THE NEW YORK COURTS ARE OPEN FOR BUSINESS TO FOREIGN LITIGANTS

Parties who choose New York law to govern their commercial contracts should be aware of a New York statute that also permits them to access the New York courts in the event of a dispute, regardless of whether the transaction has any other connection to New York. While many parties to international commercial agreements agree to submit their disputes to arbitration, others seek a neutral judicial forum. New York’s highest court, the Court of Appeals, recently reaffirmed that the New York courts are open to foreign parties whose disputes arise out significant commercial contracts, and the courts will honour the parties’ selection of New York law to govern their agreements.

Nearly 30 years ago, the New York legislature passed two related statutes that open the New York courts to foreign parties even where the transaction at issue has no other connection to New York. These statutes, which grew out of an effort by the legislature to reinforce New York’s standing as a commercial and financial centre, remain in force today and were bolstered by the Court of Appeals’ recent decision.

The first, Section 5-1401 of the General Obligations Law (GOL), seeks to ensure that courts will honour parties’ choice of New   York law in significant commercial contracts. Where the requirements of GOL 5-1401 are met, it applies automatically. Generally, this means that the choice of New York law will be enforced, regardless of whether the contract bears any connection to New York, if the contract is valued at $250,000 or more and does not relate to labour, personal, household or family services, or certain transactions covered by the Uniform Commercial Code.

Apr-Jun 2013 issue

Skadden, Arps, Slate, Meagher & Flom LLP