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A forum selection clause (sometimes called a dispute resolution clause, choice of court clause, jurisdiction clause or an
arbitration clause
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 bind ...
, depending upon its form) in a
contract
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
with a
conflict of laws
Conflict of laws (also called private international law) is the set of rules or laws a jurisdiction applies to a case, transaction, or other occurrence that has connections to more than one jurisdiction. This body of law deals with three broad ...
element allows the parties to agree that any
disputes
Controversy is a state of prolonged public dispute or debate, usually concerning a matter of conflicting opinion or point of view. The word was coined from the Latin ''controversia'', as a composite of ''controversus'' – "turned in an opposite d ...
relating to that contract will be resolved in a specific forum. They usually operate in conjunction with a
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. An example is "This Agreem ...
which determines the
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
When the jurisdiction is in dispute, one or more state laws will be relevant to the decision-making process. If the law ...
of the relevant contract.
There are three principal types of clause:
* that all disputes must be litigated in a particular
court
A court is any person or institution, often as a government 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 ...
in a
jurisdiction
Jurisdiction (from Latin 'law' + 'declaration') is the legal term for the legal authority granted to a legal entity to enact justice. In federations like the United States, areas of jurisdiction apply to local, state, and federal levels.
Jur ...
agreed upon by the parties;
* that disputes must be resolved pursuant to a
dispute resolution process, such as
mediation
Mediation is a structured, interactive process where an impartial third party neutral assists disputing parties in resolving conflict through the use of specialized communication and negotiation techniques. All participants in mediation are ...
,
arbitration
Arbitration is a form of alternative dispute resolution (ADR) that resolves disputes outside the judiciary courts. The dispute will be decided by one or more persons (the 'arbitrators', 'arbiters' or 'arbitral tribunal'), which renders the ' ...
, or a hearing before a
special referee
In 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 ...
or expert determination; or
* the clause might refer to a combination, requiring a specific process to be carried out in a specific location, and if that process fails to resolve the issue, for litigation to be conducted in a particular court.
A simple forum selection clause covering both the proper law of the contract and the forum for resolving disputes might read:
When the clause chooses a particular jurisdiction for the resolution of disputes, it may do so either as an ''exclusive jurisdiction clause'' or a ''jurisdiction clause''. An exclusive jurisdiction clause mandates that all disputes must be resolved by a particular court, whereas jurisdiction confirms that a particular court may be used by the relevant parties, but does not preclude a party from commencing proceedings in another court if they wish to do so.
In many cross-border contracts, the forum for resolving disputes may not be the same as the country whose law governs the contract. The contract may provide for a staged procedure for resolving disputes. For example:
Discussion
The
choice 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 (as in t ...
stage in a conflict case requires the forum court to decide which of several competing
law
Law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior,Robertson, ''Crimes against humanity'', 90. with its precise definition a matter of longstanding debate. It has been vario ...
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
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. An example is "This Agreem ...
. As an application of the
public policy
Public policy is an institutionalized proposal or a decided set of elements like laws, regulations, guidelines, and actions to solve or address relevant and real-world problems, guided by a conception and often implemented by programs. Public p ...
of
freedom of contract
Freedom of contract is the process in which individuals and groups form contracts without government restrictions. This is opposed to government regulations such as minimum-wage laws, competition laws, economic sanctions, restrictions on pri ...
, the parties are usually free to nominate the
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
When the jurisdiction is in dispute, one or more state laws will be relevant to the decision-making process. If the 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
In human interactions, good faith ( la, bona fides) is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case ...
, 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
In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compens ...
or
duress
Coercion () is compelling a party to act in an involuntary manner by the use of threats, including threats to use force against a party. It involves a set of forceful actions which violate the free will of an individual in order to induce a desi ...
or
undue influence
Undue influence (UI) is a psychological process by which a person's free will and judgement is supplanted by that of another. It is a legal term and the strict definition varies by jurisdiction. Generally speaking, it is a means by which a pers ...
involved in the signing of the contract, or
*there was some other evidence of
mala fides
Bad faith (Latin: ''mala fides'') is a sustained form of deception which consists of entertaining or pretending to entertain one set of feelings while acting as if influenced by another."of two hearts ... a sustained form of deception which ...
.
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 is a colloquial term for the practice of litigants having their legal case heard in the court thought most likely to provide a favorable judgment. Some jurisdictions have, for example, become known as "plaintiff-friendly" and so h ...
):
*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
Procedure may refer to:
* Medical procedure
* Instructions or recipes, a set of commands that show how to achieve some result, such as to prepare or make something
* Procedure (business), specifying parts of a business process
* Standard opera ...
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
''Forum non conveniens'' (Latin for "an inconvenient forum") (FNC) is a mostly common law legal doctrine through which a court acknowledges that another forum or court where the case might have been brought is a more appropriate venue for a legal ...
); 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.
Where a contract does not contain a forum selection clause, the defendant may bring an action to have the plaintiff's action stayed based on the fact that the selected forum is not convenient (
forum non conveniens
''Forum non conveniens'' (Latin for "an inconvenient forum") (FNC) is a mostly common law legal doctrine through which a court acknowledges that another forum or court where the case might have been brought is a more appropriate venue for a legal ...
).
Forum selection clauses have been criticised by a minority of courts as improper attempts to divest them of
personal jurisdiction
Personal jurisdiction is a court's jurisdiction over the ''parties'', as determined by the facts in evidence, which bind the parties to a lawsuit, as opposed to subject-matter jurisdiction, which is jurisdiction over the ''law'' involved in the ...
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.
Effect of breach
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.
Such clauses are sometimes enforced against proceedings in foreign courts by use of an
anti-suit injunction
In the area of conflict of laws, an anti-suit injunction is an order issued by a court or arbitral tribunal that prevents an opposing party from commencing or continuing a proceeding in another jurisdiction or forum. If the opposing party contrav ...
.
Although it is theoretically possible to sue for damages for bringing proceedings in breach of a jurisdiction clause, examples are rare.
Related clauses
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 (''
service ex juris'')
* waiver of any objection to the chosen forum - for example, parties may add a clause where each party waives their right to assert ''
forum non conveniens
''Forum non conveniens'' (Latin for "an inconvenient forum") (FNC) is a mostly common law legal doctrine through which a court acknowledges that another forum or court where the case might have been brought is a more appropriate venue for a legal ...
''. This precludes or limits the ability of litigants 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
A jury is a sworn body of people (jurors) convened to hear evidence and render an impartiality, impartial verdict (a Question of fact, finding of fact on a question) officially submitted to them by a court, or to set a sentence (law), penalty o ...
in the relevant forum - especially if the chosen forum is in the United States
*an
arbitration clause
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 bind ...
requiring the parties to resolve their disputes through arbitration in the appropriate forum
* 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
Sovereign immunity, or crown immunity, is a legal doctrine whereby a sovereign or state cannot commit a legal wrong and is immune from civil suit or criminal prosecution, strictly speaking in modern texts in its own courts. A similar, stronger ...
which a party might have the benefit of
Clauses in void contracts
Despite the general rule that if a contract is
void
Void may refer to:
Science, engineering, and technology
* Void (astronomy), the spaces between galaxy filaments that contain no galaxies
* Void (composites), a pore that remains unoccupied in a composite material
* Void, synonym for vacuum, a ...
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.
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. The legality of asymmetric clauses differs in various legal system. For example, they are generally enforceable under English law, but not under French law.
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".
The situation in the U.S.
The
United States Supreme Court
The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point o ...
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
''The Bremen v. Zapata Off-Shore Company'', 407 U.S. 1 (1972), was a United States Supreme Court case in which the Court considered when a U.S. court should uphold the validity of a contractual forum selection clause.
The parties had entered into ...
'',
407 U.S. 1 (1972); ''
Carnival Cruise Lines, Inc. v. Shute
''Carnival Cruise Lines, Inc. v. Shute'', 499 U.S. 585 (1991), 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 burdens ...
'',
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
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
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
The United States Court of Appeals for the Second Circuit (in case citations, 2d Cir.) is one of the thirteen United States Courts of Appeals. Its territory comprises the states of Connecticut, New York and Vermont. The court has appellate juri ...
in New York City affirmed the dismissal of a case that sent the parties to
Germany
Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated betwe ...
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
Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic Ocean, in Northwestern Europe, north-western Europe. It is separated from Great Britain to its east by the North Channel (Grea ...
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'' (Latin for "an inconvenient forum") (FNC) is a mostly common law legal doctrine through which a court acknowledges that another forum or court where the case might have been brought is a more appropriate venue for a legal ...
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.
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'') 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. 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.'' and ''Roby v. Lloyd’s''. Writing in ''International Aspects of U.S. Litigation'', 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.
The Situation in Canada
Forum selection clauses were addressed by the
Supreme Court of Canada
The Supreme Court of Canada (SCC; french: Cour suprême du Canada, CSC) is the Supreme court, highest court in the Court system of Canada, judicial system of Canada. It comprises List of Justices of the Supreme Court of Canada, nine justices, wh ...
in ''Z.I. Pompey v ECU Line,'' 2003 SCC 27. The dispute arose after a breach of a
bill of lading
A bill of lading () (sometimes abbreviated as B/L or BOL) is a document issued by a carrier (or their agent) to acknowledge receipt of cargo for shipment. Although the term historically related only to carriage by sea, a bill of lading may toda ...
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.”
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.
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.
Specific Issues
Commercial Contracts
Forum selection clauses in a commercial contract are typically strictly enforced. In ''Expedition Helicopters Inc. v Honeywell Inc''.
010 ONCA 51 the
Ontario Court of Appeal
The Court of Appeal for Ontario (frequently referred to as the Ontario Court of Appeal or ONCA) is the appellate court for the province of Ontario, Canada. The seat of the court is Osgoode Hall in downtown Toronto, also the seat of the Law Societ ...
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.
Consumer Contracts
In ''Douez v Facebook,'' 2017 SCC 33, the
Supreme Court of Canada
The Supreme Court of Canada (SCC; french: Cour suprême du Canada, CSC) is the Supreme court, highest court in the Court system of Canada, judicial system of Canada. It comprises List of Justices of the Supreme Court of Canada, nine justices, wh ...
refused to enforce a forum selection clause between
Facebook
Facebook is an online social media and social networking service owned by American company Meta Platforms. Founded in 2004 by Mark Zuckerberg with fellow Harvard College students and roommates Eduardo Saverin, Andrew McCollum, Dustin M ...
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.
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. Justice Abella found that the contract was
unconscionable
Unconscionability (sometimes known as unconscionable dealing/conduct in Australia) is a doctrine in contract law that describes terms that are so extremely unjust, or overwhelmingly one-sided in favor of the party who has the superior bargaining ...
and thus unenforceable under step one of the ''Pompey'' test.
In ''
Uber Technologies Inc. v Heller'', 2020 SCC 16, the
Supreme Court of Canada
The Supreme Court of Canada (SCC; french: Cour suprême du Canada, CSC) is the Supreme court, highest court in the Court system of Canada, judicial system of Canada. It comprises List of Justices of the Supreme Court of Canada, nine justices, wh ...
also refused to enforce an
arbitration clause
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 bind ...
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
Unconscionability (sometimes known as unconscionable dealing/conduct in Australia) is a doctrine in contract law that describes terms that are so extremely unjust, or overwhelmingly one-sided in favor of the party who has the superior bargaining ...
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
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 (as in t ...
, forum selection and
forced arbitration clauses can deprive parties of possible remedies thus violating their reasonable expectations.
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.
Proposed international convention
In 2005, the
Hague Conference on Private International Law
The Hague Conference on Private International Law (HCCH) is an intergovernmental organisation in the area of private international law (also known as ''conflict of laws''), that administers several international conventions, protocols and soft ...
issued the
Hague Choice of Court Convention
The Hague choice of court convention, formally the Convention of 30 June 2005 on Choice of Court Agreements, is an international treaty concluded within the Hague Conference on Private International Law. It was concluded in 2005, and entered into ...
. The Hague Convention does not apply to disputes involving consumers. For example, Quebec's Consumer Protection Act
References
{{DEFAULTSORT:Forum Selection Clause
Contract law
Conflict of laws
Contract clauses
Venue (law)