One-sided jurisdiction clauses: The case for validity
Is it abusive for one party to an agreement to have the right to choose to pursue a claim in any competent court while the other party is bound to only one jurisdiction?
Until recently, asymmetrical jurisdiction clauses – also know as one-sided clauses – in commercial agreements have come under assault.
Fortunately, that appears to be changing.
There have been a number of court decisions, from the French courts in particular, declaring asymmetrical jurisdiction clauses to be unfair and abusive and are therefore void. These courts have held that these clauses contravene the basic procedural principle of equality of parties, where one party is granted under the agreement better opportunities to bring claims against the other.
But these cases overlook the fact that sophisticated commercial parties nevertheless agree to one-sided clauses freely.
Now the courts in England, Australia and Ireland are recognizing this and throwing them a lifeline. Lately, those courts have taken the view that these clauses are of value in transnational commercial dealings and must not fall victim to prioritarian thought.
By way of illustration, asymmetrical jurisdiction clauses are typically used to give a party to a contract the right to choose between arbitration and the courts. So a multinational company that conducts business across different jurisdictions may be content with being sued in a jurisdiction. At the same time, it can have complete latitude to pursue a debtor in jurisdictions where the assets may be held.
Unlike arbitration awards, where there is recognition of a foreign arbitral award under the New York Convention across all signatory states, there is no such equivalent recognition for court judgments. While there are a number of international conventions that may come to the assistance of a judgment creditor, including the Hague Convention, creditors need to fall within the scope of these conventions before they can benefit from their recognition or enforcement mechanisms.
In many cases, their application is limited to certain types of judgments, such as judgments for the payment of money in the case of the Canada-United Kingdom Civil and Commercial Judgments Convention Act.
Within the Canadian context, a party may resort to the established principles of comity that are anchored in the common-law or the Reciprocal Enforcement of Judgments Act, or some equivalent in other provinces, to the extent that they apply. However, every legal avenue has its issues, none of which are a perfect substitute for the asymmetrical jurisdiction clause. A creditor is still left with arguments form a debtor, such as the recognition of enforcement of a given judgment would entail a denial of natural justice, enforcement is contrary to domestic public policy or the court that issued the judgment did not have jurisdiction to issue the judgment.
This appears to be a variant of the common-law doctrine of mutuality, namely that the rights of parties under a contract must be symmetrical. But that is a doctrine that has not received wide acceptance. Common-law countries have been more accepting of asymmetrical jurisdiction clauses and have acknowledged their commercial importance in certain types of commercial transactions. In a 2005 ruling, NB Three Shipping Ltd. v. Harebell Shipping Ltd, an English court held that there was nothing that makes these clauses invalid. A party could be given a better position than the other party to a contract without offending the law. In another English decision in 2013 a court held that such clauses are inserted in commercial agreements and serve the needs of businesses, which are subject to overarching party autonomy. Most recently, the English courts held that jurisdiction selection clauses are valid and enforceable.
The Australian experience has been similar to that of England. In 1995, the High Court of Australia upheld a unilateral selection clause that allowed a party to a contract to choose between arbitration or litigation, a right that was not extended to the other party. Within the Canadian context, there are no reported cases on that deal with asymmetrical jurisdiction clauses. From all of cases that has been decided in the common-law jurisdictions, they all relate to complex commercial deals. There are no reported cases that discuss the applicability of these clauses to, for instance, employment or consumer contracts where the bargaining power between the parties may not be equal and where the courts may be tempted to intervene.
Any suggestion that asymmetrical jurisdiction clauses are abusive or that they should be struck down has to be carefully considered. Within the context of a commercial relationship where there is equal bargaining power, it is hard to conclude that these clauses are abusive. A lender, for example, must be allowed to pursue assets across different jurisdiction where there is default on a loan agreement. The lender faces less commercial risk and the borrower benefits from capital.
In some cases, such as in the United States, the recognition and enforcement mechanism in a number of states are not friendly and the best avenue for a lender is the asymmetrical jurisdiction clause.
There are also a number of safeguards that prevent abuse. If all the assets are at the location of the creditor’s domicile, there is no commercial reason for the creditor to seek to bring proceedings elsewhere and rely on the asymmetrical jurisdiction clause. Court action will be limited to where the assets are situated. A creditor may supplement curt action with a Mareva injunction to safeguard the assets.
Secondly, the ways these clauses are typically drafted require a court to have jurisdiction over the dispute. In all of the reported cases from England, the clauses provide that a creditor may pursue an “action in any court, as long as that court has jurisdiction”. They are not clauses where a party gets to select a forum irrespective of whether there is a connection to that jurisdiction. If the dispute and the parties have no connection to that jurisdiction, it is unlikely that the court would have jurisdiction to hear the case.
Also, the doctrine of forum non-conveniens allows the courts to stay claims - even if the court seized of the dispute has jurisdiction - if it is not an appropriate forum or if parallel proceedings are being brought in another jurisdiction. To the extent that it is not an appropriate forum, the court may stay the proceeding, even when faced with an asymmetrical jurisdiction clause. A party is also free to take defensive measures to prevent oppressive and vexatious conduct by a plaintiff in another jurisdiction, such as anti-suit injunctions.
From a commercial perspective, asymmetrical jurisdiction clauses make an abundance of sense and serve to mitigate commercial risk. Where parties to a contract are of equal bargaining power and agree to an asymmetrical jurisdiction clause, there is no valid reason not to hold the parties to their agreement. Of course, these clauses could lead to some abuse in consumer or employment contracts and the courts will need to find a means to triage these cases so that the baby is not thrown out with the bathwater.
Alexander Gay is General Counsel at the Department of Justice. He maintains a broad civil litigation practice, with an emphasis on commercial and trade disputes. He is also a part-time professor at the University of Ottawa (Faculty of Law) and the author of the Annotated Arbitration Act of Ontario, 1991. The author's views are his own.