Recently I had blogged about “choice of law” clauses, which are the contractual provisions which dictate which rules or laws apply to your agreement.
As a follow up to that thought, I would be remiss if I did not point out that along with “choice of law” clauses many contracts also contain “venue” provisions, and it is common that these two clauses appear together. If not checked, they can wreak havoc on an unsuspecting party.
In legal parlance and in this context the term “venue” essentially means the place where any legal action affecting the contract must take place.
Let me give you an example of what I am talking about. Consider this clause:
“The parties herein agree that this contract is governed by the laws of the State of New Jersey and that any disputes arising hereunder shall be litigated in the Superior Court of New Jersey in Bergen County.”
This language tells you two important things.
First, your contract is governed by New Jersey law and second (and equally important), if there is any lawsuit filed regarding this contract it must be brought in Bergen County, New Jersey.
Is this a big deal?
Well, yes, if you are a resident of another state or don’t do business anywhere near New Jersey.
In fact, these clauses can even be problematic within the same state if you live or work on one end of the state and venue is laid on the other end of the state. Consider, for example, the State of California. San Francisco and Los Angeles are hours from each other by airplane so imagine the effect of signing a contract which obligates you to litigate a dispute in the Los Angeles courts when you live or work in the San Francisco area.
Now, remember my bud who had the problem with the cruise ship? (You know the guy who gave me the passenger ticket that provided that the law of a foreign nation, and not any domestic state, applied). Well guess what? His ticket similarly provided that any dispute pertaining to him being a passenger had to be litigated in a foreign court/country too.
That language, when brought to the client’s attention, pretty much killed that case.
The point is pretty simple, scour your contract to look for restrictions on where legal actions relating to your agreement have to be brought and be aware of this restriction.
However, there is one more critical point to understand: These clauses cut both ways. If you sue or you are sued the venue restriction applies equally.
So, for example, in the case of a West Coast resident who is sued in an East Coast court based on a venue clause this restriction can be a game changer. Remember, in litigation no one wants an away game.
Again, read your contract and seek the help of an attorney if you are unclear what you are facing or agreeing to. These types of clauses can sometimes change the game before the first shot is even taken.
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