One would often find a clause titled Conflict of law in a written agreement and wonder what it pertains to, because it is generally drafted in language difficult to comprehend. While it is desirable, though not necessary, to be included in cross border Agreements, it is not rare that this clause is found in some local contracts also.
Conflict of law clause is incorporated in an agreement to take care of situations where disputes arise between the Parties to the Contract and those Parties belong to two different jurisdictions or some action or activity takes place outside the normal jurisdiction. But for such a clause dealing with conflict of law, there could be a preliminary dispute as to the law of which country/jurisdiction should be applied. To ward off such a preliminary but significant dispute, the agreements provide that the law of the specified country/ jurisdiction alone would be applied without reference to conflict of law provisions of that specified country. For the sake of information, it may be stated that provisions are scattered in various statutes of India which deal with situations where parties of different countries are involved or where the cause of action arises outside India, etc. This is also the position in most of the countries and therefore the normal conflict of laws clause state that “law of ….<<country>> shall apply without reference to conflict of law provisions of ..<<country>>..”
More often than not, such a conflict of law clause is superfluous, if the agreement clearly mentions which law shall apply and in what respects. Therefore, as a business owner, you can legitimately insist on the removal of such a clause from the Agreement, and replace it with an unambiguous clause providing for the law which shall be applied in case of any dispute between the Parties, and also specify the courts which shall have jurisdiction to decide the dispute.
To clarify, beyond doubt, it may be stated that the choice of applicable law and cause of action are two different things. (Indian Supreme Court in the case of Laxman Prasad Vs. Prodigy Electronics Ltd. [(2008) 1 SCC 608]). Therefore one should take due care to agree to and specify in the Agreement itself as to which law is to be applied and which court(s) shall have jurisdiction.
Because there could be significant differences in the laws of various states/provinces of the country, even in domestic transactions, it is advisable to specify as to which law shall apply. If there are certain aspects of the contract which are peculiar to your case or which need to be dealt with in a manner desired by you or in accordance with a particular legislation, it is better to mention it very specifically and in a detailed manner with non-obstante clause*. In cross border transactions, the above advice is all the more relevant, because there can be dramatically different effects by the application of a different law.
One very important point of law as to the choice of jurisdiction is that Parties may agree to the jurisdiction of a court that also has jurisdiction. They cannot confer jurisdiction on a court that does not have any jurisdiction on the subject matter of the suit. To this extent, no agreement can confer jurisdiction on an altogether unconcerned court. In case such a choice is made, it will be ignored and courts normally having jurisdiction alone shall take cognizance of it.
* non-obstante clause is a clause in an Agreement or a Statute that the specified provision in the said Agreement or the Statute shall prevail over any other conflicting provision in the said Agreement or Statute.