Construction Contract Series – Important Legal Provisions – Jurisdiction & Venue
What is a Jurisdiction and Venue Clause in a Construction Contract?
Below is a basic jurisdiction and venue clause:
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA AND VENUE FOR ANY DISPUTES SHALL ONLY BE APPROPRIATE IN TULSA COUNTY DISTRICT COURT.
Each contract provision varies. Some provisions may be long and wordy, others short and sweet. Ultimately, they all attempt to accomplish the same goal. The sole purpose is to decide the state and court location where all disputes must be resolved if a party breaches the construction contract.
Jurisdiction (Two Types)
Subject Matter Jurisdiction
Subject matter jurisdiction is the court’s power to rule on a particular type of legal issue and render an appropriate judgment. A municipal court is a court of limited subject matter jurisdiction. Individuals and companies cannot file lawsuits against third-parties. A municipal court only has jurisdiction to hear and rule upon violations of the municipality’s laws, rules, and regulations. Likewise, a federal district court is a court of limited subject matter jurisdiction. Only certain types of legal issues such as federal claims, violations of federal statutes, etc. may be filed in federal court. Third, an arbitration has limited subject matter jurisdiction. An arbitration may only address the contractual issues the parties agreed upon in writing.
Generally speaking, when a contract dispute arises between design professionals or construction companies, the claims are either handled through binding arbitration or in the District Court of the relevant state and county identified in the contract’s jurisdiction and venue clause.
Personal jurisdiction is the court’s power to exercise jurisdiction over the parties to a lawsuit. Parties can either be individuals or companies. When an arbitration or lawsuit is filed, a determination must be made whether the tribunal (either administrative arbitration or court) has authority to render control over the individuals or companies involved. The defendant must have sufficient minimum contacts and business dealings in the locale to be subject to the personal jurisdiction of the local court system.
The word “venue” within the legal context means the proper location to resolve a legal dispute among the parties. Statutes identify he proper venue location depending on the type of lawsuit, where the parties reside, or the type of claims involved. However, parties can agree in writing in a construction contract to a different venue location than statutes may allow.
Why is a Jurisdiction & Venue Clause Important in a Construction Contract?
A jurisdiction and venue clause is of little significance when you have a local construction project being designed and constructed by local companies. However, that scenario is rare.
Depending on the size of the construction project, you may have design professionals or construction companies involved who operate regionally, nationally, or internationally. One or more of the companies may have its principal place of business (i.e., home office) within a state 1000+ miles from the construction project. When parties are involved who are located in different jurisdictions, it drastically increases the importance of a jurisdiction and venue clause.
To provide a basic example, a Tulsa based company may enter into a design contract with a company based in Denver, Colorado. The design contract has a jurisdiction and venue clause that requires any disputes between the parties be filed and resolved in Denver, Colorado. It would drastically increase the cost and complexity to the local Tulsa based company to file a lawsuit in Denver and prosecute a claim in Colorado. Furthermore, the Tulsa based company would be a foreign company – a stranger to the court system and jurors. On the other hand, from a litigation perspective, the design company benefits from resolving the claim where its business is located, where it has name recognition, goodwill, local bias, and decreased legal costs. The foreign jurisdiction may also have laws more favorable to the design professional than it would be permitted in a different court system.
I have consulted with many clients who believe a jurisdiction and venue clause is nothing more than a boilerplate provision that is of no significance in a contract. While that may be true when you have a local project with local companies, when regional, national, and international companies are involved the clause is of utmost importance. Never underestimate the benefit your company can receive through a properly drafted jurisdiction and venue clause setting forth the most advantageous location to resolve disputes filed against your business.