Damages for Breach of Forum Selection Clauses, Principled Remedies, and Control of International Civil Litigation

By Tan, Daniel | Texas International Law Journal, Summer 2005 | Go to article overview

Damages for Breach of Forum Selection Clauses, Principled Remedies, and Control of International Civil Litigation


Tan, Daniel, Texas International Law Journal


Nothing can be more material to the obligation than the means of enforcement. Without the remedy the contract may, indeed, in the sense of the law, be said not to exist, and its obligation to fall within the class of those moral and social duties which depend for their fulfillment wholly upon the will of the individual. The ideas of validity and remedy are inseparable, and both are parts of the obligation, which is guaranteed by the Constitution against invasion. The obligation of a contract "is the law which binds the parties to perform their agreement."

I. INTRODUCTION

This article discusses whether damages are a proper judicial response to breaches of international forum selection clauses.2 Today, forum selection clauses are commonly found in almost all commercial contracts. By such clauses, contracting parties purport to agree that disputes arising out of such agreements be adjudicated in certain courts. By promising to sue only in certain courts (and implicitly agreeing not to sue in others), parties attempt to introduce some certainty into their commercial dealings.3 If the parties abide by their agreement, so the theory goes, disputes will be resolved in the contractual forum. There will be no surprises, and, from the outset, parties can be certain of both the physical location for pleading their case as well as the procedural and substantive law that applies to their affairs.4

Unfortunately, there is nothing magical about these clauses. As with other contractual promises, these clauses are all too often breached. There is a strong temptation to breach such agreements and secure tactical benefits by commencing proceedings elsewhere because the choice of forum often means the difference between winning and losing the suit (and also winning and losing by how much).

The U.S. courts have been surprisingly phlegmatic in their approach to breaches of forum selection clauses. It is not at all clear how U.S. courts approach such breaches, particularly when the clause is breached by a party commencing proceedings overseas.5 Where a party breaches such a clause by bringing proceedings in U.S. courts, the courts will often give effect to the forum selection clause by dismissing its own proceedings in favor of the contractual forum.6 But where the party breaches the forum selection clause by commencing proceedings in a foreign court, it is unclear how the U.S. courts will respond. This article adopts the view that in such a case, the courts should enjoin those foreign proceedings with an anti-suit injunction. This argument has been made in some detail elsewhere7 and will only be discussed insofar as it relates to this article's main proposal-that breaches of forum selection clauses can also be vindicated by an award of damages.

That this issue is even cause for debate may come as something of a surprise to those unfamiliar with international litigation: for if the forum selection clause is a contractual clause like any other, why would ordinary contractual damages not be available to address a straightforward breach of contract?8

But the issue of whether damages are available for breach of forum selection clauses is controversial. There is no straightforward answer. This article will explain why. Judicial authority does not assist. The U.S. cases are equivocal as to whether a cause of action for damages exists. Even worse, they have decided this issue without considering the potential implications of recognizing such a cause of action.

This article seeks to explicate the legal and policy considerations that the courts should consider but have so far failed to address. It will outline and analyze the reasons for and against recognizing the damages remedy. It will argue that, both as a matter of legal principle and policy, the courts should consider using damages to address breaches of forum selection clauses.9 Although comity would circumscribe any putative damages remedy, damages are a potentially sophisticated tool to control international litigation and may, in this endeavor, supplement the evolving remedy of the international anti-suit injunction.

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