Drafting Choice of Law Clauses That Cover Non-Contractual Disputes

Drafting Choice of Law Clauses That Cover Non-Contractual Disputes

 
The prevailing view in the United States is that whether a choice of law provision encompasses extra-contractual claims depends on its wording. Parties often draft choice of law provisions in a manner that excludes extra-contractual disputes from their ambit. In drafting choice of law provisions, prudent parties need to consider, and agree on, the extent to which they want their choice of law provision to apply to disputes that might arise.
 
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Judicial Respect for the Parties' Contractual Choice of Law

Courts generally respect the choice of law agreed to by the parties in their contract. Restatement (Second) of the Conflicts of Laws § 187 is widely followed and provides that a court will follow the law of the state chosen by the parties “to govern their contractual rights and duties . . . unless either (a) the chosen state has no substantial relationship to the parties or to the transaction or there is no other reasonable basis for the parties' choice; or (b) application of the law of the chosen state would be contrary to fundamental policy of a state which has a materially greater interest than the chosen state in the determination of a particular issue and which . . . would be the state of applicable law in the absence of an effective choice of law by the parties."

While the Restatement speaks only to the parties' autonomy to choose the law of a state relating to their contractual rights and duties, and although there has long been tension as to whether parties ought to be permitted to choose the law governing extra-contractual matters, the prevailing view in the United States is that parties generally do possess the right to contractually agree on the law that will govern extra-contractual matters, as well as their contractual rights and duties. “[C]ourts tend to scrutinize clauses that purport to encompass tort-like issues much more closely than clauses confined to purely contractual issues.” S. Symeonides, “Oregon's Choice of Law Codification for Contract Conflicts: An Exegesis,” 44 Willamette L. Rev. 205 (Winter 2007).

Scope of Choice of Law Clause Determines Its Applicability to a Particular Dispute

The prevailing view in the United States is that whether the choice of law provision encompasses extra-contractual claims depends on its wording; specifically, whether it is a narrow or broad choice of law clause.

As with all other parts of a contract, courts will neither rewrite the choice of law clause nor construe it to be broader than its express wording allows. Care in drafting the choice of law clause is critical for at least two reasons: (1) because commercial litigation often entails both contractual and extra-contractual claims (examples of the latter include alleged tortious misconduct, including fraud and interference with contract), and (2) generally in the commercial setting, when parties choose the law of particular forum to govern disputes that might arise, they intend for that law to govern all disputes between the parties that in any way relate to the contractual relationship, including claims couched in extra-contractual claims.
 
 
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