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Nedlloyd Lines B.V. v. Superior Court

Supreme Court of California

August 31, 1992, Decided

Nos. S015917, S019540

Opinion

 [*462]  [**1149]  [***331]    We granted review to consider the effect of a choice-of-law clause in a contract between commercial entities to finance and operate an international shipping business. In our order granting review, we limited our consideration to the question whether and to what extent the law of Hong Kong, chosen in the parties' agreement, should be applied in ruling on defendant's demurrer to plaintiff's complaint.

We conclude the choice-of-law clause, which requires that the contract be "governed by" the law of Hong Kong, a jurisdiction having a substantial connection with  [****2]  the parties, is fully enforceable and applicable to claims for breach of the implied covenant of good faith and fair dealing and for breach of fiduciary duties allegedly arising out of the contract. Our conclusion rests on the choice-of-law rules derived from California decisions and the Restatement Second of Conflict of Laws, which reflect strong policy considerations favoring the enforcement of freely negotiated choice-of-law clauses. Based on our conclusion, we will reverse the judgments of the Court of Appeal and remand for further proceedings.

STATEMENT OF FACTS AND PROCEEDINGS BELOW

Plaintiff and real party in interest Seawinds Limited (Seawinds) is a shipping company, currently undergoing reorganization under chapter 11 of the United States Bankruptcy Code, whose business consists of the operation of three container ships. Seawinds was incorporated in Hong Kong in late 1982 and has its principal place of business in Redwood City, California. Defendants and petitioners Nedlloyd Lines B.V., Royal Nedlloyd Group N.V., and KNSM Lines B.V. (collectively referred to as Nedlloyd) are interrelated shipping companies incorporated in the Netherlands with their principal place of  [****3]  business in Rotterdam.

In March 1983, Nedlloyd and other parties (including an Oregon corporation, a Hong Kong corporation, a British corporation, three individual residents of California, and a resident of Singapore) entered into a contract with Seawinds to purchase shares of Seawinds's stock. The contract, which was entitled "Shareholders' Agreement in Respect of Seawinds Limited," stated that its purpose was "to establish [Seawinds] as a joint venture company to carry on a transportation operation." The  [**1150]   [***332]  agreement also provided that Seawinds would carry on the business of the transportation  [*463]  company and that the parties to the agreement would use "means reasonably available" to ensure the business was a success.

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3 Cal. 4th 459 *; 834 P.2d 1148 **; 11 Cal. Rptr. 2d 330 ***; 1992 Cal. LEXIS 4143 ****; 92 Cal. Daily Op. Service 7481; 92 Daily Journal DAR 12104; 1994 AMC 531

NEDLLOYD LINES B.V. et al., Petitioners, v. THE SUPERIOR COURT OF SAN MATEO COUNTY, Respondent; SEAWINDS LIMITED, Real Party in Interest.

Prior History:  [****1]  Superior Court of San Mateo County, No. 337705, Thomas M. Jenkins, Judge.

Disposition: Reversed and Remanded with Instructions

CORE TERMS

parties, choice-of-law, cause of action, contractual, courts, shareholders', demurrer, substantial relation, fair dealing, contracts, breach of fiduciary duty, choice of law, Restatement, fiduciary duty, noncontractual, amended complaint, good faith, implied covenant of good faith, fundamental policy, strong policy, state law, predictability, ambiguous, conflict of laws, reasonable basis, trial court, provisions, breach of the implied covenant, breach of contract, implied covenant

Commercial Law (UCC), Application & Construction, Choice of Law, General Overview, General Provisions (Article 1), General Provisions, Business & Corporate Compliance, Contracts Law, Contract Conditions & Provisions, Forum Selection Clauses, Civil Procedure, Preliminary Considerations, Federal & State Interrelationships, Torts, Procedural Matters, Conflict of Law