Jonathan Haydn-Williams discusses the recent decision in Apple Corps v Apple Computer and concludes that, when making an agreement between parties in different countries, it is essential to try and establish the governing law and jurisdiction

According to the well-known saying, 'an apple a day keeps the doctor away'. The outcome of a recent spat over jurisdiction in the English courts between the Apple record company - founded by the Beatles - and the US Apple Computer corporation, suggests that it would take more than that to keep the litigation lawyers away.

On 7 April 2004, Mr Justice Mann handed down judgment in an interlocutory dispute over jurisdiction in the case of Apple Corps Ltd v Apple Computer Inc [2004] EWHC 768 (Ch). The underlying dispute concerns alleged breach of a 1991 agreement between Apple Corps and Apple Computer, which settled a previous dispute between them. The judgment addresses a number of issues, including:

- Where the agreement was made and whether a contract can be made in two, or more, places at once (the judge decided that it could);

- Whether a contract can be analysed other than by the usual - and sometimes 'random' - concept of offer and acceptance (the judge said that it could);

- The identification by the English court of the governing law of a contract, where parties from England and the US had not made an express choice of the law that was to govern it;

- The issue of whether England and Wales or California was the proper jurisdiction in which to decide the case, the parties not having made an express choice of jurisdiction.

There is enough there to provide material for a thesis or two. The focus here is to understand why those complex issues arose from an agreement that had been intended to settle disputes between the parties and to suggest how others might avoid such a legally and commercially undesirable situation in the future.

Following litigation in England, the two Apple companies reached agreement in 1991 on how to regulate their respective use of the 'Apple' trademarks. In essence, they identified the fields of use in which each might use its trademarks and made provision for those situations where fields of use might overlap.

Following the launch by Apple Computer of its web-based music store, iTunes, enabling the public to download music over the Internet using, for example, the Apple iPod, Apple Corps complained of breaches - and threatened breaches - of the 1991 agreement. The English court gave Apple Corps permission to serve English proceedings on Apple Computer in California. Apple Computer objected and asked the English court to decline jurisdiction in favour of the Californian courts.

The 1991 agreement contained no provisions as to which country's courts should have jurisdiction over any dispute concerning the agreement; or as to which country's laws should govern the agreement; or in which country the agreement was made.

This was a recipe for further litigation. When the dispute arose over alleged breaches of the agreement, Apple Corps claimed English law and jurisdiction and that the agreement was made in England, while Apple Computers claimed Californian law and jurisdiction and that the agreement was made in California.

Mr Justice Mann had a difficult decision to make. He concluded that there was a good arguable case that the agreement was made in England (and possibly also in California) and that the governing law of the agreement was English (thereby identifying England as a potentially appropriate jurisdiction). Having then compared various aspects of English and Californian litigation, including admissibility of evidence and the cost of pre-trial preparation, he concluded that England was the proper jurisdiction. Because of the complexity of the case, the decision appears well suited to an appeal.

There is the prospect of parallel litigation in the Californian courts, Apple Computer having commenced proceedings there and having successfully resisted an application by Apple Corps to have the case dismissed for lack of jurisdiction.

Why did the dispute over governing law and jurisdiction arise? One cannot do better than quote the words of the judge: 'The evidence before me showed that each of the parties was overtly adamant that it did not wish to accept the other's jurisdiction or governing law, and could reach no agreement on any other jurisdiction or governing law. As a result [the agreement] contains no governing law clause and no jurisdiction clause. In addition, neither party wanted to give the other an advantage in terms of where the agreement was finalised. If their intention in doing so was to create obscurity and difficulty for lawyers to debate in future years, they have succeeded handsomely.'

Whether or not it was the parties' intention, the effect was certainly to create obscurity and difficulty, as well as the delay and expense of jurisdictional challenges in two jurisdictions. Furthermore, the prospect of parallel litigation in England and California as to the substantive merits of the dispute gives rise to the possibility of further huge legal costs and uncertainty both as to the outcome and as to the enforceability of potentially competing judgments.

It is not unusual for parties negotiating a contract to be opposed to accepting the other's governing law and jurisdiction, but most parties are able to find some form of compromise. There are several options available, including:

- Agree the governing law of a third, neutral state. This should not be done without obtaining advice from a lawyer in that state. That involves extra expense, but it is worth it to avoid unpleasant surprises later on.

- Draft a composite clause, for example applying the principles of law common to two jurisdictions. One also encounters clauses that do not refer to any system of national law, but, for example, to internationally accepted principles of commercial law. Neither of these options should be adopted without considerable forethought. They may be difficult to apply in practice and may even be held to be unenforceable. Arbitrators will perhaps apply them more willingly than national courts.

- As to jurisdiction, agree that the courts of a neutral state shall have jurisdiction. If you are adopting the governing law of a neutral state, then choose the courts of that state. To involve a fourth jurisdiction would only increase cost and complexity.

- Instead of submitting to the jurisdiction of courts, agree that disputes shall be resolved by arbitration. The seat of arbitration can be in one of the parties' home states or in a neutral state. The arbitration rules of a body such as the International Chamber of Commerce or the London Court of International Arbitration can be chosen. Alternatively, the parties can draft their own procedures or leave them to be determined according to the 'default' procedures applicable at the seat of arbitration (less desirable).

The lesson of the Apple case is that those negotiating an agreement between parties in different countries should do their utmost to agree provisions as to governing law and jurisdiction over future disputes. Prevention is better than cure.

Jonathan Haydn-Williams is a commercial litigation and dispute resolution partner at London law firm Hextalls