Fee-Shifting Effect of Choice-of-Law Clauses

It is common practice in commercial transactions to agree that the law of a particular jurisdiction will govern the parties’ contract and to memorialize that agreement in a choice-of-law clause. In negotiating for such clauses, parties normally recognize and expect that if their contract becomes the subject of litigation, the law on which they agreed will, subject to certain exceptions, govern the resolution of the contract claims. However, it may not be widely known that the choice-of-law clause could make the party that loses the litigation liable for the attorney fees of the winning side, in contrast to the usual rule in the United States that the prevailing party cannot recover its attorney fees unless the contract has an express fee-shifting provision or a statute applies that permits such recovery. Unlike the United States, most Western legal systems follow the “English Rule,” which requires the losing party to pay the prevailing party’s reasonable attorney fees.¹

Courts Holding That a Choice-of-Law Clause Imports the English Rule

Several U.S. decisions have held that a prevailing party may be entitled to attorney fees where the applicable choice-of-law clause selects the law of an English Rule jurisdiction. In doing so, those courts have adopted varying rationales.