Introduction
It is common practice for commercial contracts to stipulate which country’s laws will govern that particular contract. Such stipulations, often contained in clauses entitled "governing law" or "jurisdiction" are, more often than not, of little consequence to the parties as the either the performance of the contract takes place within that jurisdiction, all parties are based in that jurisdiction or the chosen jurisdiction has a favourable legal system in place.
Problems arise in cases where there is a dispute under a contract with an international element. The parties in question may not be based in the same country, or the performance of the contract might take place in a different country, or the "governing law" clause is poorly drafted or, in some cases, absent entirely. One party may have a preference for a particular country’s laws to govern the contract, which the other party disagrees with. Parties may find themselves applying to the Courts of different jurisdictions to have the dispute heard by recourse to the doctrine of ‘forum non conveniens’. This article will discuss how the Courts have addressed these problems in the past and outline the modern approach in the English jurisdiction.
The doctrine of forum non conveniens – traditional approach
The phrase forum non conveniens is Latin for ‘a forum which is not convenient’. Today, it is a legal doctrine which is utilised by a party to Court proceedings who wishes to transfer the case to another, more convenient, jurisdiction.
The traditional doctrine of forum non conveniens originated in Scotland in the nineteenth century and was adopted by the English courts in the late 1960s.1 Essentially it provided that a court could not refuse to consider a case within its jurisdiction unless the plaintiff’s choice was oppressive or vexatious to a defendant (i.e. by issuing Court proceedings in a distant and inconvenient location), or an abuse of process.2
Lord Goff summarised the English approach to the doctrine in Spiliada Maritime Corp. v Cansulex Ltd [1986] 3 WLR 972 at 983 as follows:
"In cases where jurisdiction has been founded as of right, i.e. where in this country the defendant has been served with proceedings within the jurisdiction, the defendant may now apply to the court to exercise its discretion to stay the proceedings on the ground which is usually called forum non conveniens. That principle has for long been recognised in Scots law; but it has only been recognised comparatively recently in this country. In The Abidin Daver [1984] A.C. 398, 411, Lord Diplock stated that, on this point, English law and Scots law may now be regarded as indistinguishable. It is proper therefore to regard the classic statement of Lord Kinnear in Sim. v. Robinow (1892) 19 R. 665 as expressing the principle now applicable in both Jurisdictions. He said, at p. 668:
Significantly, the doctrine of forum non conveniens only exists in common law countries. It does not exist in civil law jurisdictions.
Change of Approach
In the 1980s, largely due to an overload of commercial litigation in the US and the UK Courts, both jurisdictions abandoned the traditional forum non conveniens rule3: Instead, both the US and the UK adopted a ‘most suitable’ or ‘more appropriate’ forum approach. This involved balancing foreign and local factors to decide the most ‘natural’ country to host the litigation.4 This effectively prevented foreign plaintiffs from pursing a defendant in the defendant’s own country, as the evidence and most of the witnesses were invariably located in the plaintiffs’ own country – rendering the plaintiffs’ legal forum arguably more convenient and ‘more appropriate’.
Forum non conveniens and Exclusive Foreign Jurisdiction Clauses
In some cases, the contract will specify which country’s laws will govern the contract and any disputes arising out of the contract. The case of The El Amria [1981] 2 Lloyd's Rep. 119 (C.A.) provides some guidance in that regard. In that case, Lord Brandon (following the earlier decision of The Eleftheria [1969] 1 Lloyd's Rep. 237 at p. 242) set out a number of principles by which a question of forum non conveniens should be decided in cases where the plaintiff sues in England in breach of an exclusive foreign jurisdiction clause. His criteria laid down in that case have now been taken as the basic statement on the question, reiterated by the House of Lords in Donohue v. Armco Inc. [2002] 1 Lloyd’s Rep. 425 at pp. 432-433 (H.L. per Lord Bingham).
Lord Brandon's principles are as follows:
"(1) Where plaintiffs sue in England in breach of an agreement to refer disputes to a foreign Court, and the defendants apply for a stay, the English Court, assuming the claim to be otherwise within its jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not.
(2) The discretion should be exercised by granting a stay unless strong cause for not doing so is shown.
(3) The burden of proving such strong cause is on the plaintiffs.
(4) In exercising its discretion the Court should take into account all the circumstances of the particular case.
(5) In particular, but without prejudice to (4), the following matters, where they arise, may properly be regarded:
(a) In what country the evidence on the issues of fact is situated, or more readily available, and the effect of that on the relative convenience and expense of trial as between the English and foreign Courts.
(b) Whether the law of the foreign Court applies and, if so, whether it differs from English law in any material respects.
(c) With what country either party is connected, and how closely.
(d) Whether the defendants genuinely desire trial in the foreign country, or are only seeking procedural advantages.
(e) Whether the plaintiffs would be prejudiced by having to sue in the foreign Court because they would:
(i) be deprived of security for their claim;
(ii) be unable to enforce any judgment obtained;
(iii) be faced with a time-bar not applicable in England; or
(iv) for political, racial, religious or other reasons be unlikely to get a fair trial"
"Beyond a mere matter of foreseeable convenience"
In British Aerospace v Dee Howard [1993] 1 Lloyd’s Rep 368 , the Court held that where a contract contained an exclusive jurisdiction clause providing for a case to be tried in the UK, it was relevant that the circumstances which might now suggest a trial elsewhere were perfectly foreseeable at the time of the contract.
In Dee Howard, the new circumstances had to point to some factor which could not have been foreseen on which they can rely for displacing the bargain which they made, i.e. that they would not object to the jurisdiction of the English court. In those circumstances, inconvenience for witnesses, location of documents, the timing of a trial, and all similar matters were aspects which they were precluded from raising. It was held that the proper approach was to consider the proceedings as equivalent to proceedings commenced as of right, and therefore it was right to consider only the matters which would not have been foreseeable when the bargain was struck.
Lord Bingham in the leading case of Donohue v Armco Inc & Ors [2001] UKHL 64 [HL] held at paragraph 25:
"Where the dispute is between two contracting parties, A and B, and A sues B in a non-contractual forum, and A's claims fall within the scope of the exclusive jurisdiction clause in their contract, and the interests of other parties are not involved, effect will in all probability be given to the clause."
In the more recent case of Import Export Metro Ltd & Anor v Compania Sud Americana De Vapores SA [2003] EWHC 11 (Comm), the Court found that factors such the importance of Chilean law (the law of the place of performance of the bill of lading contract under the Rome Convention 1980) and the greater availability of evidence in Chile, and even arguments as to multiple proceedings, were found not to be strong enough reasons to overturn the English jurisdiction selection clause.
Conclusion
"Governing law" clauses should not treated lightly in contract negotiations, especially if there is an international element to the contract in question. Should a dispute arise and a party wishes to transfer proceedings, the Court will assess whether a trial elsewhere was foreseeable at the time the contract was entered into. Prima facie, the Court will be reluctant to transfer proceedings away from a jurisdiction that the parties have contractually agreed to.
It is of central importance that parties who wish to transfer proceedings away from a particular jurisdiction are able to show that Court that to do so would be beyond a mere matter of foreseeable convenience. This may be very difficult in some instances, especially if there are only two parties involved and the other is based in the jurisdiction the former wishes to avoid. Added to that is the difficulty the location of witnesses and evidence. If the witnesses and evidence are in a single jurisdiction, that too may weigh against the party wishing to move. Parties are best advised to turn their minds to jurisdictional matters before the contract is entered into or, better still, avoid a dispute altogether.
Footnotes
1.The Eleftheria [1969] 1 Lloyd's Rep. 237
2. St Pierre and others v South American Stores (Gath & Chaves) Ltd [1936] 1 KB 383 at 398
3. Piper Aircraft Co. v Reyno (1981) 454 US 235 and Spiliada Maritime Corp. v Cansulex Ltd [1986] 3 WLR 972
4. Parliament of Australia, “Bhopal 20 years on: forum non conveniens and corporate responsibility” 8 February 2005, no. 26 2004-05
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