Choice Of Forum And Choice Of Law Clauses In International Commercial Agreements
In a 2016 article on Weil Private Equity Insights` blog, it was suggested that deal professionals and their lawyers not only “choose the current law with discernment, but also choose it in depth!”  This proposal was an attempt to highlight the importance of the actual language used in the choice of law clauses found in the various provisions on the back of most M&A-related agreements. And a recent ruling by Vice Chancellor Slights before the Delaware Court of Chancery is another opportunity to reaffirm this proposition.  An exclusive provision (also mandatory) for selecting the forum requires that all disputes be dealt with in a given forum. This type of clause is advantageous for certain types of enterprises that need predictability and uniformity when entering into contracts with a large number of parties in many different States. For example, a large credit company, which negotiates similar contacts throughout the country, might prefer an exclusive jurisdiction clause in order to improve the chances that all disputes will take place in a jurisdiction and that it will only have to monitor the political atmosphere and changes in that jurisdiction. If the applicable law and choice of forum are not expressly stipulated in the contract, the courts will consider other provisions of the contract and the relevant circumstances in order to determine the appropriate law and jurisdiction. If the parties to an agreement wish to have certainty as to the applicable law and the choice of jurisdiction, they must indicate this clearly and precisely in the agreement. A forum selection provision allows the parties to designate one or more courts to rule on a dispute between the parties. In principle, the parties confer on these courts the personal jurisdiction of the parties with regard to controversies relating to the agreement. This provision is different from a legal choice provision which, as mentioned above, determines the substantive law of the State applicable to disputes.
Delaware courts traditionally had a more liberal view of the standard variety choice clause than many other courts and, in general, they held that a standard variety clause was sufficient to cover claims arising from an unlawful act that related to the contract and were not limited to contractual claims alone. The Delaware courts` argument is illustrated by Strine`s participation in then-Vice Chancellor Abry Partners V, LP v. F&W Acquisition LLC, 891 A.2d 1032, 1048 (Del Ch. 2006) illustrates where a standard variety choice clause similar to that described above was considered sufficient to cover both unlawful rights of action and contractual rights arising from a controversial acquisition contract. According to Strine, then Vice-Chancellor, when drafting the legislation in force and choosing the jurisdiction clauses, it is important that the intention of the parties is properly taken into account. For example, the terms “submit” and “attorn” are often used synonymously. However, in Naccarato/Brio Beverages Inc.8, the Court held that the use of the word “file” in a jurisdiction clause meant that the clause was permissive and not mandatory. This enabled the Court to find that it had jurisdiction at the same time to rule on the case. The obligation to specify and use a mandatory language, where applicable, also applies to the choice of the applicable legal clause. When two companies in different provinces enter into a commercial contract and a dispute arises, the question often arises as to which laws of the province apply.
This can be a major problem, as laws vary from jurisdiction to jurisdiction and such variations can have a significant impact on dispute resolution. An “applicable law” clause allows the parties to a commercial contract to choose the “legitimate right of the contract”, i.e. the legal order in which the parties intend to frame the contract.1 A non-exclusive jurisdiction selection clause (also referred to as permissive) offers greater flexibility than exclusivity and can bring certain benefits to the customer. . . .