Nedlloyd Lines B.V. v. Superior Court
Citation and Court
3 Cal. 4th 459 (1992), California Supreme Court
Facts
A shipping joint venture agreement among several companies — including the Dutch company Nedlloyd — contained a choice-of-law clause selecting Hong Kong law. When the venture dissolved, one partner sued in California for breach of fiduciary duty and breach of contract. The plaintiff argued that California law should govern despite the Hong Kong choice-of-law clause.
Issue
Whether a choice-of-law clause in an international commercial contract is enforceable to require application of Hong Kong law, even in the absence of a showing that Hong Kong has a substantial relationship to the transaction.
Holding
The choice-of-law clause selecting Hong Kong law is enforceable; California courts will apply a chosen foreign law to all claims arising out of the contract without requiring the parties to show that the chosen state has a specific connection to the transaction.
Rule / Doctrine
Under California’s approach to contractual choice-of-law, a choice-of-law clause is enforced unless: (1) the chosen state has no substantial relationship to the parties or transaction and there is no reasonable basis for the choice, or (2) application of the chosen law would be contrary to a fundamental California public policy. Commercial parties’ contractual autonomy to select governing law is given significant weight.
Significance
Nedlloyd is a leading California case on the enforceability of contractual choice-of-law clauses in complex commercial transactions, and it relaxed the traditional Restatement § 187 requirement of a substantial relationship between the chosen law and the dispute.