Forum selection clauses: not just boilerplate clauses.

In practice, it is not always easy to choose the applicable law and jurisdiction when negotiating an international agreement. Making a last-minute decision to apply a particular court or applicable law without considering the possible consequences can significantly backfire.

In this newsletter, we zoom in on the choice of forum clause and will limit our focus to business-to-business contracts.

1. Within the EU

1. Principles

The main regulation in this area is Regulation 1215/2012 of December 12, 2012, on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters or Brussels Ibis Regulation (hereinafter Regulation), which came into force on January 10, 2015.

The regulation on choice of forum clauses is contained in Article 25 which states:

‘If the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of that Member State. Such jurisdiction shall be exclusive unless the parties have agreed otherwise’.

From this follows that there is in principle great freedom of choice and parties can agree on the competent court, either in the contract or in the general terms and conditions.

However, this freedom is not unlimited.

As to its material scope, Article 25 applies only in civil and commercial matters, subject to a number of exceptions such as tax, customs, administrative matters, and arbitration. The assessment of the validity of an arbitration clause is thus assessed entirely by national law.

Parties can only declare the courts of an EU member state to have jurisdiction and not those of a third country. It is not required that one of the parties be domiciled within the EU.

For example, a Belgian supplier who has a dispute with an Arizona buyer can sue that company in the Belgian courts if the contract contains a choice of forum to that effect.

It should be emphasized that the validity of the forum clause is independent of the contract. Thus, it is possible for the court to consider a choice of forum clause in general terms and conditions as invalid, while the other terms and conditions are opposable to the contracting party.

Usually, a choice of forum clause will only occur in a contract of a cross-border or “international” nature.

However, in a recent case, the European Court of Justice ruled that two parties domiciled in the same Member State (e.g., Spain) can designate the courts of another Member State (e.g., Germany), even if the contract in question, has no connection with the designated forum.

This case law, not spared from criticism, does provide opportunities for companies to choose the most appropriate forum, even in purely internal situations (e.g., for reasons of neutrality, cost efficiency (enforcement in another country can be simpler), etc.).

2. Validity and enforceability

A valid choice of forum requires the existence of a contract and thus an agreement between the parties. The formal requirements of Article 25 are intended to ensure that this mutual agreement is established.

A choice of forum clause is valid only if it: 

1. Is in writing or evidenced in writing, or
2. in a form which accords with practices which the parties have established between themselves; or
3. in a custom in the (relevant) branch of international trade.

E-mail messages qualify as electronic communications that are permanently recorded and fall under the heading of ‘writing’.

The national legislator cannot impose additional conditions for the validity of a forum clause, such as a language requirement. However, for its enforceability it seems advisable that the clause be drafted in a language that its addressee understands.

Although validity and enforceability are conceptually different things, these concepts often appear intertwined in case law.

In particular, the opposability of choice of forum clauses included in general terms and conditions remains a crucial point of discussion.

A forum selection clause included in the general terms and conditions is opposable to the opposing party when (1) it is clear that the general terms and conditions are part of the contract and (2) the opposing party also had a reasonable opportunity to taken note of and subsequently agreed to them.

Here it is important to note that the absence of protest against general terms and conditions, even between companies, does not imply automatic acceptance of the forum clause.

This is a substantial difference between European law rules and Belgian commercial law. If a company in a B2B relationship does not agree with an invoice for example, he must protest it without delay and with justification (e.g., by stating that no timely notification of the general terms and conditions was made). These are considered accepted. That does not apply to the same extent to the forum selection.

If the general terms and conditions are transmitted via a unilateral document (for example an order form or invoice), it is in principle sufficient that the counterparty can take note of the general terms and conditions. This is the case, for example, if the front of the document refers to general terms and conditions on the back. It is not required that the presence of the forum clause be explicitly pointed out.

Acceptance requires that the other party sends a written confirmation. Also here, specific reference to the forum clause is not required.

Electronic communication is also accepted, although it is required that the general terms and conditions can be downloaded and stored. This is e.g., the case when the contract contains a hyperlink to the website where these general terms and conditions (and the choice of forum clause contained therein) can be consulted, downloaded, and printed prior to signing the contract. A mere reference to the website is obviously not sufficient. After all, data on a website can be changed daily, so it is not possible afterwards to check which conditions were applicable at the time of the reference.

In the absence of signature or written confirmation, there is no acceptance. A mere performance of the contract is not sufficient unless it follows from a commercial custom between the parties or from a custom in international trade. Again, this is a substantial difference from the European rules, as tacit acceptance here can be inferred from the performance of the contract.

A choice of forum may not be unlimited but must be limited to a particular “legal relationship.

For example, the clause: 'For all our past, present and future disputes the Enterprise Court of Antwerp (Hasselt Division) is competent' is not sufficiently precise.

2. Within the European Free Trade Association (EEA) (Norway, Switzerland, and Iceland)

If the defendant is domiciled in Norway, Switzerland, or Iceland, or if the courts of any of these three countries have jurisdiction based on forum clause, the 2007 Lugano Convention applies. This Convention was negotiated between the EU and the EEA. The rules on choice-of-court agreements are like those of the Brussels Regulation, except that the Convention requires that at least one of the parties must be domiciled on the territory of a Contracting State.

3. Outside the EU

° Relationship with the UK

Brexit has ensured that the UK, as a non-member state, is no longer bound by the Brussels Ibis Regulation.

In relation to the UK, as of October 1, 2015, the Hague Convention of June 30, 2005, on Choice of Court Agreements applies. Like Brussels Ibis, it finds application in civil and commercial matters but is given a more limited interpretation in the Convention. For example, competition cases and certain extra-contractual claims fall outside its scope.

Please note that the scope of the Hague Convention is limited to exclusive choice of court agreements, where parties agree that the designated court has exclusive international jurisdiction.

The Hague Convention further requires writing. A choice of forum based on a customary course of conduct between the parties or a custom from the trade within which the companies operate is not provided for.

Except for the limited scope of the Hague Forum Choice Treaty, there is no regime replacing the Brussels regime in the relations between Belgium and the UK after January 1, 2021.

This however does not automatically mean that Brussels Ibis can no longer apply in relations with the UK. For defendants domiciled in the UK, the Brussels Regulation's choice-of-court rules may still apply, outside the cases governed by the Hague Convention.

For example, we think of a contract of a Belgian company with a UK party where the contract contains a non-exclusive choice of forum:

E.g., “Belgian law governs the validity, formation and performance of this contract and the parties hereby submit to the non-exclusive jurisdiction of the Belgian courts”.

In that case, its enforceability shall be judged according to the Brussels regime and not the Hague Convention.

Beyond that, in principle, the rules applicable to defendants domiciled in a third state apply in the relation with the UK. For non-exclusive forum clauses designating, for example, the English courts, the UK's common jurisdiction rules apply. These rules may in some respects differ fundamentally from the Brussels regime.

            ° Third countries   

Outside the EU, the court will use its national PIL-rules to determine whether it has jurisdiction

E.g.,  a Turkish judge caught up in a dispute between a Belgian and Turkish company will have to determine on the basis of its national IPR whether it has jurisdiction to hear the case on the basis of the forum clause.

Although a choice of forum clause will be honored in most states and, in the absence of such a clause, will often be based on the place of performance, the outcome of the competent court remains uncertain.

For Belgium, the Code on PIL determines the effect that a choice of forum clause must be given before the Belgian courts. Belgian law constitutes the framework law for the admissibility of the choice of forum clause. Unlike the Brussels regime, the Belgian Code does not provide for well-defined formal requirements. The formal validity will thus depend on the criteria of the applicable law. This may be important since Belgian law sometimes attaches different consequences to the (tacit) acceptance of invoice terms than other countries.

4. Considerations when inserting a forum clause.

• Template contracts

In the available templates of contracts, Belgian parties usually insert a forum clause in favor of the Belgian courts. This is fine.

In practice, a potential co-contractor from another country will usually insist that the courts of the state where it is located have jurisdiction. The same goes for the applicable law. Often this is uncharted territory, and you want to guard against agreeing to it without it.

As a solution, you can then suggest the courts of a “neutral” country or opt for arbitration. A major obstacle here may be the knowledge of the foreign language and operation of the judicial system in the chosen country. The cost of the long duration of judicial proceedings will also be an important consideration.

• Difficulty of enforcing a Belgian judgment outside the EU

A crucial point to consider when choosing a Belgian court as competent court is that a Belgian judgment will often have to be enforced in another State, for example in the event of attachment of assets located abroad.

Within the EU, the Belgian judgment can cross the border without too many controls and be enforced in another Member State.

Whether this can also be done outside the EU, depends on the existence of an execution treaty between Belgium and the country concerned. Often these treaties provide for a severe procedure, with various checks being carried out on the Belgian decision. For example, a control of the law applied (by the foreign court) or the requirement that the procedure be completely redone in the country of execution.

Sometimes it seems opportune to summon the opposing party in his country of residence as this can simplify an enforcement procedure.

An alternative solution is arbitration since an arbitral award is often easier to enforce internationally than a court decision. There are several international treaties to which many countries are parties that allow a very flexible regime of enforcement of arbitral awards. Based on the New York Convention, the arbitral award can be recognized in all states party to it. At the time of writing, there are 172 of them, including a lot of trading partners.

Thus, there is little chance that an arbitral award could not be enforced. That chance is considerably higher with judicial decisions.

Conclusion.

A forum clause in an international agreement is often not a “one-stop” decision, but requires a thoughtful choice, considering the interests of all parties involved and cultural differences. Looking across legal borders, even in our neighboring countries, requires a thorough study of the workings of a foreign jurisdiction. For this purpose, we advise you to consult with specialists in international procedural law who also participate in the international network of lawyers.

Kim Swerts
Lawyer Monard Law
Lecturer-Researcher University of Antwerp
Guest Professor Private International Law Catholic University of Leuven.