When contracts are being negotiated, most people tend to focus their attention on the clauses which specify the obligations of the parties and the payment terms. But an important clause which is often overlooked is the “jurisdiction” clause. This specifies which court can rule on the contract if there is a dispute. This is more important than ever with Brexit looming.
The jurisdiction clause is particularly relevant to construction contracts because often important equipment or materials are produced overseas and have to be transported internationally. If there is a dispute between the supplier and the contractor or the contractor and the employer, it is crucial to know which country’s laws will apply when the contract is interpreted.
The UK has a well-developed court system and a good international legal reputation. As a result it has been common for international contracts to list the UK as a jurisdiction for contracts even if the contract itself has little to do with the UK.
Most contracts made between UK parties will refer to our jurisdiction. But some will forget to add it in. This can cause problems later on if the contract is disputed.
Jurisdiction clauses can be “exclusive” or “non-exclusive”. If they are exclusive, it means that any dispute can only be heard in the jurisdiction mentioned in the contract. If non-exclusive, the jurisdiction listed in the contract is the default, but you can apply to use a court in a different country if you prefer.
But it’s easy to make mistakes that can have a significant impact on jurisdiction. Many people aren’t aware that the UK is not a legal jurisdiction. Scotland has its own court system and there are important legal differences between Northern Ireland and the rest of the UK too. Contracts made in England or Wales should refer to “the law of England and Wales” rather than “the law of the United Kingdom”.
If England and Wales is not specified, if you ever want to sue on the basis of the contract, you may have to argue with the other side over which court should have jurisdiction. These arguments will increase your costs and the time it takes to resolve the issue. Take a little time to get it right at the start.
Jurisdiction will become a more relevant issue as the UK gets ready to leave the EU. The Brexit deal is so unclear currently and no one is sure if there’ll be a deal at all. Companies that do business internationally will be concerned about the Brexit effect on any contracts they sign, and with good reason.
Whatever happens with Brexit, English law won’t change overnight. The court system will remain in place and existing EU law will be incorporated into UK law under the “Great Repeal Act”. A contract that you sign today under English and Welsh law will still be just as enforceable in England after Brexit and it will be governed by the same law.
But there are still areas of uncertainty. The system for enforcing judgements between countries is governed by a set of international conventions. The biggest and most important of these are:
- The Hague Convention
- The Lugano Convention
- The Recast Brussels Regulations
The EU is currently signed to the Recast Brussels Regulations so these regulations apply in the UK.
But after Brexit, the UK will have to decide which conventions, if any, it joins. The government has said it intends to join the Hague Convention, which is very similar to the current arrangements, but this is not yet guaranteed. Whichever rules apply will have a major effect on how judgements between parties internationally are dealt with.
More importantly, it’s not yet clear whether the UK will remain subject to the European Court of Justice after Brexit. Currently, almost all judgements made in an English or Welsh court can be appealed to the European Court. Whether or not the European Court retains any jurisdiction over judgements from the UK is a key point of negotiation during the Brexit procedure and this could easily go either way.
If you want to make sure EU law can continue to apply after Brexit, you may want to put a non-exclusive jurisdiction clause in your contract. This will allow you to move proceedings to an EU jurisdiction even if the UK opts out of the European Court of Justice.
On the other hand, if you don’t want EU law to apply, you could include an exclusive jurisdiction clause which means that if the UK ends up being outside the European Court, any decisions made in England cannot be appealed to the ECJ.
Don’t ignore this issues as can be of major importance if you need to rely on your contract.
If you’re not sure about a contract you’re negotiating, speak to one of our lawyers today.
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