Discussion on Thilo Marauhn
E. Comity and Contract
Many cases raising issues of comity involve transnational contracts, and many of those contracts include either forum selection clauses or arbitration claus-es.35 This part considers how those contract provisions affect the economics of comity. It argues that any rule courts adopt on the basis of comity should be treated as a default rule that parties can contract around rather than as a man-datory rule, and then analyzes whether and when forum selection clauses and arbitration clauses contract around those default rules.36
I. Comity and Default Rules
The argument in favor of contractual default rules is a familiar one.37 Default rules avoid locking parties in to inefficient outcomes by permitting them to contract for a different rule that would make the parties jointly better off. On-ly when contracts give rise to significant externalities (which seems unlikeOn-ly here) or when one party to a contract needs to be protected from a bad bargain (again unlikely given that parties to international commercial contracts are usually sophisticated parties capable of protecting themselves) is a mandatory rule required.38
In this context, comity considerations would at most be relevant for estab-lishing a default rule setting out how the courts of one State will deal with the courts of another State. Whatever that rule is – such as that the court will rec-ognize foreign court judgments or will issue or not issue an anti-suit injunc-tion – it would only be a default rule. If the parties contracted around the de-fault rule, a court that enforced the parties’ contract would not be defecting, since its decision was in accord with the parties’ bargain. But a State that re-fused to enforce or abide by the contract would be defecting, such that an anti-suit injunction to enforce the contract would be consistent with comity.
Assuming that comity establishes default rules rather than mandatory rules, how do parties contract around those defaults? The next two sections address forum selection clauses (both exclusive and nonexclusive) and arbitration clauses.
35 Drahozal & Ware (2010), 433 (finding arbitration clauses in 71% of sample of in-ternational joint venture agreements); Eisenberg & Miller (2009), 1503–05 (finding fo-rum selection clause in 39% of sample of corporate transaction and lending contracts).
36 This approach is analogous to one I have suggested previously for determining when a court should enforce an arbitration award that has been vacated in the arbitral seat. Drahozal (2000). Several commentators have similarly argued for enforcement of choice-of-law agreements as a way of contracting around default rules. O’Hara &. Rib-stein (2000); Whincop & Keyes (1997).
37 Ayres & Gertner (1989); Ayres & Gertner (1992); Ayres (1998).
38 Ayres & Gertner (1989); Ayres (1998).
II. Comity and Forum Selection Clauses
Courts should treat an exclusive forum selection clause as contracting around a comity-based default rule. By agreeing to an exclusive forum selection clause, the parties agree to have a particular court as the proper – and only proper – forum for resolving their dispute. The court chosen by the parties in the forum selection clause should not be constrained by comity principles from resolving the parties’ dispute.
The United States Court of Appeals for the Ninth Circuit took an approach consistent with the suggestion here in E&J Gallo Winery v. Andina Licores S.A.39 In Gallo, a California winery entered into a distributorship agreement with an Ecuadorian wine distributor. The agreement included a clause speci-fying California courts as the exclusive forum for dispute resolution. Despite the forum selection clause, the Ecuadorian distributor filed suit in Ecuador challenging the legality of the distributorship agreement under local law. The California winery sought to enjoin the distributor from pursuing its suit in Ecuador, which the district court denied based on comity considerations.
The Ninth Circuit reversed and held that the injunction should have been granted. When the parties have contracted for an exclusive forum for resolv-ing their dispute, actions by that forum to do so are consistent with comity. As the court of appeals explained:
In a situation like this one, where private parties have previously agreed to litigate their disputes in a certain forum, one party’s filing first in a different forum would not implicate comity at all. No public international law issue is raised in this case. There is no indication that the government of Ecuador is involved in the litigation. Andina is a private party in a contractual dispute with Gallo, another private party. The case before us deals with enforcing a contract and giving effect to substantive rights. This is no way breaches norms of comity.40
Stated otherwise, whatever rule that comity might have required was only a default rule, which the parties contracted around by agreeing to an exclusive forum selection clause.
British courts likewise have held that they have the authority to enter anti-suit injunctions against foreign litigation when the parties have agreed to the U.K. as the exclusive forum for resolving disputes.41 By comparison, the ECJ has concluded that Brussels Regulation 44/2001 and its underlying principle of “mutual trust” preclude one EU member State from issuing an anti-suit
39 446 F.3d 984 (9th Cir. 2006).
40 Ibid. at 994.
41 Donohue v. Armco Inc., [2002] 1 Lloyd’s Rep. 425, 432-33 (H.L.); Continental Bank v. Aeakos Compania Noviera SA, [1994] 1 Lloyd’s Rep. 505, 512 (Eng. C.A.).
injunction against litigation in another EU member State.42 The analysis here counsels against such an approach. So applied, mutual trust makes the rule a mandatory rule rather than a default rule; regardless of what the parties’ con-tract provides, injunctive relief is not available. Instead, the parties should be permitted to contract for the availability of an anti-suit injunction.
By comparison, a nonexclusive forum selection clause should not be con-strued as contracting around comity, in its entirety at least. Unlike an exclu-sive forum selection clause, a nonexcluexclu-sive forum selection clause merely identifies a permissible court in which the parties can resolve their dispute. It does not specify the only court in which the parties can resolve their dispute.
Accordingly, comity considerations in deciding among permissible courts remain in play.
III. Comity and Arbitration Clauses
The analysis is less clear for arbitration clauses. By including an arbitration clause in their contract, the parties agree to have a private judge resolve any dispute that may arise. Litigation in a foreign court over the dispute would be inconsistent with the arbitration clause, as with an exclusive forum selection clause. (Indeed, litigation over the dispute in any court would be inconsistent with the arbitration clause.) But unless the arbitration clause also includes an exclusive forum selection clause – providing that any court proceedings with respect to the arbitration must take place only in a specified court – the arbi-tration clause itself does not in every case determine the proper forum in which a court action related to the arbitration should be brought. As a result, an arbitration clause contracts around some comity-based default rules but not others.
The State chosen as the arbitral seat – the legal or juridical “home” of the arbitration – plays a central role in connection with the arbitration proceeding.
Parties either agree on the seat directly or by agreeing on a provider (which selects the seat). The arbitral seat is the sole jurisdiction43 with the authority to vacate an award or to supervise an ongoing arbitration proceeding.44 Thus, by agreeing on the seat, the parties are implicitly agreeing on the exclusive court to serve those functions in connection with the arbitration. But the seat is not
42 Case 185/07, Allianz SpA v. West Tankers Inc., 3 W.L.R. 696 (2009); Case C-159/02, Turner v. Grovit, 2004 E.C.R. 1-3565; Case C-116/02, Erich Gasser GmbH v.
MISAT Srl, 2003 E.C.R. 1-14693.
43 With one exception: when the parties have agreed in their arbitration clause that the arbitration law of another jurisdiction governs. Such contract provisions are exceedingly rare. Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 364 F.3d 274, 291 (5th Cir. 2004).
44 Restatement (Third) of the U.S. Law of International Commercial Arbitration § 4-2
& reporters’ note to Comment b (2012).
the sole jurisdiction with authority to enforce the arbitration agreement by compelling parties to arbitrate,45 nor is it the sole jurisdiction in which an arbi-tration award can be enforced.46 As to those functions, the choice of the seat acts more like a nonexclusive forum selection clause: it identifies a permissi-ble court but not an exclusive court. Accordingly, arbitration clauses contract around comity only in part.