Waiving Choice of Law

When I teach Conflict of Laws, I tell my students that they must always perform a choice-of-law analysis when there is a conflict between the laws of two jurisdictions. This is sound advice for doing well on the final exam. It is not, however, strictly true. In fact, litigants waive this issue all the time. They ask the court to apply forum law even though the relevant choice-of-law rules point to the law of another jurisdiction. This post first identifies a number of cases where this has occurred. It then explains why it happens.

Choice of Law as Option

Over the past fifty years, choice-of-law clauses have become ubiquitous. The conventional wisdom holds that these provisions are valuable because they provide certainty ex ante as to what law will be applied to resolve disputes ex post. In some cases, however, the litigants completely ignore these provisions. They brief the court of the law of the forum and call it a day.

Consider Bakery Barn, Inc. v. A.E. Nielsen Maskinfabrik ApS. A Pennsylvania company purchased some equipment from a Danish manufacturer. When problems arose with the equipment, the purchaser sued the manufacturer in federal court in Pennsylvania. Although the agreement contained a choice-of-law clause selecting the law of Denmark, neither the plaintiff nor the defendant briefed the court on the content of this law. As the court observed:

Here, although the [choice-of-law] clause of the agreement would seem to compel the application of Danish law, neither party has seen fit to raise a choice of law issue. Indeed, to the extent that they have provided legal support for their arguments . . . the parties have avoided the invocation of Danish law altogether. Accordingly, this Court will join in the parties’ apparent assumption that Pennsylvania law applies.

This case is not unusual. There are many others where the litigants similarly assumed that the law of the forum applied without asking the court to engage in a choice-of-law analysis.

This can also happen in cases where the contract lacks a choice-of-law clause. In Gold-Flex Elastic Ltd v Exquisite Form Industries Inc., a U.S. company purchased goods from a manufacturer based in Hong Kong. When the buyer failed to pay on time, the seller sued it in federal court in New York. The sales contract lacked a choice-of-law clause. Neither party briefed the court on choice of law. Against this backdrop, the court made the following observation:

Under New York choice-of-law rules, it is likely that foreign law would determine the nature of the parties’ obligations. Hong Kong has a strong interest in this dispute as plaintiff is incorporated in Hong Kong and plaintiff manufactures its goods in Hong Kong and ships its goods from Hong Kong. The Philippines also have a strong interest in this dispute as the elastic webbing was delivered, inspected, and manufactured [in the Philippines] . . . . Neither side has called for an application of the law of Hong Kong or of the Philippines . . . The parties’ silence on the applicability and substance of foreign law constitutes a waiver of the issue. Once foreign law is deemed inapplicable . . . the default law to be applied is forum law.

Although choice-of-law doctrine offers the litigants the option of arguing the case under the law of a different jurisdiction, there is nothing in the law that requires them to exercise that option. When the option is not exercised, the court will apply the law of the forum.

It should be noted that the decision to waive choice of law cannot be made unilaterally. If either litigant argues that an issue is governed by the laws of another jurisdiction, the issue must be addressed by the court. In many cases, however, each of the litigants will tacitly agree to apply the law of the forum by declining to raise choice of law as an issue. The courts are, as rule, more than happy to go along with this because forum law is familiar and easy for them to apply.

Why Waive?

Why would the litigants choose to waive choice of law? There are at least three explanations. The first is ignorance. They may not know enough to raise the issue. The second is irrelevance. They may have determined that there is no material difference between the laws of the relevant jurisdictions and therefore no reason to engage in a choice-of-law analysis. The third is cost. The litigants may have decided not to invoke foreign law as a cost-saving measure.

This last explanation warrants additional discussion. There are various costs associated with invoking foreign law. First, there are the costs of researching the content of that law to determine whether a conflict exists. These costs will vary depending on the identity of the other jurisdiction. When the potential conflict is between the law of two U.S. states, the research costs are low. When the potential conflict is between the law of a U.S. state and the law of a foreign, non-English-speaking jurisdiction, the research costs are high. In the latter case, lawyers may simply brief the court on the law of the forum as a way to save money.

There is also the possibility that no benefit will accrue to litigants who devote time and money to researching the choice-of-law issue. Imagine a scenario where the two jurisdictions with an interest in the litigation are New York and Brazil. The suit is brought in New York. A U.S. lawyer might devote a significant amount of time to translating and researching the law of Brazil only to discover that there is no material difference between that law and the law of New York. Alternatively, the lawyer might discover that the Brazilian law is actually less favorable to her client’s position than New York law. When the outcome of the inquiry is unknown, and where there is no guarantee that spending time and money on research will improve the client’s position in litigation, it is easy to see why some attorneys might simply ignore the issue and argue the case under New York law.

Second, there is the cost of pleading and proving foreign law. Most U.S. jurisdictions will apply the law of the forum unless one party affirmatively argues to the court that foreign law should be applied. The party invoking foreign law must present the court with information as to the content of that law (though a federal court retains the ability to consider evidence not submitted by either party pursuant to FRCP 44.1). In practice, the task of proving foreign law is usually assigned to paid experts who submit affidavits. These same experts may also be called upon to testify should the case go to trial. Expert witnesses are expensive. Indeed, they are so expensive that the costs of engaging an expert may in some cases discourage some litigants from invoking foreign law in the first instance.

Conclusion

In a Conflict of Laws casebook, the parties in each of the cases went to the time and trouble of researching, pleading, and proving foreign law as a first step to asking the court to engage in a choice-of-law analysis. In the real world, this doesn’t always happen. In many cases, the litigants tacitly agree that the court shall apply the law of the forum even when the facts of the case and the applicable choice-of-law rules suggest that the law of another jurisdiction should apply.