This is the second blog post of a series which seeks to explore the reasoning behind some of today’s most common choice of law and forum selection options in international contracts, and the role of a process agent in those transactions.
Many questions arise when negotiating international commercial transactions. As discussed in a previous blog post, one fundamental question is “Where to sue?,” which is an issue of forum selection clause (or choice of forum). However, it is just as important to determine “Which law will apply to this international transaction?,” which is a question typically dealt with in a governing law clause (or choice of law).
Of course, no one wants to think a deal will end up in dispute, but choosing the governing law of the contract wisely is crucial to achieving a satisfactory and fair resolution in case litigation proves inevitable. This blog post will explore some of the reasons that make New York – along with Hong Kong and United Kingdom – one of the most popular jurisdictions in cross-border transactions.
Choice of Forum and Choice of Law Clauses
Forum selection and governing law clauses are usually presented together, and require a lot of consideration from the lawyers who are drafting the contract. Some of the main questions typically asked include:
- Does the forum chosen have a clear and well-developed body of law?
- Does the law of that particular jurisdiction respect party autonomy and freedom of contract?
- Are the courts in that jurisdiction accessible to foreign parties and capable of deciding on international business matters?
If we told you that New York checks all of those boxes (and more), would that influence your choice in your next international transaction?
Why New York Choice of Law?
New York law and forum are the preferred choice in many contracts. This is, in part, because of the predictability and security that comes along with the provisions of its General Obligations Law (“NY GOL”), Sections 5-1401 and 5-1402[i]. In a nutshell, these sections allow parties to choose New York law and forum if the controversy satisfies a minimum value threshold (U.S. $250,000 for choice of law; U.S. $1 million for choice of forum) regardless of whether the transaction has any connection to New York.
When these provisions came about, in 1984, they were considered a big step towards reinforcing New York’s standing as a commercial and financial center. Until that law was enacted, parties could still appoint New York law as the designated forum, but courts would have the discretion to reject the selection made by the parties, usually on the grounds that they lacked enough ties with the state of New York, or that a more appropriate forum was available to the parties (a legal principle known as forum non conveniens).
In 2012, this idea was bolstered by a decision[ii] from the New York Court of Appeals involving a Brazilian reinsurance company, IRB-Brasil Resseguros, S.A. (IRB), suing in New York Supreme Court, to collect on global notes issued by an Uruguayan corporation and guaranteed by another Brazilian entity, and payable through a fiscal agent in London to an account at a Brussels clearinghouse. That case, involving parties from so many different countries, reaffirmed the notion that New York courts “are open to foreign parties whose disputes arise out of significant commercial contracts, and the courts will honor the parties’ selection of New York law to govern their agreements”[iii]. Since then, New York has established itself as a safe choice in cross-border finance transactions.
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More Reasons to Choose New York
Even though the NY GOL offers the parties the peace of mind and security that one’s choice of law and forum will be enforced if the criteria are met, this factor alone would not be enough to explain why New York is such a popular jurisdiction. Actually, many other reasons help answer that question:
- New York has a more sophisticated and developed body of commercial law than other U.S. states, ensuring a neutral, secure and predictable outcome.
- Because of their location in one of the world’s most important international business centers, New York courts have developed broad and deep experience in handling cross-border commercial issues, with a unique understanding of the international business context in which a particular transaction was closed.
- International business parties can expect sophisticated approach to international commercial dilemmas, which will be solved by professionals (including attorneys and arbitrators) who have deep knowledge of New York law as well as international commercial practice and culture.
Appointing a Professional Process Agent in New York
It has become standard practice to include choice of law and choice of forum clauses in most international transaction agreements. Because the parties to these contracts do not always have a physical presence in New York, a Process Agent with an address in that state is often required by one of the parties. Retaining a process agent to provide this physical address allows a party to the transaction to more easily comply with U.S. state and federal rules governing the commencement of a lawsuit, especially when the party being served does not reside in the United States. The Process Agent will be responsible for receiving and forwarding service of process to the parties if there is ever a legal dispute under the contract. For reasons which we have explored in previous blog posts[iv], it is important to choose a knowledgeable and reliable Process Agent.
As one can see, despite stereotypes such as brusque, grouchy, or even unfriendly (to be fair, the subway is always crowded!), New Yorkers share a cosmopolitan tradition and open-mindedness that continue to attract international commercial transactions.
In the next blog post of this series about forum selection, we will be taking a trip across the pond, to investigate some of the reasons that make England another very popular choice of law for cross-border contracts.
[ii] IRB-Brasil Resseguros, S.A. v. Inepar Investments, 20 N.Y.3d 310, S.A., 982 N.E.2d 609 (Dec. 18, 2012)
[iii] Kuck, Lea Haber. “The New York Courts are Open for Business to Foreign Litigants.” Corporate Disputes. Apr-Jun 2013. Available online at http://www.corporatedisputesmagazine.com/the-new-york-courts-are-open-for-business-to-foreign-litigants
[iv] See Top 5 Criteria for Selecting a Process Agent and Appointing a Professional Process Agent vs. "Self-Representation".
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.