We have said it in both part 1 and part 2 of this series: for a U.S. court to exercise its powers over a foreign defendant, it must have personal jurisdiction. But even if the court finds that it has jurisdiction, the defendant can request the court to transfer the case to an alternative forum, even to a different country, under the common law doctrine forum non conveniens. In In re Tezos Securities Litigation, the Swiss defendant Tezos Foundation failed in its attempt to transfer the action to Switzerland because of the operation of its forum-selection clause. In this final part of our series discussing jurisdictional questions for blockchain and cryptocurrency companies, we address two crucial factors that non-U.S. companies should consider when crafting a forum-selection clause.
Once a defendant moves to transfer the case by implicating forum non conveniens, the court will undertake a fact-intensive balancing of private and public factors, such as the location of witnesses and evidence, the enforceability of any judgment, avoidance of unnecessary conflicts of law, and administrative congestion. Generally, courts give great deference to the plaintiff’s choice of forum and transfer the case only if the balance of factors “strongly favors” the defendant. But this analysis changes when the parties have agreed to a valid forum-selection clause. As many courts have noted, and Judge Seeborg repeated in In re Tezos, “Because a valid forum-selection clause is bargained for by the parties and embodies their expectations as to where disputes will be solved, it should be given controlling weight in all but the most exceptional cases.”
In the Tezos case, the Swiss defendant argued that there were no exceptional circumstances preventing the court from giving controlling weight to its forum-selection clause, which stated that “[t]he applicable law is Swiss law [and] any dispute . . . shall be exclusively and finally settled in the courts of Zug, Switzerland.” This forum non conveniens motion, however, failed because the court found that the plaintiff had not been put on notice of the forum-selection clause and thus could not have consented to it.
While forum selection is a complex subject, the Tezos decision demonstrates one necessary requirement for any binding forum-selection clause, dispute-resolution clause, or indeed even contract – consent. Below are two factors from In re Tezos and other cases relating to online businesses that blockchain and cryptocurrency companies should consider if they want their forum-selection clauses to bind their website users:
- Choose clickwrap over browsewrap: A clickwrap or clickthrough agreement requires the user to engage with the website, usually by checking an “I agree” or “I accept” box. A browsewrap agreement attempts to bind users of the website by inferring assent to the terms and conditions. Generally, it is easier to prove notice and consent where a clickwrap agreement has been used, since the user is required to take affirmative action to show agreement to the terms and conditions. A browsewrap agreement may also bind the user, but this requires either (i) a showing that the plaintiff had actual knowledge of the agreement, or (ii) the website putting a reasonably prudent user on “inquiry notice” of the terms. The Contribution Terms of the Tezos ICO did not include a clickwrap agreement for the forum-selection clause. And, as discussed next, the browsewrap agreement itself was poorly executed.
A fundamental problem with the Tezos ICO Contribution agreement was that it did not actually include the forum-selection clause but instead had a single sentence, on page ten of the twenty-page agreement, directing users to “refer to the legal document that will be issued by the Foundation for more details.” Adding to the problems, the court noted that the relevant website did not even hyperlink to this legal contract with the forum-selection clause. Finally, Judge Seeborg added that even if Tezos Foundation had added hyperlinks and some language indicating a user’s “purported agreement,” the browsewrap agreement might still be held unenforceable, particularly against individual consumers.
After finding that the terms of the ICO did not provide sufficient notice that the plaintiff had agreed to Switzerland as the forum, the court applied the traditional forum non conveniens analysis and dismissed the transfer motion. Judge Seeborg added, however, that if discovery later shows that the plaintiff was, in fact, aware of the forum-selection clause, then he may consider dismissal or transfer of the case to the courts of Switzerland.