[You might also want to read this September 2009 post in which I refine my thinking on “arising out of” and “relating to”.]
A Canadian law firm recently shared with me its draft “boilerplate” template. On reading it, I saw that the law firm recommends that its lawyers use the following language in any governing-law provisions (I’ve omitted the bit excluding conflicts-of-law principles, as that’s a separate issue that I won’t be addressing in this post):
This agreement is governed by, and is to be interpreted, construed and enforced in accordance with, the laws of [jurisdiction] … .
The above language is entirely consistent with mainstream contract language. Furthermore, it’s analogous to the language recommended in a U.S. treatise on boilerplate:
The laws of the State of Vermont … govern all matters arising out of or relating to this Agreement … , including, without limitation, its [validity,] interpretation, construction, performance, and enforcement.
Both bits of language reflect the same approach, namely that the verb to govern, meaning “to control,” is by itself inadequate. So both provisions offer additional concepts, with the treatise using the three offered in the law firm’s language and adding two others.
Clearly one could scour caselaw, the Restatements, and the major contract-law treatises and parse subtle distinctions between validity, interpretation, construction, performance, and enforcement. But to engage in such analysis is perhaps not to see the forest for the trees. In many cases in different jurisdictions, judges of varying degrees of semantic acuity have considered, with respect to any number of issues, governing-law provisions worded any number of ways. So collecting, magpie-like, court pronouncements as to the meaning of this word or that word wouldn’t seem conducive to the uncluttered perspective necessary if one’s to devise clear and concise contract language.
Economy suggests that one start with the broadest concept and supplement only as necessary. So consider the following (here too I’ve omitted any mention of excluding conflicts-of-law principles):
The laws of [jurisdiction] govern this agreement and all proceedings arising out of it … .
I’m not sure that all proceedings arising out of it is necessary, but sometimes it’s worth going the extra mile to avoid any confusion and head off comment.
Does one need to expand my suggested language? I did some very limited preliminary research and failed to find any case that holds that this language is inadequate. For example, here’s what the California Supreme Court said in Nedlloyd Lines B.V. v. Superior Court, 834 P.2d 1148, 1155 (Cal. 1992):
[W]e hold a valid choice-of-law clause, which provides that a specified body of law “governs” the “agreement” between the parties, encompasses all causes of action arising from or related to that agreement, regardless of how they are characterized, including tortious breaches of duties emanating from the agreement or the legal relationships it creates.
Are you aware of any caselaw that has found wanting contract language analogous to my proposed language? Are you aware of any other basis for finding my proposed language inadequate? In any jurisdiction, in the U.S. or elsewhere? (By the way, I reserve judgment on whether it would be advisable to make it clear that the governing-law provision also covers any tort claims.)
Even in the absence of any clear shortcomings to using simply govern, one might nevertheless elect to supplement my proposed language, just in case. But it’s a bad idea to throw in extra language on the off chance that your contract comes before a judge who’s lacking in semantic acuity—doing so muddies the meaning for everyone else.
As luck would have it, I have just this very minute come back from a talk on governing law clauses. The reason for the talk was the introduction of the Rome II Convention, which since January has set the rules for governing laws in EU countries.
It was by no means the best talk I’ve been to, but one thing that I did gather was that (i) there is a distinction for these purposes between substantive law (which is set by a governing law clause) and procedural law (which always remains the law of the court hearing the case), and (ii) different jurisdictions have different views on where the line between them is. Until Rome II, for example, UK courts would have seen limitation clauses and the assessment of damages as procedural law – a breach of an agreement governed by French law tried in the UK courts would therefore have been assessed using UK limitation rules and UK damages rules.
I expect that the Canadian firm’s clause attempts to deal with that kind of issue (though surely there is no excuse for having both “interpret” and “construe”?).
I agree that “governs” probably covers the tautology on construction, interpretation and enforcement. I agree with Ken that the case law distinguishes between “interpret” and “construe” – so if you use one, it may be best to use both for certainty.
A separate point is the addition of words like “arising out of” or “related to.” It seems that the intent of that wording is to extend the choice of law provision to aspects of the parties’ relationship that are ancillary to the contract. So, Ken, should your suggested wording address matters arising out of or related to the agreement?
Jim: Regarding arising out of an relating to, see MSCD 12.10. I use just arising out of. The point is, say what’s on your mind rather than groping at it by using an obscure couplet like arising out of and relating to. For example, if you want the governing-law provision to apply to tort claims, say so. (As I hinted in the post, I haven’t yet researched whether the cautious drafter needs to make that explicit.) Ken
The only problem I have with the clause is that you can have claims related to the agreement that are not claims under the agreement. An example would be a claim of fraud in the negotiation of the agreement. I’d like to be able to assert that the other side agreed that the chosen law would apply to that claim. I have no idea whether or not it would stick (probably not for fraud, but maybe for some form of quasi-contractual detrimental reliance argument).
So, I use language like “The laws of the state of New York govern this agreement and any claims related to it.” The only problem then would be what happens to a claim that also relates to another agreement that uses the same language, but identifies a differtent state?
In many of my forms, I still have a longer version of this: “The laws of the state of New York govern this agreement and any claims (in contract, in tort, or otherwise) that relate to it or its negotiation, execution, performance, or breach.” That seems unnecessarily long to me now, but I liked it at the time.
(By the way, on “interpret” and “construe,” many lawyers say that it is technically correct to interpret ambiguity and construe vagueness, but not to interpret vaugeness or construe ambiguity, because there are different rules for handling ambiguity and vagueness. I suspect this distinction isn’t quite as strong as its proponents say, but might very well account for why someone would include both in a clause.)
Chris Lemens
Chris: Regarding your first paragraph, see my response to Jim’s comment.
I have a hard time distinguishing, as a matter of logic, between the law applying to the agreement and the law applying to claims. The court in Nedlloyd agrees with me. But which approach makes most sense will depend on how many courts, if any, have found wanting govern on its own, or whether some extra language would help reduce reader confusion. [I subsequently changed my suggested language to make this distinction.]
Note that in your longer version, the language in parentheses constitutes what I call “needless elaboration.”
And I can’t abide hairsplitting of the sort you refer to in your final paragraph. That’s why I don’t use either interpret or construe.
Ken
Re: “arising out of and relating to”
These words have paramount importance in arbitration clauses as they define the scope of claims that an arbitral tribunal can hear. The consensus is that the use of this combination provides the broadest scope to the arbitral tribunal.
This is a fairly standard usage as the major internal arbitration institutions include similar wording in their model clauses (some use “arising out of or in connection with”). That said, many drafters will still include the standard usage and also include, without limitation, the issues of validity of the arbitration clause, fraud, and tort. I am unsure how useful these additions are. While such additions provide a clear expression of intent of the parties to allow such claims, they may also (even though they are not suppose to be limiting) serve to narrow the scope of the original language.
It would be dangerous to omit the usage of (or a variant of) “arising out of and relating to” in an arbitration clause. Any such omission is certain to give a party wanting to avoid arbitration a very good argument that a potential claim would be outside the scope of the authority that the parties agreed to arbitrate.
Jason: I’ve established to my satisfaction that for purposes of governing-law provisions, you can do better than the mushy arising out of and relating to. I expect that I’d be able to do without it for purposes of arbitration provisions too, but I’ll reserve judgment until the time comes for me to overhaul an arbitration provision. Ken
Ken –
I agree that the redundancy is unnecessary. But it is the conflicts of law provision that is the most important aspect of the choice of law.
If we stop at the laws of State X govern, then the conflicts of law rules in State X may say that the laws of another state apply. The only reason to include a choice of law provision is when there is some uncertainty as to which body of law applies to the contract.
I know that you carved it out of the subject of this blog post, but separating it loses a very important aspect of what you are intending to promote.
Doug: My not addressing the choice-of-law issue isn’t a reflection of whether it’s important or not. Instead, it’s just a reflection of the fact that it’s different from the redundancy I discuss in this post. I find it best not to lump different issues together.
But for reasons I won’t go into here, I suspect that the path of least resistance would be to say something like “The laws of [jurisdiction], without giving effect to its principles of conflicts of law, govern … .”
Ken
Hi,
With regards to avoiding conflicts of law issues, I generally use the following wording: “The internal laws of [jurisdiction] govern…
Sat-Sung Kalman
If I say “The laws of [jurisdiction], without giving effect to its principles of conflicts of law, govern … .” then what state’s conflict laws WILL govern? Isn’t it ambiguous not to specify?
Paul: I’m afraid that I don’t have the stomach for exploring in this forum the doctrine of renvoi, which is what is behind the conflicts-of-law carveout. Ken
Dear Ken,
Love this website! Here is an article that discusses this topic (and Nedloyd Lines) and contains some additional case law:
http://www.mhandl.com/content/draftingchoiceoflaw…