Ireland: Commercial Law Update: Is It Negligent To Have Exclusive UK Jurisdiction Clauses In Contracts With EU Dimensions?

It goes without saying that Brexit outcomes are uncertain. Nonetheless, many Brexit risks are known and reasonably understood. One of the more obvious future risks is in relation to the enforcement of UK judgments in the remaining EU Member States. With that risk in mind, what are the responsibilities of a lawyer advising on contracts with an exclusive jurisdiction clause for some part of the UK, if enforcement is likely to be sought in another EU Member State?

The duty to advise on known risks

A useful general statement of the law regarding a solicitor's duty and risk is contained in the Irish case of ACC Bank Plc v Johnson [2010] 4 IR 605, where Clarke J stated:

"Professionals should not expose their clients to unnecessary risk without, at a minimum, advising their clients of the risk involved and inviting their client's instructions."

In the context of jurisdiction clauses, the recent English decision in Wright v Lewis Silkin [2016] EWCA Civ 1308 is also particularly instructive. In that case, Mr Wright's solicitors failed to include a jurisdiction clause in a contract with an Indian employer. When a dispute ensued, jurisdiction was contested and by the time it had been resolved and judgment rendered, the counterparties appeared to be insolvent. Mr Wright then sought to sue his solicitors. In the High Court, the solicitors' firm was held liable for the costs of various motions contesting jurisdiction and also for the loss of chance of recovery of damages due to the consequent delay in obtaining judgment. On appeal, the first instance finding in respect of loss of chance was reversed on remoteness grounds but the liability for the costs of the jurisdictional challenges was upheld.

So it is clear that a solicitor can be held liable for not drawing a known risk to a client's attention and it is also clear that such a risk can relate to a failure to properly advise regarding jurisdiction clauses in contracts.

The existing enforcement regimes

Absent a political solution, what are the potential enforcement options? It is reasonably clear that the Brussels Recast Regulation will not apply once the United Kingdom leaves the European Union. There is a stateable argument that the Brussels Convention, which has not been formally abrogated and is an international instrument independent of the EU, could then be used to enforce UK judgments in some of the remaining Member States (but not all because not all of the current Member States are parties to the Brussels Convention).

However, that argument depends on a strained interpretation of both the Recast Regulation and its predecessor, the Brussels Regulation, and runs contrary to the provision in both the Recast Regulation and the Brussels Regulation that they "supersede" the Brussels Convention, except in relation to some overseas territories. So any party seeking to argue the applicability of the Brussels Convention as a vehicle for enforcement of UK judgments would likely face a difficult and uncertain argument on interpretation in the Member State in which it was seeking to enforce a UK judgment. Ultimately, that dispute on interpretation may fall to be resolved by the CJEU. Moreover, the ambit of the Brussels Convention is not as great as that of the Recast Regulation and the streamlined processes in the Recast Regulation are not available under the Brussels Convention.

A second possibility is that a party holding a UK judgment could have recourse to the new Lugano Convention of 2007 which came into effect in 2010. However, the UK is not a party to the new Lugano Convention. Rather, the European Community is a party to the new Lugano Convention (it is signed and ratified by the European Community on behalf of all Member States except Denmark). So at present it seems the UK can only resort to the Lugano Convention as an EU Member State.

Accordingly, if the UK leaves the EU without some provision for the continuation of its participation in the Lugano Convention, it would appear that the UK would fall outside its scope. The UK could then seek to accede to the Lugano Convention but such accession is subject to similar political risks as any Brexit-related agreement regarding the mutual enforceability of judgments. This is because any state looking to accede to the Lugano Convention can only do so if it has obtained the unanimous agreement of the existing contracting parties.

A third option would be to seek to rely on the Hague Convention on Choice of Court Agreements 2005. This convention has been adopted by the EU, Mexico and Singapore but, if the political appetite existed, it would be an option for the UK to look to accede to this convention post-Brexit. In contrast with Lugano, there is no option for existing contracting parties to refuse to admit a new state but certain declarations can be made limiting the ambit of the convention in certain situations.

For example, there is a possibility that enforcement might be refused in the following scenarios:

  • where there is no connection between the state chosen and the dispute, except the choice of law clause; or
  • where all the parties and the cause of the dispute are all located in the state in which it is sought to enforce judgment in (in other words, a wholly local issue has been determined abroad and enforcement is then sought locally).

Moreover, the enforcement process is not uniform across all jurisdictions as it is subject to the law of the state of enforcement.

If recourse is not available to any of the above options, enforcement would then be a matter for the domestic law of each Member State, meaning that the law and practice will vary widely from state to state. Even in Ireland, which is a fairly compatible common law jurisdiction, only final judgments for monetary amounts would be enforceable and the process is not straightforward or streamlined. Judgments involving declarations or adjustments to rights would not be enforceable. 

Given these circumstances, a party to a contract with EU dimensions who accepts the exclusive jurisdiction of England and Wales (or Scotland or Northern Ireland) will likely be faced with significant difficulties in enforcing any judgment ultimately obtained from those courts unless there is a political resolution which effectively continues mutual enforceability. This is now a known risk and a failure by a solicitor to draw a client's attention to it could be regarded as negligence depending on the circumstances of the case. The risk of a finding of negligence is potentially amplified because of the multiple alternatives available in any contract negotiation.

Dealing with those risks in a contract negotiation

First, depending on the negotiating power of the parties, the party who would most likely need to enforce the judgment in another Member State could seek to have an exclusive jurisdiction clause in favour of that Member State. Second, a party could be given a choice so that it could commence proceedings either in specified courts of the United Kingdom or in the specified courts of another Member State. That choice could be available to one, some or all of the parties to the agreement depending on the likely enforcement scenarios. Third, the parties could agree to give the courts of the relevant part of the United Kingdom exclusive jurisdiction if, but only if, the judgments of those courts were enforceable in a manner analogous to the current regime of enforceability under the Recast Regulation (or the Lugano Convention or whatever alternative the parties might choose) and failing that, the courts of another Member State would be given exclusive jurisdiction. Such clauses would be more cumbersome than a simple iteration of exclusivity but are plainly capable of being drafted.

Choice of law mismatches

It follows that there may be a mismatch between governing law and the chosen forum if parties choose the laws of England and Wales to govern their contract but choose a different exclusive forum or adopt one of the hybrid suggestions regarding the choice of forum outlined above. These mismatches can, of course, be managed in litigation by the provision of expert evidence regarding the governing law to the courts of the chosen forum. That is achievable although it adds a layer of complexity to any litigation. However, it is better to have complexity than to have no enforceable remedy.

Mitigating the risks

The risk of a disorderly Brexit means that there is a real possibility that any judgments of UK courts (England and Wales or Scotland or Northern Ireland) would not be easily enforced in other EU Member States. Yes, there is a chance, and probably a good chance, that a political solution will be found so that judgments will remain enforceable in other Member States. However, there also exists a very real chance that this will not happen particularly given that any such agreement would almost certainly have to involve the UK accepting some involvement by the Court of Justice for the European Union - a difficult principle for Brexiteers to accept.

Failure to highlight these risks and adequately provide for them in international contracts leaves lawyers open to allegations of negligence from impacted clients. To mitigate this exposure, lawyers should now comprehensively advise their clients of the enforcement risks of, and possible alternatives to, exclusive UK jurisdiction clauses.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions