Harriet Campbell, senior associate in the Dispute Resolution and Compliance Team at Shoosmiths, reviews how parties should review jurisdiction clauses in contracts to ensure they continue to fulfil their aims and objectives in these uncertain times
The High Court has decided that triggering Article 50 requires a vote by MPs.
The government is set to appeal the decision, which at the time of writing is being heard by the Supreme Court. Whatever the outcome of the appeal, the decision prolongs uncertainty for businesses.
During these uncertain times, parties should review jurisdiction clauses in contracts to ensure they continue to fulfil their aims and objectives.
Including a jurisdiction clause in a contract enables the parties to agree which country’s courts will have jurisdiction to hear disputes which arise from the contract. It can also have a major impact on the enforceability of any judgment.
EU member states currently benefit from the protection afforded by the Brussels 1 Regulation (EU Regulation 1215/2012 – the ‘Recast Regulation’). This provides that a choice of jurisdiction clause by the parties should be upheld, and that judgments given by the courts of one member state should be enforced in all other member states.
Once the UK ceases to be an EU member state, it is likely to lose the protection of the Recast Regulation.
While English jurisdiction clauses are likely to continue to be upheld across the EU (as to which, see below), it is important that parties consider other options. The principal alternatives are:
- Exclusive jurisdiction clauses in favour of an alternative EU member state
- As well as the inclusion of a jurisdiction clause, the parties must agree whether to choose an exclusive or non-exclusive clause.
- An exclusive jurisdiction clause means that the designated court specified in the clause has the exclusive jurisdiction to hear the dispute. If a party issues proceedings in a different court, then the designated court can hear the dispute without waiting for the other court to stay proceedings.
- A non-exclusive jurisdiction clause encourages parties to forum shop with resulting uncertainty.
Why should England and Wales be your chosen jurisdiction? The courts of England and Wales are well respected for their commerciality, reliability and independence.
They offer procedural and linguistic certainty with commercially focussed remedies available at the conclusion of the dispute, as well as generally being unwilling to unpick and redraft commercial contracts. For those reasons, the choice of an English jurisdiction clause is the standard clause in many industry contracts.
Exclusive English jurisdiction clauses: Brexit effects?
Should parties consider that the benefits of an English jurisdiction clause outweigh the attractions of arbitration and/or an alternative forum, it seems likely that – in the absence of a specifically negotiated alternative – the 2005 Hague Convention will play a significant role in mitigating concerns regarding the upholding of jurisdiction clauses and enforcement of judgments throughout the EU.
The 2005 Hague Convention on Choice of Court Agreements (the Convention) The Convention only applies to exclusive jurisdiction clauses. Under the Convention, its Member State courts must ‘suspend or dismiss’ proceedings before them in breach of an exclusive jurisdiction clause in favour of a Contracting State (Article 6) and enforce the resulting judgment given by the chosen court (Article 8).
Where there is an English exclusive jurisdiction clause, this clause is likely to continue to be respected across Member States under the Convention (which includes the EU as a whole).
In addition, judgments are likely to continue to be enforceable in a similar way to those under the Recast Regulation. While there are no guarantees, it seems likely that the UK would accede to the Convention in its own right post Brexit – especially since it does not require the consent of Convention Member States to do so.
Non-exclusive or asymmetrical jurisdiction clauses
The Hague Convention only covers exclusive jurisdiction clauses, so this type of clause will not benefit from the UK’s accession.
How other Member States would uphold asymmetrical clauses post-Brexit is unclear and dependent upon what – if any – form of alternative convention or treaty the UK adopts. In light of this uncertainty and the fact that some EU member states have found such clauses to be unenforceable in any event, parties may consider moving away from the non-exclusive or asymmetrical jurisdiction clauses in favour of the certainty provided by exclusive clauses.
Those not wishing to gamble with inconsistency could elect to include an arbitration clause in standard contracts in order to be bound by the established internationally recognised arbitration rules.
Arbitration can be an attractive option for parties engaged in substantial disputes which could equally well be adjudicated by arbitration as opposed to litigation.
Currently within the EU, service of legal proceedings outside of the jurisdiction is made easier by the Service Regulation. After Brexit, a new solution will need to be found.
While it seems likely that agreement will be reached, to mitigate uncertainty it is sensible to consider providing for the appointment of agents for service within the jurisdiction and to include a clause appointing the agent within their commercial contracts.
Clearly, there is a cost element to this and organisations should consider what that cost would be before taking a decision.
In light of the Brexit vote, organisations should decide:
- The type of jurisdiction clause they would prefer in their commercial contracts, and review those contracts to ensure the correct clause is included.
- Whether arbitration is their preferred option.
- Whether or not to appoint a service agent. If so, organisations should analyse the cost of doing so.