Forum Selection Clauses in International Contracts

China MOU LOI

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 Russian 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 disputes between the contract parties could be as or even more important.

My international law firm made well over $100,000 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 right now 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.

8 responses to “Forum Selection Clauses in International Contracts”

  1. One point about choice of law clauses is that saying that the contract should be governed by the law of the United States is meaningless because most contractual law is state and not federal and different states often have very different contract laws. People also run into this problem in specifying the law of either Great Britain or the United Kingdom since English and Scottish law are different.
    It’s also problematic to have to invoke a system of law which is different than the forum in which you plan to bring the case in because, there are all sorts of complicated interactions between the local law and the law in the contract, and you are bringing suit in front of a judge that really knows nothing about the foreign law.

  2. good post. Regarding item 1, I am assuming that you had another contractual provision expressly granting the right to seize assets. Also, I am curious as to how seizure occurs as a practical matter. In China, for example, you can’t simply wave a contract at the PSB to get permission to ransack your counterparty’s factory. Another post, perhaps?

  3. I thought by “seize” asset it really meant putting a lien on property or freeze bank account etc… not really physically transferring ownership of property.

  4. Sir: It is inaccurate at least to state bluntly that there is “no Geneva Chamber of Commerce” (thus suggesting that an arbitration clause before it would be ineffective). Not only there is a Geneva Chamber of Commerce & Industry; it also provides for arbitration under the new so-called Swiss Rules. An arbitration clause referring to the “Geneva Chamber of Commerce” may not be 100% accurate but I doubt that it would not resist a challenge nevertheless.

  5. John Liebeskind,
    My apologies. I was sloppy. You are absolutely right that there is a Geneva Chamber of Commerce and I have revised the post to reflect that. Our problem was the vagueness of the provision (and this was many years ago so my memory too is vague). Anyway, we filed the arbitration with the arbitral body we thought the parties intended and we were able to convince them to keep it, after a lot of fighting.

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  7. This exact thing happened to me. My lawyer had me sue a Chinese company in the United States and it was not until after we got the judgment when he turned to me and said he had no idea what to do next. I made him return all the fees I had paid him, which he was nice enough to do.
    I thought about suing him for putting in such a crazy forum selection clause, but decided it just wasn’t worth it.
    I am a lot smarter for the next time.

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