Governing Law and Jurisdiction
Parties entering into a contract should consider: (1) what law will govern the interpretation of the contract; and (2) what jurisdiction’s courts will have the right to hear a contractual dispute. The answer to both of these questions can be extremely important in terms of outcome, expense and convenience in the event that a breach of contract results in the filing of a law suit.
Determining the applicable governing law and jurisdiction can become a complex and disputed legal issue when a contract has connections to more than one state or country. For example, a Delaware corporation might enter into a contract with a Maryland LLC to perform services in Washington, D.C.. A legal dispute over applicable law and proper court juridiction can often be avoided by simply incorporating clauses into the contract that specify the governing law and court applicable to any legal disputes that may arise out of the contract. Such clauses are commonly referred to by attorneys and as “choice-of-law” and “forum-selection” clauses, respectively.
Governing Law Clauses in Contracts
A governing law or “choice-of-law” clause is a provision in a contract that specifies what law will govern in the event a dispute arises under the contract. An example of such a clause is as follows:
“This Agreement, including its formation, performance and enforcement, shall be governed by and construed in accordance with the laws of Maryland, without regard to conflict of law principles.”
Jurisdiction Clauses in Contracts
A jurisdiction or “forum-selection” clause is a provision in a contract that specifies a particular court or courts that will have jurisdiction to hear a legal dispute that arises under the contract. An example of such a clause is as follows:
“The parties agree that all legal proceedings arising out of or in connection with this Agreement shall be brought only in a Maryland State Court located in Baltimore County and any appeal thereof shall be to the appellate courts of the State of Maryland.
Enforceability
Courts in the United States will generally enforce choice of law and forum selection clauses if freely agreed to by parties in a commercial setting. However, before selecting governing law and jurisdiction, an attorney should first consider the likelihood that these clauses will be enforceable under the circumstances of the contract and the laws of the chosen locale.
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