The Jurisprudence and Politics of Forum-Selection Clauses

In the past three decades, the US Supreme Court and the lower federal courts have significantly increased contracting parties' freedom to choose the law and the forum that will be used to resolve their future disputes. This freedom to choose appears most important in the context of international commercial transactions, where the courts recognize a clear relationship between trade and contractual freedom. The sentiment was first strongly expressed by the Supreme Court in its landmark The Bremen v. Zapata Off-Shore Corporation1 decision: Here we see an American company with special expertise contracting with a foreign company to tow a complex machine thousands of miles across seas and oceans. The expansion of American business and industry will hardly be encouraged if, notwithstanding solemn contracts, we insist on a parochial concept that all disputes must be resolved under our laws and in our courts.2 These choice provisions also add value to contracts by clarifying the parties' rights and responsibilities, but again may be particularly important for international transactions: Manifestly much uncertainty and possibly great inconvenience to both parties could arise if a suit could be maintained in any jurisdiction in which an accident might occur or if jurisdiction were left to any place where the Bremen or Unterweser might happen to be found. The elimination of all such uncertainties by agreeing in advance on a forum acceptable to both parties is an indispensable element in international trade, commerce, and contracting. There is strong evidence that the forum clause was a vital part of the agreement, and it would be unrealistic to think that the parties did not conduct their negotiations, including fixing the monetary terms, with the consequences of the forum clause figuring prominently in their calculations.3 Even when parties are not entitled to choose the law that governs their dispute, very often they are able to choose the forum in which their disputes will be resolved. IMAGE FORMULA5 Moreover, parties are more or less equally free to choose between arbitration and foreign courts to resolve their international disputes. This essay explores the relationship between the courts and the legislature regarding enforcement of forum-selection clauses by using the US experience as its primary example. The US courts' recent vigorous enforcement of forum-selection clauses in international disputes may be overturned by Congress.4 In fact, the Supreme Court's decision indicating that forum-selection clauses are enforceable under the Carriage of Goods by Sea Act5 ("COGSA") may soon be legislatively overruled.6 This essay explores the potential limits on the durability of court decisions to enforce forum-selection clauses and offers some preliminary thoughts on the necessary conditions for long-term enforcement of these contractual provisions. Part I very briefly describes federal court decisions regarding the enforcement of forum-- selection clauses in contracts. The term "forum-selection clause" is intended to include both arbitration clauses and clauses that provide for litigation in a particular country's courts. Part II considers conditions under which court decisions enforcing these clauses might conflict with the prevailing political equilibrium. 1. ENFORCEMENT OF FORUM-SELECTION CLAUSES The federal courts have spent the last few years grappling with the enforceability of foreign forum-selection clauses in bills of lading in international shipping. As explained below, the courts have moved from nearly universal nonenforcement of these clauses to fairly uniform enforcement. The shift in the legal treatment of these clauses was perhaps inevitable in light of the Supreme Court's developing jurisprudence of enforceability over the last thirty years. In part II, this essay will argue that although the federal court treatment fits very comfortably within this developing jurisprudence, the political equilibrium within the US (and perhaps several other countries) suggests that we can predict a legislative tilt back toward nonenforcement. …