Property Contracts – Jurisdiction and choice of law
Issues of foreign jurisdiction do not often arise in English property contracts but when they do the distinction between the choice of law governing a contract and its jurisdiction clause can give rise to the possibility of a perverse scenario in which the English courts are required to apply foreign law in order to determine a claim. This may arise in the context of foreign land owned by UK citizens.
We have acted in a claim by an individual who had entered into a contract with a polo associate to purchase a plot of land outside Buenos Aires in Argentina. Our client had paid the purchase price in full, but the land was never formally conveyed to him and subsequently ended up in the ownership of a third party. At first glance this might sound like a straightforward case: the claimant had paid a significant sum of money and received nothing in return, so he ought to be reimbursed. Whilst that was the ultimate outcome, the procedural journey was far from straightforward.
The starting point is that a contract is always governed by a particular country’s law. The choice of law applicable to the contract in this case was that of Argentina. Accordingly, whilst both parties were British citizens and the contract was entered into in the UK, the interpretation of the contract was a matter of Argentine law.
The location where a dispute is heard is an entirely separate matter to the question of the law to be applied to the contract. The contract contained a jurisdiction clause stating that the parties submitted to the Ordinary Courts in Civil Matters of the Province of Buenos Aires. Even if a clause confers jurisdiction on a particular foreign country, a claimant may bring proceedings in the UK notwithstanding, and the defendant will then have an important decision to make as to whether to contest jurisdiction when acknowledging service. In the event, we brought proceedings in England, and the defendant did not contest jurisdiction, so it fell to the English courts to determine a claim governed by Argentine law, with the assistance of expert evidence from Argentine lawyers.
It is open to parties to agree alternatives to the jurisdiction and/or choice of law stipulated in a contract. This brings tactical considerations into play; a claimant will want to consider which choice of law will provide it with the highest prospects of success and the most favourable remedies, and which jurisdiction will deliver its remedy in the most straightforward, cost-effective and timely manner. In contrast, it may be in a defendant’s interests to complicate matters by, for example, submitting to a jurisdiction where the court process is notoriously lengthy and/or laborious, or a choice of law under which the claimant will have higher hurdles to jump to make out its claim.
At the drafting stage, careful consideration should be given to jurisdiction and choice of law clauses and in particular to the forum and rules which a particular party would wish disputes to be determined under. If a contract dispute arises involving land overseas and/or the choice of law and jurisdiction clauses refer to foreign law, early advice should be sought as tactical decisions as to whether to submit to a particular jurisdiction and/or choice of law or seek to agree an alternative are likely to have a very significant impact on how the case progresses and, ultimately, the outcome.