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Commercial contracts commonly include a "choice of law" clause, expressly stating that the law of a particular country will apply to the contract. What happens when there is no such clause in a contract?
In a recent case, FR Lürssen Werft GmbH & Co KG v Warren E Halle, the court considered whether a contract was governed by English law where there was no express choice of English law in the contract itself.
In the case, the court gave consideration to the operation of the test in Article 3(1) of the Rome Convention on Law Applicable to Contractual Obligations ("the Rome Convention"). The Rome Convention is given effect in the UK by the Contracts (Applicable Law) Act 1990. Article 3(1) of the Rome Convention provides:
"A contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part only of the contract."
In FR Lürssen Werft GmbH & Co KG v Warren E Halle an application was made by the defendant (D), a US citizen resident in Florida, challenging the jurisdiction of the English courts to hear a claim commenced by the claimant (C), which was a German shipbuilding company.
In 2005, the parties entered into two vessel construction contracts, which contained similar terms. The contracts were governed by English law. Subsequently, the parties entered into a commission agreement providing, among other matters, that, if either vessel was purchased by a client introduced by C, then a commission of 5% of the sale price would be payable by D to C. The commission agreement was silent as to both governing law. In the event, one of the vessels was sold to a third party.
The parties then entered into an agreement terminating the VCC in respect of the sold vessel. The termination agreement was governed by English law. A dispute arose about payment of the commission and in 2009 C issued proceedings making a claim under the commission agreement.
D challenged the jurisdiction of the English courts arguing that there had been no choice of English law. D's submissions to the court included the submission that neither party had any links to England. D submitted that Germany was the more natural forum for the dispute than England. The commission agreement was signed in Germany and D had only visited England once. None of the likely witnesses was based in England, nor was the relevant documentation located in England.
C submitted that the express choice of English law in the related and preceding contracts were of decisive effect.
The judge refused D's application. The judge concluded that a choice of English law had been clearly demonstrated from the circumstances. This case illustrates the importance of including a "choice of law" clause in a contract to avoid a dispute at a later stage over the governing law.
If you have any queries or concerns about a related issue and would like advice, please contact Chris Harper or Catherine Mathews. Chris and Catherine specialise in commercial and contract litigation and are members of the Dispute Resolution Team in Exeter. The Team is described as "exceptional" in the Legal 500 2010 independent directory.
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