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What happens when jurisdiction clauses conflict?
19 May 2015

It is not uncommon for one of the parties to a commercial agreement to transfer its rights and obligations to a third party.  Normally, a “Novation Agreement” is used in such circumstances, under which the rights and obligations of one party are novated to another party.  

A Novation Agreement will usually contain the same jurisdiction clause as the agreement it is seeking to novate.  In the recent case of Rawlinson & Hunter Trustees SA v ITG Ltd, however, the High Court had to consider the effect of a jurisdiction clause in a Novation Agreement which differed from the jurisdiction clause in the agreement that it was novating. 

In this case, two parties had entered into a Loan Agreement. It was set out in the Loan Agreement that the courts of England and Wales would have exclusive jurisdiction to hear any disputes arising out of or in connection with the Loan Agreement. The Loan Agreement was subsequently novated to a third party. The Novation Agreement stated that the courts of Guernsey would have exclusive jurisdiction over any matter relating to “the subject matter of this Deed (i.e. Agreement).” The question later arose as to whether the courts of England and Wales or the courts of Guernsey were entitled to hear a dispute relating to the Loan Agreement.

The court concluded that the courts that had been given jurisdiction under the original agreement i.e. the courts of England and Wales should hear the dispute. This was justified on the basis that it was not the intention of the parties when they entered the Novation Agreement to amend the jurisdiction clause in the Loan Agreement.

This case indicates that if the parties to a contract wish to vary the terms of their agreement at the same time as novating it, they should build in suitable variation provisions to that effect. It also serves as a reminder not to rely on “boilerplate” clauses and to make sure that the clauses included in an agreement fit the circumstances.

If you would like to discuss this further or find out more about how the Commercial & Technology team can help your business please contact Sarah Williamson on 0118 952 7247 or email [email protected].

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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