Opinion ID: 1349036
Heading Depth: 4
Heading Rank: 1

Heading: Substantial relationship or reasonable basis

Text: (3) As to the first required determination, Hong Kong  the chosen state  clearly has a substantial relationship to the parties. (Rest., § 187, subd. (2)(a).) The shareholders' agreement, which is incorporated by reference in Seawinds' first amended complaint, shows that Seawinds is incorporated under the laws of Hong Kong and has a registered office there. The same is true of one of the shareholder parties to the agreement  Red Coconut Trading Co. The incorporation of these parties in Hong Kong provides the required substantial relationship. ( Id., com. f [substantial relationship present when one of the parties is domiciled in the chosen state]; Carlock v. Pillsbury Co. (D.Minn. 1988) 719 F. Supp. 791, 807 [A party's incorporation in a state is a contact sufficient to allow the parties to choose that state's law to govern their contract.]; Hale v. Co-Mar Offshore Corp. (W.D.La. 1984) 588 F. Supp. 1212, 1215 [same effect].) Moreover, the presence of two Hong Kong corporations as parties also provides a reasonable basis for a contractual provision requiring application of Hong Kong law. If one of the parties resides in the chosen state, the parties have a reasonable basis for their choice. ( Consul Ltd. v. Solide Enterprises, Inc., supra, 802 F.2d 1143, 1147.) The reasonableness of choosing Hong Kong becomes manifest when the nature of the agreement before us is considered. A state of incorporation is certainly at least one government entity with a keen and intimate interest in internal corporate affairs, including the purchase and sale of its shares, as well as corporate management and operations. (See Corp. Code, § 102 [applying California's general corporation law to domestic corporations].)