ConstructionPro Week, Volume: 2 - Issue: 28 - 07/12/2013

Do You Realize the Significance of the Forum Selection Clause?

By Bruce Jervis

 

It is one of the simplest and most common provisions in a construction contract. One’s eyes may just pass over it, yet it can have significant consequences. It is the “choice of law/forum selection” clause. An example: “This contract shall be governed by the laws of the State of ________. Any action or suit arising hereunder shall be brought in that jurisdiction.”

 

This clause can determine the enforceability of other clauses in the contract. It can also affect the ability to obtain a cost-effective resolution of a dispute. A recent example came out of the federal court system.

 

A prime contractor stipulated, in its standard subcontract form, the law and forum of the state where it was headquartered. The public project was located in another state. The mandate for out-of-state litigation was prohibited by statute in that state. Yet, the clause was enforceable in the contractor’s home state, and the subcontractor and its surety had agreed to it. The subcontract clause trumped the statutes of the state where the project was located.

 

Are you alert to this clause and its significance? Do you seek input from legal counsel regarding its ramifications? Have you seen situations where this clause has affected the interpretation of contract provisions or the ability to resolve a dispute? I welcome your comments.

 

COMMENTS

Absolutely. I worked in the elevator industry for many years in Canada. Meeting the elevator code is a regulatory requirement here, and it has to be the Canadian elevator code. We had many arguments with my head office in the US that you cannot require the customer to comply with "New York State law" - it was prohibited by law here for elevator installations. The contract would not trump Canadian code requirements and would be at risk of being an invalid contract if it contained the previous clause.
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