The law of a jurisdiction and the forum in which a contract dispute is heard can bear heavily on the outcome of a case. In many instances today, contracts are drafted to include choice of law and forum provisions, which means the contracting parties negotiate and agree to the law governing a dispute, in the event a dispute arises. A choice of law clause sets the substantive law of the appropriate state to be applied in the dispute. A choice of forum clause dictates the court that will adjudicate the case and, indirectly, the procedural rules that will control the trial. In the absence of a contractual provision, the forum court will apply its choice of law rules to determine the appropriate substantive law to decide the law of the case, and its procedural rules to conduct the trial.
There are many advantages to selecting New York as the law and forum for a particular dispute. As an epicenter of business and commerce, New York courts have a reputation for their ability to handle complex commercial disputes including those involving complicated contractual and financial arrangements and cross-border issues. New York has created a specialized court for the resolution of commercial disputes: the Commercial Division of the New York State Supreme Court.
Moreover, New York has relatively few limitations on selecting its law or courts. In 1984, the state legislature passed section 5-1401 of the New York General Obligations Law, which allows parties to choose New York law to govern their contracts even if the transaction has no connection to the state, as long as certain conditions are met, such as the agreement must relate to a transaction, covering in the aggregate, not less than $1 million. Moreover, New York courts recognize that predictability and stability are crucial components of large commercial transactions. For this reason, New York courts honor the justified expectations of the parties to a contract.
While advantageous, New York may present some disadvantages of which practitioners should be aware when contracting choice of law and forum selection clauses in commercial contracts. For example, one consequence of including a New York choice of law clause without qualification is to preclude application of the laws of another jurisdiction even when New York's choice of law rules mandates the application of the other jurisdiction's law to the issue. Additionally, there exists uncertain application of New York law between state and federal courts. When parties opt to litigate in New York, they may be exposed to subtle differences in the application of New York law by federal and state courts. Recent decisions reveal that federal courts applying New York law as a result of diversity jurisdiction and New York state court applying New York law, have introduced varying interpretations of the law.
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