What If There Is No Governing Law Clause

An applicable legal clause indicates the law that governs the contract. This extends not only to the interpretation of its clauses, but also to the validity, effect and performance of the contract. The clause should also regulate the non-contractual rights of the parties. The clause should be clearly worded in such a way that the applicable law is easy to determine. As regards the law governing the obligations of the parties, the EU rules Rome I1 and Rome II2 provide a framework for the harmonisation of rules on contractual and non-contractual obligations to ensure that Member States apply the same law to the same dispute. In matters of contractual obligations, Rome I implements the choice of law applicable by the parties and contains rules for determining the applicable law if no choice has been made, if the contract was concluded on or after 17 December 20093. Some laws cannot be changed by contract and are enforceable despite the applicable legal clause. Example: If no applicable legal clause is included and a dispute arises, the court hearing will likely first have to determine which law applies to the contract (and any non-contractual obligations) before it can resolve the dispute. It is rare for commercial parties to disagree on a clause relating to applicable law.

Where they do not, complex rules are in place to determine the applicable law of the contract. If the parties are located in different jurisdictions or if obligations are to be performed, it may be difficult to determine the applicable law of the contract. This can lead not only to uncertainty, but also to the time and costs spent at the beginning of a dispute over the applicable law. Although a choice of jurisdiction clause does not always prevent a party from bringing proceedings in another court, in the event of a dispute over the place of jurisdiction, that dispute must first be resolved. In summary, the current law can be important. State laws are not the same, and one may be more favorable to your approval. The choice of jurisdiction is important because it can be more expensive and time-consuming to go to court across the country. This guide highlights the relevant law and the main considerations that should be taken into account when drafting or considering the implications of an applicable law clause. Similarly, New York law provides that either party may sue another party in the New York courts if the agreement contains a choice of law clause applicable in New York, if the parties have agreed in the contract to the jurisdiction of New York, and if the amount in dispute exceeds $1 million.[4] The contractual provisions that determine the choice of applicable law and the choice of venue for dispute resolution range from simple to detailed, but do not always receive the care they deserve. As is the case with other contractual provisions often hidden at the end of the agreement in a section entitled “Miscellaneous”, they can easily be ignored once substantive decisions have been made and agreement has been reached on the applicable law and forum that will be used. But nuances of wording can have more impact on the outcome than many lawyers, including many American lawyers, realize.

Therefore, lawyers drafting trade agreements with ties to the U.S. should be aware of some recurring issues that complicate seemingly simple questions. This article explores some of the most common problems encountered in this regard. At the same time, each state and territory of the United States also has its own state-level law that governs contracts for the sale of goods. In almost all of them, this is Article 2 of the Uniform Commercial Code (CDU), sometimes literally and sometimes with modest differences. Since federal law excludes conflicting domestic laws under the “primacy” clause of the U.S. Constitution, the United Nations Convention on Contracts for the International Sale of Goods by default replaces the UCC in the case of an agreement that falls within its scope under the provisions of the United Nations Convention on Contracts for the International Sale of Goods. EU rules contain detailed provisions defining the courts of jurisdiction and these are now largely reflected in the Brussels Regulation6. The general rule is that the defendant must be sued in the courts of the Member State in which he is domiciled. Thus, if the plaintiff is domiciled in England, but the defendant is domiciled in Italy, it is assumed that the defendant should be sued in his home state, Italy.

However, the parties are free to agree on the jurisdiction of the courts of a particular country (and the rules implement this choice7), subject to various limitations that prevail over the general rule in the following order of meaning: An example of a clause that seeks to do so is a specific jurisdiction clause where disputes relating to the contract will be heard.