Think your agreement effectively specifies the law and courts of your choice? Think again

04 Oct 22

As deal lawyers, it’s our job to anticipate disputes. If a dispute does arise, the competence of both sides’ lawyers is immediately put to the test, in the form of a glaring spotlight on the choice of law and forum clause. Is the dispute captured cleanly, or ambiguously? Being forced to spend legal fees on the peripheral question of applicable law and forum is a recipe for massive client frustration.

It is quite common for the parties to agree on a neutral forum's laws and courts as a compromise during negotiations. Whether this neutral choice would actually be enforceable, however, may depend on whether there is a reasonable or logical basis for this choice. The law does not always enforce a parties' contractual choice, either because the choice fails the requisite relationship test, or the dispute does not fall within the language of the choice.

Three important considerations in this context are (1) confirming that the parties' choice of a neutral forum will pass muster under choice of law rules; (2) ensuring that the clause captures not just contract, but tort and statutory claims; and (3) capturing not just substantive but procedural law–especially statutes of limitations, which are often outcome­-determinative.

A federal copyright and breach of contract case in the United States, Philips v. Audio Active Ltd. (2d Circuit 2007), is instructive.  In that case, the parties entered into a music recording contract specifying that "the validity, construction, and effect of this agreement … shall be governed by English law" and that " any legal proceedings that may arise out of [the agreement] are to be brought in England." As a result of this clause, the court ruled that the musician's breach of contract claims against Audio Active must be dismissed as they should have been brought in England, controlled by English law. However, the court retained jurisdiction over the musician's copyright infringement claims, reasoning that the copyright claim was not predicated on any contractual provision and therefore did not "arise out of" the contract.

The lawyers of Redline have worked on this topic extensively, exchanging insights and cross-border clause work product. Engage on this topic here.


(The intended audience for this post is licensed and practicing lawyers, not laypersons seeking legal advice for their situation. If you are not a lawyer, hire one before using or relying on any information contained here.)