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If I contract a company from the U.S. is the contracted company bound by U.S. laws and also how can we insure that this company can be sued within the U.S. jurisdiction if they are located outside of the country. How does that work exactly?

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Choice of law

A contract can include a choice of law clause that states the laws that apply to the contract. For the USA this would usually be the laws of a particular state.

Most courts in most jurisdictions respect the choice of law clause - that is, if say a suit is brought in a court on a contract with a choice of law of , the court will (probably) apply Californian law to the contract.

However, a choice of law clause does not affect non-contract law like torts, equity, criminal law, consumer protection law, and "no contracting out" laws. So, for the above example, while the contract will be interpreted using California/USA law, other claims will be assessed under New South Wales/Australian law.

For an example of how this works in practice, see ACCC v Valve Software. It was never in doubt that the contract was under Washington, USA law, however, the "no refund" term, while valid in Washington violated Australian Law and was unenforcable and, more critically for valve, was misleading and deceptive, costing them AUD 3 million in fines (plus legal costs).

Choice of Forum

In addition to specifying the relevant law, a contract can also suggest the appropriate forum: "disputes shall be subject to the non-exclusive jurisdiction of Californian courts". A clause that oversteps the suggestion and states the forum categorically is likely to be void on public policy grounds: a contract cannot exclude courts that have jurisdiction.

A choice of forum clause is one of the factors a court will consider if one of the parties petitions that it is the wrong forum and the case should be transferred to the right forum. They are influential but not determinative and go into the mix with all the other relevant factors.

Arbitration

A well-drafted binding arbitration agreement will almost always be effective if it complies with local law. Courts have a very strong bias in favour of enforcing arbitration clauses.

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  • "the court will (probably) apply Californian law to the contract." — are you saying Australian judges will deem themselves competent to apply non-Australian law — instead of deciding they have no jurisdiction?
    – Greendrake
    Jun 29 at 0:22
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    @Greendrake of course, all courts do this when required. No doubt the parties will make extensive submissions to ensure the court is well informed of the relevant law.
    – Dale M
    Jun 29 at 1:08
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You just make it terms of the contract: how disputes are to be resolved, which laws apply, where to sue should the need to do so arise etc.

Note that whereas you will certainly be able to sue the company in the US, there is no guarantee as to:

  • enforcement of the court decision outside of the US: depends on the other country.
  • that they will not be able to sue you outside of the US: technically, lawsuits can be filed anywhere, regardless of the contract terms, and it will be up to the courts to decide whether they have jurisdiction.

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