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Enforcing Forum Selection Clauses in Euro-American Contractual Disputes

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written by NITA guest bloggers Anastasia Pellagrosi and Professor Michael J. Dale

Given the dramatic expansion in international commerce, the question often arises as to in what jurisdiction a resulting contractual dispute should be litigated or where a contracted arbitration should take place.

A typical fact pattern might involve a contractual dispute over the sale of goods between an American and a European corporation. For example, assume that there are a producer and a buyer, who are respectively located in Miami, Florida, and Rome, Italy, a member of the European Union. In 2015, the parties entered into a five-year contract, in which the producer promised to sell strawberries to the buyer for the price of $ 5.90 per box, payment to be made every third week of each month. The producer agreed to deliver the strawberries through a common carrier. The contract, known as a shipment contract, meant that the producer bore the risk of loss until strawberries were placed in the custody of the common carrier. After that, the risk of loss shifted to the buyer, who also paid delivery costs. When the shipment arrived at its destination, the buyer had twenty-one days to inspect the quality of the strawberries and reject them. The contract provided that any dispute, disagreement, or claim was to be litigated in the city of Berlin, Germany, a member of the European Union. In March 2017, the buyer started complaining about the quality of the strawberries. However, the buyer had never inspected the boxes, as required under the contract. In addition, the buyer also started complaining about having to pay for delivery costs. The buyer then suddenly stopped making delivery payments. In addition, the buyer unilaterally started making payments every first week of the month. Thus, it appears that the buyer materially breached[1] the contract with the producer. The question, then, is, Will the dispute be litigated in the United States or in Europe?

This blog post focuses on forum selection clauses and the two different approaches as interpreted in the American and European legal systems. Forum selection clauses have become extremely common in contractual agreements both internally in the United States and internationally. They allow parties to international contracts to choose the most desirable forum to litigate a dispute and the appropriate law to apply[2]. The validity of forum selection clauses had been the subject of dispute for a long time in the United States, until the United States Supreme Court decided Bremen v. Zapata Off Shore[3]. The case involved an international towage contract for the transportation of an oilrig from Louisiana to Italy[4]. The contractual forum selection clause provided that any dispute would be litigated in the High Court of Justice in London, England[5]. However, when the oilrig was damaged in the Gulf of Mexico during its transportation near Tampa, Florida, the plaintiff brought suit in admiralty in federal court in Florida[6]. The defendant moved to dismiss the case, claiming this was a breach of the contract’s forum selection clause[7]. The trial court denied the motion and the court of appeals affirmed. Both courts considered the forum selection clause as an attempt to oust the court’s jurisdiction[8]. However, the United States Supreme Court granted certiorari and enforced the validity of the contract’s forum selection clause. More broadly, the Supreme Court stated that forum selection clauses are “prima facie valid and should be enforced unless enforcement is shown by the resisting party to be unreasonable under the circumstances.”[9] Even though the validity of forum selection clauses was first decided in an admiralty case, American courts including the Supreme Court have not hesitated to recognize them in other type of cases considering its teaching to be appropriate[10].

The European Union approaches forum selection clauses differently than the United States, but still recognizes their complete validity and enforceability. The primary source of law on forum selection clauses in the European Union is the Brussels Regulation N° 44/2001, which is binding on every State Member[11]. The goal of the regulation is to ensure judicial cooperation, which is a necessary step to enhance the European market. In order to overcome the national differences among the Member States, the Regulation seeks to “unify the rules of conflict of jurisdiction in civil and commercial matters to simplify the formalities with a view to rapid and simple recognition and enforcement of judgments from Member States.”[12] The Regulation is applicable to civil and commercial matters, with specific exceptions that are beyond the scope of this blog post[13]. Jurisdiction is initially placed in the court of the State where the defendant is domiciled[14]. However, a specific provision as to “prorogation of jurisdiction,” which is jurisdiction conferred upon a judge by the consent of the parties, is provided for in Article 23 of the Regulation[15]. Indeed, Article 23 provides for the possibility that parties domiciled in one of the Member States may elect a specific court or courts to have jurisdiction to hear a dispute, and such jurisdiction shall be exclusive unless otherwise agreed to by the parties[16]. However, an agreement conferring exclusive jurisdiction can only be valid if it is in writing or evidenced by a writing, or in a form that accords with practices that the parties have established between themselves, or for agreements in a particular trade or commerce in a form widely known or regularly observed by the parties to the contract[17].

Both the United States and the European Union have signed the Convention of 30 June 2005 on Choice of Court Agreements, whose purpose is to promote international trade and ensure the effectiveness of forum selection clauses in international contracts. The Convention specifically applies to “exclusive choice of court agreements concluded in civil or commercial matters.”[18] One of the basic principles of the Convention is that the court that the parties chose shall have jurisdiction, unless the contract itself is void according to the laws of the Contracting State[19]. Also, the selected court has no power to deny its jurisdiction on the ground that another court would be more appropriate in trying the dispute[20]. The Convention also provides obligations for any other Court that might be chosen by one of the parties in violation of the forum selection clause. In that event, the court is generally required to suspend or dismiss the case[21]. Finally, the Convention provides for the general recognition of any judgment rendered by the selected court in any other jurisdiction[22].

So, what if a dispute arose in the hypothetical contractual agreement described above? It would be helpful to describe how this would work pragmatically. The forum selection clause in the contract specifies that should a dispute arise, any litigation would take place in Berlin, Germany. From the facts we have, we know that the buyer is unhappy with the quality of fruit it has been receiving, but never inspected the boxes as it was required to do under the contract terms. We also know that the buyer is unhappy with the provisions relating to the risk of loss, and stops making delivery payments. Finally, the buyer changes the payment schedules and starts payment in a different time of the month. From these facts, it is likely that the buyer has committed a material breach of contract and the producer will probably bring suit. Following the precedents established by the American courts, we know that the forum selection clause has prima facie validity, representing the free choice of the parties to the contract. Thus, both the United States Supreme Court precedent and the 30 June 2005 Convention on Choice of Courts Agreement apply to this transaction. More specifically, the Convention applies to exclusive choice of court agreements concluded in commercial and civil matter, given that the present matter is a commercial one. Therefore, as a matter of U.S. and European law, the producer should bring suit in Berlin or it would breach the forum selection clause contained in the contract. Moreover, the court in Berlin cannot refuse to try the case on the grounds that another court would be more appropriate, because the selection of the court was agreed to the parties.

Anastasia Pallagrosi is a graduate of Roma Tre University, Rome, Italy, and a 2017 dual-degree graduate at Nova Southeastern University College of Law, where she also served as a research assistant to Professor Michael J. Dale. She can be reached at anapellagrosi@gmail.com.

Michael J. Dale is a member of the faculty at Nova Southeastern University Shepard Broad College of Law. Professor Dale teaches at NITA programs in both public and in-house settings. In 2009, he received the Robert Oliphant Award from NITA for his service to the organization. He can be reached at dalem@nova.edu. Click here to read more articles co-authored by Professor Dale’s research assistants.

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[1] “Material breach is a significant enough substantial failure in the performance of a contract, as to give the affected party the right to sue for damages as well as release the aggrieved party from its obligations.” Black’s Law Dictionary, THE LAW DICTIONARY, http://thelawdictionary.org/significant/, (last visited Apr. 30, 2017).
[2] Michael E. Solimine, Forum-Selection Clauses and the Privatization of Procedure, 25 Cornell Int’l L.J. 51, 52 (1992). A discussion of enforcement of choice of law clauses in such international commercial contract disputes shall be discussed in a forthcoming NITA blog post.
[3] M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972).
[4] Id. at 1.
[5] Id.
[6] Id.
[7] Id.
[8] Id. at 9.
[9] Id. at 10.
[10] See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991).
[11] A discussion about the European Union’s sources of law is beyond the scope of this blog post.
[12] See Council Regulation 44/2001, 2000 O.J. (L 12/1) (EC).
[13] Id. art. 1.
[14] Whereas the American concept of domicile is being in a place with the intent to reside there permanently, domicile in the civil law approach, followed by the Brussels Regulation, is referred to a person’s habitual or ordinary residency.
[15] Council Regulation 44/2001, art. 23, 2000 O.J. (L 12/1) (EC).
[16] Id.
[17] Id.
[18] Id. art. 1.
[19] Id. art. 5.
[20] Id.
[21] Id. art 6.
[22] Id. art. 8; see also art. 9.

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