Exclusive jurisdiction clauses: recent changes, pitfalls and drafting tips

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

New regulations relating to the jurisdiction of courts and the recognition of judgments will affect businesses and individuals entering into contracts in the EU and beyond. Parties who have agreed that a particular EU Member State is to have exclusive jurisdiction to determine disputes can now be more certain that their choice of jurisdiction will be effective (and also less able to change their minds if they fall out). It is now as important as ever to give proper consideration to jurisdiction clauses when entering into contracts.

New rules affecting exclusive jurisdiction clauses

The new legislation is set out in the Recast Brussels Regulation (Regulation (EU) No 1215/2012). This applies to a wide range of civil and commercial disputes where proceedings are commenced in the courts of an EU Member State on or after 10 January 2015. Earlier proceedings will still be subject to the previous version of the Regulation.

Under the previous Regulation, effect was given to exclusive jurisdiction clauses in favour of the courts of an EU Member State, but only if at least one of the parties to the litigation was domiciled in the EU. The Recast Brussels Regulation aims to extend and strengthen the rules in two main ways.

• A clause giving the courts of an EU Member State exclusive jurisdiction to resolve disputes will now be effective regardless of where the parties to the agreement are domiciled. This will be the case unless the agreement is null and void under the laws of the courts of the chosen jurisdiction. This change should give parties domiciled outside the EU more certainty in their choice of jurisdiction.
• Any challenge to the validity of a jurisdiction clause is to be determined by the Member State identified as having exclusive jurisdiction. Under the previous rules, the question of jurisdiction was decided by the court in which proceedings were first issued (even if those proceedings were brought in breach of an exclusive jurisdiction clause). This change should make exclusive jurisdiction clauses easier to enforce, reducing the delays and costs associated with tactical litigation brought in other Member States.

Alongside the changes on exclusive jurisdiction, the Recast Brussels Regulation introduces a number of other changes, including new rules to make it easier to enforce judgments obtained in one EU Member State across the other Member States and to deal (to a limited extent) with the situation where related or parallel proceedings are issued both inside and outside the EU. Arbitration proceedings remain outside the scope of the Regulation. More detailed information about the changes can be found in our in-depth article "Analysis: Recast Brussels Regulation - What do I need to know?" here.

Drafting exclusive jurisdiction clauses

Parties in multinational transactions negotiating which jurisdiction should apply will need to weigh up a number of factors, such as where they and the relevant assets are located, the procedures and remedies available in each jurisdiction and the likely costs and time involved in any proceedings. If the parties agree that the courts of England and Wales are to have exclusive jurisdiction, there will be a number of points to bear in mind when drafting the relevant clause.

• Will the clause be effective in granting exclusive jurisdiction? There has been a degree of uncertainty surrounding one-way or hybrid jurisdiction clauses, which has not been resolved by the Recast Brussels Regulation. These widely used clauses specify a primary jurisdiction which one party will be tied into exclusively if it wishes to make a claim, whilst the other party is left free to choose the courts of other jurisdictions. In the past, the French Supreme Court has ruled such a one-way clause to be invalid, although the English courts have recently upheld a similar clause under English law. Parties should consider carefully before including such a clause in their agreement or opt for a mutual clause, giving equal rights to both parties.
• Is it correct to refer to the courts of England and Wales? Although for some years the National Assembly for Wales has had powers to pass primary legislation applicable to Wales, England and Wales still currently forms a single legal jurisdiction. This is in contrast to Scotland and Northern Ireland which have separate jurisdiction. The question of a separate jurisdiction for Wales may well be re-visited as constitutional change continues and this will be something to watch out for in coming years.
• Should an agent for service be appointed? Where another party to an agreement is outside the jurisdiction they should be asked to appoint an agent in England and Wales to receive service of proceedings on their behalf. If such an agent has been appointed, there will be no need to obtain an order permitting service outside the jurisdiction under the Civil Procedure Rules and no need to effect service in another jurisdiction. If the Recast Brussels Regulation applies (e.g. where the parties have agreed that the courts of England and Wales are to have exclusive jurisdiction to decide any disputes), there will be fewer situations where it is necessary to obtain the court's permission to serve proceedings outside the jurisdiction. However it will still be advisable to appoint an agent for service, since the Regulation will not remove the need to effect service in another jurisdiction (which is often a complicated and lengthy process).
• If there is a suite of related documents, how will the various applicable law and jurisdiction clauses apply in the event of a dispute? If the jurisdiction clauses conflict or their scope is unclear this can lead to disputes and costly litigation. This was highlighted in a recent case, where the court was asked to consider the extent of a widely-worded clause in a novation agreement giving exclusive jurisdiction to the courts of Guernsey and its effect on an underlying loan agreement which was stated to be subject to the exclusive jurisdiction of the courts of England and Wales. Wherever possible it will be advisable to have consistent jurisdiction clauses across a suite of related agreements and also to ensure that the applicable law and jurisdiction are consistent within each agreement. If this is not the case it will be necessary for the courts of one jurisdiction to apply the law of another in the event of a dispute - a process requiring expert evidence of the foreign law and the considerable expense that this is likely to entail.

Any information contained in this article is intended as a general review of the subjects featured and detailed specialist advice should always be taken before taking or refraining from taking any action. If you would like to discuss any of the issues raised in this article, please get in touch with your usual Olswang contact. This article was included in our Olswang Corporate Quarterly Spring 2015 publication.