22 Feb 2022

Contractual clauses that affect your right to claim against a trading partner


It is vital that you are advised on which clauses you should include in your contract particularly to ensure that there is no uncertainty regarding the right to make a claim should a contentious issue rear up. Clauses that facilitate the pursuit of a claim in the manner which best suits you can be drafted and incorporated within the contract to protect your interests.

Jurisdiction clauses

For contracting parties from different jurisdictions it is important, given the potential for courts to dramatically differ from jurisdiction to jurisdiction in terms of cost, efficiency and procedure, to ensure that a jurisdiction clause is also incorporated in the contract to enable you to pursue your claim in the jurisdiction most suitable to you. To that end, a jurisdiction clause in the contract will help dispel any ambiguity down the line on exactly in which court system or court a dispute would be handled.

Jurisdiction clauses can be exclusive, non-exclusive or unilateral. Exclusive clauses limit any dispute to the courts of one jurisdiction. Non-exclusive clauses allow either party to take the dispute to the court of any jurisdiction they find appropriate. Unilateral clauses, or one-sided clauses, allow only one party the choice of jurisdiction. If a contract fails to specify jurisdiction, the parties or the court may have to rely on the Forum non conveniens doctrine to try the action in another more appropriate court.

In order to safeguard your interests, you must select the most suitable jurisdiction to pursue a claim in advance, if you are given a choice, which will avoid any surprises should a dispute spring up. It is paramount that you are given the best legal advice on which courts would be most suitable for a claim as if you do not succeed you may not be able to pursue the same claim again in a foreign court or otherwise.

Governing law clauses

Governing law clauses, or ‘choice of law' or ‘applicable law' clauses as they are sometimes known, are similar to jurisdiction clauses in the way that they dictate the manner in which any contractual disputes are resolved. However, instead of defining the court or court system in which a case would be heard, governing law clauses determine the set of rules and laws under which a trial takes place.

A typical example of a governing law clause is:

This Agreement shall be governed by and construed in accordance with the laws of England & Wales.

This provides that the laws under which the agreement would be governed are those of England and Wales.

Alternative Dispute Resolution (ADR) clauses

Given the high costs and public nature associated with court proceedings, many parties in cross-border disputes and indeed, any dispute, find the option of ADR attractive. Private forms of ADR such as arbitration and mediation usually have the advantages, including but not limited to, of reduced cost, confidentiality and flexibility. Arbitration is especially common in cross-border disputes as some parties find it disadvantageous litigating in a foreign jurisdiction and prefer employing a neutral arbitrator.

An example of an ADR clause:

All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules

This is the standard International Chamber of Commerce (ICC)Arbitration clause. The ICC encourages parties to adapt this clause to their needs.

Mediation, while less common than arbitration for commercial contract disputes, still presents a good opportunity for commercial parties to resolve their disputes diplomatically, and usually commands even lower costs than arbitration.

If you find these options compelling, you may decide to include in your contract an ADR clause. An effective ADR clause will require the parties to attempt dispute resolution using a particular ADR method as a step prior to or at least alongside court action. As this may save substantial time and costs involved in a court action, ADR may be a prudent choice. It is important to note that given the binding nature of these clauses, you may be prevented from taking court action before attempting ADR. This process can be time-consuming and potentially wasteful of costs. As such, it is crucial for you to be advised on the risks and benefits of employing the use of such provisions and how to proceed when they have to be relied on.

Khizar Arif is a leading lawyer in Giambrone & Partners' litigation and dispute resolution team. He holds a Master of Laws degree (LL.M.) focused on international business and maritime law from the University of Hamburg, Germany.

Khizar regularly appears in the County Courts and the High Court, advises on all aspects of dispute resolution and litigation, from pre-action stage to settlement or trial through to enforcement. He helps clients in informal negotiations and, if appropriate, on alternative dispute resolution methods such as mediation and arbitration.

To learn more about how Khizar Arif and Giambrone & Partners can help you, or for additional information about cross-border disputes please email his clerk Sam Groom SG@giambronelaw.com