Pick your forum wisely - Rethinking your exclusive jurisdiction clause

Being aware of what is in your contract is a wise starting point before jotting your signature on a binding document.  Understanding what is in your agreement is a significant step in avoiding complex and costly disputes.  This article explores boilerplate clauses (standard clauses), in particular, Exclusive Jurisdiction Clauses and why it is good practice to consider if you should include them in your contract.

What is it?

Contracts typically include numerous standard clauses, the significance of which may not be understood without some legal interpretation or guidance.  Such standard clauses can be known as ‘Boilerplate Clauses’ and can take the form of: Variation clauses, severance clauses, force majeure clauses, and, of focus in this article is an exclusive jurisdiction clause. They are often treated as procedural and given little attention at the time of contracting.

An exclusive jurisdiction clause limits disputes between the parties to the courts of one jurisdiction.  It is a provision in a contract by which the parties have agreed to refer their disagreements to designated legal systems.

What does it do?

The addition of an exclusive jurisdiction clause to a contract achieves certainty for the parties involved.  The parties can then identify which legal rules apply to any dispute and importantly, they will know where they can sue and be sued.  The provision saves the parties further disputes over which court to take their issues to, potentially reducing delay and expense of litigation.  However, it is important to see the flip side; what you have agreed upon, you are then bound to.

For example: If two parties contract for the sale of cherries in Western Australia and their contracts clauses states that the jurisdiction will be of South Australian courts.  The parties will be expected to travel to South Australia to litigate the matter of which may have different laws on cherries or different procedural rules.

Do I need one?

It is common for a contract to include an exclusive jurisdiction clause.  However, certain rules will apply if the parties have not included a jurisdiction clause into their contract.  Beyond the potential inconvenience of litigating in another jurisdiction, the Courts’ interpretations and rules and even the law to be applied may vary in determining the rights and types of obligations under the contract in different jurisdictions.  In no small part, contracts exist to assist in resolving dispute that arise during the performance of a contract.  Expressly documenting the intentions of contracting parties displaces complexities if the parties’ relationship sours and breaches occur.  It goes without saying that in order to reducing delay and expense of litigation the inclusion of an exclusive jurisdiction clause is often sensible.   

However, the poor choice of such a clause may also be problematic, especially where the parties are in different states or different countries.  It may create a distinct disadvantage to a party if it forces a party to use an unfamiliar system and to travel to that place.  

Are they enforceable?

Yes!  Whether that ultimately suits you or not.  It is important to understand that once you are in an agreement or contract with another party that any boilerplate clause attached to your contract is likely to be enforceable.  Don’t just accept them in your contracts without understanding them and the impact that they may have.

Lavan comment

The stages before the formation of a contractual relationship are important, because the parties are in control as to what goes into it the contract and what will become binding upon them.  These clauses are commonly included in contracts as they are standard in most business contracts.  As they are common it is vital that you keep this in mind when contracting. It doesn’t mean they are mandatory or that they are not important.  Considering where you and/or your business are primarily located and where you would prefer to litigate if a dispute arises, and reflecting this in the contract, may reduce frustrations, risk and expense in the future.   
 
If you have any queries in relation to this article please contact the Litigation and Dispute resolution team at Lavan.