I just got an email from a small tech company in China asking me whether its contract should call for Chinese or Russian law. My response was pretty much that I had no idea because it would depend on what was in the contract and what was most important. There is no way to know what law someone should prefer unless you first know what really matters. In my response, I also told them that the choice of forum could be as or even more important.

My tiny law firm (“boutique” when I am trying to sound highfalutin) has made well over $100,000 the last couple of years fighting over badly written forum selection clauses in international contracts. Our clients (who consulted us for the first time only after they had signed these agreements and right before they were ready to sue on them) could easily have avoided the entire expense had they only done things right with their forum selection clauses in the first place.

Here are the cases:

1. One had a provision calling for arbitration before the Geneva Chamber of Commerce. Problem was that the Geneva Chamber of Commerce did not do international arbitration.

2. One 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 our arbitration claims here in the United States. The other side claimed we could not do that. We eventually prevailed on this issue by arguing that we were just seeking to protect any eventual arbitration award, not seeking to have anyone other than the US arbitrator rule on the merits. But we could have avoided all of this by explicitly putting into the contract the right to seize property as security, anywhere in the world.

3. No one case on this, but an amalgamation of many. Putting in a choice of law provision is NOT the same thing as a forum selection clause. Not even close. Putting in your contract that United States law will apply, does not mean that 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 handle cases (all the time) 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.

4. We are handling a case right now (so I cannot discuss it other than very broadly) that caused me 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 sas an “obligatory venue,” in contrast to a previous case where the provision “[a]ny 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.

5. We are working on a massive case right now where we will be arguing that the defendants’ failure to use the standard language to describe what should be covered by arbitration means that defendants actually intended only contract claims (and no other claims arising between the parties) to be arbitrated.

These cases all 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 in being sure your contract, as drafted, actually reflects that.

For some China specific forum selection issues, check out our recent post, “China OEM Agreements. Why Ours Are In Chinese. Flat Out.

  • 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.

  • ceh

    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?

  • Falen

    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.

  • 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.

  • Dan

    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.

  • UMB

    emm… funny..

  • Hi I’d love to thank you for such a terrific made forum!
    I was sure this is a nice way to introduce myself!
    To accumulate fortune it is usually a sharp conception to begin a savings or investing course of action as early in life as achievable. But don’t worry if you have not begun saving your capital until later on in life. Through honest work, that is consulting the best investment vehicles for your money you can slowly but surely increase your wealth so that it numbers to a big sum by the time you wish to retire. Inspect all of the accessible asset classes from stocks to real estate as investments for your money. A wisely diversified portfolio of investments in different asset classes will help your money enlarge through the years.
    -Clare Grafton
    currency exchange rates

  • Wall-E

    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.