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Court Rules Exclusive Language is Necessary For Specific Forum Selection Clause

Commercial Lending Bulletin

Florida’s Third District Court of Appeals recently ruled that a forum selection clause in a contract was permissive rather than mandatory because it did not indicate that the jurisdiction specified in the agreement was the only proper jurisdiction for litigation.

Many agreements include a forum selection clause that allows the parties to specify where they will file a lawsuit or claim if there is a dispute under the agreement. A forum selection clause is often combined with a choice of law provision, which allows the parties to designate the law that will govern a dispute, regardless of where the dispute is litigated. Forum selection clauses and choice of law provisions in contracts can be effective tools because they help make any future litigation on a contract more predictable for the parties and, in some cases, less expensive.

In Michaluk, Credorax (Malta), Ltd., a Maltese bank entered in to an “Introducer Agreement” with John Michaluk, a Canadian consultant. Credorax agreed to pay Michaluk a transaction fee in exchange for his assistance in procuring new business and clients. The Introducer Agreement included a provision titled “Governing Law and Jurisdiction,” which stated:

This Agreement shall be governed by and construed in accordance with the Laws of Malta and each party hereby submits to the jurisdiction of the Courts of Malta as regards any claim, dispute or matter arising out of or in connection with this Agreement, its implementation and effect.

A dispute broke out over the payment of certain fees and Michaluk filed a lawsuit against Credorax in Miami-Dade County Circuit Court. Credorax moved to dismiss the lawsuit for improper venue, arguing that the forum selection clause in the Introducer Agreement was “mandatory.” Credorax claimed that Michaluk’s lawsuit could only be filed in Malta. The trial court agreed that the language was mandatory and entered a final order dismissing the lawsuit for improper venue.

Michaluk appealed the trial court’s decision to the Third District Court of Appeals. The Court of Appeals relied on a long line of cases involving similar provisions and held that that the word “shall” applied only to the choice of law portion of the provision in the Introducer Agreement. The Court of Appeals found that mandatory language or words of exclusivity modifying the forum selection clause were absent from the provision and therefore the forum selection clause in the Introducer Agreement was merely “permissive.” Essentially, the Court of Appeals ruled that the Introducer Agreement indicated the parties’ consent to the jurisdiction of the courts of Malta but it did not effectively exclude jurisdiction in any other appropriate forum. Therefore, Michaluk was allowed to file suit in Miami-Dade County Circuit Court, as opposed to the courts of Malta.

This decision is a good reminder that governing law provisions and forum selection clauses must be carefully drafted. Mandatory and exclusive language must be used to modify forum selection clauses in order to achieve their intended results.

This case is cited as John Michaluk, etc., v. Credorax (USA), Inc., etc., et al., Case No. 3D14-985 (May 13, 2015).

Michael Smith is a commercial lending attorney at Lerch, Early & Brewer whose clients include large national financial institutions as well as local community banks. For more information about forum selection clauses, contact Michael at mdsmith@lerchearly.com or (301) 657-0166.

This content is for your information only and is not intended to constitute legal advice. Please consult your attorney before acting on any information contained here.

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