Meaning
Contractual clauses determine which jurisdiction’s statutes and precedents govern the interpretation of a legal agreement. Choice of law provisions establish the legal framework for resolving disputes before a conflict arises. The inclusion of choice of law provisions allows parties from different countries to agree on a predictable set of rules.
Jurisdictional Weight
The selection of a specific state or national law often favors the party with higher bargaining power. Selecting a neutral forum like English law or Delaware law is common in international venture capital. Such a selection ensures that the interpretation of the contract follows a body of law that is well understood by global investors.
Procedural Application
These terms operate independently of the physical location where a court sits. A judge in one country might apply the substantive law of another jurisdiction because of these choice of law provisions. This separation ensures that the rights of the parties remain consistent regardless of where the litigation occurs.
Certainty Provision
Predictability in legal outcomes is the primary benefit of these clauses for commercial entities. When a contract is silent on this matter, a court must use complex conflict of laws rules to determine which rules apply. This ambiguity can lead to higher legal costs and inconsistent rulings.
