This week: Scott Buchanan considers the benefits of exclusive jurisdiction clauses in contracts.

Life's greatest learning opportunities often come from things that go wrong. Only businesses that are properly vested in learning from mistakes are truly positioned to maximise their potential.

The aviation industry has this down to a fine art. When things go wrong, the black box flight recorder ensures that their errors are "data rich". That industry's ability to learn from its mistakes has taken it from one of the most dangerous forms of transport to one of the safest.

The law is no different. As part of the world's largest law firm, our disputes team is also "data rich": so here we use our knowledge of why things go wrong to help you to either avoid disputes in the first place, or to identify opportunities for fighting your client's corner.

Jurisdiction clauses

"Hope for the best but plan for the worst" is excellent advice when entering into commercial contracts. The last thing anyone really wants to think about at the beginning of a new business relationship is what might happen if something goes wrong but, by the time you know that something has gone wrong, it is too late.

In our experience, taking some time at the drafting stage to include clauses that will assist you, should the worst happen, is time (and money) well spent.

One such clause is the jurisdiction clause. The purpose of a jurisdiction clause is to agree where court proceedings will be raised, in the event of a dispute arising somewhere down the line. That may not seem significant, but with business increasingly being done across multiple borders and with a number of possible grounds of jurisdiction in relation to contractual disputes, having certainty of where you can sue or be sued is particularly important.

Do you want to be sued in a country where you do not already have a solicitor, or in a country where proceedings are conducted in a language other than English? Do you really want to allow yourself to be sued in your opponent's back yard and give them an immediate advantage?

The way to avoid this issue is to include an exclusive jurisdiction clause in your commercial contracts. Properly drafted, this clause means that proceedings can only be raised in the courts of specified countries, and usually only one country is specified. Factors to take into account when selecting the appropriate jurisdiction are the location of parties (and therefore potential witnesses and evidence), the costs of litigation, and the location of assets (where judgments would be enforced). For UK businesses, this will most often mean choosing the courts of England and Wales or the courts of Scotland. As well as convenience, allocating exclusive jurisdiction to the courts of England and Wales or the courts of Scotland brings the benefit of knowing that any dispute will be heard in a well-respected legal system.

For transactions with a cross-border element, it is necessary to include an exclusive jurisdiction clause in a contract in order for the contracting parties to benefit from streamlined procedures in the 2005 Hague Convention on Choice of Courts Agreements for enforcing judgments, should litigation subsequently arise. The Hague Convention provides access to a simplified process for enforcing court judgments in many other countries, including in the EU member states, should litigation subsequently arise.

Whilst it is difficult to predict when a dispute may arise or what it may be about, you can at least give yourself the comfort of knowing that, if the disruption of litigation occurs, it can be managed in the courts of the country with which you are most familiar. 

Previous Black Box Tips

• 21 September, 2022 - Black box tips from Dentons' Scottish Disputes team: Interim interdict – proceed with caution
• 7 September 2022 - Black box tips from Dentons' Scottish Disputes team: Drafting dispute resolution clauses to avoid protracted disputes
• 24 August 2022 - Black box tips from Dentons' Scottish Disputes team: The duty to preserve evidence where litigation
• 10 August 2022 - Black box tips from Dentons' Scottish Disputes team: Ensuring the enforceability of exclusion and limitation clauses
• 27 July 2022 - Black Box Tips: Maintaining privilege over legal advice within an organisation
• 13 July 2022 - Black Box Tips: Ensuring your terms and conditions apply in a "battle of the forms"
• 29 June 2022 - Black Box Tips: No oral modification clauses