The forum selection clause in a contract determines the process by which the parties to the contract will have their disputes resolved and the venue for such dispute resolution. These processes generally take the form of litigation in a national court, arbitration, or other dispute resolution process such as mediation.
The forum selection clause provides certainty to the parties in the often uncertain arena of international commercial transactions, where the uncertainty is due to the different countries and jurisdictions involved.
The specific forum selection clause that best meets the interests of the parties should be decided on the basis of several considerations, which will differ from case to case.
Given the relevance of the clause, and the legal consequences involved in the decision, it is advisable for managers to consult lawyers when such clauses are negotiated and drafted.
When two companies start a business relationship, they do not wish future conflict or discrepancies to arise; company managers are human beings, and most human beings begin relationships confident that they will work out well.
However, as with all human relationships, it is natural that differences may occur. This is why contracts should include dispute resolution clauses and a forum selection clause—sometimes just called a forum clause. More importantly, it is why managers should negotiate the choice of forum clause for a contract as seriously and thoroughly as any other clause in the contract.
What Is a Forum Clause? What Is Its Purpose?
The forum clause is the clause in a contract that sets out the process whereby the parties will seek a resolution to any dispute that may arise between them, as well as the venue where the dispute is to be resolved.
Unless there is a reason to the contrary, contracts should contain a forum selection clause to give the parties certainty in national and international trade. Negotiating a forum clause gives the parties the opportunity to agree on the method they will use to resolve disputes that meets the specific needs of the parties and the business contracted, as well as the most convenient place.
When deciding the forum clause, major goals should be to ensure that: the clause fits the needs of both parties; the clause is valid and enforceable; the method chosen will allow enforcement of the court or arbitration decision.
How to Negotiate the Forum Clause
The following tips should be taken into account when negotiating a forum selection clause:
Managers should view the possibility of litigation as par for the course in a commercial relationship (as it is preferable to failure of the relationship).
The choice of a forum clause deserves the same attention and energy from negotiators as clauses setting the price, the representations and warranties, and any other material aspect of the contracted business.
Due to the complexity and legal technicalities of the various options open to the parties, it is always advisable to have a lawyer present when negotiating this clause.
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