International Business Law Advisor Insights on International Litigation & Transactions

Yes, that International Forum Selection Clause is Enforceable. Probably.

Posted in Business Transactions, Dispute Resolution, International Arbitration, international business, international law, International Litigation

international business attorney, international business law, international litigation, international lawIn international litigation, the issue that’s always raised when dealing with the enforceability of an international contract is whether the agreement’s forum selection clause is enforceable.

And usually the answer is yes, the forum selection clause will be enforceable. Probably.

I say probably because there are a set of discrete factors that a court will look at in deciding whether to uphold the clause (more on that below).

Multinational corporations include a forum selection clause in their contracts to define exactly where a matter will be litigated in the event of a dispute.

In practice, the clause will almost always favor the party with the greater leverage in the negotiations that resulted in the formation of the contract.

 U.S. courts have consistently upheld and reinforced the “strong federal policy in favor of enforcing forum selection clauses.”

The rationale is straightforward: Enforcing such clauses “removes uncertainty” in economic transactions, ensures that the parties’ expectations are fulfilled, and complies with the dictates of international comity to respect the integrity and competence of the selected foreign tribunals.

Generally, a forum selection clause will be enforced if it was reasonably communicated to the party resisting enforcement, it is mandatory and not merely permissive, and the claims involved in the suit are subject to the clause.

If these requirements are met, then the burden shifts to the non-moving party to rebut the presumption of enforceability by demonstrating the following:

  • the clause was the result of fraud or overreaching;
  • the law to be applied in the selected forum is fundamentally unfair;
  • enforcement would contravene a strong public policy of the forum state; or
  • trial in the selected forum would be so difficult and inconvenient that the party would effectively be deprived of his or her day in court.
As you can see the analysis is largely fact intensive and the court may likely require further briefing on the issues. Unless one of the criteria set forth above is met, the forum selection clause will be upheld.

Practice Tip:

Forum selection clauses should be drafted broadly enough to cover any and all claims. The clauses should also use mandatory, not permissive language.

The agreement should provide that the exclusive jurisdiction and law shall be (rather than may be) the city of, e.g., Miami, Florida, U.S.A.