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03 March 2020
Where parties have agreed in a contract that the English courts will have jurisdiction in the event of a dispute, it does not automatically follow that English law will be the governing law. A party found this out, to its cost, when a different governing law clause meant an expired limitation period in GDE LLC v Anglia Autoflow Limited.(1)
Anglia Autoflow was an English company that made poultry processing machinery. Mr Gough was a British and US dual national resident in Canada.
In April 2009 Anglia and Gough entered into an agency agreement. The agreement said that Gough would set up a company to act as Anglia's exclusive agent in Canada, the United States and the Caribbean. Gough incorporated GDE LLC in Georgia, United States, for that purpose.
The agreement stipulated that in the event of serious disputes, both parties agreed to subject themselves to the jurisdiction of the English court.
In 2017 Gough and GDE issued proceedings in the English court against Anglia seeking damages for repudiatory breach and unpaid commission.
Gough and GDE contended that the agency agreement was governed by English law. Anglia alleged that the agency agreement was governed by Ontario law. As the claim was time barred under Ontario law, this issue was key.
The court had to consider the Rome Convention on the Law Applicable to Contractual Obligations (Rome Convention). In particular, the court had to consider two key provisions:
Application of Article 3
Since there was no express choice of law, the judge looked at whether the parties had made an implied choice.
The judge found that the Rome Convention adopted a different approach to the common law. Article 3(1) states that an implied choice must be demonstrated with "reasonably certainty" and does not permit the court to infer a choice that the parties might have made where they had no clear intention to make one. Despite various factors connecting the agreement to England, the judge found that there were insufficient grounds to demonstrate a positive choice of English law. Therefore, the judge considered Article 4.
Application of Article 4
Article 4 is intended to determine the country with which the contract is most closely connected. Article 4(2) sets out various connecting factors – for example, the court must first identify the person who is to effect the performance that is characteristic of the contract. The judge found that this related to the position as of the date of the contract.
Since GDE had not been incorporated as of the date of the contract, Article 4(2) could not be sensibly applied. The court held that under Article 4(1), the contract should be governed by the law of the country with which it is most closely connected.
In applying Article 4(1), the court had to determine the centre of gravity of the contract on an objective basis and, in doing so, was entitled to consider post-contractual events (applying the European Court of Justice's decision in Haeger & Schmidt GmbH v Mutuelles de Mans assurances IARD).(2)
In determining that Canada (and not England) was the country with which the contract was mostly closely connected, the judge looked at various factors but gave the following the most weight:
The fact that the jurisdiction clause referred to the English courts was irrelevant for these purposes, as was the fact that GDE was incorporated in Georgia, as there was no connection between the agreement and Georgia. Consequently, the country with which the agreement was most closely connected was Canada. Therefore, the court found that the governing law was Ontario law.
This case is a salutary reminder that that a choice of English courts for resolution of disputes does not necessarily mean a choice of English law. Those entering into contractual agreements should carefully consider a choice of law clause in order to designate the laws of a country that suits them. This will be particularly important when there are competing limitation periods, as demonstrated in this case.
For further information on this topic please contact Geraldine Elliott or Fred Kuchlin at RPC by telephone (+44 20 3060 6000) or email (email@example.com or firstname.lastname@example.org). The RPC website can be accessed at www.rpc.co.uk.
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