Contract Negotiations and the Importance of Home Court Advantage
If your company were to find itself in a lawsuit arising from a contract dispute with another company, would you prefer to be represented by a law firm that you know well, in a courthouse a few miles from your company office? Or, would you rather be represented by lawyers that you have just retained, in a courthouse hundreds of miles away?
Similarly, if your company enters into negotiations to resolve a commercial dispute, would you enjoy a tactical advantage if both sides understood that any litigation resulting from a breakdown of negotiations will cost the other side tens of thousands of dollars more in litigation costs than it will cost your company?
The answers to these questions are obviously yes, yet even experienced contract negotiators often relegate “choice of jurisdiction” and “choice of court venue” provisions of major contracts to secondary negotiation goal status. They sometimes even ignore these issues entirely during negotiations by agreeing to whatever language is inserted by the primary draftsman of the contract. Any experienced commercial litigation attorney will tell you that “choice of law” and “choice of court venue” provisions of a contract often determine which side of a commercial dispute has to concede the most, or has to expend the greatest amount of money and resources, to resolve the dispute.
Perhaps the most surprising thing about jurisdiction and venue contract terms is that a negotiator with knowledge of the importance of these terms can often achieve favorable contract terms just by asking for them, particularly if the other side doesn’t realize the importance of these provisions. It’s not unusual for one side (if not conducting negotiations through an attorney) to simply agree to the other side’s preferred jurisdiction and venue terms, if asked. It’s amazing what can be achieved, simply by asking. In other circumstances, one side of a negotiation may dig-in and insist on his or her “standard” or “required” jurisdiction and venue terms. If this happens, it may mean that the side with the greatest economic power will be able to insist on its preferred terms, but even in these circumstances, a skilled negotiator can sometimes convince the other side to select an equally convenient (or inconvenient) “neutral” venue. For example, a company with all of its operations in California, negotiating with a company having all of its operations in Maryland, might agree that any dispute would be litigated in the “neutral” city of Chicago, where neither have offices or lawyers. In a similar vein, negotiators deadlocked on jurisdiction and venue issues may agree to insert a well-thought-out arbitration provision in the contract, containing specific arbitration terms designed to equalize the playing field in any dispute.
Placing favorable “choice of jurisdiction” and “choice of court venue” provisions near the top of the negotiation goal list for any contract of significant size is prudent. Negotiators (including managers, contracting officers, or anyone else that regularly negotiates large contracts) should receive training on the formulation of a negotiation plan, and on how to prioritize negotiation goals. The hidden costs of putting all of your negotiation effort into achieving the best price and delivery terms, without also giving appropriate priority to “legal” terms such as jurisdiction and venue, can be substantial. Don’t find yourself in a competitive disadvantage by having considered these often important terms nothing more than boilerplate legalese.