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UK Carbon Border Adjustment Mechanism: how will it work?
In February, we reported on the Department of Energy Security and Net Zero’s confirmation that a UK Carbon Border Adjustment Mechanism (CBAM) would be bought into force by 2027
United Kingdom | Publication
Subject to any particular restrictions under applicable local law, the parties to a joint venture or shareholders’ agreement are generally free to choose any governing law and jurisdiction clauses. There are no UK statutory restrictions in this respect for joint ventures.1
Choice of law and jurisdiction are invariably negotiated clauses, but parties to a proposed joint venture may be reluctant to invest significant time and resources in the issues which arise where the parties are in dispute and the collaborative objective has failed. However, appropriate choice of law and jurisdiction clauses are critical issues to manage risk if and when a dispute does arise. Unfavourable choice of law and/or jurisdiction clauses can adversely impact a party’s ability to seek legal recourse (or to defend a claim) against the other and also affect related issues such as the costs of a dispute.
There are various factors that the participants in a joint venture need to take into account when choosing the law which governs the joint venture or shareholders agreement and the dispute resolution mechanism and jurisdiction. We consider these below.
A governing law clause determines the substantive law that will apply to the interpretation of an agreement (i.e. legal rights and obligations of the parties). It does not govern how disputes are to be resolved.
A jurisdiction clause determines how disputes will be resolved (e.g. courts, arbitration, expert determination) and may also govern the procedure to be followed to commence and conduct a dispute.
It is imperative for parties to (i) include both governing law and jurisdiction clauses (including, in the case of arbitration, drafting which constitutes an express arbitration agreement) and (ii) employ clear and unambiguous drafting. Failure to do so can lead to lengthy and costly disputes over which courts/tribunals should determine a dispute and which substantive law will be applied. If the relationship between the parties breaks down, ambiguities are also likely to be exploited for tactical purposes, e.g. to frustrate or delay a genuine claim.
Choice of law impacts the rights and obligations under the contract, both with respect to the interpretation of the contract’s express terms and any terms which may be implied by the substantive law chosen by the parties.
The parties’ choice of jurisdiction has a significant impact on the cost, conduct, location and ultimate outcome of any dispute. This applies even if the parties chose arbitration, because the ‘seat’ (national jurisdiction) of the arbitration impacts factors such as the conduct of an arbitration and the extent to which the tribunal’s award can be challenged.
Some of the issues that should be considered are:
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In February, we reported on the Department of Energy Security and Net Zero’s confirmation that a UK Carbon Border Adjustment Mechanism (CBAM) would be bought into force by 2027
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