In the vast majority of business, consumer, and other types of contracts, there is one or several clauses in the contract that reference the parties’ agreement on “choice of law,” “venue,” and — often — “jurisdiction.” A sample contract clause containing all three might look like this (choosing New York for convenience):
“CHOICE OF LAW, JURISDICTION, AND VENUE — The parties hereto agree that the Laws of the State of New York shall apply to the interpretation, execution, and enforcement of this Contract. The State of New York shall have exclusive jurisdiction to hear disputes related to this contract and all suits or actions related to this Contract shall be filed and proceedings held in the State of New York. Further, the exclusive venue for any suits or actions related to this contract shall be in the City of XXXX, County of XXXX, State of New York.”
As can be seen, the first sentence designates the statutes, case law, rules, and regulations of New York as the controlling law (choice of law) with respect to how the contract is interpreted, executed, and enforced. The second sentence states that any lawsuit must be filed in New York (jurisdiction), and the final sentence states that the location of the courthouse (venue) will be in the chosen New York city and county.
Generally speaking, where the parties are from different States or countries, each party will want to select choice of law, jurisdiction, and venue provisions that reflect where they live or have their principal place of business. The power relationship between the negotiating parties generally determines which party “wins” this disputed contract point. If the parties cannot agree, it is possible to simply leave this provision out of the contract, with the parties accepting that, in the event of litigation, the courts involved will decide choice of law, jurisdiction, and venue. The courts in the U.S. have all evolved complex rules on how to make these determinations where the parties do not indicate their choices for choice of law, jurisdiction and venue. The factors involve questions like where was the contract signed, where was it performed, where are most of the witnesses and evidence located, does one jurisdiction have a particularly significant reason for having its laws applied, etc. In some cases, the parties’ selections can be overridden on these grounds.
Why are these provisions important?
Convenience and cost are two of the more important reasons for imposing your selection on your contracting partner. If you do business in New York and make a contract with a business in California — hundreds of miles across the country — it is convenient (and, therefore, less costly) to litigation any contract dispute in New York. The opposite is, of course, true for the California contracting party. Further, New York laws may be sufficiently different from the laws of California to make the difference between which party is victorious in the outcome of the case.
However, the importance of these types of clauses becomes magnified when dealing with international contracts. As just one example, consider the differences in court rules and procedures. Typical U.S. court procedures may be very, very different from the court procedures used in China, India, or Japan. These procedures may impact important legal issues like service of process, pretrial discovery, use and availability of evidence, how a judgment can be collected, etc. Substantive laws may also be different, and those differences might determine which party “wins” the case. So, as can be seen, choice of law, jurisdiction, and venue must be carefully considered.
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