Generally speaking, US courts respect and enforce the choice of governing law agreed by the parties. But an American court is likely to disregard the contract choice, and apply local state law, in situations where a fundamental policy of state would otherwise be negated.

For example, about half of the US states have laws that protect agents, distributors, or franchisees as a matter of public policy. These laws give the designated class of parties specific contract rights, some of which cannot be contracted away. In these situations, the US court will apply local law, rather than the governing law agreed by the parties, in order to preserve these protections.

Battles of the forms

To give another illustration, sometimes each party sends the other its contract and asserts it will only contract on its terms. In 49 out of 50 US states, courts will resolve these “battles of the forms” by looking at the terms and conditions of both contracts. Broadly, where the terms of the two materially conflict, they cancel each other out, and the court substitutes “reasonable terms” in their stead. If this process is applied to conflicting governing law provisions, the law of the contract will become the law of the US state in which the court is located.

Preventative steps

To minimise the possibility of important parts of your contract being disregarded in a US court, you need to identify in advance the probability of this happening. You can create the contract so it is consistent with both US and UK rules, or expressly deal with areas of disagreement in the terms and conditions.

The possible overriding application of local US law is not all bad news; a British party can improve its position by incorporating some local protections into the contract. For example, warranties implied in law for the sale of goods can be disclaimed under both English and US laws, but to be effective a US disclaimer must be conspicuous. Block capitalising and bolding this section of a British party’s form contract will make this unenforceable provision enforceable should it end up in an American court.

See also: 5 essentials for expansion into the US