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International Commercial Contracts: The Importance of Governing Law and Jurisdiction Clauses




Ryanair decision

In the recent UK case of Menditta v Ryanair, Liverpool County Court upheld a governing law and jurisdiction clause in Ryanair’s general terms and conditions. The clause in question requires customers seeking compensation from Ryanair through a third-party firm, to do so only through the Irish courts. In reaching their notable decision, the Court found that the Irish small claims procedure was an easily accessible and inexpensive means of claiming compensation for passengers living outside the Republic of Ireland. The Ryanair case is an example of the commercial and legal importance of including effective governing law and jurisdiction clauses in international commercial contracts. EU Regulation 1215/2012 (“the Brussels Recast Regulation”) provides that proceedings against a person must be initiated in that person’s country of domicile. However, this position can be modified by virtue of a written jurisdiction clause as to which courts will have jurisdiction, notwithstanding where the parties are domiciled. The inclusion of such a clause in agreements between parties minimises the risk of expensive jurisdictional challenges in the event of a dispute.

Key considerations

An important consideration when entering into a commercial contract is whether enforcement is likely to be sought in another Member State. If so, it is crucial that the risks associated with this are sufficiently addressed in the contract. The location of a court in which proceedings are brought can be highly significant. Factors of relevance include the potential costs of such proceedings, the possibility of delay, the types of remedies which may or may not be available, unfamiliar procedural rules and the language of the court. Another recent UK decision, Wright v Lewis Silkin [2016] EWCA Civ 1308, demonstrates the perils of failing to address such a risk. In this case, jurisdiction was disputed between the parties, which led to a delay in bringing proceedings. Ultimately by the time the matter was brought before a court, one of the parties was no longer solvent.

Brexit implications

Jurisdiction clauses are currently of particular relevance in light of Britain’s impending departure from the EU. One of the myriad uncertainties associated with Brexit relates to the continuing enforceability of UK decisions in EU Member States. Once Brexit takes place, the Brussels Recast Regulation will no longer apply to the UK. Other legislation exists which could potentially be used to circumvent this unwelcome scenario. The Brussels Convention, though largely superseded by the Brussels Recast Regulation, remains a lawful instrument which theoretically could allow for the enforcement of UK decisions in those countries which are party to the Brussels Convention. Alternatively the UK could seek to rely on the Lugano Convention of 2007; however to do so they would need the assent of every country who is party to it. Finally the UK could seek to rely on the Hague Convention on Choice of Court Agreements 2005, for which the consent of the other parties would not be required. However, this legislation is more limited in scope. For now, it remains to be seen what will happen in this regard post-Brexit. If you or your business have any concerns or queries regarding governing law and jurisdiction clauses or commercial contracts in general, please contact a member of our Corporate/Commercial team to discuss further.