Court Finds That Non-Mandatory UK Forum Selection Clause Supports Forum Non Conveniens Dismissal

On January 21, 2015, Justice Scarpulla of the New York County Commercial Division issued a decision in Rakuten Bank, Ltd. v. Royal Bank of Canada, 2015 NY Slip Op. 30096(U), finding that a UK forum selection clause in the parties' contract was non-mandatory but nevertheless supported dismissal on forum non conveniens grounds.

In Rakuten Bank, the plaintiff, a Japanese bank, alleged that the defendant fraudulently induced it to purchase notes issued by a collateralized debt obligation "by misrepresenting the credit quality of the notes and the notes' underlying collateral." The transaction documents contained a forum selection clause providing that "the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with the Notes and accordingly any legal action or proceeding arising out of or in conjunction with the Notes may be brought in such courts." Justice Scarpulla found that this language provided for non-exclusive jurisdiction in the English courts, and she therefore denied the defendant's motion to dismiss based on the forum selection clause only. However, the Court considered the non-mandatory forum selection clause as one factor favoring dismissal on forum non conveniens grounds:

In determining whether to dismiss an action on forum non conveniens grounds, the court should consider and balance the following factors: the burden on the New York courts, the potential hardship to the defendant, the unavailability of an alternative forum, whether the parties are nonresidents, and whether the transaction out of which the cause of action occurred primarily in a foreign jurisdiction.

Here, there are several relevant factors that weigh in favor of dismissal on forum non conveniens grounds. First, Rakuten's claims requires application of Japanese and/or English law. The plaintiff is a foreign corporation, as are all of the defendants except for one subsidiary of RBC.

Moreover, the parties' agreed upon forum selection clauses weigh in favor of dismissal. . . . While these forum selection clauses are not mandatory, by embodying the selection of English courts for adjudication of disputes concerning the transaction the parties clearly contemplated that any litigation arising between them would likely be brought in England, not New York.

(Citations omitted) (emphasis added). For these reasons, and because the underlying transactions occurred entirely in Japan, the Court concluded that "New York is an inconvenient forum for this action" and dismissed the complaint on forum non conveniens grounds.