What ‘Without Regard to Conflict of Law Principles’ Means in Legal Agreements

What Are Conflict of Law Principles?

Conflict of law principles are statutory or judicial and do not have a uniform application. Different jurisdictions and even different regulatory bodies within the same jurisdiction can have differing conflict of law principles. A conflict of law principle is a general principles of law determined by a court when faced with a legal issue that involves more than one State. For instance, if a company is based in one state, and has shareholders and members in other states, there may be conflicts as to what laws apply to the relationship between the U.S. based company and its shareholder(s); as well as , between the members of the company and its shareholder(s).
In determining whether conflict exist, the trial court must look to the long arm statute of the forum state (representing where the company is based) where the plaintiff(s) believe(s) it should apply. Conflict law can be complex. It is used when there is a cross border dispute and there is a question as to which legal system is best for governing the dispute. It determines which jurisdiction’s laws will be applicable once a dispute has been determined to exist.

‘Without Regard to Conflict of Law Principles’ Explained

"Without regard to conflict of law principles" is a phrase that appears in many legal documents, especially in documents that involve more than one jurisdiction. It essentially refers to an outcome of denying the invocation of the law of a foreign jurisdiction and applying instead the law of the jurisdiction designated in the document. The phrase is a limitation on state law choices by stating that the particular document (be it a contract or otherwise) is not going to be governed by a state law if the choice of law principles of that state would designate that state but for the document’s choice of law provision.
In other words, the document is saying that even though some other state may be found to be the state of allocation of governance of such a document (or some document that is similar to it), such a state will not be considered unless it is specifically referenced in the document as the choice of law and jurisdiction. In other words, the "without regard to conflict of law principles" language says that the document does not care what state courts might have jurisdiction over the issues contained in the document. This is important for two reasons.
First, typically – and here we must state a broad disclaimer – the state where the parties reside and/or where the matter or action at issue arises from is the correct state for the matter or action. The "without regard to conflict of law principles" is a limitation on how far a party might try to push the law of another state to gain an advantage that their own state might not give to them.
Second, related directly to the first point, is that the "without regard to conflict of law principles" clause is a limitation on how a person in one state might try to bring a case in another state that would not normally allow that case, simply because the other state offers some better conditions for the person bringing the case. It is a limitation on the ability of an out of state party to get out of state protection in a foreign state.

Why ‘Without Regard’?

Parties to a contract may decide to bypass conflict of law principles for several reasons. Traditional conflict of law analysis, especially within the United States, can lead to a lot of unpredictability, and specific outcomes may not be desirable.
As a pure example, let’s look at the following case: (1) A Nevada-based business contracts with a North Carolina business over providing services to a client based in New York. Since North Carolina is a UCC state (Uniform Commercial Code), the business from Nevada does not have the same protections guaranteed by the UCC in its home state. The businesses may opt to choose New York law to govern the contract, reducing risk and increasing predictability. If any disputes came up, they would be governed by New York law that provides a better result for their situation.
Some businesses may choose to address conflicts of law in a jurisdiction where it has significant presence and where it can presume the outcome will be favorable (and not just better than another jurisdiction). For example, a Nevada construction company that routinely contracts in California may choose to specify California law over the project to ensure that California’s strong consumer protection laws can be applied to avoid liability when the company’s employees or subcontractors rip-off customers. A medical device maker incorporated in Delaware but doing significant business in Pennsylvania may elect to have Pennsylvania law govern a contract to ensure that Pennsylvania’s "any willing provider" law will apply to limit its liability to pay for certain injuries, or to avoid liability altogether.
Parties also may desire to preprocess large swaths of legal agreement in the form of master service agreements that are incorporated by reference in future contracts. Bypassing conflict of law principles gives the parties the ability to anticipate the results of existing laws instead of relying on case-by-case conflicts of law evaluations on very similar matters.

Situations When You May Be Called to Use It

This clause is used in a number of different situations, but is particularly common in contracts covering interstate transactions, or transactions having some international component. Interstate Business: Interstate transactions can take a variety of forms. The parties can even be in the same industry. They can be in the same supply chain or value chain. So although a manufacturing contract would seem to call for all of the warranties and covenants to be construed under the law of the manufacturer’s state, if the distributor is making many of those representations and is responsible for many of the agreed-upon duties, including maintaining a warehouse and the inventory, the entirety of the contract may still be construed under the laws of the distributor’s home state – or a third state, for the sake of this example. Having chosen the law of that third state, the parties may wish to preserve the uniformity of this agreement with their other interstate agreements and reject the possibility of building in a conflict of law analysis during disputes. In such cases, the "No Conflicts of Law Principles" provision makes sense to include, as an analysis might require the parties to incur costs that dilutes the efficiencies that the contract was designed to create in the first place. International Transactions: The same dynamics can exist in international transactions. However, it must be recognized that the term used in international transactions may be "not subject to any conflict of law principles" or "without regard to any rules or principles governing choice or conflicts of laws", essentially the same thing as "without regard to conflict of laws principles" – but those phrases may be used instead. The use of "subject to" instead of "regard", or the "principles governing" instead of "principles" only minimally force parties to choose a specific choice of law rule. Additional terms include a statement on how to construe the agreement in the context of "any applicable treaties or statutes." An example of this is the Uniform Commercial Code, a model set of laws that state legislatures can adopt in lieu of enacting their own up-to-date and relevant statutes.

When it Might Matter

Legal implications and considerations are always at risk when contract clauses such as "without regard to conflict of law principles" are included. The provision is supposed to eliminate the need to concern yourself with any foreign jurisdiction’s laws or regulations and any potential conflicts that may already exist between such laws and other laws or regulations. But, clients all too quickly overlook this phrase and its legal implications.
For instance, we know that California and Washington have some pretty strong environmental laws and liability to accompany them. You’ve signed a contract "without regard to conflict of law principles" to New York law and you operate in California. A conflict between the two laws may arise if the contract contains a limitation of liability in your favor. You intend to limit your liability under the contract. At first glance, it looks like it should work, theoretically, because the exclusion is based on a specific exclusion (and you will argue that it is plainly stated). But in that case, do you have to determine to whom you will be liable and what type of liability will be limited?
That California law imposes strict liability on the mere ownership of property, or by virtue of the environmental accident of a secured creditor when the owner of the property becomes the owner of the property as a result of foreclosure, means that your intentional limited liability should not exempt you from all claims. You will probably be defending two opposing legal principles. It will be interesting to see how the court sorts through this .
Although we hope it will be resolved in favor of limited liability for the environmental accident, clearing hurdles such as this one would be more easily accomplished if both the exclusions and the foreign jurisdiction’s laws that may apply were known and considered when negotiating and executing the document and the transaction.
Issues will also arise in the event that one of the parties to an agreement is a state (government) entity. These entities are different from private party business entities, because states are created by the U.S. Constitution. States are also recognized as Separate sovereigns and are entitled to immunity from legal actions brought against them.
What does "without regard to conflict of law principles" mean in this contest? It means that you cannot defend your actions based upon the sovereign immunity provisions that apply to you if a party is suing your state. You can attempt to "expect to limit your industry in other states without concern" on your sovereign immunity provision, but only so long as that also applies to foreign countries where you will be doing business. In addition to questions of conflicts with international law, the governing law and forum selection have separate and distinct ramifications if this clause is included.
The phrase should always be taken into consideration in any contract. Without regard to conflict of law principles is much more significant than it may sound and must be thought out and reviewed prior to negotiating and finalizing a contract.

How to Write the Clause

To be sure that the parties are governed by the laws of the state specified in the applicable clause, "without regard to conflict of law principles" should be added to that clause. That is, "This Agreement will be governed by, and construed in accordance with, the laws of Maryland without regard to conflict of law principles." You’ll see too many clauses that specify applicable law but that don’t include the unfortunate words.
Martha S.F. Zamore’s excerpt from her discussion of "governing law" clauses in Contract Drafting: Powerful Prose in Transactional Practice begins with this: If you want the laws of a specific state to apply—not the laws of any other state—you should expressly state so. You need to do two things: (1) identify the state whose laws you prefer, and (2) state that the law of that state will be the governing law regardless of whether that state’s laws would ordinarily apply or not.
Here’s some additional discussion of this point, from my 2013 article on enforceability in context and from Writing for Results: Many lawyers think that the order of analysis is first deciding what law you want to apply and then deciding whether you need to worry about the vagaries of choice-of-law issues. Wrong! As with everything in contract drafting, your first step is to determine whether the contract is enforceable-that is, whether it does what it’s intended to do. So first you want to specify what words need to be in the contract for it to be enforceable. As with any other consideration, second-guessing those contract terms is for an appellate judge. Making a judgment call on enforceability before consulting precedent and experienced practitioners is likely to lead you down the wrong path.
The concern about enforceability of choice-of-law provisions in contracts is based on the risk that they will be held unenforceable, in whole or in part, in the jurisdiction where enforcement is sought, by reason of the application of that jurisdiction’s choice-of-law rules. To paraphrase Black’s Law Dictionary, "a conflict of law" is a disagreement between the laws of two or more jurisdictions. In other words, it’s a disagreement between the laws of those jurisdictions as applied, which is entirely beside the point in drafting. We are drafting a contract, where the focus is on the words you put in. The enforceability of those words has to do with the words you chose, not with how they might as applied be interpreted against the laws of some other jurisdiction.
Consider the risk of unenforceability by treating choice-of-law concerns as always secondary to enforceability. Some worry that a choice-of-law clause will be held unenforceable in the jurisdiction in which enforcement is sought, to which my answer is that if that’s a concern, you need the phrase "without regard to conflict of law principles." Or consider this from another angle: if the parties are concerned about enforceability or risks against enforceability, wouldn’t it be wise to go see what the courts say? Law is never as dangerous (in a sense) as lawyers who think they know better than the judges do.

Final Thoughts

In conclusion, while the phrase "without regard to conflict of law principles" has been employed in a number of provisions of commercial contracts for many years, it is not frequently analyzed in detail, and thus, the purpose and effect of the phrase may not be fully understood . It is important when negotiating a legal agreement to be familiar with this term, and other similar terms of art, so that you or your client are not unfairly disadvantaged by a term that appears in a standard form document, but was not actually negotiated or understood prior to signing the document.