Choice of law clause

A choice of law clause[1] or proper law clause[2] is a term of a contract in which the parties specify that any dispute arising under the contract shall be determined in accordance with the law of a particular jurisdiction.[3]

Explanation

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 in the event that it is necessary to interpret the terms of a contract or in the event of litigation over a contract dispute. 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.[4]

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.[4][5]