A contract (like an NDA or consultancy services agreement) can specify which country’s laws govern the agreement. This is particularly important when the parties are from different countries. For example, one party is in New Zealand and the other is in California. Not knowing if New Zealand or Californian law applies could make it very difficult to resolve a dispute further down the track. Choosing one or the other in your contract from the beginning prevents this turning into a huge problem later.
The governing law should usually be the most relevant set of laws to the contract. So if both parties are in New Zealand, it would normally be New Zealand. If both parties are in California, it would normally be California.
In an agreement between parties from different countries, each party will generally prefer its own laws. These are the laws it knows the best, it won’t get hit with any surprises and it can use its normal lawyers in the event of a dispute.
If both parties insist on their own laws though, you won’t reach agreement. Some common ways of negotiating a resolution to this point include:
- Agreeing the law most relevant to the proposed transaction. For example, if the agreement is between a US company and a New Zealand company, but it relates to business in California, it might be more appropriate for California laws to apply.
- Similar laws may not matter so much. The laws of New Zealand and Australia are similar in many respects. A party may feel comfortable it is not giving up a huge amount by agreeing to the other party’s laws in these circumstances.
- The law of a neutral third party country might be agreed. For example, a New Zealand company and a US company might agree to the laws of England.