WHY JURISDICTIONAL CONSIDERATIONS ARE SO IMPORTANT DURING CONTRACT NEGOTIATION

Who cares about jurisdiction clauses? It’s the boring legal stuff at the back of the contract. I’ve chosen English law so it’s all fine, right?”

This is a common reaction, but a mistaken one. English law may not have the meaning you expect if it is being interpreted in a ‘non-English’ legal environment.

English law is becoming one of the most (if not the most) popular choices for international contracts. The commercial terms of agreements are often negotiated in great detail, and the governing law chosen as a result of these negotiations.

However, less thought (or no thought) is sometimes given to the choice of jurisdiction – which can often be crucial to an agreement’s effective performance, because it is the jurisdiction where the judge or arbitrator decides what English law is.

Enforcement

For practical purposes, an agreement can be worthless without adequate jurisdiction provisions or with jurisdiction provisions which favour one party over the other. At the time of negotiation, disputes often appear unlikely, or there is an expectation that disputes will be resolved amicably. However, at the time a dispute arises, this is unlikely to be the case. To maximise its effectiveness, an agreement should be enforceable in as many jurisdictions where the adverse party has assets as possible.

One of the most attractive features of arbitration in resolving disputes is the relative ease with which awards can be enforced internationally. The New York Convention, to which the UK is one of the 149 signatories (including almost all significant jurisdictions), provides for enforcement of foreign arbitral awards on the same basis as domestic awards. There are a limited number of bases on which, under the rules of the New York Convention, local courts can refuse to enforce a foreign arbitral award, notably where the relevant arbitration agreement is not valid under local law, where parties were not given notice of proceedings, where the award relates to a subject not covered by the arbitration agreement, and where it would be contrary to public policy to recognise or enforce the award. The latter is the most frequent and contentious ground for refusal to enforce, and it is often advisable to seek local law advice on this point for the jurisdictions where enforcement is likely to be sought.

Jan-Mar 2014 issue

Morgan Lewis