Resolution of Contract Disputes, Jurisdiction and Choice of Law

One of the common issues in international contracts disputes whereby parties are located in different countries includes the interpretation of jurisdiction clauses and choice of law clauses. These clauses set out the parties' election of the law that is intended to apply to the contract and the location that disputes under the agreement will be determined. These clauses play a play a part in most professionally drafted agreements and should be considered carefully as a separate system of law may apply to the agreement, with unintended results.

The wording of these clauses tend to be variations on a theme, but generally read to something to the effect: 'This agreement shall be governed by the laws of [country]. Disputes under this agreement shall be determined by the courts of [country].'

International Contract Disputes

Private International Law is concerned with cases with a foreign element, for instance, where an agreement contains some connection with a foreign country. It may be that a party to an agreement is located in the foreign country or goods to be supplied under an agreement are to be delivered to foreign country. This foreign connection may raise issues with some system of law other than English law.

Jurisdiction Clauses in Contracts

Jurisdiction clauses set out the parties' chosen country to resolve disputes, that is which court system will hear a case. Rather than simply name a court system in such clauses, the parties may agree to set the court system under the agreement to the exclusion of all others.

In the case of Donoghue v Armco Inc [2001] UKHL 64, the court held that it should give effect to an exclusive jurisdiction clause unless there were very good reasons not to. Interpretation of jurisdiction clauses turns on the circumstances of each individual case. Whether the exclusive jurisdiction clause is effective will involve consideration of factors such as the interests of parties not bound by the clause, the likelihood of parallel proceedings in separate countries; and whether foreign proceedings would be oppressive or vexatious. In Donoghue, on circumstances indicated that it was likely that the litigation would have proceeded in both England and the US. This amounted to sufficient basis to displace the defendant’s right to rely upon the exclusive jurisdiction clause.

In order to for court to decline to enforce an exclusive jurisdiction clause, the party seeking to relieve himself of the effect of the clause was required to show that the conduct of proceedings in the foreign jurisdiction went beyond a mere matter of foreseeable convenience and extended to some unforeseeable matter of convenience or enter into the interests of justice: Import Export Metro Ltd v Compania Sud Americana De Vapores SA [2003] EWHC 11. The danger that multiple proceedings between the claimant and the defendant in two jurisdictions could lead to inconvenience in terms of costs and witness availability but did not outweigh the defendant's right to have its claim determined as provided for by the exclusive jurisdiction clause.

Forum Non Conveniens

The burden of proof is on the claimant to establish a strong case before being allowed to avoid the term of the agreement. Courts tend to be inclined to enforce agreements freely entered into: The Fehmarn [1957] 2 All ER 707 at 710, [1957] 1 WLR 815.

The claimant has the initial choice of forum in which to bring the proceedings, though the court retains an inherent jurisdiction to stay or dismiss claims. The principles applied in determining whether the court will grant or refuse a stay of proceedings brought in England by a claimant who is not based in England are:

• a mere balance of convenience is not a sufficient ground for depriving a claimant of the advantage of bringing his claim in an English court if it is otherwise properly brought, and
• in order to justify a stay, two conditions must be satisfied:
  • the defendant must satisfy the court that there is another forum (in the jurisdictional sense) to which he is amenable in which justice can be done between the parties at substantially less inconvenience or expense, and
  • the stay must not deprive the claimant of a legitimate personal or juridical advantage to him if he invoked the jurisdiction of the English court.

Thus, where the claim is brought by an English-based claimant against a foreigner and the dispute has no connection with England, the court maintains this inherent power to stay the proceedings. Where the court lacks jurisdiction, the fact that due service has been effected on the defendant will not prevent the claim being stayed or dismissed.

In the event that the defendant satisfies the court that a forum other than England is the appropriate forum, the proceedings will usually be stayed i.e. a forum in which the case may be tried more suitably for the interests of all the parties and for the ends of justice.

The mere fact that the claimant has a legitimate personal or juridical advantage in proceedings in England cannot be decisive: Spilada Maritime Corpn v Cansulex Ltd, The Spilada [1987] AC 460, [1986] 3 All ER 943, HL. Where in a particular foreign forum costs do not follow the event, the English court may reasonably and properly conclude that litigation in that foreign forum would not result in substantial justice being done because in financial terms damages awarded to a successful claimant would necessarily and substantially be diminished by costs which he would have to pay in that forum, but not in England. This factor may tip the balance in favour of litigation in England: Roneleigh Ltd v MII Exports Inc [1989] 1 WLR 619, 133 Sol Jo 485, CA.

The questions that arise in disputes over such clauses in agreements are:

1. whether the English court has jurisdiction to entertain the case, and
2. if so, what system of law, English or foreign, should apply. There may sometimes be a third question, namely whether the English court will recognise or enforce a foreign judgment purporting to determine the issue between the parties.

Choice of Law

The question of the law of the contract, is a separate issue to that of the determination of the jurisdiction to determine disputes. Where English courts have jurisdiction, it may apply foreign or English law, depending upon the choice made by the parties. There are situations where, if a foreign court has jurisdiction according to English conflict of laws rules, its judgment will be recognised or enforced in England, regardless of the grounds on which it was based or the choice of law rules which the foreign court applied. Thus, in English conflict of laws cases, questions of jurisdiction frequently tend to overshadow questions of choice of law.

Stays of Legal Proceedings

In exercising its discretion to grant or refuse a stay, the court will consider all the circumstances of the case, including in particular:

1. In what country the evidence on the issues of fact is situated, or more readily available, and the effect of that on the relative convenience and expense of trial as between the English and foreign courts;
2. Whether the law of the foreign court applies and, if so, whether it differs from English law in any material respects;
3. With what country either party is connected, and how closely;
4. Whether the defendant genuinely desires trial in the foreign country, or is only seeking procedural advantage; and
5. Whether the claimant would be:
   • prejudiced by having to sue in the foreign court because he would be deprived of security for his claim; or
   • unable to enforce any judgment obtained; or
   • faced by a time-bar not applicable in England ; or
   • for political, racial, religious or other reasons, unlikely to get a fair trial.

The court may stay proceedings if there is another forum in which the case can be more conveniently tried. Account is taken not only of convenience and expense, but also of other factors, such as the law governing the transaction, which point to the most appropriate or natural forum. In ascertaining the most appropriate forum, the court searches for the country with which the case has its most real and substantial connection.

If a foreign court is found to be a more appropriate forum, a stay may still be refused if its effect would be to deprive the claimant of some real and legitimate personal or juridical advantage available to him by suing in England. Examples from the decided cases are the availability in England of a more generous limitation period, a speedier or cheaper trial, a more generous measure of damages, or a more favourable rule of substantive law. Particular weight may be attached to juridical advantages which do not involve a corresponding disadvantage to the defendant.

Normally the court will not compare the quality of justice available in England with that dispensed elsewhere, and allegations that a fair trial would not be obtainable in the foreign jurisdiction must be supported by cogent evidence.

Ultimately the court’s task is to weigh the balance of factors both for and against a stay, so that even if the claimant can point to a legitimate advantage in suing in England, this will not be decisive if another jurisdiction is clearly the more appropriate forum.