Exclusive Jurisdiction Clause: Everything You Need to Know
Knowing what an exclusive jurisdiction clause is, is vital to a contract's execution.3 min read
Knowing what an exclusive jurisdiction clause is, is vital to a contract's execution. Parties that are entering into a contract, especially if it crosses borders, should have a form of dispute resolution that is appropriate to make sure disputes are easily settled.
When creating a contract, you will choose the litigation, and both parties should agree to which governing law will cover disputes. This is what a jurisdictional clause is. You will often find a jurisdictional clause towards the end of your contract, and it might be under the heading "midnight clauses." This section will deal with the handling of disputes as well as which governing law will have jurisdiction to mediate or rule on the disputes.
The term "midnight clauses" refers to the fact that these clauses are almost always added at the last minute before the contract's execution.
What You Should Consider in a Jurisdictional Clause
There are a few things that you should carefully consider when drafting a jurisdictional clause such as:
- Where you may have to sue other parties if a breach occurs.
- Where may they wish to sue you if you fail on your end of the contract?
- How and where a judgment cannot only be obtained but enforced as well. For example, choosing a Supreme Court for jurisdiction in a different country is not likely to work as it would be difficult for the court to enforce the ruling.
If you have a contract that has an international element, it is key to know which court will have final jurisdiction in a dispute. Include the courts of the executing country during the drafting stage of the contract. This will allow you to avoid courts where the outcome may be less agreeable, enforceable, or predictable.
If you do not agree to a chosen dispute forum, you might have a strong case that's not worth pursuing if you fail to agree on a venue to hear the dispute and which court will have the final say in determining the resolution. It is important to note that having a jurisdictional clause will not necessarily prevent a party from suing you in a different court, but it will provide for a stronger case on your end.
The Position Under European Community (EC) Law
The EC Regulation No 44/2001 and the Recognition and Enforcement of Judgments states that the jurisdiction that parties agree to for disputes shall have exclusive jurisdiction. There is an article that also states if the same cause of action were to be brought in to different court then the jurisdiction will be with the court where the first case was brought.
Problems with Not Having a Jurisdictional Clause
Without having a proper jurisdictional clause in your contract, you can run into significant problems such as:
- Delays - There could be a significant delay in hearing or resolving your case if the courts first have to determine which actual court has jurisdiction to hear and rule on the case. Once a decision is made the case could be delayed even further if the other party decides to launch an appeal.
- Costs - Legal costs are difficult to settle on and determine when the jurisdiction of the case is uncertain.
- Uncertainty - Without a jurisdictional clause, even a strong case can be uncertain if you do not know which jurisdiction will be considering the evidence. Additionally, failure to have a designated court system can lead to the risk of multiple appeals.
Under the European Union regulations, failure to have a jurisdictional clause will make the contract subject to the Recast Brussels Regulation rules. Under these rules, the defendant must be sued in the in the court of their member state of domicile. The other option is that the defendant could be sued in the place that the performance of the contract occurred.
To prevent this issue from arising it is best to set a jurisdiction in the contract and bring suit under that jurisdiction if a breach or dispute occurs. If you find yourself caught up in a jurisdictional problem the options are to buckle down and fight or resign yourself to losing the costs that have come with the breach.
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