Jurisdiction Clauses

This guide highlights the key considerations that should be borne in mind when drafting a jurisdiction clause. 

Jurisdiction Clauses

Why do I need one?

A jurisdiction clause should be included where the parties want all disputes arising under their agreement to be determined by a particular national court or courts. A party expressly submitting to the courts of a particular jurisdiction will find it difficult to argue that those courts are not the appropriate forum for the trial of disputes.

If there is no effective jurisdiction clause the correct forum for the determination of a dispute will be decided by reference to rules of private international law. This can cause uncertainty and inconvenience and can lead to additional costs and delay in progressing any proceedings.

How do I decide which jurisdiction to choose?

A jurisdiction clause may provide for jurisdiction in a country which is associated with one or more of the parties or it may provide for jurisdiction in a neutral forum. There are three principal reasons for specifying which forum has jurisdiction: 

• Convenience: You may well want to sue or be sued in the country in which you are based. 
• Preferred judicial system: Civil litigation systems vary widely and some systems are recognised as being preferable to others depending on whether you are a claimant or defendant. For example, if you are the party most likely to sue (e.g. a purchaser or lender) then you will want any dispute to be heard in a jurisdiction which has an efficient judicial system and offers a good range of interim and final remedies.
• Enforcement: The state in which any judgment is obtained will affect how easily it can be enforced. The commercial worth of a judgment depends on its enforceability and the location of the defendant's assets needs to be taken into account. Whereas arbitral awards are widely enforceable by virtue of the New York Convention,¹  currently there is no real equivalent for court judgments.² As such, contracting parties should always check the enforcement position when deciding on forum.   

What is the difference between exclusive and non-exclusive jurisdiction clauses?

When drafting a jurisdiction clause there are three options:

• both parties submit to the exclusive jurisdiction of a particular court;
• both parties submit to the non-exclusive jurisdiction of a particular court; or
• one party submits to the exclusive jurisdiction of a particular court and the other submits to the non-exclusive jurisdiction of a particular court.

Exclusive jurisdiction clauses 

Exclusive jurisdiction clauses limit disputes to the courts of one jurisdiction. An exclusive jurisdiction clause achieves relative certainty: you know where you can sue and be sued. They also offer greater protection in that it is less likely that another court will accept jurisdiction if faced with an exclusive jurisdiction clause. 

Non-exclusive jurisdiction clauses

Choosing non-exclusive jurisdiction will, in principle, provide for disputes to be heard in the courts of a particular jurisdiction but without prejudice to the right of one or other of the parties to take a dispute to the courts of any other jurisdiction if appropriate. Such clauses achieve certainty to the extent that you know that disputes can be heard in a particular jurisdiction which you find attractive but should jurisdiction elsewhere be necessary, it is available. However, although they offer greater flexibility there is the risk of parallel proceedings.³

Hybrid clause for the benefit of one party

Known as "hybrid" or "asymmetric" clauses, this option often appears in loan agreements as the borrower is restricted to suing in a particular jurisdiction and the bank retains the right to commence proceedings in any court of competent jurisdiction i.e. wherever the assets are. Such clauses are normally negotiated where there is an imbalance of negotiating power between the parties as it clearly leaves one party in a more favourable position than the other. Recent developments mean that contracting partners should be cautious in their use of these clauses, particularly in European transactions.⁴

Exclusive or non-exclusive?

Whether one uses an exclusive or non-exclusive jurisdiction clause depends on the facts of each case. For example, a seller in a share purchase agreement will probably prefer an exclusive jurisdiction clause as the seller is the more likely party to be sued and it may want the certainty of knowing where that will be. The risk of being sued in foreign courts of uncertain competence is not attractive. On the other hand, the buyer in a share purchase agreement may want a non-exclusive jurisdiction clause so that it has the certainty of knowing that it can sue in the English courts (or the courts of whatever jurisdiction is chosen) as well as the courts in any other jurisdiction in which the seller has, or may have, assets. 

Enforceability of any resultant judgment may also dictate choice. Exclusive jurisdiction clauses benefit from the protection of the Hague Convention on Choice-of-Court Agreements. The Hague Convention, which applies solely to business-to-business contracts, aims to provide for worldwide recognition and enforcement of exclusive choice-of-court agreements relating to civil or commercial matters. Importantly, it also provides for reciprocal enforcement of any resultant judgment. However, it does not apply to non-exclusive jurisdiction clauses (unless a contracting state makes a declaration to that effect) or asymmetric clauses.⁵

Although ratification has been slow (to date Hague has only been ratified by the EU (including Denmark), Mexico, Montenegro, Singapore and the UK (which acceded in its own right at the end of the Brexit transition period)), EU ratification is significant given that the UK's departure from the EU meant that the UK lost the automatic rights of enforcement of English judgments within the EU and EFTA enjoyed under the Brussels regime and Lugano Convention.⁶

If enforcement of English court judgments is a concern, careful consideration will need to be given to the drafting of the jurisdiction clause. Further explanation and a discussion of the options is provided in this Ashurst briefing.

Formalities

Jurisdiction clauses should always be expressly written into the contract.⁷ It is vital that a contract clearly records the parties' agreement to a particular jurisdiction. Do not leave it to invoices sent after the contract has been concluded or fall into the trap of allowing the parties' standard terms to be swapped thereby practically guaranteeing a "battle of forms" argument over whose terms - and exclusive jurisdiction clause - apply.

Particular care should be exercised when relying on standard terms. If seeking to rely on the jurisdiction clause, you should ensure that the counterparty's attention is drawn to the clause and choice of jurisdiction.⁸ 

Will the clause be given effect?

Not necessarily so. In most, but not all, cases the courts of England and Wales will give effect to a jurisdiction clause vesting jurisdiction in them or in the courts of another state. Circumstances where there may be issues include:

• where there are related contracts and they each provide for a different court/forum to have jurisdiction. It may be more convenient to have the litigation in the other forum or, if the dispute goes to the heart of the transaction, the jurisdiction clause in the other contract may apply;
• where, since agreeing the clause, some factor that could not have been foreseen at the time the bargain was struck has occurred;
• where rules of jurisdiction provide that certain disputes have to be decided by certain courts;
• the "battle of forms" type of situation where it is not clear on which terms the parties have contracted; and
• where the clause is non-exclusive and the other party initiates proceedings in another state.   

However, it is always preferable to include a jurisdiction clause than not, even where all parties are domiciled in the same state. 

Drafting considerations

Scope of the clause

Do you want all conceivable disputes to be determined by a particular court? If yes, the clause should be drafted widely so as to avoid arguments over whether a particular dispute falls within the scope of the clause. As a matter of English law the courts have now given clear guidance on this issue and, provided that the clause is widely drafted so as to cover all disputes arising out of an agreement, including any disputes as to its existence, validity or termination, that should be sufficient.⁹

Reference to the court chosen

You can, if you want, draft your jurisdiction clause so as to confine yourself to a particular court in a jurisdiction. As a matter of English law it is perfectly legitimate to provide that a competent court in London is to have exclusive jurisdiction thereby preventing proceedings from being commenced in any other part of England and Wales.¹⁰ However, such an agreement does run the risk of a foreign court finding that London does not qualify as a country and consequently the clause is invalid and so, if contracting with parties from jurisdictions outside the UK, the recommendation is to specify the courts of England or the courts of England and Wales as having jurisdiction.

Exclusive or non-exclusive?

Whichever you choose, ensure that the jurisdiction clause clearly reflects your choice. So, for example, if referring your disputes to the exclusive jurisdiction of the English courts, use the word "exclusive".¹¹ Caution should also be exercised when drafting a non-exclusive jurisdiction clause as they can be drafted in various ways. For example, if opting for a non-exclusive clause, and you want to be able to bring concurrent proceedings in a number of jurisdictions, ensure that the drafting reflects this (see specimen hybrid clause below). In addition, if you want to be in a position to bring proceedings in another unnamed jurisdiction, even after the other party has brought proceedings in the named jurisdiction, this should also be spelt out in the drafting.

Several courts to have exclusive jurisdiction

As a matter of English law there is nothing to prevent you from inserting a clause which gives exclusive jurisdiction to two states concurrently and this may be preferred when contracting parties reside in different jurisdictions and agreement cannot be reached on the preferred national court. One way of doing this would be to state that if Party A sues party B, court A is to have jurisdiction and if party B sues party A, court B is to have jurisdiction. If doing this, it is important to ensure clarity in drafting so that the intention is clear.

However, such agreements are not deemed to be exclusive under the Hague Convention on choice of court agreements. Given that this may be the mechanism under which the UK retains reciprocal enforceability within the EU, naming two courts as having exclusive jurisdiction may not be advisable in transactions with an EU connection. Also bear in mind that there is the risk of parallel proceedings, particularly if there is a counterclaim to a claim, with the claim being litigated in one court and the counterclaim in another.

Related agreements 

If there are other related agreements which form part of the transaction consider whether you want all disputes to be resolved in the same jurisdiction. Parties often agree to conflicting jurisdiction clauses for commercial reasons. This can lead to parallel proceedings and further litigation to decide which court has jurisdiction. If unavoidable, ensure that the drafting is clear and that the contracts central to the transaction refer disputes to the preferred jurisdiction.¹²

Specimen clauses

Contracting parties should always give careful thought to their specific requirements when drafting dispute resolution clauses. These specimen clauses are provided for illustrative purposes only.

Exclusive and non-exclusive jurisdiction clause 

Each party to this agreement irrevocably agrees that the courts of England shall have [non-]exclusive jurisdiction to hear, settle and/or determine any dispute, controversy or claim (including any non-contractual dispute, controversy or claim) arising out of or in connection with this agreement, including any question regarding its existence, validity, formation or termination. For these purposes, each party irrevocably submits to the jurisdiction of the English courts.

Hybrid clause

1.1 For the benefit of Party A, and subject to clause 1.2, the parties irrevocably agree that the courts of England shall have exclusive jurisdiction to hear, settle and/or determine any dispute, controversy or claim (including any non-contractual dispute, controversy or claim) arising out of or in connection with this agreement, including any question regarding its existence, validity, formation or termination. For these purposes, each party irrevocably submits to the jurisdiction of the English courts.

1.2 Nothing in this clause limits the right of Party A to bring proceedings, including third party proceedings, against Party B in any other court of competent jurisdiction, and the bringing or continuing of proceedings in any one or more jurisdictions shall not preclude the bringing of proceedings in any other jurisdiction, whether concurrently or not, if and to the extent permitted by applicable law.

1. 1958 UN Convention on Enforcement of Arbitral Awards.
2. The Hague Convention on Choice of Court Agreements of 2005 is the litigation equivalent of the New York Convention and applies to exclusive jurisdiction clauses and resultant judgments. It came into force on 1 October 2015. As at the date of this publication, it has only been ratified by the EU (including Denmark), Mexico, Montenegro, Singapore and the UK (which acceded in its own right at the end of the Brexit transition period). There is also the Hague Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters. That is not yet in force.
3. The degree of risk will depend on which courts would be competent to hear the dispute i.e. those where the parties reside or their assets are situated. The English courts are able to issue anti-suit injunctions in cases where proceedings have been commenced in other jurisdictions which are vexatious or oppressive.
4. Asymmetric clauses are valid as a matter of English law but can raise particular issues of enforceability in some jurisdictions on the grounds that they lack mutuality or are unconscionably one-sided. Recent decisions, in particular from France, have created uncertainty with regard to the enforceability of these clauses.
5. The definition states that it covers only those agreements that designate the courts of one contracting state to the exclusion of any other courts. The Explanatory Report (paragraph 105) confirms that, in order to be covered by the Convention, the agreement must be exclusive irrespective of the party bringing the proceedings. Asymmetric clauses are therefore very likely to fall outside the definition of exclusive jurisdiction clause. This view has since been confirmed by the Court of Appeal, where it stated that there were strong indications that the intention was to exclude asymmetric clauses from Hague, although it did not make a formal decision on the point (Etihad Airways PJSC v Lucas Flother [2020] EWCA Civ 1707).
6. EU Regulation 1215/2012 (commonly referred to as the recast Brussels Regulation) regulates jurisdiction and enforcement for all EU member states. The Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (the Lugano Convention) regulates jurisdiction and enforcement between the EFTA states on the one hand (Switzerland, Iceland and Norway (Liechtenstein did not ratify The Lugano Convention)) and EU member states on the other. The UK Government has applied to accede to the Lugano Convention in its own right, but that requires the consent of all parties to the Lugano Convention including the EU. As yet, the EU has not given such consent.
7. This is sensible not only from an evidential point of view but is often a formal requirement. For example, the Hague Convention requires any exclusive jurisdiction agreement to be in writing or by any other means of communication which renders information accessible so as to be usable for subsequent reference (Article 3(c)).
8. Barclays Bank plc v Petromiralles 3, SL [2008] EWHC 2512 (Comm).
9. The House of Lords decision in Premium Nafta Products Ltd and others v Fili Shipping Company Limited and others [2007] UKHL 40 and the Court of Appeal decision in Deutsche Bank A.G. & Ors v Asia Pacific Broadband Wireless Communications Inc & Anr [2008] EWCA Civ 1091 have reduced the scope in English law for semantic arguments about whether there is any difference between the use of words such as "arising out of" or "arising under" a contract in jurisdiction clauses. In both cases the court supported the proposition that such clauses should be given a liberal construction unless they expressly provide otherwise.
10. This is what happened in Anthony Snookes v Iani-King (GB) Ltd: Stephen Little v Iani-King (GB) Ltd [2006] EWHC 289 (QB) where proceedings commenced in the Swansea District Registry were struck out as the clause restricted the parties to the London courts.
11. The case of New York Mellon v- GV Films [2009] EWHC 2338 (Comm) illustrates the difficulties that can be caused when the word "exclusive" is omitted from an exclusive jurisdiction clause.
12. UBS Securities LLC V HSH Nordbank AG [2009] EWCA Civ 585; Sebastian Holdings Inc v Deutsche Bank AG [2010] EWCA Civ 998.