Choice of law clause

In contract law, a choice of law clause or proper law clause[1] is a term of a contract in which the
parties specify that any dispute arising under the contract shall be determined in accordance
with the law of a particular jurisdiction.[2] An example is "This Agreement shall be governed by,
and construed in accordance with, the law of the State of New York."[3]

A choice of law clause may be combined with a forum selection clause. The combined clause
would include the choice of law that is to govern any dispute arising under the agreement and
the choice of forum where disputes will be heard.[4] Once implemented, a choice of law clause
will generally be upheld by courts, as long as it is bona fide, legal, and not contrary to public
policy.[5]

Explanation
Choice of law clauses add predictability about the law to be applied should a contractual dispute
arise.[3] As business transactions and contractual obligations may cross jurisdictional borders
within a nation, as well as international borders, both physically and electronically, choice of law
issues may arise. As laws vary between jurisdictions, it is possible that contract terms could be
interpreted differently between jurisdictions, or that portions of a contract that are enforceable in
one jurisdiction would not be enforceable under the laws of another. The parties may therefore
agree in advance to interpret the contract in accord with the laws of a jurisdiction that is
identified within their contract.[6]
In determining the choice of law, parties may consider the types of dispute which could arise
from their agreement, whether the law will be from a common or civil law jurisdiction, how
friendly or hostile a jurisdiction would be to their claim, and whether sufficient precedent exists
in that jurisdiction. Parties often seek a jurisdiction that would be neutral to their claims.
However, where one party has more bargaining power, they may impose the law of their
jurisdiction or choose a more favourable law.[7]

In some situations a court may find that there are public policy reasons to disregard a choice of
law clause, and instead interpret a contract under the laws of the jurisdiction in which a lawsuit
is filed. For example, a jurisdiction may find, as a matter of public policy, it will apply its own
consumer protection laws to a dispute between a consumer and a business even if the contract
calls for the application of the laws of a different jurisdiction.[6][8]

In Canada
Parties drafting contracts in Canada may indicate the laws of a specific province, followed by
the phrase "and the laws of Canada applicable therein" to ensure that federal law is also
applicable.[9] Federal, provincial or territorial stature can inhibit parties' ability to negotiate a
choice of law. For example, the Bills of Exchange Act, Canada Shipping Act, and the Insurance Act
(Ontario).[10]

The Canadian position for autonomy for choice of law negotiations was established in Vita Food
Products Inc. v Unus Shipping Co “the proper law of the contract ‘is the law which parties
intended to apply.” For the choice of law clause to be enforceable, the choice of law must be
bona fide, the contract must be legal, and there must be no reason for avoiding the choice of law
on public policy.[11]

In order to be bona fide, the parties must not have intended to use that law in order to evade the
legal system that the contract has the most substantial connection with. Where a contract which
is illegal, or its performance is illegal, it will not be treated as a legal contract. The contract may
also not be contrary to public policy. For example, gambling was once considered contrary to
public policy, so foreign gambling debts would not be enforced in Canada.[12] Courts may also
refuse to enforce choice of law or forum selection clauses in consumer contracts where the
plaintiff demonstrates strong cause that it should not be enforced, including demonstrating an
inequality in bargaining power.[13][14]
In Canada, whether the term "submit" or "attorn" is used may determine whether the choice of
law clause is enforced. In Naccarato v Brio Beverages Inc. a Court of Queen's Bench in Alberta
found that the term "submit" indicated that the clause was permissive, giving the Court
concurrent jurisdiction to hear the matter.[9] In Forbes Energy Group Inc. v. Parsian Energy Rad
Gas, 2019 ONCA 372, the Ontario Court of Appeal held that the clause (“attorn to the courts of
England”) meant that the laws of England would apply, but the clause was not sufficient to
provide the courts with exclusive jurisdiction. The action was allowed to proceed in
Ontario.[15][16] The term "exclusive" and other mandatory language provides more certainty that
another court will not assume concurrent jurisdiction.[17]

In the United States

How choice of law clauses are interpreted may vary by forum. In Delaware, a standard choice of
law clause can cover liability arising in either tort or contract in order to avoid uncertainty.[18][19]
In New York, the express language of the provision must be “sufficiently broad” as to encompass
the entire relationship between the contracting parties.[3] For example, in Krock v. Lipsay, the
United States Court of Appeals for the Second Circuit determined that a generic choice-of-law
clause did not cover a claim for fraudulent misrepresentation.[20][21]

References

1. Sinclair, Anthony C. (December 2004). "The

Origins of the Umbrella Clause in the
International Law of Investment
Protection". Arbitration International. 20 (4):
 411–434. doi:10.1093/arbitration/20.4.411
(https://doi.org/10.1093%2Farbitration%2F
20.4.411) .
2. "choice of law clause", Webster's New
World Law Dictionary, Hoboken, New
Jersey: Wiley Publishing, Inc., 2006
3. West, Glenn (2017-09-18). "Making Sure
Your "Choice-of-Law" Clause Chooses All of
the Laws of the Chosen Jurisdiction" (http
s://corpgov.law.harvard.edu/2017/09/18/m
aking-sure-your-choice-of-law-clause-choos
es-all-of-the-laws-of-the-chosen-jurisdictio
n/) . The Harvard Law School Forum on
Corporate Governance. Retrieved
2021-02-18.
4. "Governing Law and Choice of Forum
Clauses Explained | LexisNexis Canada" (htt
ps://www.lexisnexis.ca/en-ca/ihc/2017-03/
governing-law-and-choice-of-forum-clauses
-explained.page) . www.lexisnexis.ca.
Retrieved 2021-02-18.
5. "Governing Law and Choice of Forum
Clauses Explained | LexisNexis Canada" (htt
ps://www.lexisnexis.ca/en-ca/ihc/2017-03/
governing-law-and-choice-of-forum-clauses
-explained.page#:~:text=A%20governing%2
0law%20and%20choice,also%20be%20deal
t%20with%20separately.) .
www.lexisnexis.ca. Retrieved 2021-02-18.
6. Woodward, William J. Jr. (2004). "Legal
Uncertainty and Aberrant Contracts: The
Choice of Law Clause" (http://digitalcommo
ns.law.scu.edu/cgi/viewcontent.cgi?article
=1818&context=facpubs) . Chicago-Kent
Law Journal. 89: 197. Retrieved 11 October
2017.
7. "PracticalLaw Choice of Law Selection
Factors" (https://ca.practicallaw.thomsonre
uters.com/0-615-3765?transitionType=Defa
ult&contextData=(sc.Default)&firstPage=tru
e&OWSessionId=3fc4a7ba9e98462f97a722
20e8453f31&skipAnonymous=true) .
8. Homle, Julia (2017). "Global social media
vs local values: Private international law
should protect local consumer rights by
using the public policy exception?" (http://q
mro.qmul.ac.uk/xmlui/handle/123456789/
30965) . Computer Law & Security Review.
33 (6): 391–397.
doi:10.1016/j.clsr.2017.08.008 (https://doi.
org/10.1016%2Fj.clsr.2017.08.008) .
9. "Governing Law And Choice Of Forum
Clauses - Corporate/Commercial Law -
Canada" (https://www.mondaq.com/canad
a/contracts-and-commercial-law/466048/g
overning-law-and-choice-of-forum-clause
s) . www.mondaq.com. Retrieved
2021-02-18.
10. "A Canadian Perspective Choice of Law &
Choice of Forum" (https://www.torys.com/P
ublications/Documents/Publication%20PD
Fs/AR2005-39T.pdf) (PDF). Archived (http
s://web.archive.org/web/2021082722520
0/https://www.torys.com/Publications/Doc
uments/Publication%20PDFs/AR2005-39T.
pdf) (PDF) from the original on 2021-08-27.
11. Monestier, Tanya. "Forum Selection Clauses
and Consumer Contracts in Canada" (http
s://lawjournal.mcgill.ca/wp-content/upload
s/pdf/3392797-Tetley.pdf) (PDF). Boston
University International Law Journal.
12. Leon, Barry. "A Canadian Perspective:
Choice of Law and Choice of Forum" (http
s://www.torys.com/Publications/Document
s/Publication%20PDFs/AR2005-39T.pdf)
(PDF). Archived (https://web.archive.org/we
b/20210827225200/https://www.torys.co
m/Publications/Documents/Publication%2
0PDFs/AR2005-39T.pdf) (PDF) from the
original on 2021-08-27.
13. "Douez v Facebook Inc, 2017 SCC 33" (http
s://scc-csc.lexum.com/scc-csc/scc-csc/e
n/item/16700/index.do) . Archived (https://
web.archive.org/web/20170801232305/htt
ps://scc-csc.lexum.com/scc-csc/scc-csc/e
n/item/16700/index.do) from the original
on 2017-08-01.
14. "Supreme Court of Canada Confirms in
Douez v. Facebook that a Business Cannot
Contract Out of Local Privacy Law" (https://
canliiconnects.org/en/commentaries/4587
5) . CanLii Connects. Archived (https://web.
archive.org/web/20180414015428/http://c
anliiconnects.org:80/en/commentaries/45
875) from the original on 2018-04-14.
15. "Forbes Energy Group Inc. v. Parsian Energy
Rad Gas, 2019 ONCA 372 (CanLII)" (https://
www.canlii.org/en/on/onca/doc/2019/201
9onca372/2019onca372.html) .
16. "Taking Jurisdiction: the latest ONCA case
overturning a forum selection clause" (http
s://www.canliiconnects.org/en/commentari
es/71844) . CanLii Connects. Archived (htt
ps://web.archive.org/web/2020092016484
1/http://canliiconnects.org/en/commentari
es/71844) from the original on 2020-09-
20.
17. "Governing Law And Choice Of Forum
Clauses - Corporate/Commercial Law -
Canada" (https://www.mondaq.com/canad
a/contracts-and-commercial-law/466048/g
overning-law-and-choice-of-forum-clauses
#:~:text=A%20choice%20of%20forum%20cl
ause,action%20relating%20to%20the%20co
ntract.&text=If%20the%20parties%20to%20
an,indicate%20this%20in%20the%20agree
ment.) . www.mondaq.com. Retrieved
2021-02-18.
18. "FindLaw's Court of Chancery of Delaware
case and opinions" (https://caselaw.findla
w.com/de-court-of-chancery/1246664.htm
l) . Findlaw. Retrieved 2021-02-18.
19. "Delaware Court of Chancery upholds
freedom of contract (with narrow
exception)" (https://www.lexology.com/libr
ary/detail.aspx?g=dba4ce2a-5d96-410a-98
8c-2a0d9bc66442) . Lexology. 19 January
2007. Archived (https://web.archive.org/we
b/20130123201442/http://www.lexology.co
m/library/detail.aspx?g=dba4ce2a-5d96-41
0a-988c-2a0d9bc66442) from the original
on 2013-01-23.
20. Geller, Mitchell J. (7 July 2009). "Ensuring
Choice-of-Law Provision Includes Non-
Contractual Claims" (https://www.hklaw.co
m/-/media/files/insights/publications/200
9/07/ensuring-choiceoflaw-provision-includ
es-noncontrac/files/ensuring-choiceoflaw-p
rovisions-includes-noncontra/fileattachmen
t/54323.pdf) (PDF). New York Law Journal.
242 (4): 1. Retrieved 5 March 2021.
21. "Krock v. Lipsay, 97 F. 3d 640 (1996)" (http
s://scholar.google.com/scholar_case?case
=17699596013869626522) . Google
Scholar. Retrieved 5 March 2021.
Further reading

Lea Brilmayer and Jack Goldsmith,

Conflicts of Law: Cases and Materials,
Fifth Edition (2002), p. 280-303.
Stephen G.A Pitel, Private International
Law in Common Law Canada: Cases,
Text and Materials, Fourth Edition
(2016), p. 349-377.

See also

Forum selection clause

Arbitration clause
Lex loci arbitri
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