Choice of law clause

Choice of law clauses provide certainty 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. Parties often seek a jurisdiction that would be neutral to their claims. However, where one party has more bargaining power, they may impose the law of their jurisdiction or choose a more favourable law.

In some situations a court may find that there are public policy reasons to disregard a choice of law clause, and instead interpret a contract under the laws of the jurisdiction in which a lawsuit is filed. For example, a jurisdiction may find, as a matter of public policy, it will apply its own consumer protection laws to a dispute between a consumer and a business even if the contract calls for the application of the laws of a different jurisdiction.