The “midnight clauses” are the clauses of a contract negotiated or simply drafted at the very last minute in a rush to close a transaction. Typical midnight clauses are the dispute resolution clauses (e.g., arbitration clauses and choice of forum ones) and the choice of law clauses. When faced with a lawsuit, paying little or no attention to these clauses can cause serious damages to a client.
Recently, the Connecticut Supreme Court has emphasized, in a 5-2 decision, the importance of choosing the forum in a transnational commercial transaction. In the case at hand, a Connecticut-based company (North Sails Group, LLC) had entered, in 1990 and in 2000, into trademark agreements with Boards and More GmbH, an Austrian-based manufacturer. After 30 years of relationship, the Connecticut company sued the Austrian counterpart for breach of contract, starting the lawsuit in the courts of Connecticut. The Court dismissed the case for lack of jurisdiction over the dispute, notwithstanding the decades-long contractual relationship between the parties, because there were no sufficient minimum contacts between the foreign company and the State of Connecticut.
The decision of the Court leaves no doubt to the importance of having a properly drafted dispute resolution clause in a contract, especially when dealing with transnational counterparts.
If the parties in the case at hand would have included such a clause in their agreements, i.e. choosing the courts of Connecticut as the forum to resolve any dispute arising between them, the court would have had no choice but to hear the case.
Equally, if not more, important are the choice of law clauses when the parties to a contract belong to different jurisdictions. Usually, the party with the most substantial commercial power will be able to have the law of its jurisdiction as the law applicable to the agreement. However, in certain instances, the parties are able to compromise to the law of a third country, which is usually a law sophisticated enough for that particular transaction. However, even in such instances, the clauses need to be drafted in order not to clash with the conflict of laws (a/k/a the private international law rules) of the forum. Indeed, if a choice of law clause is not properly drafted, it could lead the court (or the arbitral tribunal) to apply a law that was not the one chosen by the parties because of the applicable conflict of laws provisions.