In most contracts, especially international trade contracts, you are likely to find a dispute resolution clause that, for example, excludes all courts except the English Court of Justice and the Federal Court of the Southern District of New York for purposes of dispute resolution:
Law and Jurisdiction
For shipments to or from the U.S. any dispute relating to this bill of lading shall be governed by U.S. law and the United States Federal Court of the Southern District of New York is to have exclusive jurisdiction to hear all disputes in respect thereof. In all other cases, this bill of lading shall be governed by and construed in accordance with English law and all disputes arising hereunder shall be determined by the English High Court of Justice in London to the exclusion of the jurisdiction of the courts of another country. Alternatively and at the Carrier’s sole option, the Carrier may commence proceedings against the Merchant at a competent court of a place of business of the Merchant.
It may also be found in arbitration clauses in a similar form and courts have treated them in a similar manner when deciding on their enforceability or invalidity. The general rule is that parties are bound by their bargains due to the freedom of contract. The excluded courts will avoid exercising jurisdiction due to such an exclusive forum selection clause unless there are exceptional circumstances (Areva T & D India Limited v Priority Electrical Engineers & Another [2012] eKLR).
To depart from the exclusive forum clause, there must be a strong reason justifying such departure. The plaintiff seeking to avoid it must prove to the court the existence of such strong reason (United India Insurance Co Ltd v East African Underwriters (Kenya) Ltd [1985] eKLR).
What counts as “strong reason”?
Lord Justice Willmer, in Unterweser Reederei G.m.b.H v Zapata Off-shore Co. [1968] 2 Lloyd’s List L.R. 158 (C.A.), stated that ‘The question is whether sufficient circumstances have been shown to exist in this case to make it desirable on the grounds of balance of convenience, that proceedings should not take place in this country.’
In The Bremen v Zapata Off-shore Company 407 U.S. 1 (1972), the court held that another strong reason to avoid a clause excluding the court’s jurisdiction is when ‘trial in the contractual forum will be so gravely difficult and inconvenient that he will, for all practical purposes be deprived of his day in court. Absent that, there is no basis for concluding that it would be unfair, unjust or unreasonable to hold that party to his bargain.’
If a person seeks to avoid the exclusive jurisdiction clause, they can also show that the clause was obtained by misrepresentation, duress, abuse of economic power, overwhelming bargaining power of one party, or other unconscionable methods (Golden Palm Hospitality Inc. v Stearns Bank National Association et al. (2004).
NOTE: This information is provided only for your knowledge. We advise you not to rely on it without seeking specific legal advice. You may contact us for assistance.