Exploring the reasoning behind some of today’s most common choice of law and forum selection options in international contracts – and the role a process agent plays in those transactions.
When signing a contract, the parties involved are promising to fulfil their respective obligations as described in the written agreement. In the event this doesn’t happen, the aggrieved party can consider legal recourse. The question in these situations is not whether to sue, but where.
Why? Because not all judicial systems are organized in the same manner. Due to historical, cultural and economic reasons, some jurisdictions have developed a more extensive library of precedents that may be better suited for certain litigation. Let’s take a look.
The Minimum Contacts Requirement
New York tends to be one of the most popular jurisdictions of choice for parties to an international commercial or financial contract, as it has sophisticated and well-developed bodies of contract, commercial and business law established by their courts.
However, a plaintiff cannot indiscriminately choose where to file a lawsuit. The decision is curtailed by way of the defendant's constitutional right to due process, as granted in the Fourteenth Amendment of the U.S. Constitution, that prevents the court from exercising jurisdiction over a defendant unless they have ‘minimum contacts’ with the state in which the court sits (the ‘forum state’). The idea here is that it would not be fair to drag someone to court in a state with which the individual has no ties.
When the plaintiff, i.e. the aggrieved party in the contract, decides to sue in New York, they are ultimately agreeing to be bound by that court’s decisions in the lawsuit. Their ‘minimum contacts’ requirement is satisfied by tacit consent. The same does not necessarily apply to the defendant, who is, after all, being brought to court involuntarily.
If the defendant is domiciled in New York, they clearly have enough ties with the state of New York. The same is true for companies that are conducting regular business in New York. New York’s long-arm statute also stretches the definition of ‘who has minimum ties with the state’ to include, for example:
- Persons who are not domiciled or doing regular business in New York but have signed a contract to supply goods in New York.
- Persons who own, use or possess any real property situated within the state.
When none of the situations foreseen in the long-arm statute apply, the only way a court can entertain jurisdiction over a person is by consent.
Forum Selection Clauses and the Role of a Process Agent
In international contracts, consent to be sued in a specific jurisdiction is usually memorialized in a ‘forum selection’ clause. It’s not unusual for one of the contracting parties to consent to jurisdiction in a state where they do not have a physical presence. In this case, the counterparty may require the appointment of a process agent (also known as a ‘contract agent’) in that jurisdiction to effectively receive and forward service of process, should a lawsuit ever arise out of that transaction.
Although anyone can act as an agent for service of process, most parties – especially within the context of large cross-border financial transactions – prefer to work with a reliable and professional service company.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.