CHAPTER 1 CHOICE OF CONTRACTUAL GOVERNING LAW AND DISPUTE RESOLUTION JURISDICTION

• Jurisdiction: United States

Mining Agreements: Contracting for Goods & Services
(Sep 2015)
CHAPTER 1
CHOICE OF CONTRACTUAL GOVERNING LAW AND DISPUTE RESOLUTION JURISDICTION
Stephen Antle C. Arb.
Partner
Borden Ladner Gervais LLP
Vancouver
Jennifer K. Choi
Articling Student
Borden Ladner Gervais LLP
Vancouver

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STEPHEN ANTLE is a dispute strategist, a senior partner in Borden Ladner Gervais LLP, and a Chartered Arbitrator. Stephen is an expert in preventing and managing all kinds of commercial disputes and, if necessary, resolving them through negotiation, mediation, arbitration, administrative proceedings, or litigation. He has a broad range of experience, emphasizing strategic corporate governance advice (including shareholder disputes), domestic and international commercial arbitration, contract trouble shooting, and international dispute resolution issues. Stephen advises and represents corporations and individuals involved in a wide variety of businesses. He has appeared as counsel before mediators, domestic and international arbitration tribunals, administrative tribunals, all levels of court in British Columbia, and the Supreme Court of Canada. Martindale-Hubbell AV® Preeminent™ 4.5 out of 5 Peer Review Rated.

1. Introduction

Many mining operations are international. The minerals are in a different country from the headquarters of the company or companies leading the excavation. In many cases, contractors are necessary to facilitate both the mining and the shipment of the excavated ore. Often, these contractors are from different countries than both the lead company and where the mine is located. All of these parties are tied together in the venture through contracts.

Many disputes can arise over the life of a mine, including compliance and environmental obligations arising in the development and closing phases, and shipment of minerals during the operation of the mine. Due to the international nature of the efforts that go into extracting minerals, one of the major issues in these contract disputes is the law which governs the relevant contract. Another is the court in which the dispute will be resolved. In most international ventures, parties to a contract should agree at the time of contracting on the law that governs the contract and on the court (or other tribunal) where disputes will be resolved. These provisions are called choice of law and choice of jurisdiction clauses, respectively. Parties can create predictability and certainty in their contractual relationships by including them in their contracts.

There are options other than litigation in court to resolve disputes. International commercial arbitration has a number of potential advantages over litigation, such as speed, cost effectiveness, flexible procedure, choice of decision-maker, finality and confidentiality. However, a discussion of arbitration is beyond the scope of this paper.

When a contract does not expressly identify its governing law, the court or other tribunal must identify the law before they begin their analysis of the dispute. This is a two stage inquiry: (1) did the parties implicitly agree on the governing law of the contract? and if not (2) which taw has the "closest and most real connection" with the contract? Similarly, if a contract does not expressly agree on a court in which litigation will proceed, the judge in the first court where one of the parties sues must undertake an analysis to determine whether they can resolve it. This is

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also a two stage inquiry: (1) does the court have jurisdiction over the dispute? and if so (2) is that court the most appropriate forum to resolve it?

All of these preliminary determinations are objective, and begin from the presumption that the parties had no express common intention as to either the governing law of the contract or the court. To make a decision regarding the governing law and the appropriate court, a judge will assess the contract and the surrounding circumstances of the dispute. It is clear, therefore, that the best practice in international contracting is to ensure that both the governing law and the court are expressly chosen.

In Part I of this paper, we discuss how courts in British Columbia determine whether the parties have agreed upon the governing law of the contract, and the approach they use to determine the governing law of the contract where the parties made no express choice. In Part II, we review when a court has jurisdiction over an action and when the court will exercise that jurisdiction.

Before moving to the substance of this paper, it is important to note two things. First, when considering the information presented below, the reader must keep in mind that there are differences in the way which the courts of each jurisdiction approach these issues, particularly with regards to whether the court is the most appropriate forum. This paper sets out the analysis used in the BC courts.

Second, this paper does not deal with the principle of renvoi (French for "looking back"), which was conceived as a way to limit the damage of forum shopping. While Canadian courts still apply the principle of renvoi in certain situations, there is authority that renvoi should not be applied to contracts.¹

2. Part I - Choice of Governing Law

A contract's governing law is crucial, because it determines how the contract is interpreted by any tribunal that resolves a dispute under it. The governing law allows the parties and courts to determine a great majority of the substantive issues related to the validity, performance and discharge, and interpretation of the contract. Carefully considering an

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appropriate governing law for the contract can be as important as hammering out a payment schedule.

The governing law of a contract determines how terms of art, or other special language, used in the contract will be construed. Similarly, the obligations of the parties are defined by the governing law. Additionally, the governing law determines whether contractual obligations have been discharged, either by completion of the obligations, breach, or frustration. The governing law determines whether third parties can make claims under the contract, and how far their rights may extend. Finally, the types of damages arising out of a breach of contract are determined by the governing law, including how loss is defined and whether a loss is too remote.²

In a number of situations, a court will apply laws of its own jurisdiction regardless of the governing law of the contract. These situations arise when local legislation requires its application to a contract. In most cases, this legislation alters contractual rights in furtherance of a scheme to harmonize how different jurisdictions approach certain international issues, such as the carriage of goods by sea, or a national regulatory scheme.

Courts will also look at whether the legislative scheme of the jurisdiction where the contract is to be performed makes its performance illegal. Courts have held that a contract will not be enforced if its performance is illegal in the jurisdiction of performance, regardless of whether the performance would have been legal in the court's jurisdiction or under the governing law.³

(a) Did the parties implicitly choose a governing law?

A well-drafted contract will have a clear clause expressly setting out its governing law. If the contract does not contain a clear statement of the governing law, then whether the parties have implicitly agreed on a governing law is a question of contract interpretation. For example, if a contract refers indirectly to a system of law, the question is whether that indicates the implicit

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choice with sufficient certainty. If there are references to multiple systems of law, then a court must determine which is applicable.

Parties are free to choose any law to govern their contract.⁴ Further, they can agree that particular issues are to be determined according to different systems of law (through that requires that all of those legal rules can function together coherently⁵ ) or that a specific legal rule will govern a particular issue.⁶ However, parties cannot agree that their contract will be governed by a transnational set of legal rules such as the "law of merchants," which has no connection to any national system of law. Additionally, although this situation is rare, parties should be cautious that no statute in their chosen forum makes their choice of governing law invalid.

In some cases, despite the fact that the parties did not expressly choose a governing law, the overall drafting of the contract and the circumstances surrounding its formation make it clear that they implicitly intended a particular law to govern the contract. If the language of the contract points to several different jurisdictions, the choice of a particular court for dispute resolution can be a strong indication that the parties intended the law of that jurisdiction to govern the contract.⁷ A chosen jurisdiction for arbitration can also point towards a particular governing law. However, this is a weaker indication, because arbitral tribunals do not have a default national system of law to apply, since their powers come from the parties' agreement to arbitrate.⁸

If parties do not expressly choose a governing law initially, they may be able to later amend the contract to do so. This change to the contract would only affect the rights of the parties moving forward from the amendment, unless the parties clearly stated that it applied retroactively.⁹ While amending a contract halfway through a project to contain an express choice

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of law clause may be bothersome, it is far preferable to having a court determine the governing law of the contract to be something the parties did not expect.

(b) How will a court determine the governing law?

When parties have not made an express or implicit choice of governing law, the court...