump Co. Ltd . (1970) 1 QB 447 at 464-465: (1970) 1 All ER 225 at 233, per Lord Denning MR. 22 State of Kerala v. Cochin Chemical Refineries Ltd, AIR 1968 SC 1361: (1968)3 SCR 556 23 Ibid

MEMORIAL ON BEHALF OF RESPONDENT

In White and Carter (Councils) Ltd. V. Mc Gregor,24 the appellants advertising contractors, agreed with the respondents, a garage proprietor, to display advertisements for his garage for three years. On the same day the respondent repudiated the agreement and requested cancellation, but the appellants refused to cancel and performed their obligations under the contract. They then sued for the full contract price. The House of Lords, by a majority of three to two, upheld the claim. The appellants in this case had elected the contract as continuing and it remained in full effect.25 In simple cases the innocent party will make its election and expressly communicate that election to the other party.26 In the case of an election to affirm, the effect of the breach is therefore that the rights and obligations of both parties under the contract remain unchanged but the innocent party will retain their right to claim damages for the breach.27 Thus, SEUSs act of affirming the Contract after breach leads to the continuity of the contractual obligation between SEUS and VEX. The advice sought by SEUS from VEX after the breach of confidentiality committed by VEX, does not disentitles SEUS of its right to claim damages from VEX for the breach of confidentiality caused by it. SEUS being the innocent party retains the right to claim damages in future even where it seeks advice from VEX and acts upon such advice post the notice dated October 16, 2010.

PRAYER Wherefore in the light of the issues raised, arguments advanced and authorities cited, it is humbly prayed that this Honorable Court may be pleased to adjudge and declare that:
24 25

[1962] A.C. 413 Ibid; See International Correspondence Schools v. Ayres (1912) 106 L.T. 845. 26 Supra note 16 27 Bentsen v. Taylor, Sons & Co [1893] 2 Q.B. 274; Hain S.S. Co. Ltd. v. Tate & Lyle Ltd. (1936) 41 Com. Cas. 350, 363; Chandris v. Isbrandtsen Moller Co Inc [1951] 1 K.B. 240, 248

MEMORIAL ON BEHALF OF RESPONDENT

I. II. III.

The appeal by VEX that Clause 41 is valid to be dismissed. Clause 41 to the extent of completely ousting the jurisdiction of Courts is invalid, being in conflict with section 28 and 23 of the Indian Contract Act 1872. SEUS is entitled to invoke clause 42 of the contract and claim damages.

And pass any other order that this Honorable Court may deem fit in the interests of justice, equity and good conscience.

ALL OF WHICH IS HUMBLY PRAYED, COUNSEL FOR THE RESPONDENT

MEMORIAL ON BEHALF OF RESPONDENT