It is very common for non English commercial counterparties to decide that a contract should be governed by English law. The English courts are very used to dealing with litigation that does not involve English parties. Often the contract that has given rise to a claim will not have been reviewed by an English qualified lawyer until a dispute has arisen between the parties. As a consequence, we often see simple mistakes in English law contracts that can give rise to uncertainty for the parties.
Take the following law and jurisdiction clause as an example:
“This contract will be governed by and construed in accordance with the laws of the United Kingdom and shall be subject to the non-exclusive jurisdiction of the court of Great Britain”.
The parties probably intend their contract to be governed by English law and for disputes to be heard at the High Court in London. However, this is not what the clause means. In fact, the clause is unclear and defective.
United Kingdom of Great Britain and Northern Ireland (to give it its full name) has three separate and distinct legal systems: (i) Scotland; (ii) England and Wales; and (iii) Northern Ireland. For example, the Scottish courts and the Scottish legal profession operate separately from the courts of England. The only exception to this is that decisions of the Court of Session, the highest court in Scotland, are subject to appeal to the Supreme Court of the United Kingdom in London. If a contract is subject to the jurisdiction of the courts of Scotland, it is not possible to start a claim in England (and vice versa).
Whilst many of the laws made by the UK Parliament in London do apply in Scotland and Northern Ireland, this is not the case in respect of all laws. In particular, since Scottish devolution in 1999 and the creation of a separate Scottish Parliament, an increasing number of laws are made that apply only to Scotland. Northern Ireland also has its own separate laws. To give a high-profile example, Northern Ireland is the only part of the UK where gay marriage is not permitted.
For the most part, English, Scottish and Northern Irish law are very similar. In most disputes the interpretation of a contract will be the same whether the contract is governed by English law or Scottish law. However, this is not always the case. There are significant differences between the two legal systems in certain areas, in particular in relation to property rights. The court systems of England and Scotland are also very different. This is why a jurisdiction clause that specifies the “United Kingdom” or “Great Britain” is so problematic. The courts of England or Scotland will both seek to give effect to the intention of the parties, but this may not be clear. When a dispute arises about a contract with a defective jurisdiction or choice of law clause, a party may waste valuable time and incur significant costs establishing the proper law and the correct venue to bring a claim.
To avoid the problem, when drafting choice of law and jurisdiction clauses, no reference should ever be made to the UK or Great Britain. If parties want their dispute to be heard in London, the contract should refer to the “courts of England and Wales” or the “High Court in London” and to “English law” or the “laws of England and Wales”.
The legal distinctions between England, Scotland and Northern Ireland are confusing enough for UK lawyers to grapple with. Follow this advice and your clients will avoid having to wrestle with the intricacies of the UK constitution before they seek to enforce their contractual rights.
Tom Bolam, Associate, Fladgate LLP (email@example.com)