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Deciding which jurisdiction’s law to apply to unforeseen disputes has always been a major consideration when negotiating international commercial agreements. This is especially true today with the increasing globalization of commerce. In many cases, the parties to an agreement — each fearful of giving an advantage to the other — may in the interests of neutrality choose the law of a jurisdiction having no connection to the parties or the agreement. However, the contractual designation of the law of an unrelated jurisdiction presents the risk that the lack of a connection will render the parties’ selection unenforceable. For example, a California corporation and a French corporation might negotiate a contract that includes a New York choice-of-law clause, even though neither the contract nor either of the parties has any contact with New York. To what extent will the parties’ choice-of-law clause be enforceable, and what steps may they take to maximize the chances that New York law will apply to the resolution of any subsequent dispute? While there can be no guarantee, the choice of the law of an unrelated jurisdiction will often stand the best chance of being honored if it is reinforced with a forum-selection clause designating the same jurisdiction. This is especially true in jurisdictions such as New York, where the courts give substantial recognition to the parties’ freedom to contract. Most U.S. jurisdictions follow the choice of law approach provided in � 187 of the Restatement (2d) of Conflict of Laws. See, e.g., Radioactive J.V. v. Manson, 153 F. Supp. 2d. 462, 469-70 (S.D.N.Y. 2001). Under � 187, the parties’ choice of law will be honored unless the chosen jurisdiction bears “no substantial relationship” with the parties or the transaction and there is “no other reasonable basis” for the choice (nexus test), or unless application of the law would offend a “fundamental policy” of a state with an interest in the transaction materially greater than that of the chosen jurisdiction and whose law would apply in the absence of an effective choice of law by the parties (fundamental policy test). The substantial relationship requirement is generally satisfied when the chosen law is that of the jurisdiction where performance by one of the parties is to take place, where one of the parties has its principal place of business or which was the place of contracting. 2d Restatement � 187 cmt. f. Parties to a multistate or international contract may also have a “reasonable basis” for choosing a jurisdiction with which the contract has no substantial relationship when, for example, they are contracting in countries whose legal systems are unfamiliar to them as well as relatively immature. Under such circumstances, the 2d Restatement permits the parties to select a law “on the grounds that they know it well and that it is sufficiently developed.” Id. When contacts are limited, such as when the only contact with the chosen jurisdiction is the place of a party’s incorporation, courts may decline to give effect to the choice-of-law clause. Compare Curtis 1000 Inc. v. Suess, 24 F.3d 941, 948 (7th Cir. 1994) with Ciena Corp. v. Jarrard, 203 F.3d 312, 323-324 (4th Cir. 2000). Courts are apt to reject the parties’ selection when the designated jurisdiction lacks any contacts with the transaction or parties. See, e.g., Mitsubishi Caterpillar Forklift America Inc. v. Superior Serv. Assocs. Inc., 81 F. Supp. 2d 101, 118 (D. Maine 1999). THE FUNDAMENTAL POLICY TEST When a choice-of-law clause will result in the application of a rule that offends a fundamental policy of an interested jurisdiction, courts applying the 2d Restatement test may refuse to enforce the provision. Courts will rarely find requirements related to formalities — such as the Statute of Frauds or general rules of contract law, such as those concerning the need for consideration — to constitute fundamental policies. 2d Restatement � 187 cmt. g. On the other hand, a fundamental policy may be embodied in a statute that makes certain types of contracts illegal or that is intended to “protect a person against the oppressive use of superior bargaining power.” Id. Courts invoke the fundamental policy exception in an assortment of situations when choice-of-law clauses would, for example, result in the frustration of laws prohibiting noncompetition agreements, Cherry, Bekaert & Holland v. Brown, 582 So. 2d 502, 507-08 (Ala. 1991); barring waivers of rights to attorney fees, Ribbens Int’l S.A. de C.V. v. Transp. Int’l Pool Inc., 47 F. Supp. 2d. 1117, 1122-23 (C.D. Calif. 1999); or prohibiting restrictions on statutes of limitation. Indus. Indem. Ins. v. United States, 757 F.2d 982, 987-88 (9th Cir. 1985). Some jurisdictions, most notably New York, do not require a nexus between a contract and the jurisdiction designated in a choice-of-law clause and do not recognize a public policy exception to the application of a choice-of-law clause. In response to the local bar’s concern that New York courts would lose their preeminent status as arbiters of national and international commercial disputes, the New York legislature passed General Obligations Law � 5-1401, abrogating New York’s former common law requirement that gave effect to a choice-of-law clause only when the designated jurisdiction also possessed the most substantial contacts with the contract. SeeCommittee Report, Proposal for Mandatory Enforcement of Governing-Law Clauses and Related Clauses in Significant Commercial Agreements, 38 Rec. Ass’n B. City N.Y. 537, 537-38, 548-49 (1983). Sec. 5-1401 provides that New York law will apply to most commercial contracts valued in excess of $250,000 that contain a New York choice-of-law clause, even when neither the contract nor any of the parties to it has any relationship to New York. N.Y. Gen. Oblig. Law � 1401 (McKinney 2001). California, Delaware and Texas have similar provisions. See, e.g., Cal. Civ. Code � 1646. Sec. 5-1401 exempts labor and personal-services contracts, but otherwise does not recognize a public policy exception to its application. Courts applying New York choice-of-law rules under � 5-1401 therefore do so irrespective of the possibility that the application of New York substantive law will offend the public policy of another jurisdiction. See Supply & Bldg. Co. v. Estee Lauder Int’l Inc., No. 95 Civ. 8136, 2000 WL 223838 (S.D.N.Y. Feb. 25, 2000). Though � 5-1401 establishes a mandatory choice-of-law rule when a contract designates New York law, New York continues to follow the 2d Restatement rule when a choice-of-law clause designates the law of another jurisdiction. See Radioactive, 153 F. Supp. 2d. at 470. INTERNATIONAL CONVENTIONS Choice-of-law rules in European nations, lacking a nexus requirement, generally provide greater party autonomy than the prevailing U.S. approach but provide limitations analogous to the 2d Restatement’s public policy exception. Most Western European countries are signatories to the Convention on the Law Applicable to Contractual Obligations (the Rome Convention), 23 O.J. Eur. Comm. 1, art. 3, reprinted at 19 I.L.M. 1492 (1980), which provides that choice-of-law provisions should be given effect, but which does not explicitly limit enforcement to clauses bearing a substantial relationship with the chosen jurisdiction. Unlike New York’s � 5-1401 rule, however, the Rome Convention provides that certain “mandatory rules,” or rules “which cannot be derogated from by contract,” will be applied under certain circumstances irrespective of a choice-of-law clause. Id. at arts. 3, 3. For example, when the parties to an agreement are nationals of the same country, they may not use a choice-of-law clause to circumvent the mandatory rules of their country in favor of the laws of an unrelated jurisdiction. A number of Central American and South American countries are signatories to the Inter-American Convention on the Law Applicable to International Contracts (the Mexico City Convention). OEA/Ser. K/XXI.5, CIDIP-V/doc.34/94, reprinted at 33 I.L.M. 732 (1994). Like the Rome Convention, the Mexico City Convention lacks a nexus requirement, but provides certain exceptions for the application of mandatory rules. Mexico City Convention at arts. 7, 11. FORUM-SELECTION CLAUSES Though New York’s statutory choice-of-law rules will most likely assure application of a choice-of-law clause designating New York law in a New York forum, New York’s choice-of-law rules will not assist a party litigating in a non-New York forum. See CCR Data Sys. Inc. v. Panasonic Communications & Sys. Co., No. CIV. 94-546-M, 1995 WL 54380, at *4-5 (D.N.H. Jan. 31, 1995). Similarly, the liberal choice-of-law rules of some states and foreign countries will be of little use when a litigant faces a forum with choice-of-law rules that limit the enforceability of choice-of-law clauses. To take advantage of these liberal choice-of-law rules, parties to international agreements should give careful consideration to another contractual provision — the forum-selection clause. U.S. courts generally enforce forum-selection clauses, following the Supreme Court’s decision in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). Under Bremen, a forum-selection clause is presumed to be valid and may be overcome only by a clear showing that it is “unreasonable under the circumstances.” Id. at 10. Such a showing requires that a clause be induced by fraud or overreaching, be so inconvenient that the complaining party “will for all practical purposes be deprived of his day in court,” designate law which is fundamentally unfair or contravene a strong public policy of the forum state if enforced. Id. at 12-10. Cf. Stewart Org. Inc. v. Ricoh Corp., 487 U.S. 22, 30-31 (1988). New York’s legislature codified the recognition of forum-selection clauses with General Obligations Law � 5-1402, which preempts the doctrine of forum non conveniens, and requires New York courts to assume jurisdiction over most commercial disputes involving more than $1 million that designate both New York law and New York as a forum. See Credit Francais Int’l. S.A. v. Sociedad Financiera De Comercio C.A., 490 N.Y.S.2d 670, 675 (New York Co., N.Y., Sup. Ct. 1985). Similarly, in Europe, Art. 17 of the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (the Brussels Convention), 33 O.J. Eur. Comm. 1, reprinted in 29 I.L.M. 1413 (1990), obligates signatory countries to recognize forum-selection clauses when one of the parties to the contract is a national of a signatory state. By combining forum-selection and choice-of-law clauses, parties to international agreements can enhance the chances that their chosen law will control subsequent disputes. For example, the combination of New York choice-of-law and forum-selection clauses provides access to New York courts and, in most cases, should provide a good basis for a motion to dismiss litigation brought in other than a New York forum. Forum-selection clauses do not, however, provide an ironclad guarantee that the parties’ choice of law will be respected. Under the Bremenpublic policy exception, there will generally remain a possible escape from forum-selection clauses for the motivated litigant. Courts may be reluctant to enforce forum-selection and choice-of-law clauses that operate in tandem as waivers of substantial rights. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc., 473 U.S. 614, 637 n.19 (1985). Moreover, parties can be counted on to employ great effort and ingenuity in identifying supposedly overwhelming and fundamental public policies with which such clauses interfere, and courts may unpredictably elevate seemingly mundane provisions into fundamental limitations on party autonomy. Additionally, substantial uncertainty remains in the federal courts as to the proper procedure for enforcing forum-selection clauses in diversity cases — see 17 Moore’s Federal Practice 111.04 (2001) — and some states continue to reject mandatory forum-selection clauses under certain circumstances. See, e.g., N.C. Gen. Stat. � 22B-3 (2001). Yet a choice-of-law clause coupled with a forum-selection clause that designates the same jurisdiction provides a reasonable degree of certainty that the chosen law will be applied, especially in jurisdictions such as New York or the signatory countries to the Rome Convention, because they give substantial recognition to the parties’ freedom to contract with respect to the law that will govern disputes that may arise between them. Richard T. Franch and Lawrence S. Schaner are partners at Chicago’s Jenner & Blockand co-chairs of the firm’s arbitration practice group. Anders C. Wick is an associate at the firm.

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