One of the most important clauses in any contract is the Choice of Law provision. The Choice of Law determines the Governing Law of the relationship detailed in the contract, which is to say what location’s law will govern any dispute between the parties if the contract is broken. For instance, if a contract was broken between two American companies located in California and Texas, respectively, the Governing Law would determine which of those two states’s local laws would be applied while a resolution is sought out.
Although most locations in the western world (and, indeed, in the world in general) follow the same basic principles of law, there are differences all over. Governing Law is determined by jurisdiction, which is any larger area that has its own specific local law set. For clarification, there are 51 jurisdictions within the United States. This is different from a sovereign state, which is generally what we would think of as a country. There are around 200 sovereign states in the world, but over 300 jurisdictions to choose from.
So how much does Governing Law vary from jurisdiction to jurisdiction? It depends. Generally, jurisdictions are banded together based on a common legal culture. Within a common legal culture, while there are differences country to country, overarching legal principles are the same. One of the most popular common legal cultures is the English common law culture, headlined (perhaps obviously) by England, because this legal culture has its roots in the old English common law, but it also includes Hong Kong, Ontario, Singapore, Australia, the United States, and others. All of these Governing Laws are based upon the same principles rooted in England.
Even more popular – as it applies to more than 70% of the world’s jurisdictions – is the Napoleonic civil law culture, headlined by France and which includes all European Union countries (except Ireland), Louisiana, Quebec, as well as all of South America and a number of Asian countries.
So how do you choose which Governing Law is best for your contract? Although there are legal options potentially allowing you to choose at random, it is generally advisable to pick a jurisdiction you are connected to – where your business is located, or perhaps where production is handled. Now let’s imagine an international contract with one party located in New York and the other located in France. The legal cultures of the United States and of France are different, and only one can be chosen. It is important to note that Governing Law is never a battle of the nations – legal cultures are only ever different, not better or worse.
For our hypothetical contract, we would advise examining the nature of the relationship between the parties and the subject matter of the contract. If there are products involved, maybe New York’s strong non-compete laws would be beneficial. If the work is primarily undertaken online, perhaps France’s stronger data privacy laws would be most important. If one party is significantly larger in size, it could be a show of good faith to choose the Governing Law of the smaller party. These decisions are complicated and should not be chosen lightly or without consulting a lawyer for help.
Each party in our hypothetical contract would typically need the help of two different lawyers – one licensed and versed in French law, and the other in New York. At the Law Offices of S. Grynwajc, PLLC, we are licensed to assist both at the same time. Contact the Law Offices of S. Grynwajc, PLLC today with any transatlantic legal needs. We can help you think globally and act locally.