Choice of Law Clause
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A Choice of Law Clause is a contract provision that specifies the jurisdiction whose laws will govern the interpretation and enforcement of the contract.
- AKA: Governing Law Clause, Proper Law Clause.
- Context:
- It can (typically) clearly identify the jurisdiction, explicitly stating which state, country, or territory’s laws will apply to the contract’s interpretation and enforcement.
- It can (often) define the scope, covering what aspects of the relationship are governed, including both the interpretation and enforcement of the contract.
- ...
- It can exclude certain principles, such as conflict of law rules or specific international conventions like the United Nations Convention on Contracts for the International Sale of Goods.
- It can include related provisions specifying which courts have jurisdiction over disputes, often pairing with venue or forum selection clauses.
- It can clarify federal versus state law application, particularly in the U.S., addressing instances where federal law may supersede state law.
- It can consider industry-specific regulations by referencing particular laws or compliance requirements relevant to the contract’s subject.
- It can address international considerations, detailing how international laws will apply or specifying exclusions to international agreements in cross-border contracts.
- It can be referenced in a Choice of Law Contract Issue-Spotting Rule (e.g., within a contract review playbook) to identify potential jurisdictional issues.
- ...
- Example(s):
- One stating, "This Agreement shall be governed by and construed in accordance with the laws of the State of California, without giving effect to any conflict of law principles.”
- One with a scope definition, such as "...including all matters of construction, validity, performance, and enforcement."
- A contract provision excluding specific international conventions, e.g., "...excluding the application of the United Nations Convention on Contracts for the International Sale of Goods."
- One addressing federal law application: "This Agreement shall be governed by and construed in accordance with federal law of the United States and, to the extent not preempted by federal law, the laws of the State of Delaware."
- One explicitly addressing international matters: "This Agreement shall be governed by and construed in accordance with the laws of England and Wales, excluding all conflict of law rules and principles which might refer construction or interpretation of this Agreement to the substantive law of another jurisdiction."
- One specifying scope and regulatory compliance: "This Agreement and all matters arising out of or relating to it, including but not limited to matters of validity, construction, effect, performance and remedies, shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and performed wholly within such state, including all necessary banking and securities regulations."
- One combining choice of law with forum selection: "This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. Any legal suit, action, or proceeding arising out of or relating to this Agreement shall be instituted in the federal courts of the United States of America or the courts of the State of Texas, in each case located in the City of Houston and County of Harris."
- One addressing intellectual property specifically: "This Agreement shall be governed by and construed in accordance with the laws of the State of California; provided, however, that all matters relating to or arising out of intellectual property rights shall be governed by and construed in accordance with the applicable federal laws of the United States of America."
- One for international commercial contracts: "This Agreement shall be governed by and construed in accordance with the laws of Switzerland, without reference to its conflict of laws provisions. The United Nations Convention on Contracts for the International Sale of Goods (1980) shall not apply to this Agreement."
- One addressing regulatory hierarchies: "This Agreement shall be governed by and construed in accordance with: (i) all applicable federal laws and regulations of the United States; (ii) to the extent not preempted by federal law, the laws of the State of Massachusetts; and (iii) to the extent applicable, the regulatory requirements of the Food and Drug Administration."
- ...
- Counter-Example(s):
- Arbitration Clauses, which specify arbitration as the dispute resolution method rather than choosing a governing law.
- Forum Selection Clauses, which designate a venue for dispute resolution without necessarily selecting the applicable law.
- Entire Agreement Clauses, which assert that the contract is the complete and final agreement but do not specify a jurisdiction’s laws.
- Mandatory local laws, which may override a choice of law clause in certain situations, such as consumer protection regulations.
- Insurance contracts in some jurisdictions, where choice of law provisions may be prohibited to ensure local consumer protection laws apply.
- See: Conflict of Law, Forum Selection Clause, Arbitration Clause, Contract Law, Erie Doctrine, Venue Clause, Arbitration Clause.
References
2024
- (ChatGPT-OpenAI, 2024) ⇒ Prompt: Summarize the concept Choice of Law Clause in 1- 2 paragraphs. ChatGPT (model:gpt-4o). Retrieved: 2024-12-08.
- QUOTE: A "Choice of Law Clause" is a provision typically included in contracts that specifies which jurisdiction's laws will govern the interpretation and enforcement of the contractual terms. This clause is important because it provides clarity and predictability for the parties involved, ensuring that they are aware of the legal framework that will apply in the event of a dispute. By mutually agreeing on a particular legal system, parties can maneuver legal proceedings more efficiently, potentially saving time and resources that might otherwise be spent resolving jurisdictional issues.
In international or multi-jurisdictional contracts, the choice of law can significantly influence the rights and obligations of the parties, since legal principles, contract enforcement, and risk of litigation may vary widely between jurisdictions. The clause can, therefore, be a strategic tool for addressing concerns such as varying quality or fairness of laws in different regions. However, it's worth noting that the choice of law must usually have a reasonable connection to the parties or the contract; otherwise, some legal systems might not enforce it. As such, well-drafted choice of law clauses can be crucial in managing legal risks in complex contractual relationships.
- QUOTE: A "Choice of Law Clause" is a provision typically included in contracts that specifies which jurisdiction's laws will govern the interpretation and enforcement of the contractual terms. This clause is important because it provides clarity and predictability for the parties involved, ensuring that they are aware of the legal framework that will apply in the event of a dispute. By mutually agreeing on a particular legal system, parties can maneuver legal proceedings more efficiently, potentially saving time and resources that might otherwise be spent resolving jurisdictional issues.
2024b
- (Wikipedia, 2024) ⇒ https://en.wikipedia.org/wiki/Choice_of_law_clause Retrieved: 2024-12-08.
- QUOTE: In contract law, a choice of law clause or proper law clause is a term of a contract in which the parties specify that any dispute arising under the contract shall be determined in accordance with the law of a particular jurisdiction. It determines the controlling law: the state which will be relied upon in settling disputes. An example is "This Agreement shall be governed by, and construed in accordance with, the law of the State of New York."
A choice of law clause may be combined with a forum selection clause. The combined clause would include the choice of law that is to govern any dispute arising under the agreement and the choice of forum where disputes will be heard.Once implemented, a choice of law clause will generally be upheld by courts, as long as it is bona fide, legal, and not contrary to public policy.
- QUOTE: In contract law, a choice of law clause or proper law clause is a term of a contract in which the parties specify that any dispute arising under the contract shall be determined in accordance with the law of a particular jurisdiction. It determines the controlling law: the state which will be relied upon in settling disputes. An example is "This Agreement shall be governed by, and construed in accordance with, the law of the State of New York."
2022a
- (Brilmayer & Goldsmith, 2002) ⇒ Lea Brilmayer and Jack Goldsmith. (2002). "Conflicts of Law: Cases and Materials, Fifth Edition". Aspen Publishers.
2022b
- (Coyle, 2022) ⇒ John F. Coyle. (2022). "A Primer on Choice-of-Law Clauses". In: Transnational Litigation Blog.
2016
- (Pitel, 2016) ⇒ Stephen G.A Pitel. (2016). "Private International Law in Common Law Canada: Cases, Text and Materials, Fourth Edition". Emond Montgomery Publications.