Do I need a Jurisdiction Clause?
28th Aug 2018
As Brexit looms, issues on Jurisdiction for dealing with disputes will become more important.
Jurisdiction clauses are included in commercial contracts when the parties want all disputes arising under their agreement to be determined by a particular national court or courts.
A party specifically submitting to the courts of a particular jurisdiction will find it difficult to argue that those courts are not the appropriate forum for the trial of disputes.
If there is no effective jurisdiction clause, the correct forum for the determination of any dispute will have be decided by reference to rules of private international law. This can cause uncertainty and inconvenience and can lead to additional costs and delay in progressing any proceedings.
The clause may provide for jurisdiction in a particular country which is associated with one or more of the parties, or it may provide for jurisdiction in a neutral forum.
There are three main reasons for specifying which forum has jurisdiction:
The Convenience factor – when you want to sue or be sued in the country in which you are based.
Parties may also want to use a preferred judicial system – civil litigation systems vary widely and some are recognised as being preferable to others depending on whether you are a claimant or defendant. If you are the party most likely to sue (e.g. a purchaser or lender), for example, then you will want any dispute to be heard in a jurisdiction which has an efficient judicial system and offers a good range of interim and final remedies.
Where the judgment is obtained will affect how easily it can be enforced. The commercial worth of a judgment depends on its enforceability and the location of the defendant’s assets needs to be taken into account. For example, while an English judgment can be easily enforced against assets located in the UK and elsewhere in Europe, more difficulty may be encountered in South America, for example.
When drafting a jurisdiction clause there are three options:
- both parties submit to the exclusive jurisdiction of a particular court
- both parties submit to the non-exclusive jurisdiction of a particular court
- One party submits to the exclusive jurisdiction of a particular court and the other submits to the non-exclusive jurisdiction of a particular court.
Exclusive jurisdiction clauses limit disputes to the courts of one jurisdiction. An exclusive jurisdiction clause achieves relative certainty – you know where you can sue and be sued. They also offer greater protection in that it is less likely that another court will accept jurisdiction if faced with an exclusive jurisdiction clause.
Non-exclusive jurisdiction clauses expressly provide for disputes to be heard in the courts of a particular jurisdiction but without prejudice to the right of one or other of the parties to take a dispute to the courts of any other jurisdiction if appropriate. Such clauses achieve certainty to the extent that you know that disputes can be heard in a particular jurisdiction which you find attractive but should jurisdiction elsewhere be necessary, it is available. However, although they offer greater flexibility there is the risk of parallel proceedings particularly where the parties or one of them is domiciled outside the EU.
Failing to include specific and explicit jurisdiction clauses in any initial contract can create wide ranging issues at a later date that can cause companies both time and money. It is vital for a company to seek legal advice to ensure that their requirements are fully met and should the relationships break down they have full control of the situation and know exactly what they have to deal with.
We are currently assisting clients involved in litigation in Scotland, Nigeria and also Paris under an International Arbitration Clause.
You can contact us at email@example.com or on 01603 675639.