When Forum Selection Clauses in Multiple Agreements Collide – Court or International Arbitration?
A New York appellate court recently upheld a forum selection clause providing for exclusive jurisdiction in US courts over subsequent arbitration provisions. The court held that the case could proceed despite the fact that the agreement with the US court forum selection clause was subsequently terminated, the parties agreed they would not be liable under that agreement and subsequent agreements contained merger clauses. This is how the court got there.
Initially, the court found that the conduct at issue began before execution of the subsequent agreements although it continued after execution. The court determined that the claims were inextricably interwoven with the early agreement that provided for US court jurisdiction. Next, the court determined that the scope of the early agreement was broader than the subsequent agreements requiring arbitration pursuant to the London Court of International Arbitration Rules for “[a]ny dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination …”
Also, despite the subsequent merger clauses which superseded “all prior arrangements, agreements or understandings (both oral and written) relating to the subject matter” of the agreements, the court determined there was no conflict between the provisions so the merger clauses did not require dismissal. The court reasoned that the language in the subsequent agreements clearly provided that arbitration should apply prospectively and did not expressly abandon the prior forum selection clause.
Finally, the court rejected the argument that arbitrators should decide whether the claims were subject to arbitration because the parties did not clearly and unmistakably agree to arbitration as demonstrated by the existence and broader scope of the earlier forum selection clause and the fact that it was not expressly abrogated. The dissent, however, would have allowed the arbitrators to determine the gateway issue of whether the claims were subject to arbitration because the arbitration clause incorporated the LCIA rules that give arbitrators authority to rule on their own jurisdiction.
Multiple agreements spanning years raise complex issues. This case may have turned out differently if the parties had expressly addressed and agreed to abrogate the earlier forum selection clause with particularity in their subsequent agreements. The case is Garthon Bus. Inc. v. Kirill Ace Stein et al., Index No. 653715/14 (N.Y.A.D. 1st Dept. April 26, 2016). The opinion is here.
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