This article has been written by Ishika Gautam, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.
Table of Contents
Introduction
Forum selection provision is also known as a choice of court clause or a jurisdiction clause. The forum selection clause is a legally binding provision that determines the location at which the contract dispute will be adjudged or heard. This provision is usually included deep in the boilerplate clauses of a commercial agreement as it is an important provision of a contract. Most of the time various individuals and companies fail to fully consider the importance of such provision. Choosing forum clauses are powerful as they are legally binding contract provisions. These are not automatically a matter of controversy in every trading relationship.
The commencing part of this article will establish the idea of restricting the jurisdiction in the matters of possible disputes by installing a clause in the commercial contract. The questions of deducing the validity of such clauses, according to the Civil Procedure Code and the Contracts Act, will also be dealt with as well. Following the above-mentioned points, the analysis of these provisions will be done on the reference of the cases where the court in India will interpret the clauses in the commercial contract, which restricts the authority of any forum which can be addressed in the matter of such disputes. Also, the question of limitation which requires to be inflicted upon such clauses will be dealt with the same. The concluding part of the work will comprise the extent to which the forum selection clause can be drawn off. The author will try to draw some assumptions which can be abided by, where the question of inferential availability of such clauses would also be shared with.
The three principal types of clauses
- All disputes should be litigated in a particular court in the jurisdiction agreed upon by both the parties;
- Disputes should be resolved in accordance with a dispute resolution process, like arbitration or hearing before an expert;
- The clause can refer to an amalgamation, which requires a process to be performed at a specific location, and if that process fails to resolve that dispute then litigation has to be conducted in that particular court.
How do I choose a legal forum?
When you are choosing any forum for the legal agreement, the decision you take can have a number of possible grounds. The most common one in which can be that the location is feasible for all parties, on the other hand, other possibilities are:
- It can be jurisdiction over parties, property or witnesses who are involved in the dispute.
- It can be for a special purpose or a special dispute resolution process such as arbitration or mediation.
- It can be when unique expertise is required as the case have a complex subject matter.
- There can be many other reasons fairly agreed upon by both parties.
Types of forum selection clauses
Forum selection clauses can be of three types:
- To properly mention a particular court or jurisdiction: this clause tells us that in which state, court, or place the dispute needs to be litigated.
- To establish a proper resolution process for the process: this clause tells us about what type of dispute resolution process needs to be used, such as arbitration, mediation, etc.
- Both the court and dispute resolution process needs to be defined: it determines the type of resolution process which needs to be required along with the specific litigation venue. These clauses mention the court that is required to resolve the issue if the initial resolution process fails in any situation.
Additionally, a forum selection provision can also be defined and be defined as either permissive or mandatory:
- Permissive clauses establish jurisdiction which is in a specific forum as well as the venue but do not stop litigation in other courts.
- A mandatory clause clearly establishes that only a particular forum can be used for the jurisdiction as well as the venue.
Difference between forum selection provision and choice of law
Both of these terms are often used interchangeably by mistake, but a forum selection clause is quite different from the choice of law clause. A forum clause governs the locale, in other words, where the contract dispute will be ascertained. On the other hand, a choice of law clause governs the body of law that will be used to settle any dispute. These clauses are often included in cross-border contracts, especially international agreements. Although forum selection and choice of law overlap most of the time, that is not always the case. Before concluding a contract, it is essential that you know about the inference of all the provisions within the agreement, including either forum selection clauses or choice of law clauses.
The Indian Contracts Act, 1872, under Section 28, has outlined that the conditions of the clause of forum selection can make a contract invalid, leaving out room for two exceptions clearly. Over the past years, the Supreme Court of India has also settled abundant cases, while they explicate the clauses associated with the forum selection.
It is now settled law, that the Courts which have no jurisdiction or authority over certain matters cannot converse with the power to defer the same under the limit of the forum selection clause. In the case of Hakam Singh v. M/s Gammon, the court has reached the same conclusion as mentioned in the above paragraph. On the other hand, in the cases in which the authority of the Court in case of the dispute lies with only one particular court so no issue regarding such conflicts arises with the jurisdiction.
But if it comes to multiple jurisdictions, at the same time in any issue, what will be the legal way it could be utilized? If the responsibilities and requirements under Sections 15-20, have been fulfilled by the accuser, it is an infrequent outline that some questions are presented to him. The question which still rattles one is, how do these Courts address the clauses regarding the selection of the jurisdiction if both the parties to the suit have already made a settlement about the same?
If the focal point is made upon the wordings and the interpretation of Section 28 of the Contract Act, then it clearly provides that the contract is void in case the contract in any way absolutely counters the commencement of any of the legal proceedings, in either a direct or an indirect manner. Therefore, when it comes to choosing the forum clause for the accommodation of the dispute, the parties can neither communicate the authority nor can take that authority away. They can only select anyone for themselves.
The basic reason for this often arises from international/global commercial contracts, as then it gets pretty difficult to decide about the laws and procedures as well as Courts, as to which country would be relevant for the same. This too is an important factor. Taking into consideration the same which is mentioned above, the Courts consider making both the parties bound to what they have agreed to, according to the contract, and should restrain them from pleasing the same matter with regards to the forum selection provision.
In Swastik Gasses Pvt. Ltd.v.Indian Oil Corporation {(2013) 9 SCC 32}, the Rajasthan High Court recapitulates its judgment on the same. Since, the issues which are already dealt with are the ones in alliance with what the parties have already agreed upon, hence, the dispute regarding the selection of the forum should always be raised at the court, which is of the first instance and it cannot be raised later.
Now let’s consider a different scenario where both of the parties enter into a contract and eventually, cause of action arises out of that. Those parties have included a forum selection clause in their contract, according to which the Court which is near to one of the parties resides, shall only have the power to entertain their suit if it arises. Now, under usual conditions, any Court, which has the capacity to entertain such a matter, could have judged the dispute, but due to the incorporation of the forum selection clause, both of the parties can only approach the Court which has been mentioned in their contract. This has been laid down in the matter of Hukum Singh vs. Gammon (India) Ltd [1971 SCR (3) 314].
A number of questions can arise because of above-stated illustrations, like, why the prevention made in the first case is opposed with respect to public policy, unlike the second. Why is the second case called a case of aberration in procedural law and not like the first case which is going completely against the public policy? Why do the courts not oppose while making both the parties apply their regulations in the second case, not like the first one? It would be difficult for a party who has very limited resources and time and is on the final step, which is to check if the requirement of approaching the particular court is fulfilled for starting a legal proceeding or not? Why is procedural inconvenience considered in these when they prevent proceedings?
According to the facts, most agreements are not made keeping in mind an important fact that both parties are at an equal level and this should be applied in the selection of jurisdiction as well. The main reason behind this being that the Courts are the supporter of the principle of non-intervention, with respect to the selection clause of jurisdiction, and it is mainly because of the chances of it being a consideration for the contract which already took place.
Let us consider another scenario of a contract between A and B which includes a clause of selection of the jurisdiction. The cause of action comes in omega. As a result of the inclusion of a clause that shows a path towards a selection of a forum, the dispute should be sought and the suit is required to be raised at sigma. Taking this into consideration, the court at omega should not do anything here because of the obligation stated by the contract which took place between A and omega, right? The decision of the court can be that as parties were not under any pressure to provide ascent to the agreement, so, they should respect the promises and fulfill their obligations too.
Section 22(7) of the Civil Procedure Code guides us towards the transfer of suit by one court to another only in cases where there exists a possibility of numerous jurisdictions. This power provided must be used very carefully keeping in view the well-being of both the parties, especially the party that is bringing the suit. If execution of this power stated causes any problem to any of the parties being involved and where the other party is left without any problem, then in such scenario courts should use this power, and overrule the things mentioned in a contract under the forum selection clause.
Another issue addresses the international suits. Now when a case of a company of Germany was taken up in Calcutta High Court, the courts were left with no other choice, but to dismiss the suit that was initiated according to the forum selection clause stated, the suit needs to be initiated in Germany only. Now, the main problem there was that even though a suit can be initiated in Germany, the presence of each and every defendant cannot be guaranteed, as the companies were being registered in two separate nations, one situated in Germany and the other in Calcutta, India. In such a case, the clause to select the appropriate forum needs to be overlooked for a time and it needs to be given due consideration only after the application of the judicial brain. As we know that the application of this clause of the agreement can cause problems to either of the parties and such situations need to be avoided for the spread of justice in an anti-partisan manner.
Let’s take an example of a case from the United Kingdom where the court directly denied following the clause of selective jurisdiction because of the quick availability of the witnesses in the country. So, considering this situation, trying the suit in any other country could be absurd and will not prove to be helpful for the sake of justice to both parties. Therefore, clauses stated in the contracts should not be followed blindly if they are going against the public policy in such a case, especially, when they are not forming a part of the consideration.
Now after having a look at the legislation which governs jurisdiction selection in the United States, the transfers are kept in mind by the words which state that keeping in mind convenience of the parties as well as the witnesses, in the interest of proper justice, a district court can transfer any of the civil action to other district or any division where it can be brought up. So, the courts there are required to keep in mind that people get justice as well as a broadened picture of the law, as stated by the broad interpretation of 28 U.S.C. 1404(a).
Among the most common initial steps for stating the scope of jurisdiction of any legal system, one is the idea of territoriality; the jurisdiction of such a system is concurrent with national boundaries of state supporting it. There are a number of elements in this idea, which makes overlapping jurisdictions a possibility. The first is that there could be considerable diversity in the application of the concept of territorial jurisdiction. Simply, it can be applied to any person or thing physically present within the territory. This is related not only to physical presence but to the domicile of a person or any corporation. Even it has some common jurisdictions also to be implemented over events or merely injury or damage, that occurs within the territory. Take an example of an aircraft manufactured in the United States of America and run by a British company.
It crashed in one of the British territorial waters causing the unfortunate loss of lives of passengers as well as the crew. Simply, the territorial jurisdiction of both the United States and England will have jurisdiction. Use of United States jurisdiction because of the presence of one of the defendants, in the same way, that of the United Kingdom because of presence there of another potential defendant and, also because an event occurred in British territory. This example clearly depicts the expansion of jurisdictional scope. This expansion increases the possibility of overlapping jurisdictions like extra-territorial jurisdiction.
Conclusion
It would be properly fair to conclude that blindly following the forum selection clause could be very harmful in the case of commercial contracts keeping in mind and considering the impartation of justice for the parties being involved. It is not a common point that both the parties entering the contract will be on an equal level at the time of making the contract. So, it is the responsibility of the courts to take into account the disadvantages of the clause, which is of huge importance.
References
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