Academic journal article American University Law Review

When Forum Selection Clauses Meet Choice of Law Clauses

Academic journal article American University Law Review

When Forum Selection Clauses Meet Choice of Law Clauses

Article excerpt

INTRODUCTION

Parties to contracts, particularly international contracts, desire certainty. They want to know ahead of time where they will litigate if a dispute arises and under what law. Accordingly, contracts often contain both forum selection and choice of law clauses.1 If a forum selection clause is carefully drafted, then the inquiry should be fairly straightforward. For instance, if the parties agree that "the courts of France shall have exclusive jurisdiction over any and all claims related to the contract, including, without limitation, any statutory or tort claims," there is little interpretative wiggle room. The parties clearly intended the clause to be mandatory, since they expressly used the term "exclusive." And they clearly intended for the clause to be construed very broadly to cover all claims, including statutory and tort claims. If a party files suit in New York in contravention of the clause, the court would likely have little difficulty enforcing the clause by dismissing the action.

unfortunately, forum selection clauses are not always a model of clarity. They are frequently lifted from other contracts without much thought to their exact wording or scope. This leaves courts with the unenviable task of trying to figure out "what the parties intended" by a particular forum selection clause. Did they intend for the clause to be permissive or mandatory? Did they intend for related tort claims to be adjudicated in the chosen forum? Did they intend for nonsignatories to be bound by the clause? None of these are easy questions. However, over the years, courts have developed a number of interpretative canons to help guide them in the exercise.2

The issue becomes considerably more complex when choice of law clauses enter into the mix. A choice of law clause complicates the inquiry because it raises the specter that the parties' chosen law should apply to these interpretative questions. If a U.S. court is called upon to interpret a forum selection clause in a contract also containing a choice of law clause, it faces a choice of law decision: Should it apply forum law to interpret the forum selection clause? Or, should it apply the parties' chosen law? Up until fairly recently, it was common to see courts applying forum law to interpret a forum selection clause. The reasoning was that issues related to the validity and enforcement of a forum selection clause were procedural matters to be governed by the law of the forum, and the interpretation of a forum selection clause was a necessary prerequisite to its enforcement.3

Lately, though, courts have held that issues of forum selection clause interpretation should be governed by the law chosen by the parties in their contract. They advance several arguments in support of this position. First, choice of law is a manifestation of party autonomy, and courts should not interfere with that autonomy. Second, courts should strive to give effect to the intentions of the parties; by selecting the governing law, the parties intend for a court to interpret the contract, including the forum selection clause, in accordance with that law. Third, outcomes will be more certain if courts apply the parties' chosen law to interpretative questions presented by a forum selection clause. Fourth, matters of contractual interpretation are fundamentally substantive in nature and therefore should be governed by the chosen law. Fifth, since a forum selection clause is part of a contract, there is no principled justification for singling it out and applying a law other than the chosen law. Sixth, by interpreting a forum selection clause in accordance with the chosen law, forum shopping is curtailed.

This Article challenges each of these rationales, arguing that they do not provide a compelling justification for applying the parties' chosen law to interpret a forum selection clause. This Article also describes the myriad complications that arise when courts purport to apply the parties' chosen law to questions of interpretation, particularly where the parties have chosen foreign law4 to govern their dispute. …

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