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What Are Arbitration and Exclusive Jurisdiction Clauses in Commercial Disputes?

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When you run a business, you will probably enter into several commercial contracts. These legal agreements contain various clauses, including those concerning commercial disputes. Unfortunately, parties do not always follow the rules or see eye-to-eye on their interpretation, which can lead to disagreements between the parties involved. One solution is arbitration, while another is commercial litigation involving court proceedings. Both can happen in various jurisdictions, especially since arbitration can be international. This article will clarify the concepts of arbitration and exclusive jurisdiction clauses in commercial disputes.

What is Arbitration?

Arbitration is a method of resolving commercial disputes outside the courtroom, making it an alternative dispute resolution (ADR) method. It is a formal method of dispute resolution that results in a binding decision.

When you choose arbitration, you and the other party will select an arbitrator or a panel of arbitrators who are experts in the area of dispute. This independent third party will listen to the evidence from all parties and then reach a decision, which is the arbitral award.

What is an Arbitration Clause? 

In a commercial contract, you and the other party agree to resolve any commercial dispute through arbitration proceedings. This clause decreases the chances of ending up in court when a dispute occurs. Additionally, it discourages either party from breaking the contract. The arbitration clause might outline the legal framework for arbitration and can be:

  • essential: contain the bare necessities for arbitration to occur.
  • general: provide more specifics like venue and process.
  • complex: involve additional details, such as the confidentiality of arbitration or split clauses.
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What is an Exclusive Jurisdiction Clause?

An exclusive jurisdiction clause in a commercial contract specifies that only the courts of a specific jurisdiction can decide upon a commercial dispute arising from the agreement. The clause determines which country’s courts handle the dispute and must be specific in referring to the exact location of the court, such as:

  • England;
  • Wales; 
  • Scotland; or
  • any other location outside the United Kingdom.

Just like arbitration clauses, jurisdiction clauses lay out procedures for resolving disagreements.

What Happens if My Contract Has an Arbitration Clause and an Exclusive Jurisdiction Clause?

In commercial contracts governed by English law, you can enforce both arbitration clauses and exclusive jurisdiction clauses (EJC). However, when your contract includes both, figuring out which one to enforce may pose a challenge. In these situations, the court will scrutinise the construction of the EJC. Generally, courts prefer the arbitration clause over the EJC clause, as it signals which court has superior jurisdiction over arbitration proceedings.

Having an arbitration clause in your contract can be advantageous. This clause explicitly backs arbitration and proves beneficial when you need court backing for arbitration, like summoning witnesses.

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Key Takeaways

If you choose arbitration to settle a commercial dispute regarding one of your contracts, an expert arbitrator or panel will make a final decision instead of resolving your disagreement in court. The arbitrator’s decision, known as an arbitral award, will be binding. Typically, your commercial contract will include an arbitration clause specifying this method for resolving disputes. The level of detail in the process can vary depending on the complexity of the clause.

A commercial contract includes a jurisdiction clause that specifies which courts will handle a commercial dispute. An exclusive jurisdiction clause (EJC) specifies that only the courts of one jurisdiction will hear the commercial dispute. Sometimes, commercial contracts contain both an arbitration clause and a jurisdiction clause. This can support the arbitration process in cases where court intervention is necessary. However, having an EJC can create difficulties in determining which clause to enforce. In the UK, courts give priority to the arbitration clause in commercial contracts.

If you need help understanding arbitration clauses or exclusive jurisdiction clauses for your commercial dispute, our experienced disputes and litigation solicitors can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today at0808 196 8584 or visit our membership page.

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Clare Farmer

Clare Farmer

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