Jurisdiction is the power or right of a legal or government body to exercise its authority.
Jurisdiction is granted to a court or court system through laws passed by a government or by a country's constitution.
For example, the American Constitution grants jurisdiction to the US Supreme Court to decide disputes between states and cases involving foreign ambassadors. But it is legislation that grants the same court jurisdiction to hear cases on appeal from the lower courts.
In contrast, the UK has no written constitution. The power of its courts and its government bodies is found in the laws passed by parliament.
A legal decision of a court that does not have proper jurisdiction is deemed void and non-binding upon the parties.
In most cases, contracts will include jurisdiction clauses. In these clauses, the parties decide which country's courts will hear any disputes that arise under the contract. This means parties can avoid jurisdictions that they consider less desirable or predictable. If the parties agree a particular court has exclusive jurisdiction this will generally prevent claims being brought in any other courts.
An example of a jurisdiction clause is:
Parties need to consider the following factors when drafting a jurisdiction clause in a contract:
First of all, which court is the most practical and convenient if a dispute arises? The home court? Where would any witnesses be located? Are there language issues?
And what are the procedural systems in the different jurisdictions under consideration? Are some preferable to others? For example, some jurisdictions have very demanding obligations to disclose documents (the US), while some have very little (France).
What do the procedural rules say about who pays the legal costs of any court proceedings? Different jurisdictions have different rules.
And what about the laws of evidence? For example, is the system inquisitorial (as in many continental European countries) or adversarial (most common law countries such as the UK, US, Canada, New Zealand and other British Commonwealth countries)? Does it matter?
Further, are there specialist courts and judges in the jurisdiction under discussion? How fast is the system in processing cases? How expensive is it? Is it possible to appeal decisions? What is the quality of the judges and lawyers in the jurisdiction?
Also, is it easy to enforce the court's decision in the chosen jurisdiction? Where are the parties' assets? Court proceedings in the place where assets are located will avoid trying to enforce a judgment in another country - which can be complex.
Exclusive v non-exclusive jurisdiction
Furthermore, should the jurisdiction be exclusive or non-exclusive? If jurisdiction is exclusive, the parties can only go to court in that location. If non-exclusive, the parties can go to court elsewhere. While an exclusive jurisdiction clause provides certainty, a non-exclusive jurisdiction clause provides flexibility.
Is it needed?
Finally, is a jurisdiction clause even appropriate? It could be that arbitration or some other form of Alternative Dispute Resolution (ADR) is a more suitable way to resolve a dispute.
If there is no jurisdiction clause included in a contract and a dispute arises, a court will have to determine the jurisdiction that should apply.
This will be based on a series of factors, including the location of the parties to the dispute, the location of the injured parties and the jurisdiction in which a majority of the work under the contract took place.
So, a lot of time and money could be lost in figuring this out before the parties can resolve their main dispute.For this reason, it is generally advisable to include a jurisdiction clause in a contract.