Have you ever read a contract and seen that paragraph that states, "this contract is governed by the law of.." and wondered what it meant. This concept is referred to as "forum shopping" and refers to where a corporation chooses a favourable jurisdiction or court for a dispute to be heard. A common definition of forum shopping is; "Selection by a plaintiff of the court of justice best suited to the plaintiff's needs by reason of commercial, legal or personal advantage."
Forum shopping is used by businesses in Australia as a tool to find the most favourable forum with respect to the costs, expertise and efficiency of different courts.
The practice used to be more widespread until a change in the law was introduced following the case of John Pfeiffer Pty Ltd v Rogerson. This case revolved around a workplace injury where the plaintiff suffered an injury in New South Wales, but brought a case against his employer in the Australian Capital Territory as damages were capped in NSW, but not in the ACT.[2] In his judgment Callinan J described the case as; "... a clear example of forum shopping."
The court now requires the governing law in torts cases in Australia be the 'lex loci delicti commissi', meaning; "the law of the place where a wrong is committed”.
When a case crosses borders and involves an international element though the concept of forum shopping has a lot of benefits.
Quite often large businesses will shop for the forum that will deliver the best outcome for them. An example of this is Jefferson County, Mississippi, which has been referred to as the centre of asbestos litigation, not because of a high rate of asbestos in the area, but rather because it's judges and juries are considered to be sympathetic to victims and encouraged to remain this way as its good business for the town. England meanwhile sees many financial services disputes reach its courts even where the transaction had no connection to the country, due to the fact that English law is more formalistic, strictly enforcing a contract's terms, where American courts will look at the context of the transaction and the intention of the parties to a greater degree.
Forum shopping is not without its merits and does in principle provide some benefits, such as the extent to which a conflict between laws can act as "a catalyst for law reform." This is due to the fact that forum shopping allows a plaintiff to circumvent a substandard foreign law that bars or provides for unreasonable recovery, and instead shop for a better forum. While providing a fairer outcome for the plaintiff this circumvention will also expose to scrutiny the substandard laws of the offending forum, providing pressure, and ultimately possibly leading to law reform.
So next time you see that clause on a contract think twice as there could be a reason behind its inclusion.