Complications in jurisdiction clause
This month we look at the concept of “jurisdiction” as we are at the letter J in our alphabetical series. The word “jurisdiction” is primarily concerned with the particular place (or “forum”) where disputes between parties to a contract are to be resolved. Construction contracts can provide for disputes to be resolved by arbitration (or a combination of arbitration and mediation), or in the courts. If the contract does not have a valid arbitration clause, the default position is that the courts will have jurisdiction. As to which court will have jurisdiction, that is an interesting issue that has to take into account the intention of parties at the time of contracting and, sometimes, which jurisdiction has the closest connection with the particular dispute. This month’s article explores these choices in jurisdiction clauses.
In the absence of a valid arbitration clause, all disputes must be resolved in court. If both parties are from the same jurisdiction, and the construction project is also being carried out in the same jurisdiction, it is very likely that the court where the parties are based will have jurisdiction. This is the simplest of cases. But where the parties are based in different jurisdictions (whether different countries, or even different states of the same country if the country follows a federal system), the question of which court has jurisdiction is not always an easy question to answer. Usually, the party bringing the claim will choose either the court of the jurisdiction where he is based (on the assumption that the local courts are more likely to favour him) or the courts in the jurisdiction where the other party has most of its assets (on the assumption that that would make it easier to enforce a judgment against those assets). It is possible that neither of these two jurisdictions is where the project is located! For example, I once acted in an arbitration in Dubai between a Japanese company and a UAE company on a hotel construction project in East Africa. If there had not been an arbitration clause in that contract, who knows which country’s court would have had jurisdiction.
To avoid these sort of complications, contracts will often contain either a “non-exclusive” jurisdiction clause or an “exclusive” jurisdiction clause. These are sometimes put in as a “cut and paste” clause at the last minute without much thought to what it might mean for the parties. Let’s look briefly at their differing effects.
An “exclusive jurisdiction clause” is the easier of the two. Essentially, a clause will say something like this: “Parties agree to submit to the exclusive jurisdiction of the courts of [X]”. The effect of this clause is to allow parties to bring an action against the other party only in the courts of the jurisdiction named in the clause. This is so even if the governing law of the contract is of another country — for example, it is possible to have a contract between an Indian company and a Malaysian company that is governed by English law and subject to the exclusive jurisdiction of the Singapore courts. If a dispute arises, Singapore courts will apply English law in resolving the dispute (and there are some general rules as to how a court of one country applies the laws of another country). In my experience, “exclusive jurisdiction clauses” are rare as parties often do not want to limit themselves to a particular jurisdiction at the start of the contract as, at that stage, they have no idea of what kind of disputes will arise.
The clause more commonly seen is a “non-exclusive jurisdiction” clause. The only difference is that this clause says: “Parties agree to submit to the non-exclusive jurisdiction of the courts of [X]”. This allows parties to bring legal proceedings in the court of the country named in the clause, but also in the courts of any other country. What then is the use of naming a country in the clause? The benefit is that if an action is brought in the court of the country named in the clause but the other party wants to have the case heard in a different country, the burden will be on the other party to show why the court in which the proceedings have been brought is not the proper court to hear the case. This is a high burden. However, if a party commences legal proceedings in a court different from the court named in the clause, and the other party wants the proceedings to be moved to the court named in the clause, the other party would have a much easier task in showing that the parties had intended the court named in the clause as being the right court and to move the case back to the court named in the contract. So, a non-exclusive jurisdiction clause provides some sort of presumption as to the right forum without forcing the parties to go only to that forum.
Shourav Lahiri is the principal at Lahiri LLC, a Singapore-based law firm specialising in construction and engineering law and arbitration. He can be reached at firstname.lastname@example.org.