UNILATERAL JURISDICTION CLAUSES
Unilateral (or asymmetric) jurisdiction clauses are often found in international finance agreements, including standard Loan Market Association (LMA) documentation. They bind one party to a particular method of dispute resolution (e.g., arbitration), but grant the other party (generally the party with the greater negotiating power) the right to elect to initiate proceedings in the forum of its choosing (e.g., arbitration or litigation before a competent court).
In international finance transactions, lenders favour unilateral jurisdiction clauses as they offer certainty that the borrower can only bring a claim against them in a specific country and/or forum. Equally, lenders retain the flexibility to take action against the borrower wherever its assets are located and utilise the most advantageous forum.
For example, a lender may elect to issue proceedings before the courts in order to obtain a summary or default judgment (summary arbitral procedures are not available under most arbitral rules).
Alternatively, if a lender anticipates difficulties enforcing a foreign court judgment in the jurisdiction where the borrower’s assets are, it may choose to commence arbitration and benefit from the global regime for enforcing foreign arbitral awards under the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. A unilateral jurisdiction clause of this type can therefore increase the lenders’ prospect of successfully recovering debts, and in turn, contribute to the willingness of the lenders to increase their exposure and provide finance to borrowers.
Oct-Dec 2017 issue
Norton Rose Fulbright LLP