International Construction Law Review
ENFORCING NEW YORK GOVERNING LAW CLAUSES IN COMMERCIAL CONTRACTS*
THOMAS P HANLEY, JR
Thelen Reid & Priest LLP, New York, USA
INTRODUCTION
Parties to international commercial transactions, including construction projects, frequently select New York law to govern their contract documents. New York is widely recognised as a pre-eminent commercial and financial centre, serving as a global clearinghouse and marketplace for countless transnational business dealings.1
The State has a substantial body of common and statutory law addressing a broad range of commercial matters, which can afford parties the guidance and predictability that so often is essential to a successful project.
The conflict of laws rules of some nations and several US jurisdictions, however, require that the substantive law chosen by the parties to govern their agreement bear a reasonable relationship to the underlying transaction.2
Thus, if a contract has no connection to New York other than the governing law clause, courts in these venues may refuse to honour the parties’ choice of New York law.
To encourage parties to select New York law without concern over such contacts, the New York State Legislature in 1984 enacted Section 5–1401 of the New York General Obligations Law. Under §5–1401, where parties to a commercial contract involving at least $250,000 stipulate New York law to govern their agreement, the parties’ choice must be enforced, regardless of whether the underlying transaction bears a reasonable relationship to New York State.3
* Portions of this article originally appeared in and are reprinted with permission from the 18 January 2001 edition of the New York Law Journal
© 2001 NLP IP Company.
1 See, e.g., J. Zeevi and Sons, Ltd.
v. Grindlays Bank (Uganda) Ltd.,
37 NY 2d 220, 333 NE 2d 168, 371 NYS 2d 892 (NY 1975); Credit Francais Int’l, SA v. Sociedad Financiera de Comercio,
CA, 490 NYS 2d 670 (NY Sup. 1985).
2 See, e.g., Eugene F Scoles & Peter Hay, Conflict of Laws,
§8.6 (2nd ed 1992) (discussing relationship requirements under common law of various US jurisdictions); A V Dicey and J H C Morris, The Conflict of Laws,
§729 (9th ed. 1973) (discussing relationship requirements under English common law).
3 NY General Obligations Law, §5–1401(1). This section provides that: “[t]he parties to any contract, agreement or undertaking, contingent or otherwise, in consideration of, or relating to any obligation arising out of a transaction covering in the aggregate not less than two hundred-fifty thousand dollars, including a transaction otherwise covered by subsection one of section 1–105 of the uniform commercial code, may agree that the law of this state shall govern their rights and duties in whole or in part, whether or not such contract, agreement or undertaking bears a reasonable relation to this state. This section shall not apply to any contract, agreement or undertaking (a) for labor or personal services, (b) relating to any transaction for personal, family or household services, or (c) to the extent provided to the contrary in subsection two of section 1–105 of the uniform commercial code.”
[2001
The International Construction Law Review
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