When a dispute arises between two contracting parties, for example there’s a question mark over one party’s performance of its contractual obligations, the contract’s jurisdiction clause comes into play. In a properly drafted commercial agreement this clause should clearly state where any litigation concerning the contract would be heard.
At Nath Solicitors in London many of the contracts we negotiate state that the courts of England and Wales will have exclusive jurisdiction to hear disputes. This is sometimes the case even when one of the contracting parties is not based here. As Brexit approaches it is crucial to review existing clauses and take great care when entering new contractual arrangements to ensure you are satisfied with the jurisdiction clause. Remember, it will dictate:
- Which country’s law applies to any dispute under the contract
- Where you can appeal any decision of that court; and
- Where and how you can enforce any judgment
CURRENT LAW ON JURISDICTION
At present the relevant regulations ensure that a jurisdiction clause appointing the courts of one EU member state to decide contractual disputes will be recognised across the EU. The current framework also ensures recognition and enforcement of judgments throughout member states.
HOW WILL BREXIT CHANGE THINGS?
Following the referendum, the status of England and Wales as a jurisdiction able to avail of the current regulations was thrown into doubt, as was the enforceability across the EU of judgments of the courts here. In a welcome move – particularly as the prospect of a no-deal Brexit continues to be a possibility – the government has agreed to sign up to the Hague Convention on Choice of Court Agreements 2005. This means that EU member states must still recognise contractual clauses that choose England and Wales as the exclusive jurisdiction for hearing disputes. Even if there is no withdrawal agreement in place when the UK exits the EU.
LIMITS TO THE HAGUE CONVENTION
It’s important to note that the Hague Convention will not protect clauses that give the English and Welsh courts non-exclusive jurisdiction. A typical non-exclusive jurisdiction clause would state that disputes should be heard in England and Wales but would not prevent a party bringing a dispute in another jurisdiction if appropriate in the circumstances.
WHAT ABOUT ARBITRATION?
Arbitration is still an attractive option when deciding on the terms of your contract. Indeed arbitration clauses that replace the jurisdiction of courts with an internationally recognised arbitrator may become more common if uncertainty over Brexit continues. But it’s crucial to bear in mind the limitations of arbitration when it comes to rights of appeal, disclosure rules and recovery of legal costs.
It’s clear that jurisdiction choice will differ from contract to contract depending on the commercial imperatives and the countries in which the contract will be performed in practice. However as Brexit looms ever closer it is advisable to think carefully about jurisdiction. This is a complex area – if you have any queries about jurisdiction or other contract terms please contact Shubha Nath on + 44 (0) 203 670 5540 or contact us online.
