Forum Selection Clause: Everything You Need to Know
A forum selection clause is an agreement that determines the location and/or the court where the legal dispute will be settled.3 min read
2. Exceptional Cases
3. Invalidating a Forum Selection Clause
4. Permissive Versus Mandatory
A forum selection clause is an agreement that determines the location and/or the court where the legal dispute will be settled. Essentially, it's establishing a venue that will provide the court with a personal jurisdiction. When this clause is present, the parties involved have agreed that subsequent disputes regarding the contract will be brought into a specific venue.
What's tricky about forum selection clauses is that any minor changes in the wording can have a major impact on its scope. For example, if you agree to a jurisdiction in courts "of" a certain venue, that does not mean the same thing as a jurisdiction in courts "in" a certain venue. Likewise, the phrase "shall" does not necessarily guarantee this type of clause is mandatory.
You'll find each court has a different approach when interpreting and enforcing these clauses. In fact, the results can be inconsistent. Therefore, it's so important to be as precise as possible when drafting a forum selection clause.
Examples of Forum Selection Clauses
- The court that was set to hear the M/S Bremen v. Zapata Off-Shore Co. case had a reputation for bucking public policy. In this case, the court decided to rule against precedent, stating, "in light of present-day commercial realities... we conclude [a] forum selection clause should control absent a strong showing that it should be set aside."
- In Stewart Organization Inc. v. Ricoh Corp., a lawsuit was filed which violated the forum selection clause. A request was submitted to maintain the court designated by the clause. The court's response was that a forum selection clause does not act as a controlling factor. Rather, it is merely a significant factor when a court is deciding if it will grant a transfer.
- In Atlantic Marine Const. Co. Inc. v. Dist. Ct. for the Western District of Texas, § 1404(a) and forum selection clauses became more distinct entities. The court stated a forum selection clause "shall be given controlling weight in all but the most exceptional cases," thus altering § 1404(a). There were two important findings:
- A plaintiff's forum selection bears no weight. Furthermore, the plaintiff will need to demonstrate why the court outlined in the forum selection clause is no longer sufficient.
- Although it's unlikely the court will stop the transfer of a case, they will consider the elements of public interest.
Atlantic Marine never stated whether other circumstances would constitute as an exceptional case. In the end, the court decided that the existence of fraud in contract negotiations invalidated the forum selection clause.
- In the case of Carnival Cruise Lines Inc. v. Shute, a forum selection clause written into the contract was determined to be enforceable. Just because a contract did not result from negotiation does not mean it is an exception.
Invalidating a Forum Selection Clause
Courts have the ability to be selective when deciding to compel compliance to a forum selection clause.
- In Global Seafood Inc. v. Bantry Bay, the court deemed a forum selection clause invalid due to its broad language. It found the phrase "governed by Irish Law and the Irish Courts" did not clearly state the intent to designate jurisdiction exclusively. On another note, Ireland was not mandated as the venue. More specifically, the court ruled that the use of the word "govern" may grant jurisdiction to the Irish courts, but it neglected to designate an exclusive jurisdiction. This deemed the forum selection clause invalid.
Permissive Versus Mandatory
When reviewing a forum selection clause, a court will decide if the forum selection clause is permissive or mandatory. A permissive clause will not prohibit litigation from taking place elsewhere. A mandatory clause, however, states that litigation must take place in the predetermined venue only.
- In First Bank v. Georgia S04 Investments, the forum selection clause stated that a specific venue was to have jurisdiction to hear disputes related to the contract. The court decided this was a permissive clause since it did not require all disputes to be brought to the specified venue.
In fact, many forum selection clauses do not specify a particular court. Instead, these clauses tend to reference geographical areas, such as specific states or counties.
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