Cross-Border Agreements – Jurisdiction Clauses
The business world is full of agreements between businesses and individuals. Whilst oral agreements can be used, most businesses will use formal written contracts when engaging in business operations. Written contracts provide surety in the form of a legal document stating the expectations of both parties and how negative situations will be resolved. When used in the correct manner contracts can represent a powerful tool to help safeguard a business’ resources.
We always recommend that Legal advice is sought before entering into any legally binding contract. This is because contracts often include difficult legal terminology that many business owners find difficult to understand.
By way of an example, let us take a closer look at the Jurisdiction clause. A jurisdiction clause is typically a provision in a contract that refers disputes arising under the contract to a country, territory or place for hearing and determination. In England, a standard form jurisdiction clause is usually something along the lines of:-
“The parties irrevocably submit to the exclusive jurisdiction of English Courts for the determination of disputes arising under this contract”.
In recent years, globalisation has allowed businesses to reach new markets in far-flung places and where business is conducted between parties in different countries it is crucial that some thought is given to the legal issues that arise. In particular, the question of the jurisdiction clause becomes very important because national laws can vary quite substantially even to the point where the contract could be unenforceable in its entirety.
If Company A (based in England) contracted with Company B (based in the United States of America) and there was no prior agreement to jurisdiction contained within the contract. Then this theoretical situation could pose a huge problem for those involved not least because it is both expensive and inconvenient to sue abroad.
This is only one of a number of potential problems that can arise when proper legal advice is not taken before entering into legal binding contracts. We strongly recommend taking legal advice before entering into any legal binding contract for that reason.