The Jurisdiction Clauses in Contracts
Upon going through a contract or an agreement, you may suddenly come across a clause that looks something along the lines of:
“All disputes arising from this Agreement shall be referred to the Courts of Malaysia.”
These clauses are known as ‘jurisdiction clauses’ which serves the purpose to indicate the forum / jurisdiction in which the legal disputes may be held at / determined should such disputes arise. Such clauses can usually be found in contracts involving international dealings in which the relevant parties may be based in different parts of the world.
Exclusive Jurisdiction & Non-Exclusive Jurisdiction Clauses
There are mainly 2 type of jurisdiction clauses, which are:
1. Exclusive jurisdiction clauses; and
2. Non-exclusive jurisdiction clauses.
I. Exclusive Jurisdiction
Exclusive jurisdiction clauses are clauses which provide a form of certainty as to where the legal proceedings shall be held at. Basically, when parties have agreed to be bound to the exclusive jurisdiction of the matter, the party who brings an action in a non-agreed forum will bear the burden to prove that there is a strong cause as to why such actions should ought to continue in that forum instead of the agreed forum. These exclusive clauses would usually include the use of the word “exclusive” as seen in the example provided below:
“The parties agree that the competent courts of Malaysia shall have exclusive jurisdiction in
all matters arising from this Agreement.”
The following is an example of a real-life scenario involving exclusive jurisdiction clauses:
II. Non-Exclusive Jurisdiction
On the other hand, non-exclusive jurisdiction clauses will allow more freedom for parties to commence the claim in several jurisdictions at the same time. Although theoretically it would usually seem more lucrative for parties of the contract / agreement to have a non-exclusive jurisdiction clause due to this illusionary freedom, it has its downsides as well. This is because where parties have decided to file the legal proceedings in both jurisdictions at the same, the courts will then have to first consider and take into account as to which of the 2 jurisdictions as to where the legal proceedings were commenced in, is the proper forum to handle such claims. However, the difference between non-exclusive clauses to exclusive clauses is that should the claim only commence in either one of the jurisdiction, the court will continue to proceed with the matter without having to deal with the issue of determining the proper forum, until the other party has commenced proceedings simultaneously in the other jurisdiction. The following is an example of non-exclusive jurisdiction clauses:
“The parties generally agree that the competent courts at Singapore shall have jurisdiction in
all matters arising hereunder, but without prejudice to the right of one or the other parties to
refer the dispute to the courts of Malaysia.”
The following is an example of a real-life scenario involving non-exclusive jurisdiction clauses:
The Importance of Jurisdiction Clauses in Contracts
Although most people would usually briefly glance through these jurisdictional clauses and/or not even bother about it, one should never underestimate the importance of these clauses as one would have to go through an entire full legal dispute solely to decide on which jurisdiction / forum the legal proceedings should be held in. When this happens, it would undoubtedly lead to parties incurring more costs and delays even before the main dispute commences.
Further, one has to consider that should the Court decide that the legal proceeding is to be held in that specific jurisdiction and that the jurisdiction is not favourable to you – basically a situation where such proceedings will be held outside your jurisdiction, you will have no choice but to seek for legal representatives overseas to handle the legal proceedings which would result in you having to incur even more costs than necessary.
In view of the above, sometimes even the smallest clause in a contract / agreement should not simply be overlooked as one may not know what sort of consequences may arise from it. As such, do not hesitate to contact us should you require a lawyer to assist you to review or draft your contracts, as this is simply one of the more interesting clauses amongst the many others that you might not fully understand the full effect of when signing your contracts.
Authored by Yap Sher Min
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