Governing law
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Boilerplate Anatomy™
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The law by which one’s contract is governed. Ideally English, but New York law always a good safe choice as long as you don’t mind the odd convenient logical impossibility for your trouble.
If you’ve ever despaired at the pernicketiness of governing law clauses such as this:—
This agreement and any non-contractual obligations arising out of or in connection with it shall be governed by and construed in accordance with English law.
Then you have the Rome II EU Regulation[1] to blame. Enacted in 2007, it applies to all EU Member States, except Denmark but still including the UK, and is designed to harmonise the “conflict of laws” rules across Member States, except Denmark but still including the UK, dealing with non-contractual disputes.
“But still including the UK”? Didn’t the UK take back control?
Brexit does not necessarily mean Brexit. The UK still is a party to Rome I and II as they form part of the “EU retained law” which the UK continues to apply post Brexit.
“Non-contractual obligations”
Breach of “non-contractual obligations” includes actions based on tort (e.g. negligence), competition law and statutory duty. But, fabulously, not those arising out of the negotiable nature of bills of exchange, cheques and promissory notes and other negotiable instruments, or company law or defamation — though it’s hard to see how you could have a non-contractual obligation to defame someone.
But the main thing is to ensure any concurrent claims in contract and tort can be — must be — decided in the same forum. This is mostly interesting where the parties to a contract are in different jurisdictions, and each will prefer their own jurisdiction to hear a non-contractual dispute. But even there, frankly, a concurrent claim in tort would only be relevant in most cases to builders.
Of course, the sensible thing would be to expressly exclude tort claims under the contract. But for those not prescient enough to do that, there’s always this magic incantation.
A contrarian writes ...
It is said[2] that, when William of Normandy landed on the beaches of Pevensey bay, he had his carpenters drill holes through the hulls of all his boats, so his men could not turn back should the going get too tough. We are here; we stand and fight or we die. There will be no running back to mummy.
You could make the argument that the governing law clause is Just such an excuse to run back to mummy. It speaks to everything that is wrong about the modern legal eagle’s approach to a commercial contract. If you take it that a good contract is one that has been so well drafted that no dispute could arise under it, then a good contract will never be read within the walls of a courtroom, and so a governing law clause ought to be entirely unnecessary. A meeting of minds is a meeting of minds, whether you are in London, Amsterdam or Timbuktu. It sends the wrong message to even talk about what laws govern the contract. It shouldn’t matter, unless one is anticipating jurisdictional arbitrage of some kind. Failing that, it is some kind of tacit acknowledgement that one has drafted a bad contract, that might need an independent arbitrator to figure out what the parties intended.
I am not suggesting much less expecting any legal eagle to give up on a confort blanket as cosy as a governing law clause, but it is a worthwhile thought experiment.
See also
- Writing for a judge
- Governing Law - ISDA Provision
- Exclusive jurisdiction
- Governing Law and Jurisdiction - GMSLA Provision
- Rome II
References
- ↑ 864/2007/EC (EUR Lex)
- ↑ I have a ladybird book about William the Conqueror that said this so it must be true.