I received this cry for help from Canada:
I would very much appreciate your help in addressing a bit of nonsense peculiar to Canadian contracts.
Like the US, Canada is a federal jurisdiction. Like the US, contract law is a matter of Provincial (or State) jurisdiction. A practice has developed in the choice of law clause in Canadian contracts, which is now almost always expressed this way: “This Agreement is governed by the laws of the Province of X and the laws of Canada applicable therein.” Canada does not have laws of contractual interpretation. Some lawyers who are challenged on this clause will argue that Canada does have laws that affect the contract, such as FOI or consumer protection laws, but that misses the point. It is a choice of law.
I have tired of this battle and will only change it where we are the first drafters of the agreement, but worry that there will be unintended consequences of its use. I am hopeful that with your influence you might be able to help rid us of this nonsense.
My Canadian correspondent is of course correct—EDGAR has plenty of examples of the phenomenon they note. Here’s one:
But we don’t have to make this a Canada thing. Here’s something comparable from a US contract—a promissory note:
For purposes of both Canada and the US, I agree with my Canadian correspondent. Governing-law provisions allow the parties to specify what law they want to govern the contract. That doesn’t mean that the specified law is the only law that’s relevant for purposes of the contract. And yes, mandatory federal law might apply. But that doesn’t mean you have to refer to it in a governing-law provision—it will apply whether you refer to it or not. And saying that federal law applies wouldn’t serve as a useful reminder unless you explain how it might apply, which no one does, thank goodness.
Referring to federal law in every governing-law provision is particularly silly—in many transactions, it won’t apply at all. And if you insist on referring to federal law, why stop there? Are you sure you don’t want to specify all the default rules that apply to the matters covered by the contract?
But here’s a somewhat more sensible variant from a US contract:
It’s from an incentive plan. Benefit plans are creatures of federal law, so I don’t begrudge the drafter referring to federal law. And at least they made it clear that federal law is mandatory.
Comparing my Canadian correspondent’s experience with my own experience with US contracts, it appears that Canadian drafters are markedly more fond of this sort of thing. Well, different jurisdictions tend to have their quirks. For example, Canadians seem fond of the inane represents, warrants, covenants, and agrees (see this 2009 blog post). And Canadians alone have repurposed the obscure attorn for use, oddly, in consent-to-jurisdiction provisions. (See this 2012 blog post, and see this 2019 blog post for why consent-to-jurisdiction provisions are pointless and this 2021 blog post for why they’re potentially pernicious.)
Want more on governing-law provisions? Check out these posts, starting with the most recent:
- Revisiting Governing-Law Provisions (1 Aug. 2019)
- Simplifying Governing-Law Provisions, Part 3 (“Governs” and the Alternatives) (15 July 2015)
- Simplifying Governing-Law Provisions, Part 2 (Renvoi!) (13 July 2015)
- Simplifying Governing-Law Provisions, Part 1 (3 July 2015)
7 thoughts on “Including Federal Law in Governing-Law Provisions”
Thank you for this post. It gave me heart to read it as I have recently been mystified by a Choice of Law Provision in an NDA. The NDA in question proposed that the contract apply D.C. law. Or at least that is how I understood it.
In particular, the sentence in the agreement that threw me is:
“The Parties hereto mutually consent and submit to the personal jurisdiction of the federal and/or district courts located in the District of
Columbia, and any actions or suit concerning this Agreement or related matter shall
only be brought by the Parties in any federal or district court with appropriate subject
matter jurisdiction sitting in the District of Columbia.”
This *seems* like it might be applying federal law but I don’t know enough about D.C. law to understand what the implications are.
That’s actually a jurisdiction (or choice-of-forum) provision, not a governing-law provision. If you search “jurisdiction” on my blog, you’ll find plenty about such provisions.
Interesting post. From this side of the Atlantic, I recently read a governing law clause which referred to ”UK law” (the clause was drafted in English by a French lawyer). But there are 3 different legal systems in the UK…
I expect that happens a lot!
The situations in the US and Canada might actually be different from one another. In the US there is a doctrine of incorporation in which all federal law is deemed incorporated into the law of each state. That being the case, one never has to refer to any law other than state law as governing, since the federal law gets “automagically” picked up.
Isn’t it possible that a court could decide that the federals laws of a different country than the one specified by the state/province applies and that’s why it’s best to spell it out? For example the governing law clause specifies Alberta but the matter at hand does not pertain to provincial laws and there is a reason to assume US laws instead of Canada.