Forum selection clause

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Forum selection clauses often gravitate towards the courts of large commercial centres, like London, New York (pictured) and Hong Kong. New York Supreme Court at 60 Centre Street.jpg
Forum selection clauses often gravitate towards the courts of large commercial centres, like London, New York (pictured) and Hong Kong.

In contract law, a forum selection clause (sometimes called a dispute resolution clause, choice of court clause, governing law clause,jurisdiction clause or an arbitration clause , depending on its form) in a contract with a conflict of laws element allows the parties to agree that any disputes relating to that contract will be resolved in a specific forum. They usually operate in conjunction with a choice of law clause which determines the proper law of the relevant contract.

Contents

Forms

Forum selection clauses may seek to restrict the choice of forum for litigation in three ways:

A simple forum selection clause covering both the proper law of the contract and the forum for resolving disputes might provide:

This contract is governed by the laws of England and any dispute shall be finally resolved by the English courts.

When defining a particular jurisdiction for the resolution of disputes, a forum selection clause may take one of two forms:

Asymmetric clauses

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. These are various called "option clauses", "asymmetric clauses" or "hybrid clauses".

The validity of asymmetric clauses differs in various legal system. For example, they are generally enforceable under English law, but not under French law. [2] [3]

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. [4]

Procedure

Within the context of litigation, when an issue may be subject to being resolved under the laws of more than one jurisdiction, the Court must engage in a choice of law analysis in order to decide which of several competing laws should be applied to resolve the dispute.

If the parties have selected a jurisdiction as the place for the resolution of a dispute, the court hearing the litigation may nevertheless apply the laws of the forum (lex fori), including general choice of law principles. Thus, the forum court may identify and apply a foreign law as the proper law for resolution of the dispute. The parties will thus often also include a choice of law clause within their contract, so as to specify both the forum and the law to be applied therein. If a contract only specifies the forum, the absence of a choice of law clause suggests that the parties intended that choice of law issues be decided according to the laws of the forum.

Examples of reasons for selecting a specific forum include:

not convenient]] such that the case should be transferred to a different forum.

Enforceability

Forum selection clauses have been criticised by a minority of courts as improper attempts to divest them of personal jurisdiction over the parties. Some jurisdictions refuse to give effect to these clauses, declaring them to be void as against public policy. However, most jurisdictions recognize and enforce forum selection clauses, as long as the parties made the selection in good faith. If the parties make an express selection, this choice will be respected by a court as long as it is a bona fide choice. A court may decline to uphold such an agreement for reasons including:

Unlike most contractual clauses, a choice of forum clause may remain enforceable even after a contract is determined to be void. Many legal systems, including English law, provide that jurisdiction and arbitration clauses may still be enforced even when the party relying upon the clause asserts that the contract as a whole is void. [5] [6]

Effect of breach

The existence of a forum selection clause in an agreement normally enables a court to take jurisdiction in a particular matter. When.a party commences litigation in a different forum, the clause may persuade the court to decline jurisdiction. [7]

Forum selection clauses are sometimes enforced against proceedings filed in foreign courts by use of an anti-suit injunction. [8]

Although it is theoretically possible to sue for damages for bringing proceedings in breach of a jurisdiction clause, such claims are rare. [9]

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:

Worldwide

Canada

Forum selection clauses were addressed by the Supreme Court of Canada in Z.I. Pompey v ECU Line, 2003 SCC 27. The dispute arose after a breach of a bill of lading resulted in damage to equipment in transit. The exclusive forum selection clause indicated that any claims had to be brought forth in Antwerp. The Supreme Court endorsed forum selection clauses for providing "certainty and security in transaction". [10] The Court reaffirmed the strong cause test found in the English Eleftheri case.

Absent other applicable legislation, the Pompey Test asks whether there is an enforceable contract binding the parties. If there is, the court must grant a stay unless the plaintiff demonstrates sufficiently strong reasons to show that they should not be bound by the forum selection clause. [11] The Court, in exercising its discretion, should consider factors such as: where evidence is situated or more readily available, whether foreign law applies and whether it differs from domestic law, the country with which the parties are connected and how closely, whether the defendants are seeking procedural advantages, and whether the plaintiffs would be prejudiced by the need to sue in a foreign court. [10]

Specific issues

Commercial contracts

Forum selection clauses in a commercial contract are typically strictly enforced. In Expedition Helicopters Inc. v Honeywell Inc. [2010 ONCA 51], the Ontario Court of Appeal outlined factors which may justify departing from enforcement including: the plaintiff was induced to agree to the clause, the contract is otherwise unenforceable, the selected forum is unwilling or unable to accept jurisdiction, the claim or circumstances are outside of what was reasonably contemplated by the parties in agreeing to the clause, the plaintiff cannot longer expect a fair trial in the forum due to subsequent events that could not have been reasonably anticipated, or the enforcement of the clause would frustrate clear public policy. [12]

Consumer contracts

In Douez v Facebook, 2017 SCC 33, the Supreme Court of Canada refused to enforce a forum selection clause between Facebook and a class of users. The plurality of the Court found that the contract was enforceable. However, the plaintiff met the burden of demonstrating strong cause as to why the clause should not be enforced. [11] Factors considered in the majority's decision included: the nature of the right (constitutional right to privacy), the gross inequality of bargaining power between the parties, the lack of alternatives for the consumers, the interest of the courts, clarity and certainty. Secondary factors included the relative cost and inconvenience to parties as well as the purpose and intent of the legislation. [13] Justice Abella found that the contract was unconscionable and thus unenforceable under step one of the Pompey test. [11]

In Uber Technologies Inc. v Heller , 2020 SCC 16, the Supreme Court of Canada also refused to enforce an arbitration clause between Uber and a class of drivers. The clause indicated that disputes were to be resolved by arbitration in the Netherlands. The majority held the clause was unconscionable and thus unenforceable. They assert that standard form contracts can create inequality of bargaining power between the parties. The Court asserted that choice of law, forum selection and forced arbitration clauses can deprive parties of possible remedies thus violating their reasonable expectations. [14]

Consumer contracts (Quebec)

Quebec's Civil Code renders forum-selection and arbitration clauses in consumer and employment contracts unenforceable. In consumer transactions involving Quebec residents, Article 3149 provides jurisdiction to Quebec Courts to hear the dispute. [15]

United States

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); Atlantic Marine Construction Co. v. U.S. District Court for the Western District of Texas, 571 U.S. 49 (2013). 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 typically distinguish between exclusive and non-exclusive forum selection clauses. Two October 2011 appellate rulings illustrate the difference. In Future Industries of America v. Advanced UV Light GmbH, 10–3928, [16] 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, [17] affirmed the refusal of the lower court to refer the parties to Ireland because the clause was not exclusive.

The state of New York has a statute that directs New York courts not to 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. [18] Other states have enacted similar statutes directing their courts to enforce forum selection clauses choosing their own courts. [19]

It is common for U.S. states to enact statutes directing their courts not to enforce a forum selection clause choosing the courts of another jurisdiction when the clause is written into a particular type of contract. [20] In Minnesota, for example, an outbound forum selection clause is not enforceable when it is written into a construction contract, a consumer lease, a consumer short-term loan, a covenant not to compete, a franchise agreement, a motor-vehicle franchise agreement, or a sales representative agreement. [20] These invalidating statutes are routinely enforced by state courts. [21] These same statutes are, however, sometimes ignored by federal courts that take the position that federal law (not state law) should govern the question of whether a forum selection clause is enforceable. [22] In one 2024 case, a federal court in Puerto Rico enforced a Massachusetts forum selection clause in a distribution agreement even though enforcement ran directly contrary to Puerto Rico public policy and the clause would not have been enforced by a commonwealth court. [23]

Empirical studies have found that U.S. court enforce outbound forum selection clauses in the overwhelming majority of cases where they are challenged. [24] [21] [25]

Specific issues

Corporate bylaws

Prior to 2010, it was uncommon for American corporations to insert forum selection clauses in their bylaws. But that situation changed. Surveying the case law in 2015, Bonnie Roe, Daniel Tabak, and Jonathan Hofer have argued (in Lexology) [26] that forum selection bylaws have become an established part of corporate governance in only a few short years. Their conclusion is that a board of directors adopting a forum selection bylaw "can reasonably expect" that the bylaw will be enforced.

Consumer contracts

The enforceability of forum selection clauses in the consumer field is controversial. Many opponents of enforcement argue that the contracts that include such forum selection clause are contracts of "adhesion". This position is well summarized in an article in the Chicago-Kent Law Review by Marty Gould, who argues that, unlike most federal courts – which have enforced such clauses in the consumer context – a state court in Illinois correctly refused enforcement in connection with a claim relating to an online dating service contract. [27] Proponents of enforceability take issue with the assertion of "adhesion".

Scope of a forum selection clause

Courts are often required to determine whether a forum clause covers all parties (including non-signatories) to a transaction. Many courts resolve the scope issue by applying the "closely related" test. See e.g. Manetti-Farrow, Inc. v. Gucci America, Inc. [28] and Roby v. Lloyd’s. [29] Writing in International Aspects of U.S. Litigation, [30] Eric Sherby argues that most courts that have addressed the issue have glossed over the circular nature of the finding of "closely related" and that even those few judicial decisions that evince an awareness of the circularity problem have themselves fallen into the circular reasoning trap.

Franchise and dealership disputes

A number of American states have enacted statutes that require franchisors to agree to litigate disputes with franchisees in-state. Those states include California, Wisconsin, and New Jersey. Although not all of these statutes contain language of exclusivity, the case law has generally interpreted these statutes as invalidating contractual clauses that require disputes to be resolved out of the franchisee's home state. [31]

Proposed international convention

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, for example Quebec's Consumer Protection Act.

Related Research Articles

Arbitration, in the context of the law of the United States, is a form of alternative dispute resolution. Specifically, arbitration is an alternative to litigation through which the parties to a dispute agree to submit their respective evidence and legal arguments to a third party for resolution. In practice, arbitration is generally used as a substitute for litigation. In some contexts, an arbitrator has been described as an umpire. Arbitration is broadly authorized by the Federal Arbitration Act. State regulation of arbitration is significantly limited by federal legislation and judicial decisions applying that law.

In contract law, 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. It determines the controlling law: the state which will be relied upon in settling disputes. An example is "This Agreement shall be governed by, and construed in accordance with, the law of the State of New York."

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. The outcome of this process is potentially to require the courts of one jurisdiction to apply the law of a different jurisdiction in lawsuits arising from, say, family law, tort, or contract. The law which is applied is sometimes referred to as the "proper law." Dépeçage is an issue within choice of law.

In law, a special referee acts as a judge on matters of fact only.

<span class="mw-page-title-main">Arbitration clause</span> Contract clause requiring parties to resolve disputes via arbitration

In contract law, an arbitration clause is a clause in a contract that requires the parties to resolve their disputes through an arbitration process. Although such a clause may or may not specify that arbitration occur within a specific jurisdiction, it always binds the parties to a type of resolution outside the courts, and is therefore considered a kind of forum selection clause.

International arbitration can refer to arbitration between companies or individuals in different states, usually by including a provision for future disputes in a contract or between different states qua states.

In law, severability refers to a provision in a contract or piece of legislation which states that if some of the terms are held to be illegal or otherwise unenforceable, the remainder should still apply. Sometimes, severability clauses will state that some provisions to the contract are so essential to the contract's purpose that if they are illegal or unenforceable, the contract as a whole will be voided. However, in many legal jurisdictions, a severability clause will not be applied if it changes the fundamental nature of the contract, and that instead the contract will be void; thus, often this is not explicitly stated in the severability clause.

<span class="mw-page-title-main">Arbitration</span> Method of dispute resolution

Arbitration is a formal method of dispute resolution involving a third party neutral who makes a binding decision. The third party neutral renders the decision in the form of an 'arbitration award'. An arbitration award is legally binding on both sides and enforceable in local courts, unless all parties stipulate that the arbitration process and decision are non-binding.

<span class="mw-page-title-main">Canadian contract law</span> Overview of contract law in Canada

Canadian contract law is composed of two parallel systems: a common law framework outside Québec and a civil law framework within Québec. Outside Québec, Canadian contract law is derived from English contract law, though it has developed distinctly since Canadian Confederation in 1867. While Québecois contract law was originally derived from that which existed in France at the time of Québec's annexation into the British Empire, it was overhauled and codified first in the Civil Code of Lower Canada and later in the current Civil Code of Quebec, which codifies most elements of contract law as part of its provisions on the broader law of obligations. Individual common law provinces have codified certain contractual rules in a Sale of Goods Act, resembling equivalent statutes elsewhere in the Commonwealth. As most aspects of contract law in Canada are the subject of provincial jurisdiction under the Canadian Constitution, contract law may differ even between the country's common law provinces and territories. Conversely; as the law regarding bills of exchange and promissory notes, trade and commerce, maritime law, and banking among other related areas is governed by federal law under Section 91 of the Constitution Act, 1867; aspects of contract law pertaining to these topics are harmonised between Québec and the common law provinces.

Alternative dispute resolution (ADR), or external dispute resolution (EDR), typically denotes a wide range of dispute resolution processes and techniques that parties can use to settle disputes with the help of a third party. They are used for disagreeing parties who cannot come to an agreement short of litigation. However, ADR is also increasingly being adopted as a tool to help settle disputes within the court system.

Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), is a United States Supreme Court case concerning contract law and arbitration. The case arose from a class action filed in Florida against a payday lender alleging the loan agreements the plaintiffs had signed were unenforceable because they essentially charged a higher interest rate than that permitted under Florida law.

<span class="mw-page-title-main">Contract</span> Legally binding document establishing rights and duties between parties

A contract is an agreement that specifies certain legally enforceable rights and obligations pertaining to two or more parties. A contract typically involves consent to transfer of goods, services, money, or promise to transfer any of those at a future date. The activities and intentions of the parties entering into a contract may be referred to as contracting. In the event of a breach of contract, the injured party may seek judicial remedies such as damages or equitable remedies such as specific performance or rescission. A binding agreement between actors in international law is known as a treaty.

Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), is a United States Supreme Court decision that established what has become known as the "separability principle" in contracts with arbitration clauses. Following an appellate court ruling a decade earlier, it reads the 1925 Federal Arbitration Act (FAA) to require that any challenges to the enforceability of such a contract first be heard by an arbitrator, not a court, unless the claim is that the clause itself is unenforceable.

Southland Corp. v. Keating, 465 U.S. 1 (1984), is a United States Supreme Court decision concerning arbitration. It was originally brought by 7-Eleven franchisees in California state courts, alleging breach of contract by the chain's then parent corporation. Southland pointed to the arbitration clauses in their franchise agreements and said it required disputes to be resolved that way; the franchisees cited state franchising law voiding any clause in an agreement that required franchisees to waive their rights under that law. A 7-2 majority held that the Federal Arbitration Act (FAA) applied to contracts executed under state law.

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), is a United States Supreme Court decision concerning arbitration of antitrust claims. The Court heard the case on appeal from the United States Court of Appeals for the First Circuit, which had ruled that the arbitration clause in a Puerto Rican car dealer's franchise agreement was broad enough to reach its antitrust claim. By a 5–3 margin it upheld the lower court, requiring that the dealer arbitrate its claim before a panel in Tokyo, as stipulated in the contract.

Disputes between consumers and businesses that are arbitrated are resolved by an independent neutral arbitrator rather than in court. Although parties can agree to arbitrate a particular dispute after it arises or may agree that the award is non-binding, most consumer arbitrations occur pursuant to a pre-dispute arbitration clause where the arbitrator's award is binding.

<i>In re Zappos.com, Inc., Customer Data Security Breach Litigation</i>

In re Zappos.com, Inc., Customer Data Security Breach Litigation, 893 F. Supp. 2d 1058, was a United States District Court for the District of Nevada case in which the Court held that Zappos.com's customers were not held to the browsewrap terms of use because of their obscure nature. The courts also held that the agreement was unenforceable because Zappos had reserved the right to change it at any time without informing the customers. This court decision set a precedent for businesses that use browsewrap agreements and/or include a clause in their agreements that allow them to change the agreements at any time. The decision encouraged conversation on how a business should most fairly display its terms of use and how to avoid unfairness and ambiguity when writing them.

<i>Uber Technologies Inc v Heller</i> Supreme Court of Canada case

Uber Technologies Inc v Heller, 2020 SCC 16, is a 2020 decision of the Supreme Court of Canada. The Court held 8–1 that an arbitration clause in a contract the plaintiff David Heller had signed with Uber was unconscionable, and hence unenforceable. As a result, it held that Heller's proposed class action lawsuit against Uber could go forward.

<span class="mw-page-title-main">Douez v Facebook</span> Supreme Court of Canada case

Douez v Facebook Inc., 2017 SCC 33 is a Supreme Court of Canada case which analyzes the enforceability of forum selection clauses in consumer facing contracts.

<i>Peace River Hydro Partners v Petrowest Corp</i> Supreme Court of Canada case

Peace River Hydro Partners v Petrowest Corp, 2022 SCC 41 is a case of the Supreme Court of Canada on the applicability of arbitration laws on the authority of a receiver appointed under the Bankruptcy and Insolvency Act.

References

  1. ↑ "Governing Law and Choice of Forum Clauses Explained | LexisNexis Canada". www.lexisnexis.ca. Retrieved 2021-02-18.
  2. ↑ "Asymmetric jurisdiction clauses protected by Brussels Recast anti-torpedo rules". Allen & Overy. 27 March 2017. Retrieved 28 September 2017.
  3. ↑ "The validity of unilateral "hybrid jurisdiction" clauses has become less certain under French law". Norton Rose. Retrieved 28 September 2017.
  4. ↑ Claudio Perrella (8 April 2013). "Italian Supreme Court Considers Unilateral Jurisdiction Clauses". Mondaq. Retrieved 28 September 2017.
  5. ↑ "Court has jurisdiction even when the underlying contract is void". Allen & Overy. 6 November 2008. Retrieved 28 September 2017.
  6. ↑ "Relying on an exclusive jurisdiction clause in a disputed contract". Kennedys. 18 December 2015. Retrieved 28 September 2017. (Singapore)
  7. ↑ Cooper Grace Ward (27 July 2016). "Foreign judgments, foreign contracts and dangers of jurisdiction clauses". Lexology.
  8. ↑ See for example the decision of the United Kingdom Supreme Court in Ust-Kamenogorsk Hydropower Plant JSC v AES Ust-Kamenogorsk Hydropower Plant LLP [2013] UKSC 35 and the Privy Council in Société Nationale Industrielle Aérospatiale v Lee Kui Jak [1987] UKPC 12.
  9. ↑ Gisele Ruehl (31 July 2014). "English Court of Appeal confirms Damages Award for Breach of a Jurisdiction Agreement".
  10. 1 2 Canada, Supreme Court of (2001-01-01). "Supreme Court of Canada - SCC Case Information - Search". scc-csc.lexum.com. Retrieved 2021-02-18.
  11. 1 2 3 "Douez v Facebook: Forum Selection Clauses in Contracts of Adhesion". TheCourt.ca. 2016-11-17. Retrieved 2021-02-18.
  12. ↑ Monestier, Tanya (2018). "Forum Selection Clauses and Consumer Contracts in Canada". Boston University International Law Journal.
  13. ↑ www.airdberlis.com. "Forum Selection Clauses in Canada: Enforceability in Consumer Contracts May be an Issue after Recent Supreme Court of Canada Decision". Aird Berlis. Retrieved 2021-03-04.
  14. ↑ "Uber Technologies v Heller". CanLii. 2020.
  15. ↑ "Contracting Out of Access to Justice: Enforcement of Forum-Selection Clauses in Consumer Contracts". McGill Law Journal. Retrieved 2021-03-04.
  16. ↑ US Court of Appeals document [ dead link ]
  17. ↑ Court document uscourts.gov Archived 2012-04-14 at the Wayback Machine
  18. ↑ "NYS Open Legislation | NYSenate.gov". www.nysenate.gov. Retrieved 2024-11-14.
  19. ↑ Coyle, John; Richardson, Katherine C. (May 2021). "Enforcing Inbound Forum Selection Clauses in State Court". Arizona State Law Journal. 53: 65.
  20. 1 2 "Statutes Directing Courts to Ignore Forum Selection Clauses". Transnational Litigation Blog. Retrieved 2024-11-14.
  21. 1 2 Coyle, John; Richardson, Katherine (2021-07-01). "Enforcing Outbound Forum Selection Clauses in State Court". 96 Indiana Law Journal 1089 (2021). 96 (4). ISSN   0019-6665.
  22. ↑ "Erie and Forum Selection Clauses". Illinois Law Review. 2024-07-01. Retrieved 2024-11-14.
  23. ↑ Coyle, John F. (2024-10-22). "Puerto Rico, Law 75, and Forum Selection Clauses". Transnational Litigation Blog. Retrieved 2024-11-14.
  24. ↑ ""Contractually Valid" Forum Selection Clauses | Iowa Law Review - The University of Iowa". ilr.law.uiowa.edu. Retrieved 2024-11-14.
  25. ↑ Coyle, John F. (2023-05-17). "Data on the Enforcement of Forum Selection Clauses". Transnational Litigation Blog. Retrieved 2024-11-14.
  26. ↑ "Forum selection bylaws continue to gain ground, but questions remain". July 2015.
  27. ↑ Marty Gould, "The Conflict Between Forum-Selection Clauses and State Consumer Protection Laws: Why Illinois Got It Right in Jane Doe v. Match.com", 90 Chi.-Kent. L. Rev. 671 (2015).
  28. ↑ Manetti-Farrow, Inc. v. Gucci America, Inc., 858F.2d509 (9th Cir.1988).
  29. ↑ Roby v. Lloyd's, 996F.2d1353 (2d Cir.1993).
  30. ↑ Sherby, Eric. "Forum Selection Clauses In International Commerce". In Berger, James, International Aspects of U.S. Litigation. American Bar Association. pp. 292–293. ISBN   978-1-63425-558-5 (hereinafter: "Sherby").
  31. ↑ Sherby, pp. 276–278.
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