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Forum Selection Clauses. Do NOT Try These At Home

By Dan Harris and Steve Dickinson

I just got an email from a small tech company in China asking me whether its contract should call for Chinese or Russian law. My response was pretty much that I had no idea because it would depend on what was in the contract and what was most important. There is no way to know what law someone should prefer unless you first know what really matters. In my response, I also told them that the choice of forum could be as or even more important. My tiny law firm ("boutique" when I am trying to sound highfalutin) has made well over $100,000 the last couple of years fighting over badly written forum selection clauses in international contracts. Our clients (who consulted us for the first time only after they had signed these agreements and right before they were ready to sue on them) could easily have avoided the entire expense had they only done things right with their forum selection clauses in the first place. Here are the cases: 1. One had a provision calling for arbitration before the Geneva Chamber of Commerce. Problem is there is no Geneva Chamber of Commerce. 2. One 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 our arbitration claims here in the United States. The other side claimed we could not do that. We eventually prevailed on this issue by arguing that we were just seeking to protect any eventual arbitration award, not seeking to have anyone other than the US arbitrator rule on the merits. But we could have avoided all of this by explicitly putting into the contract the right to seize property as security, anywhere in the world. 3. No one case on this, but an amalgamation of many. Putting in a choice of law provision is NOT the same thing as a forum selection clause. Not even close. Putting in your contract that United States law will apply, does not mean that 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 handle cases (all the time) 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. 4. We are handling a case right now (so I cannot discuss it other than very broadly) that caused me 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 sas an "obligatory venue," in contrast to a previous case where the provision "[a]ny 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. 5. We are working on a massive case right now where we will be arguing that the defendants' failure to use the standard language to describe what should be covered by arbitration means that defendants actually intended only contract claims (and no other claims arising between the parties) to be arbitrated. These cases all 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 in being sure your contract, as drafted, actually reflects that. For some China specific forum selection issues, check out our recent post, "China OEM Agreements. Why Ours Are In Chinese. Flat Out."

Full post as published by China Law Blog on August 10, 2009 (boomark / email).