Understanding the 'Consent to Jurisdiction' and 'Forum Selection" Clauses in Contracts

Business contracts are filled with jargon and terms unfamiliar to most entrepreneurs, but it’s important to understand what you’re agreeing to before you sign a contract or other legal agreement. One such term (or clause) is the “Consent to Jurisdiction and Forum Selection” clause, which frequently appears in business contracts.

Basically, in the event of a problem, the selection clause states in which jurisdiction (or state) the dispute will be resolved. Because so many buyers and sellers are located in different states (or even countries) these days, the location where the dispute will be resolved is vitally important to both parties. It will invariably be cheaper and more convenient for one party and more expensive and complicated for the other to get to court to settle any disagreement.

A “consent to jurisdiction” in a particular state does not necessarily mean you must settle the dispute in that state. However, it does prevent one of the involved parties from claiming that the other’s state has no jurisdiction in the case. If there’s additional language stating a particular state is the “exclusive” venue where the case may be tried, then it’s likely that’s where the dispute must be resolved.

For example, if you’re from California and you sign a contract with a company from Ohio, if there’s an exclusive clause stating any dispute must be settled in Ohio, you’ll have to pay the extra expense of traveling there (and finding a lawyer who is legally permitted to argue the case in Ohio courts). Without the exclusive clause, a regular consent to jurisdiction could allow a case to be heard in either state, although frequently the courts rule the dispute should be settled in the state that is declared in the consent to jurisdiction.

The consent to jurisdiction isn’t complicated in terms of how you phrase it in a contract. For instance, you can just say, “The Parties hereto consent to jurisdiction on any lawsuit arising from this contract in the state of Ohio.” Even so, the underlying legal issues are complicated, and it’s best to seek professional legal advice.