Consequences of not including a jurisdiction and applicable law clause in a contract
Failing to include a jurisdiction and applicable law clause in a contract
If a clause of jurisdiction and applicable law is not included in a contract, uncertainty can be generated depending on what situations.
In the absence of the jurisdiction clause, the general jurisdiction criterion is based on the domicile of the defendant. This implies that in the event of a dispute, the lawsuit must be filed at the domicile of the defendant. This situation could be especially difficult for the party that complies with the contract, since they would have to file a lawsuit against the breaching party at their own address, even if it is very distant.
Regarding the applicable law, if it is not specified in the contract, the law of the country that has the strongest connection to the contract or shows the strongest links will be used. This could lead to litigation under an unknown law, which could harm our defense. The regulation of the conflict of kings in Spain is found, mainly, in the Preliminary Title of the Civil Code (specifically articles 9 to 12).
Therefore, it is vitally important to incorporate jurisdiction and applicable law clauses into contracts to prevent uncertainties and difficulties should the need for litigation arise.
As an example, Miguel owns TechSoluciones, a software company in Spain. They developed an app that GlobalCorp in the United States uses. Despite having signed a license agreement, they forgot to include clauses on where to resolve disputes and what laws to apply in case of problems.
GlobalCorp has problems with the app and seeks to blame Miguel, considering filing a lawsuit in the United States. Miguel maintains that any legal action must be taken in Spain, where the company was registered.
The absence of jurisdiction clauses and regulations in the contract creates uncertainty. Both parties disagree on whether the dispute should be dealt with in the United States or Spain. This lack of clarity could result in a lengthy and costly legal process to determine the location and applicable laws.