A Simple Clause Could Save Your Company Thousands of Dollars

This article was originally posted on March 26, 2014.

One of the simplest ways to avoid a costly mistake is to include a favorable jurisdiction, venue, and governing law clause in your Booking Terms & Conditions. Imagine you are a tour operator whose office is located in Denver, Colorado and you sell a tour to a family from South Carolina. Your website and other communications with the family include Booking Terms & Conditions as part of the sale. These Terms & Conditions include cancellation and refund policies and other key terms that you rely on to avoid bearing the brunt of the financial risk in the event of an injury, catastrophe, or plain, dissatisfied client. What is not included is a jurisdiction, venue, and governing law clause that states that any disputes that reach the level of mediation, arbitration, or litigation must be dealt with in a location that is cost effective and convenient for you. I see this mistake arise repeatedly in my practice when working with new clients. Correcting this omission is a simple way to avoid significant expenses.

How to correct this omission and save your company thousands of (unbudgeted!) dollars:
Add a clause in your Booking Terms & Conditions that states that any dispute related to the tour and the terms and conditions will be resolved exclusively in the courts located in the locale that is best for your company and the that the laws of a particular state apply. (The latter would almost always be the same state as the former, which is almost always the state where the company is based. I have never seen it otherwise but there may be reasons specific to your circumstances that lead to the exception that proves the rule.)

Here is an example: Any dispute arising out of this agreement, including all tort claims – whether such dispute arises in contract or in tort or otherwise – shall be resolved by the state and federal courts located in King County in the state of Washington. The laws of the State of Washington, USA, govern this agreement.[1]

You may also need to consider whether to require arbitration before court action can be taken but this is a separate issue not addressed here and, as with most legal issues, can depend on where the company is based among other factors. You should consult with legal counsel in making the decision whether or not to require arbitration in your Terms and Conditions.

This type of clause is also critical in your vendor agreements and certainly a clause you should be consciously and seriously negotiating if an international vendor wants all disputes resolved in a foreign country or the application of foreign law to govern the agreement. Imagine the cost to your company if you have to resolve a dispute on the other side of the world!

Why is this clause so important and how does it save the company so much money?
First, chances are that when the injured or dissatisfied client is communicating with you after the tour, you will at some point refer them to the Terms & Conditions. If they take the time to review those carefully, they will read the jurisdiction and venue clause and some of them will hesitate to pursue their claim beyond reaching a settlement without resort to lawyers because they realize they will have to physically come to you to press their claim. This result is fair to your client because they had the opportunity to consider this possibility before purchasing a tour from you.

Second, if the client’s claim is sufficiently strong or they are not dissuaded and they consult a local lawyer, the lawyer will read your Terms & Conditions and take note of the jurisdiction, venue, and governing law clause. As a result, the financial implications for the client will have to be part of the lawyer’s consideration and recommendations on how to proceed. Plus, in most cases, if the claim is pursued, the lawyer will bring the claim in the location where the contract states and you avoid the cost of going to them.

Third, if the client and/or the client’s lawyer run right over these first two considerations and choose to file in a forum that is convenient to them, you can quickly (in relation to legal timelines which are usually quite slow) have the issue dealt with by the court. Because you have a jurisdiction, venue, and governing law clause in your Booking Terms & Conditions, then in a best case scenario the case filed in the wrong court will be dismissed, or at least it will be moved to the forum indicated in the contract.[2]

Return for a moment to the hypothetical Colorado company dealing with a South Carolina family. Without a jurisdiction, venue, and governing law clause, the company could end up dealing with a lawsuit in South Carolina, and in a worst case scenario, with battling lawsuits filed in both Colorado and South Carolina. I have personally handled an employment case that bounced back and forth between a court in Seattle and one in California while the parties spent thousands on legal fees related to hiring legal counsel to appear before the courts in both locations in order to file and argue multiple motions about where the case should be located and which state’s law should apply (which are, in fact, two separate legal issues). Minimize your company’s expenses and headaches by simply adding an effective, enforceable jurisdiction, venue, and governing law clause to your Booking Terms & Conditions.

[1] DISCLAIMER: This clause is provided solely as an example. It may not be right for your company for many reasons. By providing this example no legal advice or recommendation for your company and its circumstances are intended. If you decide to add this type of clause to your Booking Terms & Conditions, consult with legal counsel. For legal counsel, you may wish to contact Mona McPhee at Desh International & Business Law.
[2] Nothing is certain in the law because the laws of each state vary and judges are human, but these are the results that are likely to occur in a typical case.

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