A small, but important, contract-drafting point: imagine a contract clause that says that disputes will be subject to the jurisdiction of the English courts. Should we interpret this to mean that the English courts will have exclusive jurisdiction, or might it mean that the English courts have only non-exclusive jurisdiction?
A well-drafted contract will state explicitly which law and jurisdiction governs the contract, and whether the jurisdiction is exclusive or non-exclusive.
If the contract states that English jurisdiction is exclusive, the parties must go to the English courts. If a party starts an action in another court (let’s say in China), the English court may order that party to stop proceeding in the Chinese courts. If the order is not complied with, the English court may commit the non-complying party to prison for contempt of court.
If the contract states that English jurisdiction is non-exclusive, a party can ask an English, Chinese or any other court to hear the case. An English court is likely to accept, based on the jurisdiction clause. If there is no jurisdiction clause at all, an English court might accept jurisdiction simply because the contract states that English law applies. A Chinese court might accept, eg if there is a strong connection with China in relation to the parties, the place of execution of the contract, or the place of performance of the contract.The first court to hear an action over the contract may issue an order to prevent a party from starting an action in another court. This would be on the grounds that the first court is “seised” of the action, and not because of the (non-exclusive) jurisdiction clause.
A recent case in the English Court of Appeal illustrates these points. Hin-Pro International Logistics Limited v Compania Sud Americana De Vapores S.A. [2015] EWCA Civ 401, was reported on BAILII last week.
The case concerned a shipping contract – a bill of lading. Cargo was carried by sea from China to Venezuela. The claim was that the cargo had been released without production of the original bills. The relevant part of the jurisdiction clause read as follows:
This Bill of Lading and any claim or dispute arising hereunder shall be subject to English law and the jurisdiction of the English High Court of Justice in London. If, notwithstanding the foregoing, any proceedings are commenced in another jurisdiction, such proceeding shall be referred to ordinary courts of law.
The Court of Appeal interpreted this clause as giving exclusive jurisdiction to the English courts, even though the word “exclusive” does not appear in the clause. The court reviewed a substantial body of case law that supported this conclusion.
Hin-Pro’s counsel argued that the second sentence of the clause showed that the parties accepted that they could start an action elsewhere, but the court disagreed. This sentence was concerned more with the situation where another country’s court did not accept the exclusive jurisdiction clause. It did not affect the interpretation of the first sentence by the English courts.
The interpretation point is clear, at least for the English courts. However, best practice in contract drafting requires you to state explicitly whether the jurisdiction is exclusive:
- for the sake of clarity among the parties, not all of whom will have read the English case law
- to avoid court disputes
- to cater for the possibility that other courts may not agree with the English Court of Appeal (eg the UK Supreme Court, or a foreign court).
If this blog had any sense of decorum, it would stop there. However, IP Draughts cannot resist mentioning some other points that come up in the judgment.
- Catch me if you can. One of the parties in this case, Hin-Pro, was a Chinese company. It started court proceedings in China. At first instance in the English High Court, the judge ordered that Hin-Pro cease participation in the Chinese court proceedings because of the exclusive jurisdiction clause. Hin-Pro’s sole director was a Miss Su Wei. Apparently she ignored the order. The English judge committed her to prison for 3 months for contempt of court. As the Court of Appeal drily noted: “Miss Wei has not yet been apprehended.”
Contra proferentem rule. The contract was drafted by the other party, known as CSAV. CSAV is a long-established shipping company. The Court of Appeal considered whether the contra proferentem rule might assist Hin-Pro. In certain circumstances, this rule requires that an ambiguous contract term be interpreted against the interests of the party who drafted it. A version of this rule, in the US, seems to have led to a boilerplate clause being included in many US contracts, that states that the contract is a joint drafting effort and it should not be interpreted strictly against either party. The court’s conclusion was that the rule didn’t assist Hin-Pro in this case, for a variety of reasons, not least because the clause was not ambiguous, and it could benefit either party.- No understand English? Hin-Pro’s counsel argued that many of the users of the contract would not have English as their first language, and many would understand the clause as granting non-exclusive jurisdiction. The Court of Appeal disagreed:
I do not accept Hin-Pro’s submission that the fact that the bills of lading will probably be issued to companies staffed by those whose first language is not English should affect the way in which they are to be interpreted, or that the court should endeavour to determine what the words would mean to a person in that category. This would be an exercise fraught with difficulty, not least because it would, potentially, produce different results according to the non-English first language chosen, and require a determination, in many cases incapable of ready resolution, of which first language the reasonable man is to be taken as speaking. In agreeing in English to an English law contract the parties must be taken to have agreed that it shall be interpreted with all the nuances of the English language and in the way that a speaker whose first or only language was English would do so.
But which version of the English language should Miss Wei be taken to understand? UK, US, Australian? IP Draughts has doubts over whether an intimate knowledge of idiomatic English helps you to know whether “subject to the jurisdiction” means exclusive or non-exclusive jurisdiction.
IP Draughts 
I use an exclusive jurisdiction provision like that discussed in the post and add something like the following. In your view, does it accomplish anything useful, like dispensing with elaborate means of international service of process?
‘The parties consent to the jurisdiction of that court [the one with exclusive jurisdiction over pertinent claims and disputes] over their persons, and consent to notice of any such proceedings in the same manner required of notices under this agreement.’
First reaction – method of service is a matter for national laws on litigation. My guess is that agreeing something different may work in some jurisdictions but not others.
Reblogged this on IP Draughts and commented:
This week’s golden oldie on choice of jurisdiction is a companion piece to a recent one on choice of law. Search for other articles on this blog which deal with other aspects of these subjects, including use of arbitration.
Thank you for more great thought-food. I relate to some of this, but not all. Jurisdiction agreements are not always effective – in your example (which I’m pleased refers to the same jurisdictions as I did in my separate comment!), the English courts might issue an anti-suit injunction, but that’s unlikely to stop a counterparty having no connection to England (nor UK nor EU) from issuing and maintaining proceedings in China, if that is their choice. Jurisdiction agreements are easily disregarded, this is a real danger of choosing the courts of a ‘convenient’ jurisdiction which in fact have no jurisdiction over the counterparty. There is a lot to be said for flexible jurisdiction clauses, which follow the place of breach or cause of action (yes, it may be disregarded – but the courts which would disregard this are the same courts which would disregard a fixed jurisdiction provision in favour of another place. Some, you cannot win)