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"Ask the Team": Will an English court recognise and support a US exclusive jurisdiction clause?

by PLC Dispute Resolution
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An "Ask the Team" concerning whether an English court will recognise and support a US exclusive jurisdiction clause, by granting a stay of English proceedings.
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This month's "Ask the Team" concerns whether an English court will recognise and support a US exclusive jurisdiction clause, by granting a stay of English proceedings.

Question

I am a fourth-seat trainee at a medium-sized City firm that deals with mainly domestic disputes. The senior associate for whom I work has just asked me whether an English court will recognise and support a US exclusive jurisdiction clause - help!

Answer

The general rule is that, where the parties have agreed to submit disputes to the exclusive jurisdiction of a foreign court, one of the parties will not be able to bring proceedings in England in breach of that agreement.
The relevant principles applicable in cases where a defendant applies for a stay of proceedings brought in breach of a jurisdiction clause in favour of a foreign forum were summarised in The Eleftheria [1969] 1 Lloyd's Rep 237 at p. 94:
  • The English court is not bound to grant a stay; it has a discretion whether or not to do so.
  • That discretion should be exercised by granting a stay unless strong cause for not doing so is shown.
  • The burden of proving such strong cause is on the claimant.
  • In exercising its discretion, the court should take into account all of the circumstances of the case, including:
    • where the evidence of fact is situated, or more readily available, and the effect of that on the relative convenience and expense of trial as between the English and foreign courts;
    • whether the law of the foreign courts applies and, if so, whether it differs from English law in any material respects;
    • with what country either party is connected and how closely;
    • whether the defendant genuinely desires trial in the foreign country; and
    • whether the claimant would be prejudiced by having to sue in the foreign court.
With regard to the final criterion above, the claimant needs to demonstrate that he would be prejudiced by having to sue in the foreign court because he would:
  • be deprived of security for his claim;
  • be unable to enforce any judgment obtained;
  • be faced by a time bar not applicable in England; or
  • for political, racial, religious or other reasons, be unlikely to get a fair trial.
Although the application of the Eleftheria test should normally lead to English proceedings being stayed where there is an exclusive jurisdiction clause in favour of another forum, a stay may be refused whenever "strong cause for not doing so is shown".
The English court generally takes a fairly strict approach to this issue, but there are some instances in which proceedings may be allowed to proceed here, notwithstanding an exclusive jurisdiction clause in favour of another forum. For example:
  • Where the claimant's contractual claims fall within the foreign exclusive jurisdiction clause, but the claims in tort do not, the contractual claims may be allowed to proceed in England if the English court has jurisdiction over the tort claims and the contractual claims form only a small part of the litigation (Domansa V Derin Shipping and Trading Co Inc [2001] 1 Lloyd's Rep 362).
  • Where the claimant can proceed against all the defendants in England, but cannot do so in the contractual forum (Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Corporation [2000] 1 Lloyd's Rep 670).
There appear to be no particular issues that should be taken into account specifically in the context of a US exclusive jurisdiction clauses. However, it may be that, when considering the matters identified in the Eleftheria, certain US-related issues (such as a procedural advantage or substantive law questions) may be significant. As indicated above, the court will apply the forum non conveniens test to see whether there are any exceptional reasons for departing from the exclusive jurisdiction clause. Triple damages or penalty damages (which are features of US litigation) are a procedural disadvantage, as are Texas jury trials for civil matters, but there appear to be no cases in which these factors were actually used to set aside an exclusive US jurisdiction clause.
It is unlikely that the English courts would look favourably on a party attempting to circumvent a contractual term on these grounds, especially if the contract involved commercial entities that had negotiated their contracts with the benefit of legal advice.
It is, however, worth noting that, in Donohue v Armco [2001] UKHL 64, no anti-suit injunction was granted to restrain US proceedings despite an exclusive English jurisdiction clause. This was in the interests of having a "single composite trial".
In addition, the recent Court of Appeal decision in Highland Crusader Offshore Partners LP and others v Deutsche Bank AG and Deutsche Bank Securities Inc [2009] EWCA Civ 725 (paragraph 56) sheds some light on what is meant by "exceptional circumstances" (see Legal update, Principles governing grant of anti-suit injunction where contract has non-exclusive jurisdiction clause on this case):
"In Re Maxwell at 761-2 Hoffmann J observed that the theory that an anti-suit injunction is not an intended interference with the affairs of a foreign court, because it merely operates in personam upon a person subject to the jurisdiction of the English court, is a more realistic description in some cases than in others. It is a fair description where the injunction is intended to enforce a contractual submission to the exclusive jurisdiction of the English court. But where the court is not enforcing a contractual right under English law, the normal assumption is that an English court has no superiority over a foreign court in deciding what justice between the parties requires and, in particular, that both comity and common sense suggest that the foreign judge is usually the best person to decide whether in his own court he should accept or decline jurisdiction, stay proceedings or allow them to continue. In other words, there must be a good reason why the decision to stop the foreign proceedings should be made by an English judge rather than a foreign judge, and cases where justice requires the English court to intervene will be exceptional. Hoffmann J recognised that exceptional cases cannot be categorised, but he instanced cases where a foreign court has by its own jurisprudence a long arm jurisdiction so extensive that to English notions it appears contrary to accepted principles of international law, and where the English court may feel it necessary to intervene by injunction to protect a party from the injustice of having to litigate in a jurisdiction with which he or the subject matter had little connection. There may also be cases in which the judicial or legislative policies of England and the foreign court are so at variance that comity is overridden by a need to protect British interests or to prevent what the English court regards as a violation of the principles of customary international law."
(The reference for the Maxwell case is (1992) BCC 757.)
As regards to PLC materials that may be relevant, you may find the Governing law and jurisdiction: drafting note (which accompanies our governing law and jurisdiction boilerplate clause) of some assistance. The document is written more from the perspective of a practitioner drafting a jurisdiction clause, but contains a section on Exclusive or non-exclusive jurisdiction clauses.
The following updates on exclusive jurisdiction clauses (non-EU) may also be of some interest:
The following cases illustrate the application of the forum non conveniens principle:

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Resource ID 9-500-3824
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Published on 07-Oct-2009
Resource Type Legal update: archive
Jurisdictions
  • England
  • Wales
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