Express Choice of New York Law in Contract Trumps Conflict of Laws Analysis

In IRB-Brasil Resseguros, S.A. v. Inepar Investments, S.A., one defendant issued a $30 million note and, in connection therewith, executed certain collateral agreements.  Another defendant guaranteed the note.  Although the master agreement was among Brazilian companies, it provided that “[t]his Agreement, the Notes, and the Guarantees shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to conflict of laws principles.”

The plaintiff defaulted on the note and litigation ensued.  The guarantor of the note asserted that, under New York’s conflict of laws principles, the law of Brazil should control; and that, under Brazilian law, the guarantee was void because the guarantee was never properly authorized.

According to the Court of Appeals:

The issue before the Court [was] whether a conflict-of-laws analysis must be undertaken where there is an express choice of New York law in the contract pursuant to General Obligations Law § 5-1401.

The Court of Appeals held that “the need for a conflict-of-laws analysis [was] obviated by the terms of the parties’ agreements.”

The Court held that:

Applying General Obligations Law §§ 5-1401 and 5-1402 to the facts of the present case, we conclude that New York substantive law must govern, since the parties designated New York in their choice-of-law provision in the Guarantee and the transaction exceeded $250,000.

And the Court of Appeals concluded that:

It strains credulity that the parties would have chosen to leave the question of the applicable substantive law unanswered and would have desired a court to engage in a complicated conflict-of-laws analysis, delaying resolution of any dispute and increasing litigation expenses.  We therefore conclude that parties are not required to expressly exclude New York conflict-of-laws principles in their choice-of-law provision in order to avail themselves of New York substantive law.  Indeed, in the event parties wish to employ New York’s conflict-of-laws principles to determine the applicable substantive law, they can expressly so designate in their contract.

IRB-Brasil Resseguros, S.A. v. Inepar Investments, S.A., 20 N.Y.3d 310 (December 18, 2012).

Media Contact

Public Relations Contact
Kate Lenders
Senior Marketing Manager
klenders@sgrlaw.com
312-360-6478