Foreign Forum Selection Clauses: Limitations On Enforceability

Author:Mr Aaron Gruber and Caroline N. Mitchell
Profession:Jones Day
 
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A well-drafted forum selection clause can provide companies and individuals, especially those dealing in an international market, with certainty about the location of litigation arising out of a contractual relationship. While these clauses sometime identify a neutral jurisdiction, frequently the choice of the location is offered in negotiation by "outside" entities to obtain access to a foreign market where the native participants may not contract internationally if they believe they could be sued in a jurisdiction other than the one of their choosing. As part of this process, the "outside" entity must perform a cost-benefit analysis based on the foreign jurisdiction's then current legal structure to determine if the forum is an acceptable venue for any future litigation. However, jurisdictions can and do (sometimes frequently) suffer political change and, as a result, changes in official attitudes toward foreign investment. If such a change occurs, it is vital for a contracting entity to understand the revisions to the legal system of the venued jurisdiction. It is equally important to know whether or not these revisions could serve as justification to invalidate an existing forum selections clause.

This Commentary discusses the limited circumstances when a litigant can challenge a contractual forum selection clause if, based upon post-contracting events, the negotiated venue is no longer a viable jurisdiction for litigation.

Background: General Enforceability of Foreign Forum Selection Clauses

The seminal case addressing the general validity of foreign forum selection clauses is The Bremen v. Zapata Off-Shore Co. (407 U.S. 1 (1972)). In The Bremen, the contract contained a forum selection clause that venued in London any dispute arising out of a shipping contract between a Houston-based corporation and a German corporation for the transport of equipment from Louisiana to Italy. During transport, the equipment was damaged in a storm, and the shipping company's vessel took port in Florida to make repairs. As a result of the delay, a dispute arose between the parties, and the equipment owner filed suit in the United States District Court in Florida. The shipping company, in response, sought to enforce the London forum selection clause.

Ultimately, the U.S. Supreme Court, siding with the shipping company and honoring the strength of a negotiated contract, held that a court should enforce a forum clause unless the objecting party can "clearly...

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