Legal Briefing

Jurisdiction clauses: clear and precise incorporation is needed

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Corporate and commercial | 01 April 2010

In a contractual dispute (or indeed any dispute), involving at least one party domiciled in an EU member state, the choice of jurisdiction will be governed by Brussels II (Council Regulation (EC) No 44/2001). This regulation sets out when the courts of a member state should have jurisdiction. It also allows the parties to opt out of the regime and agree their own jurisdiction provisions, provided that the jurisdiction clause satisfies certain formal requirements contained in Article 23. As a minimum, the clause must be in writing or evidenced in writing.

If a contract does not contain a jurisdiction clause, jurisdiction is governed by the provisions of Article 5. Article 5(1) states that a defendant may be sued in the member state where the contract should have been performed. In the case of sale of goods, this is presumed to be where, under the contract, the goods were delivered or should have been delivered. In the provisions of services, this is presumed to be the place where, under the contract, the services were provided or should have been provided. If the contract contains an express jurisdiction clause, the matter is dealt with as per the clause.

The position is more complicated where a contract attempts to incorporate a jurisdiction clause by reference to a party’s standard terms and conditions or a separate contract. In these circumstances the question is one of construction. Did the parties intend the jurisdiction clause to be incorporated?

In the recent Africa Express Line Ltd (AEL) v Socofi SA & anor [2009] the Commercial Court was faced with this question. In answering it, the Court gave some useful guidance on distinguishing between incorporation by reference to standard terms and conditions, and incorporation by reference to a separate contract. The indication from the Court was that it is easier for a party to incorporate by reference to standard terms and that incorporation by reference to a separate contract is far less likely to succeed.

Facts of AEL

Plantations DAM SA (DAM) was an African fruit grower who had contracted with Socofi SA (Socofi), a French fruit importer, to sell its entire fruit crop. To facilitate this agreement DAM entered into a contract in 2007 with Africa Express Line Ltd (AEL), a shipper, to ship the crop from Africa to France (the charter agreement). The charter agreement contained the following jurisdiction clause:

‘Any dispute where the amount exceeds $125,000… shall be submitted to the High Court of Justice of London.’

Initially, freight forwarding services were provided for under an arrangement between Socofi and a third party. This arrangement broke down and AEL stepped in to provide this service. In an e-mail exchange that formed the basis of the separate contract between AEL and Socofi, AEL made the following offer:

‘We are prepared to offer you [freight forwarding services]… under the conditions of the aforementioned [charter agreement].’

Socofi accepted with the following e-mail:

‘We acknowledge receipt of your mail… and confirm our acceptance of the following points:

  1. [Freight forwarding services] under the conditions of the [charter agreement].’

This contract for forwarding services (the contract) subsequently broke down amidst claims by both parties that the other was in breach. AEL commenced proceedings against Socofi and DAM in the English High Court in reliance on the jurisdiction clause in the charter agreement.

Socofi applied for a declaration that the High Court did not have jurisdiction to determine AEL’s claim against it arguing that the exclusive jurisdiction clause was not incorporated into the contract.

Findings

The High Court said that for the exclusive jurisdiction clause to apply, Brussels II Article 23 required ‘real consent’ to, or ‘actual acceptance’ of, the clause, which must be ‘clearly and precisely demonstrated’. It was for the claimant, AEL, to show that the requirements of Article 23 had been met.

The High Court found that the authorities distinguished between incorporation of a jurisdiction clause in standard trading terms and incorporation of a jurisdiction clause contained in an existing, separate contract with a third party.

In the former, the High Court pointed to several cases that dealt with these circumstances. It stated that where a contract refers expressly to one party’s standard terms and conditions, it is not necessary for there to have been a specific reference to the jurisdiction clause. Nor is it necessary for the acceptor to have received a copy of the standard terms.

In the latter, the High Court was unable to point to a body of case law specifically dealing with these circumstances. Instead the Court drew an analogy between the incorporation of jurisdiction and arbitration clauses from an insurance contract into a reinsurance contract, in which ‘only those terms directly germane to the parties’ agreement’ are carried over and the presumption is that these usually exclude a jurisdiction clause.

In addition, the High Court noted that it was common ground that all of the conditions from the charter agreement were not incorporated into the contract, pointing to the fact that some of the conditions could have no application in the new agreement as they were specific to the commercial relationship between AEL and DAM.

Socofi argued that this (clearly) showed that not all conditions were to be incorporated and that it was therefore not to be inferred that the parties intended to incorporate an ancillary clause about the resolution of disputes that was not directly connected to the provision of the services contracted for. AEL’s argument that the contract should be read as incorporating all terms, except those incapable of incorporation, was rejected.

In AEL the High Court found in Socofi’s favour, ie that the jurisdiction clause did not apply and that therefore it did not have jurisdiction to hear the matter. The court stated that ‘it was not persuaded that Socofi’s acceptance of the jurisdiction clause had been clearly and precisely established’ for the purposes of Article 23.

In taking Socofi’s side the High Court concluded that in AEL the evidence did not point to an intention to incorporate. It stated that:

‘Contracts which include words of incorporation must be construed in their commercial context which may cast light on whether an arbitration or jurisdiction clause is to be treated as incorporated by general words of incorporation.’

Conclusion

The decision in AEL has provided useful guidance on incorporation of jurisdiction clause by reference. If reference is to a separate contract, the courts will analyse how closely the clause is connected to the new contract. On the basis of AEL, it will be difficult for parties to show that in these circumstances their jurisdiction clause is closely connected.

The conclusion to be drawn from AEL is that parties should seek to expressly include a jurisdiction clause if they wish to opt out of the Brussels II regime, although incorporation by reference to standard terms may also be successful.

Businesses should be made aware that when concluding contracts without formal documentation, perhaps by reference to previous contracts or a separate contract, it cannot be assumed that a jurisdiction clause will automatically be incorporated into the new contract. To be sure of this they should make express reference to the particular clause and by expressly consenting to its incorporation.

 

at-a-glance guide

  • Choice of jurisdiction is governed by Brussels II (Council Regulation (EC) No 44/2001) (if a contractual party is domiciled in an EU member state).
  • Brussels II allows parties to choose their own jurisdiction if this intention is clearly and precisely demonstrated.
  • If a jurisdiction clause is incorporated by reference to standard terms and conditions, it is easier to clearly and precisely demonstrate this intention.
  • If a jurisdiction clause is incorporated by reference to a separate contract it will be less straightforward as the parties will need to demonstrate that the jurisdiction clause in the separate contract is connected to the new contract.