“Arising Out Of” and “Relating To”

In the case Premium Nafta Products Ltd & Others v Fili Shipping Company Ltd & Others [2007] UKHL 40, the House of Lords—the highest appellate court in the U.K.—has struck a blow for semantic sanity by holding that no valid purpose would be served by distinguishing between arising under and arising out of.

I permit myself to quote a useful account prepared by the solicitors Fenwick Elliott:

One of the issues in [this case] related to the dispute resolution clause, which referred first to disputes “arising under” the contract, and later to disputes which have “arisen out of” the contract. In particular the Court of Appeal had to consider arguments relating to the distinction, if any, between disputes arising “under” a contract and disputes arising “out of” a contract. Should “out of” should have a wider meaning than “under”, and if so, given the wording of this particular clause, which of the two should prevail?

This lead the Court of Appeal firstly to review the authorities and then having done so to rule that the time had come to take a fresh approach. That approach was that the English Courts should not spend time considering the fine distinctions and minutiae of the wording of arbitration clauses. As the Court of Appeal said, if any business man wanted to exclude disputes about the validity of the contract it would be comparatively simple to say so.

In the view of the Law Lords the attempt to draw out differences between the meanings of the words “arising under” and “arising out of” was inappropriate. The distinction was at best a “fussy” one.

I’ll drink to that! But while we’re at it, lets take a step back and consider a related issue, use of that old stalwart, arising out of and relating to.

I can imagine how in theory arising out of might convey a narrower meaning than relating to. Here’s how I think of it: I arise out of my parents, but I’m related to Uncle Henry.

But what little case law I’ve seen on the distinction is hardly categorical. And more to the point, my role as drafter is to convey the intended meaning without relying on the reader to attribute a given meaning to phrases that are open to alternative interpretations.

So instead of relying on arising out of and relating to, find some other way of making your point. Do you want to make sure that a governing-law provision applies not only to contractual obligations and disputes but also to other matters, such as torts? You could grope at that meaning by referring to “all matters arising out of and relating to this agreement.” But you’d be much better off addressing the issue directly by referring to “all matters (including all tort claims) arising out of this agreement.”

But what if you don’t have a particular issue that you want covered but instead would like the provision in question to be as broad as possible. You represent Acme, and you’re given a draft that contains the following provision: “Widgetco shall indemnify Acme against Indemnifiable Losses arising out of any inaccuracy in any Widgetco representation in this agreement and any breach by Widgetco of any of its obligations under this agreement.” You might be inclined to insert “or relating to” after “arising out of.” But I suggest that you restrain yourself. What circumstance might be covered by “relating to” that wouldn’t be covered by “arising out of”? If you can think of one, then address that circumstance explicitly rather than crossing your fingers and relying on “relating to.”

For my part, I can’t think of anything that might be covered by “relating to” that wouldn’t be covered by “arising out of.” And I’m OK with that. After all, I’m in good company—the House of Lords thought that for purposes of an arbitration provision, “arising out of” was entirely comprehensive.

Posted in Uncategorized | 3 Comments

  • http://www.pactix.com D. C.

    There’s another possibility: In negotiating a forum-selection clause, you might be willing to have “arising under” matters litigated in the other side’s forum, while (quietly) leaving open that other matters might be litigated elsewhere. Here’s a hypothetical example:

    a) Vendor is a software company. One of Customer’s IT employees comes on-site at Vendor’s office for training in the use of Software Product A, for which Customer has purchased a license.

    b) Customer’s employee sees that Vendor’s trainer has a CD of Software Product B in her notebook, which is sitting on the desk at the front of the classroom. During a break, the Customer IT employee surreptitiously steals the CD and takes it back to his office. The employee’s boss congratulates him and directs him to use (stolen) Software Product B in Customer’s business.

    c) Another Customer employee calls up his contact at Vendor and blows the whistle. Vendor tries to work things out amicably, but the response from the thief’s boss is “sue us.”

    (Something not too different than this once happened at my former company.)

    d) The contract is for use of and training in Software Product A. It says nothing about theft of other software products.

    Where does “arising out of or relating to” fit here? This factual scenario arguably doesn’t “arise out of” the contract, but arguably it is indeed “related to” it.

    If I’m representing Vendor, I might not mind litigating warranty claims about Software Product A in Customer’s forum. On the other hand, I wouldn’t want to be forced to litigate the theft of Software Product B in Customer’s forum; I’d want the choice to be mine.

  • Ken Adams

    D.C.: This is a good example of an issue that wouldn’t fall under arising out of but might well fall under relating to. I don’t think there’s any compelling reason why one would want it to fall within the scope of the dispute-resolution provision in the license agreement, as it’s a very different sort of dispute. But if I wanted it to fall within the scope, I’d add to the dispute-resolution provision in the license agreement some sort of catch-all rather than rely on relating to. Ken

  • Scott

    Ken
    A claim in tort might arise out of the performance of a contract – but would it then be described as a claim “under the contract”?