Why Have it?
In today’s global economy, a company’s particular jurisdiction is without doubt of great importance to the daily workings and management of most companies whether they are domestic or abroad and whether its clientele is local, international or in most cases a combination of both. It follows that when companies enter into legally binding agreements, locally or abroad, jurisdiction clauses will play an important role in most commercially drafted agreements.
Unfortunately, for the most part, the first time these clauses receive any great scrutiny is when they receive their deserved attention from the litigator, at which point it is often too late and after the damage has been done when a dispute has already erupted between the parties. But this does not have to be the case. If the jurisdiction clause is given some careful consideration at the outset then in the event of a dispute the parties can have more control and some degree of certainty of how matters will be resolved.
Certainly the absence of a jurisdiction clause or one that is inappropriate can have a significant impact on how the dispute will be determined. It is all too common a scenario where a party is under the misapprehension that its country’s laws will automatically apply should a dispute arise. However, unless there is a clause in the contract that is crystal clear on this very point it may be that an unfamiliar system of law may be applied to oversee any dispute that arises and ultimately hear the case with unforeseen results and remedies. Alternatively, as is often the case, without a provision in the contract on jurisdiction should a dispute arise a jurisdictional battle may ensue causing significant delay and causing considerable costs to mount up which can quickly chip away at a company’s ready financial resources.
Gone are the days that jurisdiction clauses can be considered remote and irrelevant; nothing more than a boilerplate clause put in the contract as an all sweeping afterthought. Jurisdiction clauses must be planned ahead and considered so that a party is not caught off guard in the event of a dispute. In order to avoid such surprises careful consideration needs to be given to jurisdiction clauses at the initial drafting stage.
What is it?
A jurisdiction clause determines which country’s courts will determine a dispute. It is frequently the case that more than one court may regard itself as entitled to assert jurisdiction over a dispute.
The effect of a particular country’s court determining a dispute is that it will determine which procedural law or code will govern the proceedings. If, for example, jurisdiction is given to the Cayman Islands, then proceedings will be governed by The Grand Court Rules, or if say in the English Courts, then the Civil Procedure Rules.
A common mistake is to mix the governing law clauses with jurisdiction clauses. Whilst jurisdiction clauses determine which country’s court will hear a dispute and therefore the relevant procedural rules, the governing law clause in an agreement will determine which country’s substantive law applies.
Who? Qui? Quien?
If the jurisdiction is a foreign court, then proceedings will be conducted and heard in the local language. Thus litigation in a foreign language may require the use of an interpreter and certified legal translator of legal documents for which such services can be very expensive. It does also run the risk of mis-communication between parties and /or lawyers and their clients which creates increased risks in litigation and may also serve to increase costs overall.
It is worth noting the contracting parties’ state or locality. If the jurisdiction in the contracting parties’ state or country is known to be slow in its judicial process it may be worth considering, if the option is available, contracting with another subsidiary company or indeed the parent company if the same is located in another jurisdiction that is more familiar and/or considered to have a more efficient judicial process.
Where’s the Money!
It is important to consider what assets, if any, the contracting party has in the jurisdiction that you have elected to resolve any disputes under the jurisdiction clause. If assets are located outside of the jurisdiction consideration should be given as to the procedural hoops of having a foreign judgment enforced. There are various treaties, conventions and reciprocal agreements between countries that allow enforcement of foreign judgments without having to commence proceedings in those countries. However, countries that are not members or signatories to these various treaties/agreements may require a party to commence new enforcement proceedings, or some countries may refuse to recognize or enforce a foreign judgment at all.
It is also important to consider what other remedies are available such as injunctions in order to preserve/freeze assets, what damages for breach of contract may be awarded, recovery of legal costs, and specific performance as these remedies may not be available in certain jurisdictions and this may prove problematic and detrimental to a case if such a remedy is an integral part to the successful outcome of a dispute.
How Will the Game be Played?
Procedural rules of chosen jurisdiction may very well help or hinder your case should a dispute arise. For example, proceedings in countries in courts that operate under a codified legal system, normal procedural requirements such as full disclosure and cross examination of witnesses may not be available whereas in commonwealth jurisdictions where CPR or equivalent rules apply where, for example, full disclosure must be made, whether it is of assistance or detrimental to your case.
When Will Matters be Resolved?
It is worth considering the length of time that it will take to obtain a judgment in a case and whether there is procedure for appeal. In some countries it can take years from the time a claim is issued to the time of judgment and then the subsequent appeals process depending on whether or not there are grounds of appeal. In other jurisdictions, a party can appeal as of right, irrespective of the merits of its case.
In light of the complex rules used to determine the relevant jurisdiction, it is without doubt wiser to seek to agree contractually as to which jurisdiction applies and also which law will govern the agreement. If parties agree to submit to a particular jurisdiction, then in most cases, the courts will not interfere. A simple jurisdiction clause to the effect that a contract will be governed by and construed in accordance with the laws of Cayman Island, UK, Canada, or wherever and that the parties agree to submit to the exclusive jurisdiction of the courts of these countries will probably suffice while at the same time providing peace of mind to the parties to the contract that should there be a disagreement or litigation over the contract it will be resolved in a jurisdiction with which the contracting party is familiar with the who, the what, the where, the why, the how and when.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.