Maintaining Jurisdictional Advantage In International Business Agreements: Forum-Selection and Arbitration Clauses

December 4, 2012

Int'l Forum Selection ClauseMore and more U.S. companies are conducting more and more business overseas; as a result, there is increased emphasis on negotiating and enforcing agreements with business partners in foreign countries.  Such international agreements, however, can create complex legal relationships and uncertainty, particularly as they concern conflict of laws and jurisdictional issues.

Forum-selection and arbitration clauses in international agreements are one area where both the complexity and uncertainty in those agreements can become magnified when disputes arise.  If overlooked, these clauses—which are used to memorialize the parties’ chosen place and manner for resolving disputes subject to an agreement—can leave companies in a weak or unfavorable position, should a foreign business arrangement go south.  Indeed, the validity of forum-selection and arbitration clauses in the context of international agreements has been recognized by federal courts, even when those clauses deny a U.S. company jurisdiction in U.S. courts.

In fact, the 11th Circuit Court of Appeal recently affirmed a district court’s dismissal of suits on grounds that a forum-selection clause establishing the Bahamas as the exclusive venue for any legal action precluded the plaintiffs from suing in the United States, even though U.S. regulations were at issue.  That case—Liles v. Ginn-La West End—highlights the impact forum-selection clauses have in international agreements.  In fact, the appellate court noted that forum-selection and choice-of-law clauses in international agreements are “presumptively valid,” and that a party who wants to avoid such clauses bears a heavy burden.  Specifically, the presumption can only be overcome by a “clear showing that the clauses are unreasonable under the circumstances.”

When negotiating international agreements, therefore, U.S. companies should take care to weigh potential pitfalls of forum-selection and arbitration clauses while balancing their foreign business needs.  The consequences of those clauses can result in a U.S. company foregoing the jurisdictional advantages that U.S. courts may provide or force disputes to be litigated in what may be unwelcoming foreign venues.