A forum selection clause is inserted in a contractual agreement that specifically appoints a court to resolve disputes. Throughout the legal system, the parties choose to agree on a certain forum based on their preferences, and some choose a specific choice-of-law clause that determines the proper law of the relevant contract. These both work in conjunction with each other.
One of the purposes of a forum selection clause is to reduce litigation uncertainty. This allows the parties to plan and determine their legal strategy to resolve disputes. Some lawyers use this as a tactical advantage for the party whose home jurisdiction is chosen as the exclusive forum. However, many also use it to choose a certain body of procedural law.
The general rule is that choice-of-law clauses do not appoint the procedural law of the jurisdiction named in the clause. By deciding on a specific court to resolve disputes, a forum selection clause operates to select the procedural law of that jurisdiction. Having this clause in the contract can provide the parties with more predictability in terms of the outcome of the case.
However, nothing is certain in the practice of law. Judges will base their decisions based on the facts and determine what latest law applies to the scenario. Forum selection and choice of law clauses can help the parties avoid wasteful litigation over which court will have jurisdiction over the parties and which law should apply.
Also, unique circumstances in specific cases may receive different treatment by a court if the court determines the choice of forum places an unfair burden on one party. However, in some situations, the forum selection clause is not correctly drafted, creating additional points of dispute among the parties. This can cause increased conflict and prolong the lawsuit with additional costs. The main purpose of these clauses is to have a system in place that allows the parties to resolve their disputes quickly.
What Are the Grounds for the Parties’ Choice of Forum?
The parties’ choice of forum is based on several valid reasons. Most commonly, location plays an integral part in the decision-making process. In some cases, transportation of witnesses can become an issue. Therefore, having the forum selection in the local court creates ease and convenience for all the interested parties.
Below is a brief overview of some of the grounds for the parties’ choice of forum:
- Jurisdiction over the majority of the parties, property, or witnesses;
- Leadership in the expertise and a reputation for the relevant contract’s subject matter;
- The special purpose for the choice of law and forum, such as arbitration and mediation;
- Additional reasonable basis decided upon in good faith by both parties.
Are the Forum Selection Clauses Enforceable?
Most courts tend to enforce these forum selection clauses so long as they are negotiated in good faith by both parties. Even if the contract itself is void, the court will generally enforce these clauses. The forum clause needs to be formed properly and with the approval of both sides. If the transaction and the selected forum are determined to be made in good faith, a court will be more likely to enforce the forum selection clause.
Moreover, there are two broad categories of forum selection clauses:
- Mandatory forum selection clauses, referred to as exclusive clauses, mandate that the parties bring disputes to the selected forum and;
- Permissive forum selection clauses, referred to as non-exclusive clauses, allow the parties to bring any dispute to the selected forum. The plaintiff has the right to choose another forum if the other forum has appropriate jurisdiction.
Therefore, parties deciding to include these forum selection clauses in their contracts should analyze the reasons behind choosing a certain forum. Also, they need to negotiate a clause that serves their needs. Furthermore, the parties need to consider whether the forum will be friendly or hostile to specific types of litigants or legal arguments.
The various conflicts that arise from the contract need to be taken into consideration to figure out whether the forum selected will suit the case. The parties need to factor in the development of that type of substantive law arising from the claims made under the contract to obtain the proper forum for the case.
The U.S. Supreme Court held that the parties’ contractual choice of forum should be enforced except in the most unusual cases. The burden of establishing that public interests disfavoring transfer outweigh the parties’ choice is placed on the party resisting the forum selection clause.
Parties need to ensure that forum selection clauses in the contracts dictate the scope of the laws and their efficacy for resolving legal disputes. Fair negotiation between the parties is key to finding a viable option that is flexible for all parties involved. Selecting the forum can identify forums that are relevant and convenient to the parties’ dealings and appropriate for the resolution of potential disputes.
Diligently drafting these forum clauses can guide the legal dispute in the right direction. As stated earlier, these clauses are meant to be convenient for all the parties involved and allow for more transparency within the case. Generally, courts look to the following standards when enforcing these forum clauses. There are some variations of this across the states, but they adhere to similar principles when ruling on them.
These considerations include:
- The drafted clause must be reasonably communicated to the other party;
- The draft clause falls into either category of permissive or mandatory;
- The claims and the parties involved in the lawsuit must be subject to the forum selection clause.
After the courts determine that the written clause in the contract meets this criteria, it may likely be enforceable. The opposing party can overcome this presumption only by a sufficiently strong showing that the clause is unreasonable or unjust, or is invalid due to fraud or overreaching. The public policy interests rarely defeat a forum selection clause that is presumptively valid.
Additionally, many states do not enforce a choice of law provision seeking the application of another state’s law, especially if such an application would create a result contrary to the state’s fundamental public policy.
However, the same states will enforce a choice of forum provision in an agreement that mandates that all disputes regarding the agreement will be resolved in a specific jurisdiction. Some companies may use these provisions to ensure more consistency in the application of law and the outcome of the legal dispute.
The local jurisdiction usually applies the home forum state law, but this is not necessarily true for all cases. Therefore, seeking help from an attorney to understand the enforcement of forum clauses in your local state is crucial.
Many times the companies or other organizations in a lawsuit choose to have their headquarters serve as the center for determining the forum of the case. This information can be useful for a plaintiff looking to file a case in a certain jurisdiction and figure out the law being used in that state.
Furthermore, by inserting a choice of law provision in the agreement requiring that the law of the forum state be applied in resolving any disputes arising out of the agreement, there is a stronger likelihood that the forum state will apply its law. But, there is no guarantee that a forum state court will apply its substantive law. Parties dealing with each other with respect regarding these matters can allow for more clarity.
When Do I Need to Contact a Lawyer?
Forum clauses are commonly used in contracts to alleviate the process of choosing a venue. It allows the parties to know what to expect and how the court may rule. The forum clauses are meant to ease the transfer of witnesses and allow for more planning.
However, if you think the forum has been selected unfairly, you can reach out to a local contract lawyer to assist you in your case. LegalMatch can help connect you with the right lawyer for your case.
