1. A governing law clause is a provision in a commercial contract that specifies which country’s laws will govern the interpretation and enforcement of the contract terms.
2. Parties usually include a governing law clause in their contract to ensure certainty and predictability in the event of a dispute, as it allows them to know which law will apply to determine their rights and obligations.
3. If parties do not agree on a governing law clause, complex rules exist to determine the governing law of the contract, which can lead to uncertainty, time, and cost in the event of a dispute. 1. It is important to consider the consistency between the governing law and jurisdiction clauses in a contract.
2. Choosing a governing law that is different from the jurisdiction for dispute resolution can increase litigation costs and the risk of incorrect application of foreign law.
3. If English law is chosen but the jurisdiction of a different court is selected for dispute resolution, there is no guarantee that the court will recognize the choice of law clause, especially if it is outside the EU. 1. English law may be chosen for contracts to avoid the duty of good faith in pre-contractual negotiations.
2. Technical reasons for choosing English or New York law in finance transactions include their recognition of the concept of a trust.
3. The Rome I Regulation requires the law of a specific country to be chosen, as seen in cases such as Beximco Pharmaceuticals Ltd v Shamil Bank of Bahrain EC and Halpern v Halpern.
4. If parties want their relationship to be governed by a law other than the law of a country, they should include provision for arbitration, as provided for in section 46 of the Arbitration Act. 1. The governing law clause in a written agreement should cover both contractual and non-contractual obligations that may arise before or after the contract is entered into.
2. There is uncertainty under English law regarding the effectiveness of a governing law clause in determining the law governing non-contractual obligations, but Rome II now provides clarity on this issue.
3. Rome II is an EC regulation that governs the law applicable to non-contractual obligations in civil and commercial matters, and it applies in the UK as assimilated law despite the country’s departure from the EU.
4. Under Rome II, the general rule is that the law applicable to non-contractual obligations is the law of the country where the relevant damage/loss occurs, but parties can agree to submit their non-contractual obligations to the law of their choice. 1. The parties’ choice of law will only be effective under Article 14 of Rome II if the parties are pursuing a commercial activity and the agreement has been “freely negotiated.”
2. Article 6 provides for the law applicable to non-contractual obligations arising out of unfair competition and Article 8 deals with the law applicable to infringement of intellectual property rights and cannot be changed by the parties’ agreement.
3. Rome II allows commercial parties to contractually agree a governing law clause which covers both the parties’ contractual and non-contractual obligations, but there are no specific formalities to follow in drafting the clause. 1. If proceedings are commenced in a court outside the UK or the EU, their local laws will apply, which may not allow parties to agree on the law governing non-contractual obligations in advance.
2. The use of a governing law clause in contracts can increase the likelihood of non-contractual obligations being governed by the chosen law, providing parties with greater legal certainty and potentially avoiding disputes over applicable laws.
3. Post-Brexit, the UK will continue to apply the rules of the Rome I and II Regulations, with minor amendments, and the English courts will uphold governing law clauses and determine applicable laws for contractual and non-contractual obligations.
4. The Rome I Regulation requires EU Member States to respect express choices of law made by contracting parties, and this requirement is expected to continue even for governing law clauses choosing non-EU laws.
5. The Rome I Regulation was converted into UK law as assimilated law after Brexit, and the Rome Convention, incorporated into English law, will apply to contracts entered into before December 17, 2009. 1. Parties cannot choose the governing law of another country to circumvent certain rules of law under Rome I.
2. The concept of “overriding mandatory provisions” and “public policy” allows for the application of relevant state laws over chosen governing laws.
3. The case of Telemedia Partners Worldwide Ltd. v Hamelin Limited illustrates the risks of not considering these provisions, as the New York Court did not agree that English law should preclude a RICO claim based on allegations of fraud. – The general rule in Rome II may be limited in cases of unfair competition, product liability, and IP infringement claims.
– Rome II does not apply to obligations between settlors, trustees, and beneficiaries of a voluntary trust.
– Courts in EU Member States must apply existing choice of law rules to non-contractual claims involving trustees, rather than Rome II.
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