Jurisdictional Conflicts in Private International Law :

Forum Selection Clause

 

Introduction

With the increasing interdependence of countries through international trade and globalisation, a unified market for business transactions is formed. However, the laws in each country still differ and we thus need clauses in contracts deciding the governing law and the choice of court, the so-called ‘forum selection clause’.  An example of forum selection clause will be : “This agreement shall be governed by and construed in all respects in accordance with the laws of the Hong Kong Special Administrative Region of the People’s Republic of China (“Hong Kong”) and the parties irrevocably submit to the exclusive jurisdiction of the Hong Kong courts.” 

When a forum selection clause has been inserted into a contract, the Hong Kong court will enforce the will of the contract in the spirit of ‘laissez-faire’. However, such a clause is not always inserted or properly inserted and hence there may be possibilities of parallel proceedings in different jurisdictions between the same parties and dealing with substantially the same matters.

There are many disadvantages of parallel proceedings, for example,

• burden on litigants

•  waste of judicial resources

• impossibility of enforcement of opposite judgments

• hinders judicial co-operation

To resolve such difficulties, the courts may apply the principle of ‘Forum non conveniens’ (meaning: not the natural and appropriate place where disputes may be tried) in order to find the appropriate jurisdiction, as illustrated below.

 

Main factors that the court will take into consideration when deciding the forum conveniens 

•       the nature of the dispute and its connection with the competing fora

•       the law governing the transaction (discernable, among other things, from the form of the contract)

•       the place where the parties reside or carry on business

•       the cost of the trial

•       availability and convenience of witnesses

•       the place where the transaction giving rise to the litigation occurred

•       enforceability of resulting judgement

Court Decision

If it is held that the court is a forum non conveniens then the court will order that the local proceedings be stayed or discharged. However, if the foreign court is held to be the forum non conveniens, then the court may issue an ‘anti-suit’ injunction prohibiting the relevant party from commencing proceedings in that foreign jurisdiction.

However, ‘anti-suit injunctions’ have been subject to much criticism as they offend the sovereignty of the foreign court.  Some of the other disadvantages of anti-suit injunctions are:

• anti-suit injunctions may ignite conflicts between the judicial systems in the two places, which may in turn undermine public confidence in both systems.

Conclusion

It is clear that both parallel proceedings and anti-suit injunctions are undesirable.  Parties to a contract, in particular a contract with an international element or involving parties from different nations, should therefore always include a forum selection clause in their contract, and, more importantly, the parties should be genuine and reasonable in their choice of the governing law and forum.  If the parties’ choice of particular governing law and forum is made to avoid the control or restriction of the law of another jurisdiction which should in fact be their natural and appropriate choice, the court may not enforce their choice.  Therefore, so long as the parties’ choice is made in good faith and reasonably, the court will most likely enforce the will of the parties.