Negotiating governing law and forum to reduce enforcement risk

Enforcement risk in commercial contracts usually comes from one of three failures: picking a forum that won’t enforce what you wrote, choosing a law without a real connection to the deal, or drafting the clause so loosely that your counterpart’s lawyer has something to argue about in court. Fix all three and you’ve done most of the work.

PART ONE: THE PRINCIPLES THAT ACTUALLY LOWER RISK

1. Treat governing law and forum as a single package.

A strong governing-law choice can be completely undermined by a forum whose choice-of-law rules – or public policy – give the other side an opening to attack it. In U.S. federal diversity cases, the forum court typically applies its own state’s choice-of-law rules to decide whether your governing-law clause survives (Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941).)

Don’t negotiate them in isolation.

2. Make the clause look – and be – freely negotiated.

Courts enforce forum-selection clauses most reliably when the agreement appears arms-length and commercially rational. The presumption in favour of enforcement is strongest in negotiated commercial deals (M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972)).

Even in adhesion contexts, enforceability turns on fundamental fairness and the absence of overreaching (Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991)).

Draft accordingly.

3. Pick a forum where enforcement is actually possible.

Winning in court is only half the problem. If your counterpart’s assets are elsewhere, you need a forum whose judgments travel well – or you need an arbitral award that clears cross-border enforcement more cleanly than a court judgment.

4. Be unambiguous about exclusivity.

Ambiguous forum clauses generate satellite litigation before you’ve even gotten to the merits. Write the clause to eliminate any argument that the chosen forum is permissive rather than mandatory.

5. Draft for how the clause will actually be enforced in federal court.

If U.S. federal litigation is the realistic scenario, think procedurally. A valid forum-selection clause carries heavy weight in transfer motions under 28 U.S.C. § 1404(a) – courts enforce it absent exceptional circumstances (Atlantic Marine Constr. Co. v. U.S. Dist. Court, 571 U.S. 49 (2013); Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22 (1988)).

If you’re selecting a different federal district, write the clause to set up a clean transfer request, not a dismissal fight.

6. Keep the governing-law choice defensible on contacts.

Overreaching creates exposure. Constitutional limits generally require significant contacts to the chosen state so the choice isn’t arbitrary or fundamentally unfair (Allstate Ins. Co. v. Hague, 449 U.S. 302 (1981); Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985)).

The more tenuous the connection, the higher the risk.

7. Use the New York statutory hook when the deal qualifies.

For large commercial contracts, choosing New York law and New York courts reduces fights about contacts and enforcement because New York has a statutory regime specifically designed to support these choices (N.Y. Gen. Oblig. Law §§ 5-1401, 5-1402; IRB-Brasil Resseguros, S.A. v. Inepar Invs., S.A., 20 N.Y.3d 310 (2012)).

Use it when you can.

8. Draft against the public policy exception.

If you anticipate claims where a court might invoke public policy to override your clause, narrow the exposure with:

• Severability of the dispute-resolution section.
• Symmetric carve-outs for provisional equitable relief in any court of competent jurisdiction.
• A backstop that avoids leaving you with no workable forum if part of the clause fails.

9. When cross-border risk is high, arbitration is your safety valve.

Arbitration agreements are strongly enforceable under federal law, including for most statutory claims, and they reduce forum fights substantially (Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985); 9 U.S.C. § 2.).

10. Account for forum non conveniens when selecting foreign courts.

Even with careful planning, courts can dismiss on forum non conveniens grounds if a more suitable foreign forum is available (Piper Aircraft Co. v. Reyno, 454 U.S. 235 (1981); Sinochem Int’l Co. v. Malaysia Int’l Shipping Corp., 549 U.S. 422 (2007)).

Plan for it.

PART TWO: WHAT YOU’RE ACTUALLY TRADING AT THE DEAL TABLE

New York and Delaware dominate commercial contract drafting for a reason: they combine predictability with a strong judicial tendency to enforce negotiated forum-selection clauses, consistent with the pro-enforcement approach in M/S Bremen and applied robustly in both states’ commercial courts.

California works when there’s a real nexus and the clause is clean – but it carries more risk of policy-based challenges depending on the subject matter.

Arbitration is frequently the pressure release valve when neither side will yield home-court advantage. It eliminates early forum skirmishes, handles cross-border asset situations more cleanly, and is supported by federal policy. The tradeoff: you give up broad appeal rights and create potential disputes over interim relief and consolidation.

PART THREE: THE CLAUSE THAT SAVES THE DEAL

When the negotiation is stuck on forum, the clause that most reliably breaks the deadlock without giving up real protection is a tiered dispute-resolution structure:

• Tier 1: Exclusive litigation in the preferred court (U.S. federal or specified state).
• Tier 2: If that clause is found invalid, unenforceable, or if the chosen court declines jurisdiction — binding arbitration seated at a neutral location.
• Carve-out: Provisional injunctive relief available in any court of competent jurisdiction.

Why it works:

The exclusive forum clause gets the benefit of the strong presumption of enforceability under M/S Bremen, 407 U.S. 1 (1972), and the transfer leverage in federal court under Atlantic Marine, 571 U.S. 49 (2013). If that route fails – jurisdictional defect, public policy pushback, court declining to proceed – the parties still have an enforceable path through arbitration under 9 U.S.C. § 2 and the international commercial pro-arbitration approach in Mitsubishi Motors, 473 U.S. 614 (1985). The injunctive carve-out preserves your ability to move fast to protect IP, confidentiality, escrowed funds, or threatened assets without compromising the core exclusivity.

Illustrative fallback language:

“The parties agree to the exclusive jurisdiction of [named courts]. If a court of competent jurisdiction determines that the foregoing exclusive forum agreement is invalid or unenforceable as to a particular dispute, then that dispute shall be finally resolved by binding arbitration seated in [neutral seat] under [rules]. Nothing herein prevents either party from seeking temporary or preliminary injunctive relief in any court of competent jurisdiction to prevent irreparable harm.”

PART FOUR: PRACTICAL MOVES THAT GET YOU TO YES

Trade venue for law, or law for venue.

Many impasses unlock when one side concedes home court in exchange for keeping home law – or the reverse. Know in advance which matters more to you on this deal.

Add process sweeteners instead of conceding substance:

• Service of process mechanics and waiver of forum non conveniens arguments.
• Selection of a forum with genuine commercial expertise.
• Agreement on efficient discovery or expedited handling of specified dispute categories.

Explicitly invoke the New York statutory regime when the deal qualifies.

Don’t just choose New York – tie the clause directly to N.Y. Gen. Oblig. Law §§ 5-1401 and 5-1402 in the drafting. It closes an argument before the other side’s lawyer thinks to open it.