What is a jurisdiction clause?
A jurisdiction clause is a contractual provision in which the parties agree which court or courts will have authority to hear disputes arising from their agreement or a related legal relationship. It is also referred to as a choice of court clause or forum selection clause. Its main purpose is to reduce uncertainty about where a lawsuit may be commenced if a dispute occurs.
In commercial transactions, a jurisdiction clause commonly identifies the courts of a particular country, city or judicial district. For example, parties may agree that disputes will be resolved exclusively by the courts of Poland, or by a specific court competent for the registered office of one of the parties. Such a clause may be included in a main contract, general terms and conditions, a framework agreement, a purchase order or, in certain circumstances, an exchange of electronic communications.
A jurisdiction clause should be distinguished from a governing law clause. A governing law clause determines which substantive law applies to the contract, while a jurisdiction clause determines which court has the power to decide the case. The parties may therefore choose Polish law while submitting disputes to the courts of another country, although this arrangement may increase the cost and complexity of resolving a dispute.
What does a jurisdiction clause cover?
A well-drafted jurisdiction clause usually specifies whether the selected court has exclusive or non-exclusive jurisdiction. An exclusive clause generally prevents either party from bringing proceedings before another court that might otherwise be competent. A non-exclusive clause allows proceedings to be brought before the chosen court, but may also leave open the possibility of litigation in another competent jurisdiction.
The wording of the clause should identify the disputes covered by it. Parties often extend its scope to disputes arising out of or in connection with the agreement, including disputes concerning its conclusion, validity, performance, amendment, termination or non-contractual claims related to the contractual relationship. Narrow wording may create disagreement as to whether a particular claim, such as a claim for damages or unjust enrichment, falls within the clause.
In cross-border civil and commercial cases, jurisdiction agreements designating the courts of an EU Member State are principally governed by Regulation (EU) No 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, commonly known as the Brussels I Recast Regulation. Article 25 of that Regulation regulates agreements conferring jurisdiction where the parties designate the courts of an EU Member State, irrespective of the parties’ domicile. The effectiveness of a clause may also depend on formal requirements, including whether the agreement was concluded in writing, electronically or in a form consistent with established practices between the parties or international trade usage.
When is a jurisdiction clause particularly important?
A jurisdiction clause is especially relevant in contracts involving parties established in different countries, cross-border supply arrangements, distribution relationships, technology projects, shareholder arrangements, financing transactions and long-term service agreements. Without such a clause, the competent court may need to be determined under statutory rules based on factors such as the defendant’s domicile, the place of performance, the place where damage occurred or the location of assets.
For businesses, selecting a predictable forum may make it easier to assess litigation risk, organise evidence, obtain local legal representation and enforce contractual rights. It may also reduce the risk that parallel proceedings will be commenced in different countries. However, a clause favouring one party’s home courts should be considered carefully, particularly where the other party may face practical barriers to conducting proceedings abroad.
Special rules apply to certain contracts. In consumer, employment and insurance matters, jurisdiction clauses may be restricted or ineffective if they deprive the weaker party of protection granted by mandatory law. Jurisdiction cannot always be freely chosen in disputes concerning rights in rem in real estate, the validity of company decisions or entries in public registers. The legal consequences should therefore be assessed in relation to the type of contract and the parties involved.
When should legal advice be sought?
Legal advice is advisable before signing a contract containing a jurisdiction clause, particularly where the clause refers to a foreign court, foreign procedural rules or an unfamiliar legal system. A review may also be needed if the clause is incorporated through general terms and conditions, appears in a standard form agreement or conflicts with another dispute resolution provision.
Early consultation can help avoid ineffective wording, inconsistent provisions, unexpected litigation abroad, procedural objections and additional costs connected with enforcing a judgment. It is also important to assess whether court proceedings are the most appropriate dispute resolution method. In some transactions, arbitration, mediation or a multi-stage dispute resolution clause may be more suitable than litigation before state courts.
Law firm support concerning jurisdiction clauses may include:
- drafting exclusive and non-exclusive jurisdiction clauses;
- reviewing clauses in domestic and cross-border commercial contracts;
- assessing the validity and enforceability of choice of court agreements;
- aligning jurisdiction, governing law and dispute resolution provisions;
- advising on EU rules concerning jurisdiction and recognition of judgments;
- representing parties in disputes concerning the competence of Polish courts.
Need assistance with a jurisdiction clause? Contact us.