Negotiating Jurisdiction Clauses in Cross-border Business Transactions

Business transactions are becoming increasingly transnational in nature. On a regular basis, companies enter into cross-border contracts in pursuance of these international transactions. The parties to a cross-border contract will normally expressly agree, by a clause in the contract, which country’s court can try a claim that is brought under the contract. 

The choice of the forum for international commercial litigation can be very tactical as the remedies available in one jurisdiction might be more advantageous to those available in another. For example, a party might find it more attractive to bring its claim in Texas where the law permits triple damages than to bring it in Jamaica where triple damages are not available. However, the likely benefits of litigation in a particular jurisdiction will have to be weighed against the potential costs of litigating in that jurisdiction since the cost to pursue litigation in a foreign jurisdiction could exceed the amount likely to be recovered. A Jamaican contracting party, for instance, might find it prohibitive to be confined to litigation in a foreign jurisdiction since depending on the nature of the case, there may be the need to fly witnesses overseas and engage the services of attorneys experienced in and licensed to practice law in the foreign jurisdiction.

Not surprisingly therefore, a great deal of international commercial disputes involve litigation about where to litigate. In some cases, once this question is settled, the likely outcome becomes quite clear and there remains very little left to litigate.

Primarily, jurisdiction clauses are either exclusive or non-exclusive. 

Exclusive jurisdiction clauses 

An exclusive jurisdiction clause prevents a party from bringing proceedings in a country other than the one named in the clause. For example, if the parties designate Canada as the exclusive jurisdiction, a party will be in breach of contract by suing in Jamaica. 

In these disputes, the aggrieved party could apply for an anti-suit injunction. The effect of an anti-suit injunction is to prevent the party in breach from commencing or pursuing further litigation in the non-agreed jurisdiction. The aggrieved party could also apply to the court in Jamaica for it to stay or halt those proceedings on the basis that the exclusive jurisdiction clause precludes it from hearing the claim. 

Anti-suit injunctions and stays are discretionary remedies. A court must consider all the factors involved when making a determination as to whether or not it should grant them. Nevertheless, courts have generally upheld exclusive jurisdiction clauses, therefore an exclusive jurisdiction clause gives some certainty as to the proper court in which a contract dispute should be brought.  

Non-exclusive jurisdiction clauses

Non-exclusive jurisdiction clauses also appear frequently in cross-border contracts, as parties do not always agree to an exclusive jurisdiction. In these clauses, although the parties agree to submit claims arising from the contract to a particular jurisdiction’s court they remain free to commence legal proceedings in the courts of another appropriate jurisdiction. Non-exclusive jurisdiction clauses have the potential to be both problematic and advantageous. 

Designating the courts of Canada as having non-exclusive jurisdiction does not mean that the Canadian courts will be deemed most appropriate to try a claim. Rather it will mean that a party challenging the jurisdiction of the Canadian court will have a high burden to prove that Canada is not the most appropriate jurisdiction to hear the claim. It still remains open to any of the parties to bring an action elsewhere. In common law jurisdictions, a court would consider whether it, and not the courts of the jurisdiction agreed in the non-exclusive jurisdiction clause, is the more appropriate forum to hear the dispute. In doing so, the court would balance factors such as the location of the primary evidence and the relative costs to the parties. There is therefore more leverage for parties who agree to a non-exclusive jurisdiction agreement. As a claim could be brought in any appropriate forum, the parties should decide whether this leverage is worth the uncertainty, risks and costs of parallel proceedings, which are more likely to occur under non-exclusive jurisdiction clauses. 

The need for clarity 

Jurisdiction clauses should not only be specific, they should also be very clearly worded. The parties to cross-border contracts should expressly indicate whether a jurisdiction clause is exclusive or non-exclusive. Being clear could obviate the need for litigation as to the nature of the clause itself. 

Jurisdiction clauses are often overlooked by parties entering into an agreement. However, what is clear is that when issues do arise, parties who have agreed clear jurisdiction clauses are likely to find themselves better off for having done so.

This article is for general information purposes only and does not constitute legal advice.

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