It is prevalent for agreements of a commercial nature to contain a jurisdiction clause, particularly when the parties or entities concerned would be operating on an international level. The term ‘jurisdiction’ refers to the authority given by law to a court to hear and decide legal disputes within a particular geographic area and/or over certain types of legal cases. A jurisdiction clause, also known as a dispute resolution clause, identifies how and where disputes arising from the agreement (if any) are to be determined. When parties decide to include a jurisdiction clause at the outset of an agreement, it is important to ensure that the way the jurisdiction clause is worded clearly outlines the intention of the parties and would not create difficulties of interpretation. Formulating a jurisdiction clause which poses difficulties of interpretation could result in the parties having to enter costly and lengthy legal proceedings purely based on determining whether the Court has jurisdiction to hear the dispute. It is only after the jurisdictional issue is resolved that the parties would be able to institute proceedings for the Court to determine the matter of contention between the parties. A delay in these circumstances could result in the aggrieved party suffering additional losses.
Jurisdictional conflicts are regulated by both national and international legal instruments. When a commercial and civil matter arises in a European context, it is the Recast Brussels Regulation (No. 1215/2012) on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters that applies. This regulation has direct effect in all European Union member states except for Denmark. Its purpose is to lay down rules of jurisdiction which are highly predictable and facilitate the sound administration of justice. Excluded from its applicable are matters relating to status or legal capacity of natural persons, bankruptcy or the winding-up of insolvent companies, social security issues, arbitration, maintenance obligations or wills and succession.
The Regulation provides that jurisdiction is generally based on the defendant’s domicile. The domicile of an individual, in layman terms is the country a person treats as their permanent home, or in the commercial context, the place where a company or other body is registered. Apart from the defendant’s domicile the Regulation allows for alternative grounds of jurisdiction such as the constitution of a jurisdiction clause. Article 25 of the Regulation states that parties to a contract can agree that a court or courts of a Member state have jurisdiction to settle any disputes which may arise in connection with a particular legal relationship.
The choice of the court can be one where neither of the parties are domiciled in. When an agreement is reached in this sense, the court agreed upon would have jurisdiction if a dispute between the parties arises. The article further provides that the agreed clause conferring jurisdiction must either be in writing, or in a form which is in line with practices that the parties have established between themselves. In the event of international trade or commerce, it may be in a form which accords with a usage of such trade or commerce which the parties are or ought to be aware of. The clause as agreed between the parties will be exclusive unless the parties agree otherwise and is to be treated independently from the other terms of the contract. Article 25 even applies when companies who are not registered in the European Union agree that the chosen court is a court of an EU member state.
The rules relating to jurisdiction agreements take precedence over other rules in the Recast Brussels Regulation except for; Article 24 which lays down instances where courts of a Member state, regardless of the domicile of the parties have exclusive jurisdiction (for example in the event of the subject-matter of the proceedings relates to immovable property or the constitution of a company, it is the courts of the member state where the property is situated or where the company is registered that have jurisdiction). Another instance is found in Article 26 which provides that if a defendant enters an appearance in the court of a member state which is not the court agreed to by the parties than the said appearance is regarded as a submission to the jurisdiction of that court. Lastly, the Regulation contains special rules relating to employment, consumer and insurance contracts aimed at protecting the weaker party. In these cases the Regulation allows for exceptions to the general rules with rules of jurisdiction which are more favourable to the weaker party of the contracts.
In cases which fall outside the scope of the Recast Brussels Regulation (No. 1215/2012) Maltese law applies. Article 742 of Chapter 12 of the laws of Malta, (the Code of Organisation and Civil Procedure) regulates the persons who are subjected to the jurisdiction of the civil courts of Malta. This article is only applicable when any other law or any regulation of the European Union does not apply. It provides that the civil courts of Malta have jurisdiction to try and determine all actions concerning Maltese citizens, persons who are domiciled, resident or present in Malta, any person where the matter relates to property situated in Malta, any person who is present in Malta and has contracted any obligation in Malta, any person who having contracted an obligation in another country, agreed to carry out this obligation in Malta, any person who contracted any obligation in favour of a Maltese citizen, resident or body operating in Malta if the judgement can be enforced in Malta and lastly, any person who voluntarily submits to the jurisdiction of the Maltese civil courts.
A practical example of how the Maltese courts have dealt with matters concerning jurisdiction clauses can be found in the First Hall Civil Court judgement in the names Peter Arrigo noe v. Dr. Chris Cilia et noe dated 11th December 2003. The court explained that, ‘Maltese courts have taken note of jurisdiction clauses mostly due to the principles of ‘freedom of contract’ and ‘pacta sunt servanda’ meaning that if a party binds itself that in the event of a dispute, the party would be trialed in front of a particular court or tribunal, that agreement cannot be forgotten or discarded unless the parties agree otherwise. Although there were instances where the existance of such a clause led to the Court relinquishing its jurisdiction, the majority of the decisions are in the sense that the Maltese Courts have every right to exercise their discretion as to whether to relinquish their jurisdiction on the basis of the existence of a jurisdiction clause… The most accepted idea is that a jurisdiction clause cannot be understood as completely unauthorising from beforehand the jurisdiction of the Court to at least investigate the matter and where, considering the circumstances, it would be evident that the parties truly agreed to the clause’.
The above conveys that based on the particulars of any given case, a Court of Law should not simply rely on the jurisdiction clause as outlined in a contract concluded between parties. However it ought to examine the facts of the case, including any other applicable laws which might override the jurisdiction clause included in that particular contract.
Dr Maria Camilleri
This article may also be accessed on The Commercial Courier.
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