Forum selection clause
Encyclopedia
A forum selection clause in a contract
with a conflict of laws
element allows the parties to agree that any litigation resulting from that contract will be initiated in a specific forum. There are three types of clause:
A simple forum selection clause covering both the proper law of the contract and the forum for resolving disputes might read:
“This contract is governed by the laws of England and any dispute shall be finally resolved by the English courts.”
In many cross-border contracts, the forum for resolving disputes may not be the same as the country whose law governs the contract. And the contract may provide for a staged procedure for resolving disputes. For example:
“1.This agreement shall be governed by and interpreted in accordance with the laws of England.
2.The parties shall endeavour to settle any dispute that arises by direct negotiation between their managing directors or similar senior executives but if direct negotiation does not result in a resolution of the dispute, either Party may require that it be referred to mediation in accordance with the CEDR (Centre for Effective Dispute Resolution) Mediation Rules at present in force.
3. Any dispute that is not settled by direct negotiation or by mediation shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”
stage in a conflict case requires the forum court to decide which of several competing law
s should be applied to resolve the dispute. In this, there is an important distinction to be made between a forum selection clause and a choice of law clause
. As an application of the public policy
of freedom of contract
, the parties are usually free to nominate the proper law
under which all relevant disputes will be resolved. If there is an express selection, this choice will be respected so long as it is made bona fide
, i.e. the subjective intention prevails unless the purpose is to:
But, if the parties do no more than nominate a forum, this is no more than an indication that they intend that forum's law to apply. There are many reasons why parties may select a forum (see a discussion of forum shopping
):
If the parties have selected a jurisdiction as the place for the resolution of a dispute, the implication is that the courts may nevertheless apply their lex fori which includes their general choice of law principles. Thus, in the ordinary course of legal events, the forum court may identify and apply a foreign law as the proper law. The majority of professionally drafted contracts will address both issues, and contain clauses specifying both the forum and the law to be applied therein. The fact that the particular contract only specifies the forum therefore becomes highly revealing as implying that the parties intended to leave the choice of law issue to the forum nominated.
Forum selection clauses have been criticised by a minority of courts as improper attempts to divest them of personal jurisdiction over the parties. Because of this, some jurisdictions refuse to give effect to these clauses, declaring them to be void as against public policy. However, most jurisdictions now recognise and enforce forum selection clauses, so long as the parties were acting in good faith.
, 407 U.S. 1
(1972); Carnival Cruise Lines, Inc. v. Shute
, 499 U.S. 585
(1991). The Bremen and Carnival Cruise cases, however, arose under the Court's admiralty jurisdiction, not under diversity of citizenship jurisdiction.
A court in the United States
will not necessarily honor a simple forum selection clause whereas it is likely to respect a clause that points to a specific forum with the express exclusion of others. Two October 2011 appellate rulings illustrate the difference. In Future Industries of America v. Advanced UV Light GmbH, 10-3928
, the United States Court of Appeals for the Second Circuit
in New York City affirmed the dismissal of a case which sent the parties to Germany
because the forum selection clause made German courts the exclusive forum. By contrast, the same court in Global Seafood Inc. v. Bantry Bay Mussels Ltd., 08-1358
, affirmed the refusal of the lower court to refer the parties to Ireland
because the clause was not exclusive, and the litigation continues in America.
The state of New York has a statute expressly dealing with those circumstances under which a New York court may not dismiss a case on the grounds of forum non conveniens
if the parties' contract provides that the agreed upon venue is a court in New York.
issued a draft convention on the enforcement of choice of court clauses.
Contract (conflict)
In the conflict of laws, the validity of a contract with one or more foreign law elements will be decided by reference to the so-called "proper law" of the contract.-History:...
with a conflict of laws
Conflict of laws
Conflict of laws is a set of procedural rules that determines which legal system and which jurisdiction's applies to a given dispute...
element allows the parties to agree that any litigation resulting from that contract will be initiated in a specific forum. There are three types of clause:
- the reference might be to a particular courtCourtA court is a form of tribunal, often a governmental institution, with the authority to adjudicate legal disputes between parties and carry out the administration of justice in civil, criminal, and administrative matters in accordance with the rule of law...
in a jurisdictionJurisdictionJurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility...
agreed upon by the parties (although, if the parties make a mistake as to the power of the nominated court to hear the matter, the civil procedureCivil procedureCivil procedure is the body of law that sets out the rules and standards that courts follow when adjudicating civil lawsuits...
s of the nominated jurisdiction will be applied to identify the appropriate court); or - the clause might refer to a specific kind of dispute resolutionDispute resolutionDispute resolution is the process of resolving disputes between parties.-Methods:Methods of dispute resolution include:* lawsuits * arbitration* collaborative law* mediation* conciliation* many types of negotiation* facilitation...
process, such as mediationMediationMediation, as used in law, is a form of alternative dispute resolution , a way of resolving disputes between two or more parties. A third party, the mediator, assists the parties to negotiate their own settlement...
, arbitrationArbitrationArbitration, a form of alternative dispute resolution , is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons , by whose decision they agree to be bound...
(see arbitration clauseArbitration clauseAn arbitration clause is a commonly used clause in a contract that requires the parties to resolve their disputes through an arbitration process...
, lex loci arbitriLex loci arbitriThe lex loci arbitri is the Latin term for "law of the place where arbitration is to take place" in the conflict of Laws. Conflict is the branch of public law regulating all lawsuits involving a "foreign" law element where a difference in result will occur depending on which laws are...
), or a hearing before a special refereeSpecial refereeIn law, a special referee acts as a judge on matters of fact only.-Explanation:In many instances, the interpretation of the specific statutes or case law relevant to a dispute is absolutely clear. The uncertainty between the parties lies in the facts. Hence, a special referee is an expert in the...
; or - the clause might refer to both, requiring a specific process to be carried out in a specific location.
A simple forum selection clause covering both the proper law of the contract and the forum for resolving disputes might read:
“This contract is governed by the laws of England and any dispute shall be finally resolved by the English courts.”
In many cross-border contracts, the forum for resolving disputes may not be the same as the country whose law governs the contract. And the contract may provide for a staged procedure for resolving disputes. For example:
“1.This agreement shall be governed by and interpreted in accordance with the laws of England.
2.The parties shall endeavour to settle any dispute that arises by direct negotiation between their managing directors or similar senior executives but if direct negotiation does not result in a resolution of the dispute, either Party may require that it be referred to mediation in accordance with the CEDR (Centre for Effective Dispute Resolution) Mediation Rules at present in force.
3. Any dispute that is not settled by direct negotiation or by mediation shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”
Discussion
The choice of lawChoice of law
Choice of law is a procedural stage in the litigation of a case involving the conflict of laws when it is necessary to reconcile the differences between the laws of different legal jurisdictions, such as sovereign states, federated states , or provinces...
stage in a conflict case requires the forum court to decide which of several competing law
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
s should be applied to resolve the dispute. In this, there is an important distinction to be made between a forum selection clause and a choice of law clause
Choice of law clause
A choice of law clause or proper law clause is a term of a contract in which the parties specify that any dispute arising under the contract shall be determined in accordance with the law of a particular jurisdiction.-Explanation:...
. As an application of the public policy
Public policy (law)
In private international law, the public policy doctrine or ordre public concerns the body of principles that underpin the operation of legal systems in each state. This addresses the social, moral and economic values that tie a society together: values that vary in different cultures and change...
of freedom of contract
Freedom of contract
Freedom of contract is the freedom of individuals and corporations to form contracts without government restrictions. This is opposed to government restrictions such as minimum wage, competition law, or price fixing...
, the parties are usually free to nominate the proper law
Proper law
The Doctrine of the Proper Law is applied in the choice of law stage of a lawsuit involving the conflict of laws.-Explanation:In a conflicts lawsuit, one or more state laws will be relevant to the decision-making process. If the laws are the same, this will cause no problems, but if there are...
under which all relevant disputes will be resolved. If there is an express selection, this choice will be respected so long as it is made bona fide
Bona Fide
Bona Fide is a studio album from rock band Wishbone Ash. It is the first studio album in six years and is the only studio album to feature guitarist Ben Granfelt...
, i.e. the subjective intention prevails unless the purpose is to:
- evadeEvasion (law)In law, the Doctrine of Evasion is a fundamental public policy. Whereas a person may legitimately plan his or her affairs so as to avoid the incidence of obligations or liabilities imposed by the law, no-one is allowed to evade the operation of otherwise mandatory provisions once duties and...
the operation of some mandatory provisions of a relevant law, - there was an element of fraudFraudIn criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
or duress or undue influenceUndue influenceUndue influence is an equitable doctrine that involves one person taking advantage of a position of power over another person. It is where free will to bargain is not possible.-Undue influence in contract law:...
involved in the signing of the contract, or - there was some other evidence of mala fides.
But, if the parties do no more than nominate a forum, this is no more than an indication that they intend that forum's law to apply. There are many reasons why parties may select a forum (see a discussion of forum shopping
Forum shopping
Forum shopping is the informal name given to the practice adopted by some litigants to get their legal case heard in the court thought most likely to provide a favorable judgment...
):
- the forum has established significant expertise in the relevant areas of law, e.g. shipping, charterparties, carriage by air, etc.;
- the standard of judicial decision making may be high:
- there may be no corruption or other outside influence to affect the fairness of the judgments;
- the proceduresProcedure (conflict)In all lawsuits involving conflict of laws, questions of procedure as opposed to substance are always determined by the lex fori, i.e. the law of the state in which the case is being litigated.-What issues are procedural?:...
may be efficient and minimise losses arising through any delay in arriving at a judgment; - all the major witnesses may be resident within the jurisdiction making the forum convenient (see forum non conveniensForum non conveniensForum non conveniens is a common law legal doctrine whereby courts may refuse to take jurisdiction over matters where there is a more appropriate forum available to the parties...
); etc.
If the parties have selected a jurisdiction as the place for the resolution of a dispute, the implication is that the courts may nevertheless apply their lex fori which includes their general choice of law principles. Thus, in the ordinary course of legal events, the forum court may identify and apply a foreign law as the proper law. The majority of professionally drafted contracts will address both issues, and contain clauses specifying both the forum and the law to be applied therein. The fact that the particular contract only specifies the forum therefore becomes highly revealing as implying that the parties intended to leave the choice of law issue to the forum nominated.
Forum selection clauses have been criticised by a minority of courts as improper attempts to divest them of personal jurisdiction over the parties. Because of this, some jurisdictions refuse to give effect to these clauses, declaring them to be void as against public policy. However, most jurisdictions now recognise and enforce forum selection clauses, so long as the parties were acting in good faith.
The situation in the U.S.
The United States Supreme Court has upheld forum selection clauses on several occasions, and has suggested that they should generally be enforced. See The Bremen v. Zapata Off-Shore CompanyThe Bremen v. Zapata Off-Shore Company
The Bremen v. Zapata Off-Shore Company, was a case decided by the United States Supreme Court, in which the court considered when a U.S. court should uphold the validity of a contractual forum selection clause....
, 407 U.S. 1
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
(1972); Carnival Cruise Lines, Inc. v. Shute
Carnival Cruise Lines, Inc. v. Shute
Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 , was a case in which the Supreme Court of the United States held that United States federal courts will enforce forum selection clauses so long as the clause is not unreasonably burdensome to the party seeking to escape it.-Facts:The plaintiffs,...
, 499 U.S. 585
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
(1991). The Bremen and Carnival Cruise cases, however, arose under the Court's admiralty jurisdiction, not under diversity of citizenship jurisdiction.
A court in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
will not necessarily honor a simple forum selection clause whereas it is likely to respect a clause that points to a specific forum with the express exclusion of others. Two October 2011 appellate rulings illustrate the difference. In Future Industries of America v. Advanced UV Light GmbH, 10-3928
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
, the United States Court of Appeals for the Second Circuit
United States Court of Appeals for the Second Circuit
The United States Court of Appeals for the Second Circuit is one of the thirteen United States Courts of Appeals...
in New York City affirmed the dismissal of a case which sent the parties to Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
because the forum selection clause made German courts the exclusive forum. By contrast, the same court in Global Seafood Inc. v. Bantry Bay Mussels Ltd., 08-1358
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
, affirmed the refusal of the lower court to refer the parties to Ireland
Ireland
Ireland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...
because the clause was not exclusive, and the litigation continues in America.
The state of New York has a statute expressly dealing with those circumstances under which a New York court may not dismiss a case on the grounds of forum non conveniens
Forum non conveniens
Forum non conveniens is a common law legal doctrine whereby courts may refuse to take jurisdiction over matters where there is a more appropriate forum available to the parties...
if the parties' contract provides that the agreed upon venue is a court in New York.
Proposed International Convention
In 2005, the Hague Conference on Private International LawHague Conference on Private International Law
The Hague Conference on Private International Law is the preeminent organisation in the area of private international law....
issued a draft convention on the enforcement of choice of court clauses.