When playing a game of cards, how do you handle the “house” rules? You know, those unique ways of playing the game that may differ from those to which you are accustomed. Do you handle those nuances as they come up or before starting the game?
Contractors can often address similar issues before problems arise by deciding which rules will apply with a choice of law clause in their contracts.
Suppose you’re a contractor installing 55 miles of pipeline across three different states (PA, WV, & VA). If (when) a dispute arises, you’d like to resolve it with some consistency and predictability. So, before beginning work, you and the owner agree that no matter the state or the section of pipeline where the problem(s) occurred, the dispute(s) will be resolved according to the laws of only one state.
Good Idea: Include a choice of law clause in your contract to promote consistency and predictability (while reducing potential costs and risk).
But, what if Pennsylvania law prohibits a choice of law other than Pennsylvania, which says that if the construction project is located in Pennsylvania then no other state’s law can apply regardless of the parties’ agreement. Sometimes, the law seemingly frustrates the parties’ agreement. Unless, the “house” decides its own rules apply because the parties agreed by their contract.
Better Idea: When including a choice of law clause in your contract, consider if existing laws may void your choice.
In this example, the owner and contractor agreed that Virginia law would apply to the entire pipeline project spanning across portions of Pennsylvania, West Virginia, and Virginia. Although a Pennsylvania Law prohibited the parties’ choice of Virginia law, a Federal Court located in Virginia decided the parties’ agreement governed. Perhaps the house preferred its own rules?