Contracts: have you drafted your ‘jurisdiction’ and ‘choice of law’ clauses correctly?

The recent case of GDE LLC and another v Anglia Autoflow Ltd [2020] EWHC 105 has brought attention to the importance of clear drafting when entering into cross border contracts and agreements. In this scenario, the agreed choice of English court jurisdiction did not mean an agreed choice of English Law.

How it started.

After successfully operating with businesses in Canada, an English company Anglia Autoflow Ltd sought to enter into an agency agreement to further its business in the area. Anglia therefore entered into an agency agreement with Mr Gough, a British and US dual national resident in Canada for this purpose. 

The agreement stated that Mr Gough would set up a company to act as Anglia’s exclusive agent in Canada, the United States and the Caribbean. This led to the creation of GDE LLC, formed in Georgia, United States.

The agreement also stated that, in the event of serious disputes, both parties agreed to subject themselves to the jurisdiction of the English Court.

 Where it went wrong.

 In 2017, Gough and GDE issued proceedings in the English court against Anglia seeking damages for repudiatory breach, believing they had sufficiently serious grounds to justify terminating the contract, and unpaid commission.

Choice of law became a significant issue, as under Ontario law the claim was time barred and the limitation period had passed. Gough and GDE contended that the agreement was governed by English law, whilst Anglia alleged that the agency agreement was governed by Ontario law.

In situations where jurisdiction and choice of law conflicts arise, the courts consider the Rome Convention and the Law Applicable to Contractual Obligations (Rome Convention).

For this scenario, two key provisions had to be considered. Article 3 (Freedom of choice) stipulates that a contract shall be governed by the parties. The choice can be made expressly, or clearly demonstrated by the terms of the contract or the circumstances of the case.

Where this did not apply, Article 4 (Applicable law in the absence of choice), stipulates that the contract will be governed by the law of the country with which it is most closely connected (Article 4(1)).

Application of Article 3.

Since there was no express choice of law within the agreement, the judge then had to establish whether the parties had made an implied choice.

Article 3(1) states that an implied choice must be demonstrated with reasonable certainty and does not permit the court to infer a choice that the parties might have made where they had no clear intention to make one.

The claimants’ primary case was that a real choice of English law could be implied from the agreement of the parties to the jurisdiction clause (clause 11 of the agreement). It was common ground that a jurisdiction clause may permit an inference that the parties had chosen the law of the selected jurisdiction and the inference was stronger where the jurisdiction was exclusive.

However, under Recital 12, whilst it does indicate an intention for choice of law, is just one factor to be considered by the courts with a range of other factors as a whole. The exclusive jurisdiction clause alone does not mean that the implied choice of law is the same. Therefore, despite various factors connecting the agreement to England, the judge found that there were insufficient grounds to demonstrate a choice of English law.

Application of Article 4.

Article 4 is intended to determine the country with which the contract is most closely connected. The court held that under Article 4(1) the contract should be governed by the law of the country with which it is most closely connected.

The judge looked at various factors but the most weight was given to the fact that both parties considered that the agency would focus on Canada and on eastern Canada in particular, and that Gough himself lived in Ontario.

The fact that GDE was incorporated in Georgia was not seen as a significant factor, as there was no other connection between the purpose of the agreement and Georgia.Consequently, as the purpose of the agreement was largely to take place in Canada, and the fact that Gough was a Canadian resident, the court found that the governing law was Ontario law.

Result.

Due to the ruling that the agreement was governed by Ontario law, the claim was time barred and therefore dismissed. 

Conclusion. 

Expensive High Court Litigation could have been avoided had the parties agreed on a drafted contract detailing both the governing jurisdiction of the courts, and law. In this scenario, this was particularly expensive for Mr Gough due to the competing limitation periods.

This is a stark reminder that when negotiating international agreements and contracts, it is important to agree on a clear choice of law clause, as well as a jurisdiction clause. 

Jasmin Bonello is a paralegal at Proelium Law LLP. Having obtained her Law LLB (Hons) Degree at Bournemouth University, Jasmin is now undertaking the Legal Practice Course at BPP University. Jasmin is currently writing her LLM research project on private military and security companies. 

 

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