Which jurisdiction governs your contract?

In a recent case the High Court held that where a contract did not specify the jurisdiction in which any dispute about the contract should be determined it was possible that the contract was formed in each of the two different jurisdictions of the parties.

The problem

A UK company, CIT, and a Texan company, UPD, signed a number of agreements including a non-disclosure agreement (NDA). The NDA was signed to protect CIT’s intellectual property in certain technologies and contained obligations of confidentiality. CIT alleged that UPD had breached the NDA and brought a claim in the English courts for breach of contract although there was no clause giving jurisdiction to the English Courts or indeed the courts of any other jurisdiction

UPD applied to the English courts to have the claim set aside on the basis that the NDA was not formed in England. The High Court was therefore asked to determine under which country’s laws the NDA was governed.

Legal background

If a contract does not contain a jurisdiction clause the general rule, traditionally, is that the jurisdiction will be the place where the contract was formed, that is to say, from where the acceptance of an offer is communicated. An analysis of the factual position is often reasonably straightforward when parties are forming a contract by post. Many of the older leading cases are concerned with just such situations.

But what happens if parties are in dialogue by telephone, email or Skype, as is more likely today? How has the Law adapted to modern technologies? 

In the case of instantaneous communications the courts have held, depending on the factual nature of the formation of a contract and the terms of it, that it is possible to have two jurisdictions for the resolution of disputes about it. In Apple Corps Ltd v Apple Computer Inc, the parties had been unable to agree a jurisdiction clause. The court held that it would be consistent with the parties’ intentions that there should not be one governing jurisdiction but, rather, two.

High Court judgment

In this case, CIT and UPD had been unable to agree a jurisdiction and so agreed not to include any jurisdiction clause, just like in Apple. Furthermore, the final form agreement was sent by email to CIT which responded that the document was agreed and that it would sign and send the original by post to UPD.  UPD stated that it would sign the agreement on receipt of CIT’s original.

Following the judgment in Apple and an analysis of the facts, the High Court acknowledged that it might be possible to determine the formation and therefore the jurisdiction of the agreement, in the conventional way. However, the Court was concerned that such an analysis might also be “extremely forced and introduce a highly random element”. The Court went on to comment that the offer and acceptance may well depend on who speaks first and who speaks second on a telephone call which is largely a matter of chance.

Adopting the method of analysis used in Apple, the Court determined that since both parties had expressly agreed not to incorporate a jurisdiction clause it would be artificial to determine the jurisdiction of the agreement by applying the traditional “location of formation” approach.

In this context, the High Court concluded that the jurisdiction of the agreement was both England and Texas and United States laws and that therefore UPD’s application to set aside CIT’s claim for want of jurisdiction failed.

Comments and some conclusions

• This judgment should not be read as providing the freedom for contracting parties to bring a claim in whichever jurisdiction would be more beneficial to them.
• The High Court, in the particular circumstances of the case, was content to follow the decision in Apple. However, another court may choose to follow the traditional analysis of the formation of a contract. All cases are decided on their own unique facts.
• The objective in drafting any contract ought to be “certainty” as this will diminish the risk of litigation.
• Worrying about jurisdiction may see less important than some of the core commercial aspects. However, advantages gained over core aspects may be prejudiced, in the event of a dispute by litigating or arbitrating in a “foreign” jurisdiction.
• Unwanted legal costs will be incurred and valuable management time lost by preliminary litigation solely to determine jurisdiction as a precursor to the resolution of the primary dispute.
• Jurisdiction and indeed the law which is to apply are vitally important issues for any business person setting out to negotiate in any non domestic context and should not be left to the chances of litigation.