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Forum Shopping: Allocating Jurisdictions in International Disputes

Forum Shopping: Allocating Jurisdictions in International Disputes

Posted by justis1 | 18 August 2014

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With wealth comes litigation.

In this age of globalisation and incredible freedom of movement, we’re seeing a marked increase in the use of international commercial arbitration agreements between wealthy parties, often domiciled in countries far apart. Rich oligarchs and international businessmen from all across the globe seek to protect themselves from legal proceedings at, seemingly, any cost.

One pre-emptive safeguarding strategy often adopted is to “forum shop” for a jurisdiction where one or both of the litigants will receive a favourable outcome, were they to bring a dispute before that country’s domestic courts.

In practice the choice as to forum is often spelt out by parties to a contract in a jurisdiction clause. A trend can increasingly be seen in the use of these in divorce and family law matters, notwithstanding that commercial law still predominates.

What are the details of this system and what does it mean for international justice? Let’s pick this apart.

What are jurisdiction clauses?

A jurisdiction clause is included in a contract between parties as a means by which to choose the jurisdiction where any disputes between parties may arise.

Parties may submit to the exclusive or non-exclusive jurisdiction of a particular court, or alternatively one party may submit to the exclusive jurisdiction of one court and the other to the non-exclusive jurisdiction of another court.

An exclusive jurisdiction clause limits the hearing of cases to a single jurisdiction, while the non-exclusive model runs the risk of enabling parallel proceedings. With the latter there is a freedom implicit in the provision, by which litigants can bring proceedings in the court of their chosen country with jurisdiction to hear the dispute. This use of an agreement therefore assures parties of the application of the law in the state of preference, in accordance with conflict of laws principles.

What may seem simple can quickly become contentious, however. The principle of comity, or legal reciprocity, foretells that different jurisdictions will reciprocate one another’s judgments out of mutual respect and deference. And ideally this would be respected worlwide.

In reality it is not uncommon for it to be disregarded by the courts of certain jurisdictions. This may force a court to stay proceedings or entirely dismiss them because the other jurisdiction is deemed the more appropriate forum. In a jurisdiction clause, the particularly astute may seek to sidestep this by referring specifically to a competent court within their desirable forum.

For example, the courts of England, or those of London more narrowly, may be chosen in preference to those of England and Wales.

What is the law governing jurisdiction clauses? How does it compare to the doctrine of forum non conveniens?

As you might expect, the number of laws governing the implementation and execution of jurisdiction clauses under private international law is by no means slim.

In the system of laws of the European Union (EU), where one party is domiciled in the EU, consensus is needed between parties as to the jurisdiction clause, in line with Article 23 of the Brussels Regulation. In cases concerning intellectual property rights things can get a lot more complicated because of the normality of registering them in various countries worldwide and therefore outside the legal area of the Brussels Regulation or other supranational, regional instruments.

Where this is the case, and there is no clear-cut method by which to proceed without a jurisdiction clause, the onus is on the parties to persuade their court(s) of choice to hear the case. The International Arbitration Court situated in London is a particularly popular destination for foreign litigants because of its successful track record at settling “big money” cases where a lot is at stake. Equally, in Switzerland and other financial centres, there are similar courts. London nevertheless remains, for now, an international commercial and judicial centre.

The premise of advantage underpinning a jurisdiction clause laid out above stands in stark contrast to the rules of forum non conveniens (FNC), which prohibits a party from choosing a jurisdiction for the benefit it offers them. This is known as a “litigant advantage”.

The Canadian case of Workers Compensation Board v Amchem Products Inc, [1993] ILPR 689 established this principle. As per the Court’s rationale, a court can choose to decline jurisdiction to hear a case where they believe some other forum to be more convenient and appropriate for hearing the dispute. Where multiple forums are equally appropriate, the domestic forum of the litigant(s) wins by default and any stay in proceedings to prevent actions being brought in another forum would be refused.

This ability of courts to refuse to entertain proceedings, or to determine that their forum is the most appropriate, even if the decision is unfavourable to one or both parties, could in real terms be a bulwark against the very idea of “forum shopping”. It is only where the court of choice is deemed the appropriate forum, or a foreign court reasonably concludes that there was no alternative appropriate forum, that as a matter of comity the domestic court has to accept and dismiss any application for proceedings before them. Forum conveniens works in the litigant’s favour.

When deciding a forum for a dispute, with reference to FNC, three considerations arise: (i) convenience (such as suing in the country where you are domiciled), (ii) a preferable judicial system and (iii) ease of enforceability of the judgment – in essence, they are presented as more objective. A dispute being resolved quicker in a more advanced judicial system is clearly for the advantage of both parties, as opposed to one.

What potential problems can arise from this arrangement? What does the future hold?

There are some fundamental problems with the idea of “forum shopping”. According to the Amchem case, there must be a connection between the parties and forum of choice. In practice, this principle is not followed by the legal systems of all countries. Some forums specifically enable litigants from abroad to have their cases heard before them, without such a requirement. Comity is not always respected. Courts occasionally accept jurisdiction over cases that fail to satisfy the criteria of the forum non conveniens test. A juridical advantage may be all the parties seek, without there being a real and substantial connection to the jurisdiction.

Furthermore, and as Dicey recognised in Amchem, the practice has grown with the expansion of communications and global travel, the extra-jurisdictional tendencies of countries and a greater awareness of foreign law and procedure.

With these developments it is thus becoming increasingly difficult to identify one clear appropriate forum to hear litigation. And even if proceedings are confined to one of several jurisdictions, results may not be satisfactory to all parties. As with any other case, the decision is potentially liable to bind all other appropriate jurisdictions in which the parties have begun, or may wish to begin, proceedings.

Expanding on this discussion, it is worthwhile considering whether the ease with which international persons can have a case heard abroad is liable to price people out of their own domestic court system. Alternatively, will the proposals to charge foreign litigants wishing to use the UK court system be a savvy move to increase the revenue of the courts, or a dangerous tactic risking our place as a centre of excellence in commercial arbitration?

Last December the Ministry of Justice (MOJ) announced proposals to cut the taxpayer burden associated with cases brought before the commercial courts by foreign litigants.

Of the document, two recommendations are particularly worth mentioning, these being “hearing fees” and “issue fees”.

The first would incorporate those fees for listing a multi-track case for trial (standing at £1,090), regardless of the length of the hearing, and the cost of the trial of a preliminary issue or substantive trial of the claim that, broadly speaking, would be £1000 per day. Those cases that take up more court time and thus resources would entail a higher bill. There is also the option to increase the cap to £10,000 for specified money claims and between £5,000 and £10,000 for unspecified claims. This is in line with the fact that greater amounts of capital are at stake in commercial cases, such as £15,000 for claims above £300,000 and £20,000 for those priced above £400,000.

From what we can tell, fees will be paid for either a full- or half-day hearing. These will closely reflect the actual operational cost of running a court session for that time period. Perhaps said somewhat optimistically, the Ministry hopes that the courts system could recover more than the cost of running the services to which they relate. These new fees appear to be an astute response to the realisation that commercial cases are a particular drain on court resources, for the inordinate length of some proceedings.

Famously, the case of McDonald’s Corporation & Another v Helen Steel and David Morris [1996] EWCA Civ 755, while not concerning a commercial dispute, became the longest running trial in UK court history, running for a total of 314 days. In their proposals the MOJ also make reference to one commercial case that was in court for 103 days. It is these cases that make the proposals necessary, and where the benefit of restricting choice for the forum for hearing makes sense.

In spite of its altruistic intentions, it has not been spared criticism. For litigants at home, there is fear that, while the proposals are aimed at making foreign litigants pay more, it could be the case that domestic litigants are gradually priced out of their own court system.

I imagine this would be more the case were domestic fees to be levied in line with proposals for foreign litigants. In a direct attack against recommendations, there has been outcry because of the fear that these fees will damage the international competitiveness of the UK courts. A fee-hike may act as a deterrent as opposed to the life-saving mechanism they had hoped it would offer.

No longer would the UK be perceived as “claimant-friendly”. The message may instead be “claimants beware”. This proposal could seriously undermine the position that Britain’s courts hold in the eyes of the legal world.

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