Why a Good Forum Selection Provision is Incredibly Important

One of my law firm’s international attorneys got an email from a small tech company in China asking whether its contract should call for Chinese or Malaysian law. Our response was that it would depend on what was in the contract and what was most important to the tech company. There is no way to know what law is best for a contract without knowing what really matters in the contract and what really matters to the parties to the contract. Our response also mentioned that the choice of the forum for any dispute between the contract parties could be as or even more important.

My international law firm has easily made six figures over the last couple years fighting over badly written forum selection clauses in international contracts.

Here are the contracts that generated our fees:

1. One international contract had a provision calling for international arbitration before the Geneva Chamber of Commerce. Problem was the Geneva Chamber of Commerce did not do international arbitration.

2. One international contract had a provision calling for arbitration of “all disputes” arising out of the contract. We seized the other side’s assets in Korea as security for arbitration claims in the United States. The Russian company whose assets we seized claimed we could not do that because all disputes needed to be resolved in the United States. We eventually prevailed on this issue by arguing that our seizure of assets was not to resolve any dispute, it was to protect any eventual arbitration award. Our client could have avoided avoided all this by explicitly putting into the contract the right to seize property as security anywhere in the world.

3. Our international dispute resolution lawyers are handling a case right now (so I cannot discuss it other than very broadly) that caused us to review a case, Phillips v Audio Active Ltd., 494 F.3d 378 (2d Cir. 2007), where the Second Circuit Court of Appeals (this is one level down from the US Supreme Court) held that a contractual provision stating that proceedings “are to be brought in England” meant England was an “obligatory venue,” in contrast to a previous case where the provision “any dispute shall come within the jurisdiction of the Greek Courts” was held not to require litigation in Greece, but merely to give the parties the choice to use Greece as their litigation forum.

4. My law firm’s international dispute resolution team is working on a massive case where it will be arguing that the defendants’ failure to use the standard language to describe what should be covered by arbitration means defendants actually intended only contract claims (and no other claims between the parties) to be arbitrated.

Putting in a choice of law provision is not the same thing as a forum selection clause. Not even close. Putting a provision in your contract that United States law will apply does not mean the parties must bring their lawsuit in the United States. Indeed, it does not even mean either party can bring its lawsuit in the United States. Courts all over the world can and do often handle cases using the laws of foreign countries.

Putting in a provision setting forth the applicable law is not a way to define where the litigation or arbitration should or must occur.

The above cases highlight why forum selection clauses matter and how badly written ones can cost you real money. The solution is to figure out exactly what you intend in terms of where you want your case resolved and then be sure your contract, as drafted, actually reflects that.

Related Posts