Contracts are about preparing for the worst. Define your obligations, then limit your liability. Disclaim warranties. Require notice and an opportunity to cure. Nobody wants to think about their relationships going bad when they begin, but NOBODY wants to be the person who didn't do just that..
The "forum selection clause" provides important protection in the new-ish global economy. The forum selection clause is an agreement to an exclusive litigation locale. This can be a particular country, state or even municipality.
When disputes arise, litigation locale can be used as a way to harass or otherwise disadvantage the party being sued. Consider the buyer in New York who purchases goods from a company in San Francisco. If the buyer is not happy, where do you think it's going to sue?
Imagine if Germany could have required Russia to fight on its home field in World War Two. The front on which wars are fought can be outcome determinative.
Absent of a forum selection clause, most courts follow the "first-filed" rule, meaning that the first-filed action is where the parties must litigate. Meaning, if you lose the race to the courthouse, you'd better start asking around for lawyers across the country, hope you have plenty of coverage at the office and buy a plane ticket. Several tickets, actually.. For small and medium sized business, the cost of litigating thousands of miles from home can be devastating.
An enforceable forum selection clause, however, can trump the first-filed rule. That's exactly what happened in Ingres Corp. v. CA, Inc., 8 A.3d 1143, 1145 (Del. 2010). In Ingres, the parties had agreed to litigate disputes exclusively in Delaware or New York. One of the parties, a California company, sued in - you guessed it - California. The defendant then filed a second lawsuit in Delaware, the agreed-upon forum. The California Plaintiff sought to stay the Delaware action on the basis of the prior California case.
The court denied the stay request, holding that the parties "agreed in the [contract to] adjudicate all claims in ... a specific forum. By enjoining the [California Plaintiff] from proceeding in a different forum, I simply hold it to the promises it made-promises that remain binding upon it." The Delaware Supreme Court affirmed, concluding simply that lower court "carefully considered the parties' contractual agreements and enforced the forum selection clause included therein."
Litigating far from home is not always avoidable. It will be anything but a comedy the night before you have to fly to wherever on the eve of trial. But including litigation locale among your usual negotiation points can eliminate the funny business associated with forum selection. At the very least, you can better assess the risks associated with and value of doing business with foreign companies if you know where disputes will be litigated. And once you do that, you can raise a glass and toast the new relationship that isn't ever going to sour. Cheers!