Delaware Supreme Court Holds Valid International Forum Selection Clause Dispositive in Determining Jurisdiction

In National Industries Group (Holding) v. Carlyle Investment Management LLC, Delaware’s Supreme Court unanimously held that a valid forum selection clause is dispositive in determining which court has jurisdiction over disputes arising under the contract. Even if a foreign corporation is party to the contract, Carlyle holds that any considerations weighing in favor of applying the doctrine of international comity do not override an otherwise valid forum selection clause.

Appellant National Industries Group (Holding) (“NIG”), a Kuwait-based company, made a $25 million investment in a Carlyle-affiliated closed-end investment fund. Soon after NIG made its investment, the fund collapsed, falling victim to the subprime-mortgage crisis that roiled financial markets in 2008. The Subscription Agreement governing NIG’s investment contained a broad forum-selection clause vesting exclusive jurisdiction over any dispute in the Delaware courts. Despite this, in November 2009, NIG sued Carlyle Investment Management LLC (“Carlyle”) in Kuwait to recover its investment. NIG claimed that under Kuwaiti law, because Carlyle was not licensed to sell securities in Kuwait, the investment contract and thus the forum selection clause therein were void.

Shortly after NIG served Carlyle with notice of the Kuwait suit, Carlyle sought injunctive relief in Delaware Chancery Court to preliminarily and permanently enjoin any action subject to the forum-selection clause from proceeding in any forum outside Delaware. Despite receiving multiple notices of the Delaware proceeding, NIG elected not to respond in Delaware, and so Carlyle obtained a default judgment. Even after being served with a copy of that judgment, NIG nevertheless continued to prosecute the Kuwait action.

Nearly a year later, NIG moved to vacate the default judgment. NIG contended (once again) that the contract was void under Kuwaiti law and thus that the forum-selection clause was invalid such that the Chancery Court had no personal or subject matter jurisdiction over it. In the alternative, NIG argued, the Chancery Court should abstain from exercising jurisdiction and enforcing the Subscription Agreement in Delaware and instead defer to the Kuwaiti court so as not to bring about a breach of international comity.

On appeal, the Delaware Supreme Court affirmed the Chancery Court’s rejection of NIG’s arguments, unanimously holding that a valid forum-selection clause must be enforced absent a clear showing that the clause itself was invalid for such reasons as fraud or overreaching. Accordingly, because NIG argued that the contract as a whole was void, any rights it might have under Kuwaiti securities laws must be adjudicated by the courts of Delaware, not Kuwait, per the forum-selection clause. The Carlyle court squarely rejected NIG’s international comity argument, as well, reasoning that the enforcement of an international forum-selection clause is an issue not of comity, but of basic contract enforcement: while an anti-suit injunction obtained as a result of this enforcement restricts the breaching party from taking action, it does not enjoin the foreign court at all. Thus, all considerations weighing in favor of applying the doctrine of international comity may be superceded by a valid forum-selection clause.

Under Delaware law, international companies doing business with American-chartered firms that agree to resolve their disputes in Delaware should be aware that they must honor this commitment. The Delaware Supreme Court made clear that even principles of international comity will not override an otherwise valid forum selection clause. If a foreign corporation finds itself facing legal proceedings in the venue specified by the forum selection clause, it has few options to avoid litigation in the forum state, at least initially and ignoring the underlying legal proceedings as NIG did is certainly not an advisable way out.

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