Choice of Law and Venue in Business Contracts
Florida businesses often include “choice of law” and “choice of venue” provisions in their contracts that stipulate the agreement be governed, construed, interpreted and enforced in accordance with the laws of the State of Florida or another state or nation of the parties’ choosing. These choice of law and venue provisions provide the contracting parties with a greater degree of certainty as to how certain claims ultimately resolve in the future. Choice of law provisions are particularly important for businesses to consider when drafting commercial and consumer contracts with parties from different states.
The idea behind choice of law and choice of venue provisions is that they create, to a certain degree, “personal jurisdiction”. Personal jurisdiction refers to the power that a court has to make a decision regarding the defending party in a case. The US Constitution states that for a court to exercise power over a party, there needs to be some form of relationship with the court’s jurisdiction.
Florida courts will generally enforce a choice-of-law provision in a commercial contract. This is because Section 671.105(1), of Florida Statutes, states: “…when a transaction bears a reasonable relation to this state and also to another state or nation, the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties.”
Choice of Law
In a “choice of law” provision, the businesses or individuals who are parties to the contract select specify the jurisdiction’s law that will apply in the case of a contractual dispute.
Assuming a contract states that Florida law will apply in the case of dispute, even if one or both of the parties is based in Florida, courts will generally enforce such an agreement. This is true even if the actual court venue is not in Florida. In such a case a non-Florida court may apply a Florida law to a contract dispute between two businesses both of which are based in other states or countries.
Making a choice of law provision in a contract can be advantageous in different ways. Primarily, it allows the parties to choose the laws of a jurisdiction that they agree will resolve conflicts in a mutually advantageous way. Otherwise, it’s decided by a court in the jurisdiction wherever the case may be filed. Without a choice of law provision, that court would often determine applicable law making a “conflicts of law” analysis. This analysis takes into consideration various factors such as but not limited to where the disputing parties are based, where the events discussed in the matter occurred and where witnesses are based.
However, the parties’ agreed choice of laws may not, and typically does not, place the matter in the courts of that jurisdiction. For example, for Florida courts to establish personal jurisdiction over the matter would require more than a choice of law it would require a choice of venue.
Choice of Venue
“Choice of venue” provisions submit the contracted parties to the jurisdiction of the courthouses of a certain country, state, or county, should a dispute arise.
In multi-state and international business, choice of venue can be more important than choice of law provisions since many courts require the presence of the parties to a matter to appear physically in the courthouse. Travel to another county, state or even country may be prohibitive. In cases where other countries are concerned, translations and differing legal and social customs can make the case difficult. Finally, if a trusted legal counsel is not licensed with the bar in the choice of venue state or country, then another new attorney would need to be hired.
“…the parties’ agreed choice of laws may not, and typically does not, place the matter in the courts of that jurisdiction.”
Arbitration: An alternative venue
While many contracts may opt to choose a county and state as the legal venue, there is one alternative that has many advantages over a local court. This option is arbitration.
Arbitration is a structured resolution process that is done in front of an arbitrator, or person that has been designated as the decision-maker in a conflict. In some cases, a board of arbitrators can be used in arbitration rather than a single arbitrator. Arbitration is formal in its structure, though often less costly and more confidential than litigation. On the other hand, there are fewer options to appeal a decision than there are in litigation.
Besides the cost savings to the parties in a dispute, both sides may also benefit from the industry knowledge of specific arbitrators. For example, there are arbitrators and arbitration boards that specialize in handling disputes in certain industries such as construction and homeowners associations (HOAs). Other arbitrators may specialize, for example, in international arbitration.
The Importance of Legal Counsel
When deciding on choice of law and venue there are several important factors that an experienced business law attorney can help businesses to navigate. Does the law or venue in the contract benefit the business, or would another law or venue be more advantageous?
Could arbitration be a better choice for both parties? If so, what arbitration body should be used?
If you are creating a business agreement from scratch an experienced business attorney can draft a document that best fits your business’ interests and best protects you in the case of a dispute. If you receive a business agreement from an entity with which you are doing business, then your experienced attorney can review the agreement. After reviewing it your attorney can send comments to the opposing counsel so that terms and conditions can be changed to better reflect your organization’s interests. Those changes may include the choice of law and choice of venue provisions.
South Florida Law
Business contracts and agreements can be highly-detailed legal documents that can financially impact the interests of all parties. Drafting of business contracts agreements is ideally led by experienced corporate attorneys representing the best interests of one side of the transaction. Before signing and putting into effect any business agreement, the side receiving the contract would do well to instruct an experienced legal counsel to review the document. Because every matter requires its own unique legal assessment, contact South Florida Law, or call us on (954) 900-8885 for a consultation to determine whether a specific contract or agreement meets the needs of the transaction and is in the best interest of your business.