Forum selection clause

The choice of law stage in a conflict case requires the forum court to decide which of several competing laws 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:

• evade the operation of some mandatory provisions of a relevant law,
• there was an element of fraud or duress or undue influence involved in the signing of the contract, or
• there was some other evidence of mala fides.

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):

• 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 procedures 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 conveniens); 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.

Although most contractual clauses are enforced by way of either an award of damages for breach or by an injunction to restrain breach, the operation of jurisdiction clauses tends to operate at the interlocutory stage of a dispute. The existence of a jurisdiction clause in an agreement will normally operate to enable a court to take jurisdiction in a particular matter, or may provide strong grounds for another court (not the chosen court) to decline jurisdiction.[1]

Such clauses are sometimes enforced against proceedings in foreign courts by use of an anti-suit injunction.[2]

Although it is theoretically possible to sue for damages for bringing proceedings in breach of a jurisdiction clause, examples are rare.[3]

In a complex agreement the forum selection clause will often be accompanied by a number of related clauses (either in the same contract or in a collateral document). These may include:

• appointment of an agent to receive service of process in the relevant jurisdiction - this facilitates initiating process and avoids the need to make an application to court for leave to serve a defendant out of the jurisdiction
• waiver of any objection to the chosen forum - this helps to preclude or limit the ability of a litigant to apply for proceedings to be stayed or dismissed on the grounds that they have been brought in an inappropriate forum
• contractual submission to the relevant jurisdiction - this assists in any application to enforce a subsequent judgment in another state
• waiver of a right to trial by jury in the relevant forum - especially if the chosen forum is in the United States
• waiver of other procedural provisions which might apply to foreign litigants, such as the right the request they post security for costs
• waiver of any applicable sovereign immunity which a party might have the benefit of

Despite the general rule that if a contract is void each of the individual clauses in the contract are void, numerous legal systems, including English law, provide that jurisdiction and arbitration clauses are a special case, and that such clauses may still be relied upon even when it is part of the case of the person relying upon them that the contract is void.[4][5]

Typically a forum selection clause applies to all parties to the contract. However it is possible for a contract to state that if A wishes to sue B, then one procedure applies, and if B wishes to sue A, a different procedure applies. The legality of asymmetric clauses differs in various legal system. For example, they are generally enforceable under English law, but not under French law.[6][7]

Similarly, one party may be afforded alternative dispute resolution options. For example, a loan agreement may provide that if the borrower wishes to bring proceedings against the lender, that can only be done by way of arbitration. But if the lender wishes to make a claim against the borrower they may do so by way of arbitration or by proceedings in a certain court. These are various called "option clauses", "asymmetric clauses" or "hybrid clauses".[8]

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 Company, 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, [9] the United States Court of Appeals for the Second Circuit in New York City affirmed the dismissal of a case that 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, [10] 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 and if the transaction involved an amount more than $1 million.

Currently, a U.S. Circuit Court split is emerging over whether forum selection clauses in a contract supersede pre-existing arbitration clauses in regulatory membership rules, such as FINRA.[11]

In 2005, the Hague Conference on Private International Law issued the Hague Choice of Court Convention. The Hague Convention does not apply to disputes involving consumers.