Berrocal v Warner Chappell Music Ltd
In October 2017, the Intellectual Property Enterprise Court (IPEC) ruled in Berrocal v Warner Chappell Music Ltd that a governing law clause did not also operate as a jurisdiction clause.
The underlying dispute concerned a number of historic song licence agreements. The terms of the agreements included a governing law clause which stated that each agreement “shall be construed and shall always be subject to enforcement pursuant to the laws of the state of New York and of the United States of America”. Perhaps unsurprisingly, it was accepted by both parties that this meant that the agreement was subject to New York law.
The defendant, however, argued that the clause also operated as a jurisdiction clause (also known as a ‘choice of forum’ clause) because it required all aspects of enforcement to “always” be determined in accordance with New York law. The defendant argued that if the case were heard by English courts then the English courts would apply English law procedure rather than New York law procedure. This would mean that the agreements were not being strictly enforced in accordance with New York law. If this were the case, the defendant argued, then the English courts would have to decline to hear the dispute.
In this instance, the judge rejected the defendant’s argument. It was accepted that the clause was a governing law clause but it was not accepted that the terms also operated as a jurisdiction clause. As such, the English courts could hear the dispute (provided that they applied the law of New York).
Despite submitting expert evidence from American counsel, neither party was able to identify a material difference between the procedure to be followed under New York law and the procedure under English law. As such, the English court’s English law procedure was not found to conflict with the procedure taken under New York law. In the absence of such a conflict, there was nothing to prevent the English courts from enforcing the agreements “pursuant to the laws of the state of New York”.
The key takeaway from the Berrocal case is that if the original contracting parties had wanted New York courts to have exclusive jurisdiction over disputes arising out of the agreements then they should have included a jurisdiction clause in the agreements.
In practice, jurisdiction clauses in cross-border agreements will frequently be the subject of negotiation. The prospect of having to conduct litigation in a foreign country carries with it the risk of increased costs and inconvenience. In certain circumstances, instruction of local counsel will be required and this will typically mark a departure from that party using their preferred legal advisers from back home.
In Berrocal the judge referred to the effects of the Rome 1 regulation which determines the governing law of a contract in the absence of express agreement between the parties. By default, if the parties to a contract agree that a governing law (e.g. the law of England and Wales) should apply to a contract then that law is the one which will usually be applied.
If, however, the parties have not agreed on an applicable law for their legal relationship then Rome 1 contains a series of rules to decide which law applies. Typically this will be one party’s country of residence although contracts concerning rights in land will typically be governed by the law of the country in which the property is located. By way of example. an agreement for the sale of goods is governed by the law of the country where the seller is habitually resident.
Although the Rome 1 regulation provides a fall-back to allow EU state courts to work out which law should apply to the agreement, it is highly recommended that an express jurisdiction clause be included in the agreement for certainty.
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