Choices of law, jurisdiction must be clear
Ideally, a contract will contain both a “choice of jurisdiction” and a “choice of law” clause, the latter of which is sometimes also referred to as a “governing law” clause.
Such clauses are independent of one another.
The choice of jurisdiction clause specifies the country, as agreed upon by the parties, whose courts shall hear disputes arising out of the contract. The choice of law clause specifies which body of law (Bermuda law, English law, Australian law, etc.) the courts shall apply in determining the dispute.
A recent English High Court case, GDE LLC, Peter Hugh Goffe v Anglia Autoflow Ltd demonstrates the distinction between, and the necessity of, the two clauses.
The contract in issue in GDE was an agency agreement between GDE and Mr Goffe, as claimants, and AAL, as defendant.
The contract provided that the defendant would act as commercial agent to the claimant in respect of the claimant's poultry processing business. As a result of the 2008 financial crisis, the parties identified that Canada had the most viable market for poultry processing. At the time the claimant mostly lived in Ontario despite owning a home in Georgia, United States. AAL was an English company.
The contract specified its choice of jurisdiction as England but regrettably failed to specify its choice of law.
The claimants argued that English law should govern the dispute, whereas the defendant claimed that Ontario law should be applied. Choice of law was the pivotal point of contention because, if the contract was governed by Ontario law, the claimant's claim would be time barred due to the expiry of the primary limitation period.
The judge in GDE applied the Rome Convention 1980. In Bermuda, common law principles, rather than the Rome Convention, apply to the question of what law should govern a contract without a choice of law clause. Where no clear intention as to the choice of law is expressed in a contract and the parties' intentions on choice of law cannot be inferred from the circumstances, the common law has a somewhat similar approach to the Rome Convention, determining choice of law by reference to the system of law with which the contract has its closest connection.
In GDE, the judge was most persuaded by the fact that the principal focus of the contract was on the Canadian market and that the claimants were primarily based in Ontario.
Factors that the claimant argued were highly relevant were disregarded by the judge. She found that it did not matter that AAL was an English company and held that the fact that the contractual negotiations happened in England was also irrelevant. In addition, the court was unpersuaded by the fact that the choice of jurisdiction clause specified the English courts as the proper jurisdiction for the hearing of disputes. This was despite the judge finding that the clause imposed a mandatory obligation on the parties to litigate in England. Even that did not demonstrate that the contract was most closely connected to English law.
The judge ultimately decided in favour of the defendant. She found that Ontario law should be applied to determine the dispute under the contract. Consequently, the claimants were unable to claim damages for breach of contract. The judge recorded that she “readily accepted that it may not have occurred to [the parties] that the English court might apply something other than English law”.
The decision in GDE is a warning to contracting parties to consider closely their choice of law and choice of jurisdiction clauses because each choice (whether clearly made or not) has ramifications.
One should also exercise caution in drafting a contract; it is not enough to simply copy and paste so-called “boilerplate clauses”. Parties should always step back and consider the totality and consequences of the contract that they are seeking to agree.
This is particularly appropriate in cases, which are very common in a jurisdiction such as Bermuda, where contracts are truly international and involve multiple jurisdictions.
Whether it is an agreement to process chickens, a loan facility agreement or a reinsurance contract, clear choice of law and choice of jurisdiction clauses are a necessity.
• Counsel Hannah Tildesley is a member of Appleby's Dispute Resolution department and trainee Amber Farrington is a member of Appleby's Corporate department. A copy of this column can be obtained on the Appleby website at www.applebyglobal.com. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.