Written by: Alex Kleanthous on: October 23rd, 2014
With the growth of international trade, cross border disputes where one party is based in England but the other is outside the jurisdiction are increasingly common.
The recent case of Fern Computer Consultancy Ltd v Intergraph Cadworx & Analysis Solutions Inc has brought into question whether an entity carrying out a contract in England will have the benefits of mandatory statutory protection under English/EU law where the other party is based in a country that is outside the jurisdiction of the English Courts and the contract provides that it is governed by the laws of that country and is subject to the jurisdiction of its courts.
At least until now, the generally accepted principle has been that where a contract is performed in the UK then, notwithstanding the terms of the governing law and jurisdiction clause, mandatory statutory provisions, including EU law, will still apply.
However, as the Fern Computer case illustrates, things aren’t as straightforward as that. In order to issue proceedings to enforce statutory rights against a contracting party that’s based outside the jurisdiction of the English Courts permission may need to be obtained first which, as it transpires, may not be forthcoming.
In this case, the Claimant wanted compensation under the Commercial Agents Regulations (English statute implementing EU regulations). However, the contract was governed by the laws of Texas and subject to the jurisdiction of the Texas courts, where the Defendant is based. The Claimant had to apply for an order to serve outside the jurisdiction.
In the circumstances, whilst the relevant rules allow for service outside of jurisdiction in respect of claims for breach of contract or in tort, they don’t allow for service outside the jurisdiction in respect of statutory claims.
The court ruled that the claim was in respect of a stand alone statutory right which was separate from and did not override the terms of the contract. As such the claim was not for breach of contract, as the Claimant argued. Accordingly, the Claimant wasn’t entitled to serve proceedings outside the jurisdiction.
This decision cuts across the principal that mandatory provisions of law should apply, no matter the choice of law and jurisdiction in the contract, and so has serious implications for the enforceability of all “stand alone” statutory rights which might otherwise protect businesses (or individuals) performing contracts with overseas. The judge himself was evidently uncomfortable with this and suggested that the Claimant could argue that the Defendant had acted in breach of statutory duty – which is not a statutory claim but a tort, a cause of action for which an order for service outside of jurisdiction can be granted. Watch this space….
At this point in time, agreeing to contract under the laws of another jurisdiction for a contract carried out in the UK can seriously prejudice your rights. Take advice before agreeing to do so.
Alex Kleanthous is a partner in our London dispute resolution team and specialises in commercial contracts and disputes. If you have any questions or queries then please do not hesitate to contact Alex on 020 7463 1064.