When drawing up a contract, attention is often focused on price agreements, delivery times and liability. This is understandable, as these are the issues that the parties usually negotiate. However, a clause that often appears at the bottom of the contract is regularly underestimated: the choice of forum clause.
A choice of forum clause determines which court has jurisdiction to hear a dispute between the parties. This may seem like a minor detail, but in practice this provision can have significant consequences. A well-drafted choice of forum clause can prevent uncertainty, limit legal costs and ensure that a dispute is resolved more quickly. Conversely, the absence of a clear choice of forum can lead to protracted disputes over which court has jurisdiction.
What is a forum selection clause?
A forum selection clause is a provision in a contract in which the parties agree which court has jurisdiction to hear future disputes.
A simple way of putting it might be, for example:
“Any disputes arising out of or in connection with this agreement shall be submitted exclusively to the competent court in Amsterdam.”
With an agreement of this kind, the parties know in advance where they stand should a conflict arise. This prevents any surprises when the relationship comes under strain.
Why is choosing a forum important?
As long as the cooperation is going well, the choice of court seems of little relevance. It is only when a dispute arises that it becomes clear just how important this provision can be.
Failure to agree on the forum may give rise to a dispute as to which court has jurisdiction. This can lead to additional proceedings, delays and significant costs, particularly where the parties are based in different countries.
Suppose, for example, that a Dutch company is doing business with a supplier from Germany. A dispute arises over the delivery of goods. If the parties have not agreed on the competent court, a dispute may arise as to whether the case should be heard in the Netherlands or in Germany. That question of jurisdiction alone can cost time and money before the substance of the dispute is even considered.
Choosing the right forum from the outset prevents such discussions.
National and international contracts
In the case of domestic contracts, a Dutch court situated geographically close to one of the parties is often chosen. In the case of international contracts, the choice of forum becomes even more important.
International disputes often involve additional complexities. Different legal systems, languages and procedural rules can make proceedings considerably more expensive and time-consuming.
By designating a competent court in advance, the parties create clarity. This contributes to the predictability of the legal position of both parties.
For companies operating internationally, the Netherlands Commercial Court (NCC) may also be an interesting option. This specialised court hears international commercial disputes entirely in English and forms part of the Dutch judicial system.
Common mistakes
In practice, we regularly find that choice of forum clauses are worded unclearly or are even entirely absent.
A common problem is that the parties refer to different terms and conditions. One party declares its terms and conditions to be applicable, whilst the other party applies its own terms and conditions. If both sets of terms and conditions designate a different competent court, a dispute may arise as to which agreement applies.
It also happens that a choice of forum is not formulated in exclusive terms. As a result, it remains unclear whether the parties are actually obliged to bring the matter before the designated court.
Furthermore, a choice of forum is sometimes made without giving due consideration to the practical implications. A court in another country may seem an attractive option during negotiations, but may become less so when it actually comes to litigation.
More than just a legal formality
A choice of forum clause is more than just a legal formality. The chosen court may influence the duration of proceedings, the legal costs, the language in which the proceedings are conducted and the predictability of the outcome.
It is therefore advisable for business owners not to wait until the end of contract negotiations to discuss the choice of forum. It is precisely during the contract phase that many future problems can be prevented.
A good contract not only sets out the terms of the collaboration itself, but also what happens if, contrary to expectations, the collaboration goes wrong.
Practical considerations
When including a forum selection clause, it is advisable to consider a number of questions:
- In which country are the parties based?
- Which court is the most suitable in practical terms?
- Would it be preferable for the proceedings to be conducted in Dutch or English?
- Is this a national or international contract?
- Is arbitration or litigation more suited to the nature of the collaboration?
By answering these questions in advance, it is possible to choose a forum that meets the interests of both parties.
A forum selection clause often consists of just a single sentence in a contract, but its consequences can be significant. By agreeing in advance on the competent court, costly disputes over jurisdiction can be avoided and greater certainty is provided should a dispute arise.
Precisely because entrepreneurs devote a great deal of attention to commercial agreements, it is sometimes forgotten that procedural agreements are also of great value. A carefully worded choice of forum can therefore be an investment that pays off should a dispute arise.
