“Choice-of-law” provisions, identifying which state’s laws a contract will be interpreted under, are almost universally found in contract “boilerplate.” Businesspeople anxious to get deals done typically focus their attention on the up-front-and-center contractual provisions detailing the terms of the deal, not the boilerplate language concerning jurisdiction, venue, choice-of-law, and other unexciting provisions stuck in at the end, almost like an afterthought. But a recent decision from New York’s Court of Appeals, 2138747 Ontario, Inc. v. Samsung C & T Corporation, reminds businesses and lawyers alike that every single term in a contract – no matter how unimportant it may seem during the drafting process – merits careful consideration before the parties sign.
In Ontario, the issue was the choice-of-law provision – in particular, whether a choice-of-law provision in a contract between non-New York litigants providing that the contract was to be “enforced” under New York law required straightforward application of New York’s six-year statute of limitations for breach of contract actions, or instead whether the “borrowing statute” should be applied. The borrowing statute of CPLR 202 provides that New York non-residents may bring claims pertaining to causes of action that accrue outside New York only if the action would be timely under both New York and the home jurisdiction’s statute of limitations.
By way of background, most choice-of-law provisions direct a court to apply the substantive law of the chosen state (essentially, laws that concern a litigant’s rights). However, in Ontario, because the provision at issue provided that the contract would be “enforced” according to New York law, the litigants agreed that New York procedural law would also apply (essentially, the law that governs conduct in the courtroom). Rules regarding statutes of limitations – which set the time period within which a litigant may prosecute a claim – are generally considered by New York courts to be procedural.
Against this backdrop, the issue in Ontario was this: since the contract specified that New York procedural law would apply, how should the court reconcile two conflicting procedural rules? Should it enforce the six-year statute of limitations as it would if the breach concerned New York parties? Or should it find a lawsuit timely only if it was timely under both New York and the home jurisdiction’s statute of limitations (pursuant to the borrowing statute)?
Ultimately, the Ontario court ruled that the borrowing statute applies, requiring the claim to be timely in both venues, in part because it was in direct contrast to the long-standing common law rule that the procedural law of the venue controls. In other words, if the legislature upends long-standing legal traditions by statute, a reviewing court must consider that break to be principally important, and should uphold its legal effect.
Notably, the Ontario court explicitly did not address what the effect would be if the parties had expressly provided that the contract would be subject to New York’s six-year statute of limitations, and left open that such a provision might run afoul of CPLR 201, which generally prevents elongation of statutes of limitation by contract.
The takeaway from this case? If you are a non-resident contracting to perform services outside of New York, and your contract stipulates that New York procedural law applies, be aware that you swallow that procedural law whole, and may be unable to contract around your home jurisdiction’s shorter statute of limitations. And more broadly, this case serves as an important lesson. It’s often the provisions that seem the most innocuous during drafting that can cause the biggest headaches later.