Page 12 - Complex Litigation

S12 | MONDAY, MAY 22, 2017 | Complex Litigation
| NYLJ.COM
The Scope of Choice-of-Law Clauses In International Arbitration
cover extra-contractual claims); Gloucester Holding v. U.S. Tape & Sticky Products, 832 A.2d 116, 124 (Del. Ch. 2003) (because the clause at issue did not “cover litigation that arises out of or related to” the contract, the clause did not extend to tort claims).
This demarcation between narrow and broad choice-of-law clauses becomes much less important in the context of an interna- tional arbitration.
When faced with a so-called “narrow” choice-of-law clause (“contract shall be governed by law of ____”), an arbitrator in an international arbitration will be far more likely to apply the law of the chosen jurisdic- tion to noncontract claims.
For instance, in the Award in ICC Case No. 9415 (discussed in Grigera Naón, “Choice-of- Law Problems in International Commercial Arbitration,” 289 Recueil des Cours 9, 264 (2001)), while the contract was governed by Turkish law, a counterclaim sounded in tort. The tribunal faced the issue of whether Turkish law should apply to the tort claim, or whether it should look to the place of the wrong. The tribunal chose the former, reasoning that even though the arbitral seat (the Netherlands) applied the lex loci delecti rule, because the parties had a contractual relationship, the law governing the contract should extend to tort claims, too.
Similarly, in the Award in ICC Case No. 6618 (also discussed in Naón, supra, at 263), the contract was governed by the law of the state of Washington, and the claimant’s cause of action sounded in tort. Because the conduct alleged related to the performance of the con- tract, the tribunal concluded that tort issues were to be governed by Washington law— i.e., that chosen by the contract. See also B. Berger & F. Kellerhals, “International and Domestic Arbitration in Switzerland” ¶1283 (2d ed. 2010) (presumption that, in cases of doubt, parties intended to submit tort claims, as well as contract claims, to chosen law); Martiny, in K. Rebmann, F. Säcker & R. Rix- ecker (eds.), Münchener Kommentar zum Bürgerlichen Gesetzbuch VO (EG) 593/2008 Art. 3, ¶44 (5th ed. 2010) (when interpreting choice-of-law clause, all contractual relations should, if possible, be subject to same law).
It is not dif cult to understand how arbi- trators might not place the same importance on the division between narrow and broad choice-of-law clauses. An arbitrator’s author- ity derives from the agreement of the par- ties, and that the parties selected a certain jurisdiction’s law to govern their contract is at least some indication that the parties intended that jurisdiction’s law to control tort claims arising from the contract. The arbitrators’ preference for applying the law of the contract may also indicate a growing move away from a strict application of the lex loci delecti rule in American courts and elsewhere. See generally Miller v. Miller, 22 N.Y.2d 12, 19 (1968) (interest analysis aids “a justice-dispensing court in a modern American state.”) (quoting Le ar, “Choice- In uencing Considerations in Con icts Law,” 41 N.Y.U. L. Rev. 267, 295 (1966)). Indeed, as commentator Grigera Naón explains, arbitra- tors’ reference to a jurisdiction’s law that the parties have already selected in the contract may be the most pragmatic and equitable solution: Under a traditional con ict-of-laws
BY CURTIS WALDO
A n Indian corporation and an American corporation enter a contract. The con- tract’s choice-of-law clause states: “This
contract shall be governed by the laws of the state of New York.” The contract contains an arbitration clause with New York as the arbitral seat.
The parties end up in a lawsuit. The Indian company alleges a series of tort and contract claims, including tort claims that are only available under Indian law. Are these non- contract claims subject to Indian law or to New York law? Is Indian law relevant at all?
The answer is complex and may depend in large part on whether the parties are in arbitration.
In federal courts, the answer will be that with some exceptions, because the choice- of-law clause refers only to New York law governing the contract, while New York law will govern the contract itself, tort and statu- tory claims are not subject to New York law. For these claims, the court will refer to the choice-of-law rule of the given jurisdiction, which may be a “significant relationship” test, or perhaps the traditional lex loci delicti
CURTIS WALDO is senior associate in the Reed Smith commercial litigation department and the life sci- ences health industry group.
rule (law of the place of the harm). Compare Roselink Investors v. Shenkman, 386 F. Supp. 2d 209, 225 (S.D.N.Y. 2004) (New York law uses interest analysis to determine jurisdic- tion with greatest interest in litigation), with Norris v. Taylor, 460 So.2d 151, 153 (Ala. 1984) (“Where an injury occurs in a jurisdiction other than where the wrongful act or omis- sion took place, the law of the jurisdiction where the injury was sustained controls. This represents the majority view of jurisdictions that apply the lex loci delicti doctrine.”).
For instance, in Green Leaf Nursery v. E.I. Dupont de Nemours and Company, 341 F.3d 1292, 1300 (11th Cir. 2003), the contract’s choice-of-law clause provided that “this release shall be governed and construed in accordance with the laws of the State of Dela- ware.” The court held that because the clause did “not refer to related tort claims or to any and all claims or disputes ... arising out of the relationship of the parties,” reference to the choice-of-law rules of the forum (Florida in that case) was proper. Florida follows the “most signi cant relationship” test, which in that case demanded that Florida law (not Delaware law) apply to tort claims arising out of the contract.
Similarly, in Krock v. Lipsay, 97 F.3d 640, 645 (2d Cir. 1996), the choice-of-law provision stated that the contract “shall be governed by and construed in accordance with the laws of the commonwealth of Massachusetts.” The court held that the parties’ choice of Mas-
sachusetts law did not extend to claims for fraudulent misrepresentation, as the choice- of-law clause was limited to the contract. As a result, New York law applied to the plaintiff’s fraud claims. See also State National Bank v. Academia, 802 S.W.2d 282, 289 (Tex. App.— Corpus Christi 1990, writ denied) (choice-of- law clause stating that “validity, construction and enforcement” of contract were governed by Illinois law did not extend to tort claims; court applied signi cant relationship test to tort claims).
Compare narrower choice-of-law clauses with those containing broader language such as “This contract and all disputes arising out of this contract shall be governed by Texas law.” Courts have no problem applying this broader language to tort claims without resort to the forum’s choice-of-law rules. For instance, the court in Travel Services Net- work v. Presidential Financial, 959 F. Supp. 135, 146 (D. Conn. 1997), applied a broadly worded choice-of-law clause selecting Mas- sachusetts law to bar the plaintiff from making claims under the Connecticut Uniform Trade Practices Act. (“A broadly-worded choice-of- law provision in a contract may govern not only interpretation of the contract in which it is contained, but also tort claims arising out of or relating to the contract.”); see also Caton v. Leach, 896 F.2d 939, 942 n.3 (5th Cir. 1990) (referring to “arising from or relating in any way to the subject of this contract” as broad choice-of-law language that would
FOTOLIA