Choice of law clause
term of a contract
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.
Operation
Choice of law clauses add predictability about the law to be applied should a contractual dispute arise. As business transactions and contractual obligations may cross jurisdictional borders within a nation, as well as international borders, both physically and electronically, choice of law issues may arise. As laws vary between jurisdictions, it is possible that contract terms could be interpreted differently between jurisdictions, or that portions of a contract that are enforceable in one jurisdiction would not be enforceable under the laws of another. The parties may therefore agree in advance to interpret the contract in accord with the laws of a jurisdiction that is identified within their contract.
In determining the choice of law, parties may consider the types of dispute which could arise from their agreement, whether the law will be from a common or civil law jurisdiction, how friendly or hostile a jurisdiction would be to their claim, and whether sufficient precedent exists in that jurisdiction.
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This entry incorporates text from “Choice of law clause” on English Wikipedia. Contributors are listed in the page history. Text is available under the Creative Commons Attribution-ShareAlike 4.0 License. Selected authority identifiers and statements are retrieved from Wikidata under CC0; their references and qualifiers remain part of the verification path.