Choice of What? the New York Court of Appeals Defines the Parameters of Choice-of-Law Clauses in Multijurisdictional Cases

By Reyhan, Patricia Youngblood | Albany Law Review, Summer 2019 | Go to article overview

Choice of What? the New York Court of Appeals Defines the Parameters of Choice-of-Law Clauses in Multijurisdictional Cases


Reyhan, Patricia Youngblood, Albany Law Review


I. INTRODUCTION

Party autonomy (1) in contracts has been described as "[p]erhaps the most widely accepted private international rule of our time." (2) The power of parties to contract regarding choice of law is now widely recognized throughout the United States as well as in most developed legal systems. (3) The legal ability to choose the law that is generally to be applied to contractual rights and obligations is arguably essential to the contractual ability of the parties to shape all aspects of those rights and obligations. (4) Without knowing at the time of contracting whether terms of the contract and the process of its formation will be valid, how such terms will be interpreted, and what shall be the available remedies for breach, a central goal of contracting parties, girding the certainty and predictability surrounding their contractual relations, is significantly undermined. (5) Thus, for parties to multijurisdictional contracts, (6) especially transnational contracts, (7) the protection of party autonomy regarding choice-of-law clauses is highly valued. (8) The globalization of trade has made such contracts far more common, more complicated and significantly more financially consequential. (9) While the growth in multijurisdictional contracts may be good for business; it has been challenging for law. (10)

The contacts of the parties and the transaction with multiple states or nations have led commercial actors in multijurisdictional contracts to seek to define from the beginning the source of law to govern the contractual obligations they are undertaking. (11) This has led to the widespread use of choice-of-law and choice-of forum clauses in multijurisdictional contracts. (12) But the inclusion of such clauses is effective only to the extent that courts in the jurisdiction where suit is brought will recognize and enforce them. (13) Acknowledging that parties to large multinational contracts are incentivized to choose laws and legal systems likely to respect their contractual autonomy, a number of states, led by New York, have competed to provide receptive laws and venues in order to entice international commercial actors to choose their states for the resolution of contractual disputes, particularly those of high monetary value. (14)

This Article examines the current state of New York's status as a center for the litigation of multijurisdictional commercial disputes and the New York Court of Appeals' recent jurisprudence regarding that status. It begins by examining precisely why choice-of-law and choice-of-forum clauses are so important to commercial actors, especially those who execute multijurisdictional contracts. (15) The Article then examines efforts by New York to solidify its status as the center of international commerce and finance through initiatives to make its law and courts more attractive to commercial parties outside New York. (16) The particular focus of this section is on the adoption in 1984 of New York General Obligations Law section 5-1401 and section 5-1402. (17) After detailing the general treatment of choice-of-law clauses under New York's common and statutory law, the Article turns to examination of four New York Court of Appeals cases, decided in the last decade, that give particular guidance on exactly how New York interprets the significant question of precisely what law is chosen in a choice-of-law clause. (18) The Article concludes with a critique of the reasoning of the final case and observations on the extent to which that reasoning undermines the certainty and predictability that New York and the Court of Appeals have endeavored to assure to parties to multijurisdictional contracts. (19)

II. THE ATTRACTIVENESS OF CHOICE-OF-LAW AND CHOICE-OF-FORUM CLAUSES IN MULTIJURISDICTIONAL CONTRACTS

The best vantage point for viewing the attractiveness of choice-of-law and choice-of-forum clauses in multijurisdictional contracts is through an examination of the legal landscape in the absence of such clauses. …

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