UK: The Enforceability Of Jurisdiction And Arbitration Clauses

Last Updated: 30 April 2001
Article by Simon Salzedo

Introductory Remarks

1. The enforceability of jurisdiction and arbitration clauses is a very wide area. In the space available, it is not possible to cover many subtleties and exceptions to the rules stated. This is intended to be a crib to the basic rules and some recent case law, but not a text of the whole field.1

2. The effectiveness of a jurisdiction or arbitration clause may well depend on the view taken of it by any court before which it comes for decision. In an ideal world, no such clause would be drafted or agreed without advice being taken in each jurisdiction where the clause may be tested. This talk is confined to the approach which the English court will take when it is applying English law.


3. An exclusive jurisdiction clause is a clause by which the parties agree that they will bring their disputes only before the Courts of a particular territory.

4. A non-exclusive jurisdiction clause provides that each party will submit to the jurisdiction of the Courts of a particular country (if the other sues them there), but does not contain a promise not to bring suit elsewhere.2

5. An arbitration agreement is defined for many purposes of English law by section 6 of the Arbitration Act 1996 - it is "an agreement to submit to arbitration present or future disputes (whether they are contractual or not)." By section 5, the agreement must be in writing or evidenced in writing.

General Approach

6. Fundamentally, these clauses are treated like any other clause of the contract:

    1. They confer rights and impose obligations on the parties;
    2. They are construed by the court according to ordinary rules of seeking the objectively assessed intentions of the parties;
    3. They are construed according to the their governing or proper law, which is often, though not always, the proper law of the remainder of the contract;3
    4. The court will usually strain to give effect to the agreement of the parties if it can do so.4
    5. In construing the clause, the court will apply a presumption that the parties intended all disputes to be settled in one forum.5

Who Is Party To The Agreement?

7. A point which often arises is whether or not the parties to a particular claim are bound by, or entitled to rely on, a jurisdiction or arbitration agreement which, on the face of things, was agreed between different parties.

8. There are, for example, numerous cases of parties acceding to rights and obligations under arbitration agreements by assignment of the agreement, or by universal succession (under foreign law) to a party to the agreement.6 A party may not normally take an assignment of a claim without taking also the burden of the jurisdiction clause governing the claim. Per Stuart-Smith LJ "It is a case of not being able to take the plums without the duff."7 Another possibility would be for a party to be treated as bound by an agreement as to jurisdiction by virtue of piercing the corporate veil.

9. Fine distinctions can arise here, as between the Privy Council cases of The Pioneer Container [1994] 2 AC 324 and The Mahkutai [1996] AC 650.

    1. In the Pioneer Container, the claimants contracted with carriers to ship goods and gave the carriers authority to sub-contract on any terms. The carriers sub-contracted with the defendant sub-carriers on terms including the exclusive jurisdiction of the Courts of Taiwan. The vessel sank and the claimants sued the defendants in Hong Kong. The Privy Council held that the claimants were bound by the terms of the sub-bailment, which they had authorised, including the exclusive jurisdiction clause. Thus, the clause was effective to protect the sub-carriers, and the Hong Kong action was stayed.
    2. In The Mahkutai, the claimants were again the shippers of some goods, which they claimed had been damaged at sea. This time, the claimants sued the owners of the vessel, again in Hong Kong. The owners had time chartered the vessel to a company called "Sentosa", which had in turn voyage chartered the vessel to the claimant shippers. The goods were shipped under a Bill of Lading on Sentosa's form which provided for the exclusive jurisdiction of the courts of Indonesia. The Bill also contained a "Himalaya clause" which provided that every servant, agent or subcontractor of the carrier [i.e., Sentosa] "shall have the benefit of all exceptions, limitations, provisions, conditions and liberties herein benefiting the carrier...". The defendant owners sought to halt the Hong Kong proceedings by virtue of the jurisdiction clause.
      1. The Privy Council proceeded on the assumption that the defendant owners could bring themselves within the phrase "servant, agent or subcontractor of the carrier".
      2. Even on that assumption, the owners were not entitled to the benefit of the exclusive jurisdiction clause, because it was not included in the Bill of Lading to benefit the carriers, but as a mutual agreement.

10. The Mahkutai illustrates another common problem issue, which is whether an arbitration or jurisdiction clause contained in one agreement has been incorporated into another agreement by virtue of a reference there to the terms of the first agreement. In general, as in The Mahkutai, the courts have been reluctant to find that such incorporation has taken place, unless the arbitration or jurisdiction clause is mentioned specifically in the second document.8 This issue has arisen in particular in relation to arbitration clauses in three contexts:

    1. Bills of Lading incorporating the terms of a Charterparty;9
    2. Reinsurance agreements incorporating the terms of the underlying insurance agreement;10 and
    3. Construction sub-contracts incorporating the terms of the head contract.11

Relationship Between The Validity Of The Agreement And The Validity Of The Jurisdiction/Arbitration Clause

11. Another vexed question is how far the validity of a jurisdiction or arbitration clause is dependent upon the validity of the main contract in which it is contained.

12. In Mackender v Feldia [1967] 2 QB 590, Lloyd's underwriters insured the jewellery owned by some diamond merchants for a year. The insurance included an exclusive jurisdiction clause in favour of Belgium. When a claim was made for some £50,000, insurers investigated and found out that the insured's business included smuggling diamonds into Italy contrary to Italian law. The underwriters brought a suit in England for declarations that they were not liable on the policy because of non-disclosure of the smuggling and because the contract was unenforceable owing to the intention to perform it illegally by breaking Italian law in Italy. The Court of Appeal held that non-disclosure might permit insurers to avoid the contract, but it would not permit them to abrogate the jurisdiction clause, which would survive. Illegality of the type alleged would render the contract unenforceable in England, but would not negate the agreement of the jurisdiction clause. The key point made in the judgments is that the contract was not on any view void ab initio, but was merely alleged voidable or unenforceable. Thus, there was no reason to impugn the original agreement as to jurisdiction. The Court of Appeal accordingly held that the court should decline jurisdiction.

13. Where Article 17 of the Brussels or Lugano Convention applies (see below), the ECJ has held that an exclusive jurisdiction clause remains valid despite any allegation that the underlying contract is void, so long as the formal requirements of Article 17 are met: Benincasa v Dentalkit [1997] ECR I-3767.

14. Similarly, in Harbour Assurance Co (UK) v Kansa General International Insurance Co [1993] QB 701, the Court of Appeal held that an arbitration clause should to be treated as a separate agreement capable of surviving the illegality of the main contract. This doctrine has now been codified by section 7 of the Arbitration Act 1996.

15. However, in the most recent cases, limits have been put on to the doctrines of severability espoused in the leading cases of Mackender and Harbour Assurance.

16. Thus in a case involving an exclusive English jurisdiction clause, Rix J has held that where a contract, including the jurisdiction clause, is induced by fraud, or the whole contract is void ab initio for mutual mistake, the jurisdiction clause is impeached as well.12

17. In recent arbitration cases, the Court of Appeal has held that some types of initial illegality are so fundamental, that the arbitration clause falls away along with the contract.13

18. However, it must be said that the dividing line between attacks upon the underlying contract which will impeach the arbitration or jurisdiction agreement and those which will not is at an early stage of judicial development and cannot be defined with any precision as yet. It is not even clear whether the principle governing arbitration clauses are the same as those governing jurisdiction clauses.14

Article 17 Of The Brussels And Lugano Conventions

19. The Brussels and Lugano Conventions have the force of law in England pursuant to the Civil Jurisdiction and Judgments Act 1982. Where the Conventions apply, their provisions about jurisdiction clauses have priority over the common law.

20. The main operative part of Article 17 of the Convention provides as follows:

If the parties, one or more of whom is domiciled in a Contracting State, have agreed that a court or the courts of a Contracting State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have exclusive jurisdiction. Such an agreement conferring jurisdiction shall be either -

(a)in writing or evidenced in writing or,

(b)in a form which accords with practices which the parties have established between themselves, or

(c)in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned.

Where such an agreement is concluded by parties, none of whom is domiciled in a Contracting State, the courts of other Contracting States shall have no jurisdiction over their disputes unless the court or courts chosen have declined jurisdiction.

21. There are several important exceptions to the applicability of article 17:

    1. By Article 57, other, more specific international conventions have precedence over the Brussels Convention (eg, the CMR, the Warsaw Convention, or the Arrest Convention).
    2. By Article 17 itself "If an agreement conferring jurisdiction was concluded for the benefit of only one of the parties, that party shall retain the right to bring proceedings in any other court which has jurisdiction by virtue of this Convention."
    3. Article 17 also provides that a jurisdiction agreement has no legal force if it is contrary to any of the following provisions:
      1. Article 12 (insurance - severe restrictions on ability of insurer to rely upon jurisdiction clause).
      2. Article 15 (consumer contracts - severe restrictions on ability of supplier of goods or services to rely upon jurisdiction clause as against a "consumer").
      3. Article 16 (proceedings about immovable property, companies, public registers, patents etc, or enforcement of judgments).

22. Article 17 applies to non-exclusive jurisdiction clauses as well as to exclusive ones.15

Consumer Legislation

23. A jurisdiction or arbitration clause may also be attacked as unfair insofar as it purports to bind a consumer.

    1. David Steel J would have struck down the jurisdiction clause in Standard Bank v Apostolakis16 as contrary to the Unfair Terms in Consumer Contract Regulations 1999, had he not already done so under Article 15 of the Convention.
    2. The Unfair Terms in Consumer Contract Regulations also apply to arbitration clauses and are extended to cover the situation where the consumer is a corporation by section 90 of the Arbitration Act 1996. Furthermore, section 91 of the Arbitration Act provides that an arbitration clause is automatically unfair under the Regulations if the claim made is below a threshold set by Statutory Instrument, which is presently £5,000.17

Procedural Situations

24. Jurisdiction and arbitration clauses are considered in three main procedural situations:

25. First is where the clause provides for English jurisdiction and the Claimant sues in England, or the clause provides for English arbitration and the Claimant duly commences arbitration.

    1. The Court or the arbitrator will normally accept jurisdiction in accordance with the clause.
    2. The Court has a residual discretion to decline jurisdiction on forum non conveniens grounds, but will rarely do so in such a case.
    3. The Court's discretion to refuse jurisdiction is overridden when Article 17 applies. Article 17 is mandatory.18
    4. An arbitrator has no discretion to refuse jurisdiction (assuming he is willing to act at all).

26. Secondly, the clause may provide for foreign jurisdiction or for arbitration but the Claimant seeks to sue in court in England.

    1. If there is an arbitration clause, the position is governed by section 9 of the Arbitration Act 1996.19 The Court must stay its proceedings unless satisfied that the clause is "null and void, inoperative, or incapable of being performed".
      1. There are few English authorities on the meaning of this condition, which is taken from the New York Convention.
      2. As to "null and void": an arbitration agreement which purports to apply to a dispute which is governed by the CMR convention is null and void if it fails to make express provision for the application of that Convention, even though the substantive law under which the arbitration is to be decided incorporates the CMR: AB Bofors-Uva v AB Skandia Transport [1982] 1 Lloyd's Rep 410. However, a requirement in the arbitration agreement that the tribunal observes "international transport treaties" is sufficient to comply with the CMR: Inco Europe v First Choice Distribution [1999] 1 WLR 270 (affirmed on another point [1999] 1 Lloyd's Rep 467).
      3. For "inoperative", see Radio Publicity v Cie Luxembourgeoise [1936] 2 All ER 721 in which it was held that an arbitration agreement was not rendered inoperative either by the failure of the parties to observe certain time limits or by the termination of the underlying contract. In The Merak [1964] 2 Lloyd's Rep 283 (affirmed [1964] 2 Lloyd's Rep 527) it was conceded (see at 295 column 1) that an arbitration agreement was not rendered inoperative or unable to proceed by the passage of the time limited for a claim to be brought under the arbitration agreement. In Philip Alexander Securities and Futures Limited v Bamberger and others [1996] CLC 1757 at 1771 (affirmed on other grounds at the same reference) Waller J suggested that it is possible for an agreement to be rendered inoperative by the refusal of the courts of another state to enforce it.
      4. The incapacity of one party to pay any award made in an arbitration does not render the arbitration agreement "incapable of being performed": The Rena K [1979] QB 377. In Paczy v Haendler [1981] 1 Lloyd's Rep 302, the inability of a party to finance the arbitral proceedings was held not to fall within this phrase. At 307 Buckley LJ said "the agreement only becomes incapable of performance in my view if the circumstances are such that it could no longer be performed, even if both parties were ready, able and willing to perform it. Impecuniosity is not, I think, a circumstance of that kind."
    2. Where there is a jurisdiction clause which falls within Article 17 of the Convention, then the Court has no discretion and must decline jurisdiction.
    3. Where there is a foreign jurisdiction clause to which Article 17 does not apply, the Court has a discretion whether or not to stay its proceedings in favour of the forum chosen by the parties.
      1. In this kind of case, the burden of persuasion is on the claimant to show why the parties' agreement should not be upheld. A strong case has to be shown.
      2. If it was reasonable to commence English proceedings, a stay may be ordered on condition that the defendant waives any time bar point which has arisen in the foreign jurisdiction since the English proceedings were commenced. In Baghlaf Al Zafer v Pakistan National Shipping (No 2) [2000] 1 Lloyd's Rep 1, such an order had been made, but it turned out that the waiver of the time bar point was not possible in Pakistan. The Court of Appeal allowed the English action to proceed despite a jurisdiction clause in favour of Pakistan.

27. Thirdly, the clause provides for English jurisdiction or for arbitration, but the Defendant sues abroad. The Claimant comes to the English Court for an anti-suit injunction ordering the Defendant not to continue with the foreign proceedings.

    1. The general position is that the Court will grant the injunction where it is established that the Defendant has acted in breach of an exclusive jurisdiction clause. As with any injunction, the remedy is discretionary.
    2. In Continental Bank v Aeakos [1994] 1 WLR 588, the Court of Appeal held that an anti-suit injunction could be granted even where its effect was to forestall an action in another Convention state, though this conclusion is controversial: see Dicey & Morris Conflict of Laws (13th edition) paragraph 12-127.
    3. Since the Court of Appeal's decision in The Angelic Grace [1995] 1 Lloyd's Rep 87¸ the court has been equally willing to grant an anti-suit injunction in support of an agreement to arbitrate as it is where the agreement is for the jurisdiction of the court itself. Again, there is controversy as to whether this principle should apply where the action enjoined is taking place in a Convention state.


1 The authoritative text on jurisdiction clauses is probably Dicey & Morris on The Conflict of Laws (13th edition), rule 32 at pages 424-451.

2 More complexity is possible where the clause is asymmetrical, so that one party is bound to submit to the courts of a particular country, but the other is not. In such a case it can be particularly uncertain whether a clause is properly described as "exclusive" or "non-exclusive". See, for example, the leading case of Continental Bank v Aekos [1994] 1 WLR 588 and Credit Suisse v MLC [1999] 1 Lloyd's Rep 767 and the discussion of the distinction between the two types of clause at paragraph 32 of Rix J's judgment in Sinochem v Mobil [2000] 1 Lloyd's Rep 670 at 676.

3 Note, however, that the Rome Convention on governing law does not apply directly to either arbitration or jurisdiction clauses. If the court does not find that the jurisdiction/arbitration clause is governed by the proper law of the whole contract, then it is thrown back on the common law to determine governing law. Where there is a dispute as to whether the contract has been formed at all, that dispute is generally determined according to the law which would govern the contract if it were binding (the "putative proper law").

4 This tendency is particularly marked in the case of arbitration clauses, where the English courts have developed a policy of favouring arbitration wherever the parties have agreed to it.

5 The leading exposition of this principle in the context of arbitration clauses is in Ashville Investments v Elmer Contractors [1989] QB 488, which was adopted in a jurisdiction clause case in Continental Bank v Aekos [1994] 1 WLR 588 at 593 and re-stated in Donohue v Armco [2000] 1 Lloyd's Rep 579 at 596.

6 See, eg, Roussel-Uclaf v G D Searle & Co [1978] 1 Lloyd's Rep 225, Montedipe v JTP-RO Jugotanker: The Jordan Nicolov [1990] 2 Lloyd's Rep 11, London Steamship Owners Mutual Insurance Association v Bombay Trading Co: The Felicie [1990] 2 Lloyd's Rep 21, Socony Mobil Oil Co v West of England Ship Owners Mutual Insurance Association: The Padre Island [1984] 2 Lloyd's Rep 408, Rew v Cox (1995) Times, 29 November, The Smaro [1999] 1 Lloyd's Rep 225, Eurosteel v Stinnes [2000] CLC 470, Astra v Yasuda [1999] CLC 950 and Astra v Sphere Drake Insurance, David Steel J, 17th May 2000, unreported.

7 In Donohue v Armco [2000] 1 Lloyd's Rep 579 at 587

8 For a case involving a jurisdiction clause potentially incorporated in a reinsurance contract, and for discussion of the extent to which the approach in jurisdiction cases will be similar to that in arbitration cases, see AIG v The Ethniki [2000] 2 All ER 566.

9 See Thomas v Portsea SS Co [1912] AC 1 (cited in The Mahkutai), The Merak [1965] P 223, The Annefield [1971] P 168, Skips A/S Nordheim v Syrian Petroleum: The Varenna [1984] 1 QB 599, The Rena K [1979] QB 377, The Federal Bulker [1989] 1 Lloyd's Rep 103, The Oinouissin Pride [1991] 1 Lloyd's Rep 126, The Heidburg [1994] 2 Lloyd's Rep 289 and The Nerano [1996] 1 Lloyd's Rep 1.

10 Pine Top Insurance Co v Unione Italiana Anglo Saxon Reinsurance Co [1987] 1 Lloyd's Rep 476, Excess Insurance Co v Mander [1997] 2 Lloyd's Rep 119, and Trygg Hansa v Equitas [1998] 2 Lloyd's Rep 76.

11 Modern Buildings Wales v Limmer & Trinidad Co [1975] 2 Lloyd's Rep 318, Aughton v MF Kent Services [1991] 31 Con LR 60, Ben Barrett v Henry Boot Management [1995] Constr Ind Law Letter 1026, Extrudakerb v White Mountain Quarries (1996 unreported, Northern Ireland QBD), and Secretary of State for Foreign and Commonwealth Affairs v Percy Thomas Partnership (1998) 65 ConLR 11.

12 Credit Suisse v Seagate [1999] 1 Lloyd's Rep 784.

13 See a dictum in Soleimany v Soleimany [1999] QB 785 at 799 and the decision in O'Callaghan v Coral Racing Ltd (1998) The Independent 26th November.

14 Rix J touches on this point in Credit Suisse v Seagate.

15 See the recent review of the authorities in Lafi Office v Meridien [2000] 2 Lloyd's Rep 51 at 58-60.

16 Unreported, 9th February 2001, under appeal.

17 SI 1999/2167.

18 Continental Bank v Aekos.

19 If the issue is whether or not the Claimant is bound to arbitrate at all, the Court will usually decide that issue as a preliminary point in the section 9 application: see Al-Naimi v Islamic Press [2000] 1 Lloyd's Rep 522 and Birse Construction v St David Ltd (1999)_70 ConLR 10.

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.

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