The most critical aspects in international commercial contracts are often the choices regarding arbitration and governing law due to the internal characteristics of international trade. These choices should be mutually convenient and meet legal requirements when set out in the contract. Another important issue is the choice of competent jurisdiction in cases where multiple states may have jurisdiction. This article will explain some basic concepts regarding choice of law and jurisdiction in international disputes and underline the importance of such choices.
Forum shopping: Forum shopping refers to a litigant’s voluntary selection from a number of potential state courts with jurisdiction over a case as a strategy to obtain more favorable decisions in their dispute.
This concept does not apply in cases where the law gives jurisdiction to several courts in a single country and the litigant applies to one of them, or the parties conclude a jurisdiction agreement and choose a foreign state court to be competent in compliance with the relevant law. In forum shopping, the plaintiff chooses a jurisdiction of their own volition. For example, forum shopping occurs when the state allows the parties to sue in a jurisdiction other than the jurisdiction set out in their jurisdiction agreement and the litigant can choose between these two jurisdictions.
The law may, from time to time, give the plaintiff the right to choose between courts of different jurisdictions, and the exercise of this right is lawful as long as the rule of good faith is respected. Therefore, provided that there is no breach of good faith, the use of forum shopping as such is acceptable under both Turkish and international law. Examples in Turkish law include disputes arising out of consumer contracts and certain types of insurance policies. In such disputes with a foreign element, a state can be chosen in accordance with the jurisdiction agreement and a limited exclusive jurisdiction is granted in favor of the plaintiff who is a consumer/insured. Thus, the right to choose between the courts of different states arises in some cases.
Forum shopping is different from the situation stipulated in Article 54/1-b of Law No. 5718 on Private International Law and Procedural Law (“Law No. 5718”), which refers to the exercise of jurisdiction by a state over a dispute not within its jurisdiction. Therefore, the requirement for the absence of such a situation among the conditions for the recognition by Turkish courts of judgments rendered by foreign courts does not indicate that forum shopping is prohibited.
Forum non conveniens: In the concept of forum non conveniens, a state court competent to hear a dispute questions whether it is an appropriate venue for the dispute and its proceeding. As such, forum non conveniens refers to the situation where the relevant court may limit its jurisdiction over a case on the grounds that there is a foreign court which would be more relevant for the subject matter of the dispute and is therefore better suited to hear the case. In such a case, hearing a dispute in a more appropriate forum facilitates access to evidence and witnesses, the use of the same language, and the enforcement of the judgment. The doctrine of forum non conveniens is not widespread in Türkiye, since Article 36/2 of the Turkish Constitution states, “No court shall refuse to hear a case within its jurisdiction.” This principle does not refer to the lack of jurisdiction of a state court to hear a dispute, but to the situation where, despite having jurisdiction, it refrains from doing so for the reasons set out above. Therefore, even if there may be similar situations in Turkish law, there are no real examples of forum non conveniens. However, in establishing rules of jurisdiction in law, emphasis was placed on those based on habitual residence with the same considerations, and similar approaches are also found in international conventions. The Hague Convention 1996 contains an example of forum non conveniens for protection measures. Under Article 8 of the Convention, the state court having jurisdiction may request the court of another state to assume jurisdiction to take protective measures if the other state would be better placed in the particular case to assess the best interests of the child. Therefore, under this convention, the competent court may take steps to involve the judicial authority of another state in a dispute in exceptional circumstances. However, this is limited to protective measures.
Implied choice of law: At this point, it is important to underline that choice of law, which defines the country whose law will govern in a dispute, is different from a jurisdiction agreement, which defines the country where a lawsuit may be filed. Article 24 of Law No. 5718 states, “Contractual obligations shall be governed by the law expressly chosen by the parties. The choice of law that is unambiguously understood from the terms of the contract or the circumstances of the case is also valid.”. While this article refers to the governing law, Article 47 of the same Law contains a provision on jurisdiction agreements, which states, “Unless jurisdiction is determined based on the principle of exclusive jurisdiction, the parties may agree to have their dispute, which involves a foreign element and arises from obligations, heard by a foreign court. The agreement shall be valid only if proven by written evidence. The case shall be heard by a competent Turkish court only if the foreign court denies jurisdiction or if jurisdiction is not challenged before the Turkish courts.” Therefore, Turkish law requires that the choice of law be express or, if implied, that it be understandable with no room for doubt.
Foreign countries have different practices in this respect. In the European Union, pursuant to the Rome Convention, the choice of law that can be reasonably inferred from the terms of the contract and the circumstances of the case is also valid in addition to express choices. At this point, many criteria are considered. The Rome I Regulation provides that the choice of law must be clearly inferable from the terms of the contract or the circumstances of the case. During the drafting of the Regulation, it was proposed to include a provision that presumed that the parties conferring jurisdiction to a Member State for the settlement of disputes would also have chosen the law of that Member State. However, this proposal was not accepted and did not become effective. Therefore, under the Rome I Regulation, in the case of an implied choice of law, the designated jurisdiction is only one of the factors to be taken into account in determining the governing law and is not considered in isolation. The Inter-American Convention on the Law Applicable to International Contracts makes it clear that the designation of a particular court as competent does not necessarily imply the choice of applicable law.
Conclusion
As can be seen, in disputes involving a foreign element, sometimes several states may have or acquire jurisdiction, and the parties may choose the jurisdiction and the applicable law. In such cases, the question of where the case will be filed is crucial for potential proceedings. Appropriate choices at this point help the parties obtain a fair outcome with fewer problems and have a more efficient settlement process.
Moreover, in the settlement of international disputes, the choice of law is critical both for the protection of the parties’ interests and the functioning of international trade. This is also valid in the choice between litigation and arbitration. Since international trade disputes have a foreign element, the place of jurisdiction becomes even more important. While the rules must be carefully observed and an appropriate jurisdiction must be selected when a single state has jurisdiction, the parties must also carefully weigh their personal and common interests and risks to arrive at the most appropriate solution in their case when they have freedom of choice. This applies both to the choice of law and to the choice of forum when there are several courts with jurisdiction. In certain circumstances, such as those set out in Article 24 of Law No. 5718, the parties are completely free to choose the applicable law. However, the choice of law is so important that, if not done carefully, it may invalidate an entire contract.
Another critical issue is that once a choice has been made, it must be lawfully exercised. To clarify, the parties should unambiguously express their intentions regarding the choice of law, or the law chosen must be understood beyond any doubt. Similarly, if arbitration is to be applied, the arbitration clause should be drafted as necessary. In conclusion, developing effective legal strategies and applying them properly are crucial in many respects, including certainty and commercial sustainability.
İdil Aşkın, Associate
