PRACTIQUE LEGAL – Contractual Clauses Electing Courts of Competent Jurisdiction

By: Rene Cacheaux – It is erroneously believed that the parties to a contract may designate the courts of any jurisdiction from this country or another as courts of competent jurisdiction in cases involving international elements. In Mexico, care must be exercised with respect to jurisdiction clauses because a risk exists that the election of a court will be invalid, thereby rendering such clause null and void. Additionally, a party to a contract may not include a clause electing a court of competent jurisdiction if the purpose of such election is to seek the application of a law that is more favorable to such party. This is known as forum shopping, and Mexico has recently enacted laws on forum shopping in its civil procedure laws. In commercial law, the parties to a commercial agreement may elect the following courts of competent jurisdiction to resolve legal controversies: (i) those located in the domiciles of any of the parties to the contract; (ii) those located in the jurisdiction where the respective obligations will be performed; or (iii) those located where the object of the dispute is located. If the previous minimum contacts required do not exist with respect to the contractual obligation, the domicile of the parties or the object of the controversy, the contractually designated court would lack jurisdiction. This general rule has important exceptions with respect to the rules of exclusive international jurisdiction from different countries. In the case of Mexico, the most important rule of exclusive international jurisdiction is that with respect to acts that involve real property, as real property is subject to the exclusive jurisdiction of the country or territory where such real property is located. In these cases, the contractual clause electing courts of competent jurisdiction is invalid. If the Mexican court accepts jurisdiction regardless of the application of the previously indicated jurisdictional rules, and if the opposing party fails to contest the jurisdiction of such court or answers the lawsuit or files a counterclaim against the plaintiff, it is understood that the parties have implicitly consented to that court's jurisdiction. The problem with implied jurisdictional consent is the limitation of the international effects of a judgment issued by such a court. In many cases and depending on the capacity for review of the court that issues a foreign judgment, the effects of such judgment are purely territorial, and its enforceability in a foreign jurisdiction is questionable. When dealing with non-commercial contracts of a civil, employment, administrative or any other nature, it is necessary to review the applicable laws to determine the minimum contacts required in the jurisdiction elected by the parties in the event of litigation. The belief that the parties may elect any court from any country in the event of a legal controversy is misguided and dangerous because this can lead to procedural inefficiencies that can affect the substance of the matters submitted to the courts. An additional consequence is the high cost of litigation, which would have to be reinstated in another jurisdiction. An analysis of the territorial and international effects of a clause electing courts of competent jurisdiction is very important in each case.

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