Watch Your Language: Specificity Over Brevity in Contractual Terms

In a recent case, the United States District Court for the District of Maryland (Judge Blake) interpreted a contract’s choice of law provision as excluding the named jurisdiction’s court-made common law, and applied only that state’s procedural law.  The Fourth Circuit Court of Appeals affirmed. The choice of law provision provided that

[t]hese Rules and any contract of insurance between [the P & I Club] and a Member shall be governed by and construed in accordance with the law of the State of New York.

The decisive issue before the District Court was whether the timeliness of the Club’s claims against the Member was to be determined by reference to (1) the common law doctrine of laches, or (2) the procedural law of New York.  If laches applied, the Club’s claims were viable.  If New York’s law applied, the Club’s claims were time-barred under New York’s statute of limitations for contract claims.  The District Court held – and the Fourth Circuit affirmed – that New York’s statute of limitations applied.

The Club argued that the law of New York included its court-made common law, which required that the doctrine of laches be applied because application of New York’s procedural law (statute of limitations) would be improperly outcome determinative.

Whether we consider the Statute of Limitations as substantive or procedural, both Federal law in maritime cases and our policy clearly dictate that we may not detract from a right given by Federal law created under the admiralty powers. Then Chief Judge Fuld writing in Matter of Rederi (Dow Chem. Co.) (25 N.Y. 576,581, supra) noted that our own rules of procedure may not be applied in maritime cases “if those rules would significantly affect the result of the litigation, i.e., would be outcome determinative” (see, also, Garrett v. Moore-McCormack Co., 317 U.S. 239, 246 – 249, supra). It is reasonable that State courts be required to apply Federal law in such disputes in order to secure a single and uniform body of maritime law (see, e.g., Romero v. International Term. Co., 358 U.S. 354, supra). This does not mean that our State rules are irrelevant, for they are a proper consideration in determining whether laches is a bar, but the State period of limitation is simply not conclusive (Czaplicki v. The Hoegh Silvercloud, 351 U.S. 525,533; Moore-McCormack Lines v. Shin Mitsubishi Heavy Ind., 337 F. Supp. 513, 517).

Celeste v. Prudential-Grace Lines, Inc., 35 N.Y.2d 60, 64; 315 N.E.2d 782 (1974).

The Club also cited several New York cases holding that, under New York Law, statutes of limitation are procedural, not substantive, law and that a federal court sitting in admiralty in New York would apply the substantive law of New York but not its procedural rules.

How could this outcome have been prevented?  The answer is deceptively simple.  Never assume that a court will read a contract the way the drafting party intended it to be read.  If the contract should be governed by a particular jurisdiction’s statutory law and case law, the contract should clearly specify so.  If the doctrine of laches should apply to any dispute arising out of the contract, the contract should clearly specify so.  If the contract should be subject to the chosen jurisdiction’s conflict of laws analysis, the contract should clearly specify so.

Contracting parties should be concerned with specificity, not brevity of expression.  WATCH YOUR LANGUAGE!

© Simms Showers LLP, 2014.