Delaware Business Litigation Report

Delaware Supreme Court Explains That Litigants Seeking Application of Foreign Law Have Burden To Establish its Substance

Germaninvestments AG v. Allomet Corp., No. 291, 2019 (Del. Jan. 27, 2020). 

In reversing the Court of Chancery’s decision that Austrian law applied to the interpretation of whether a forum selection clause was permissive or mandatory, the Delaware Supreme Court ruled that, to the extent prior decisions were unclear on the issue, a party seeking the application of foreign law in a Delaware court has the burden not only of raising the issue of the applicability of foreign law under court rules, but also, of establishing the substance of the foreign law to be applied.   

The parties to this action had entered into a restructuring and loan agreement in anticipation of forming an Austrian-based joint venture. The agreement contained an Austrian forum selection clause. Ultimately, the parties did not finalize the joint venture, and a dispute arose as to the impact of the loans on stock ownership. Plaintiffs filed suit in the Court of Chancery, to enforce the agreement. 

Defendants moved to dismiss the suit in favor of an Austrian forum. In their opening brief, defendants provided the Court of Chancery with minimal support and no case law authorities to establish the substance of Austrian law that defendants asserted applied to the forum selection clause’s interpretation. Then in their reply brief, defendants only submitted secondary sources describing Austrian law. While noting the paucity of support regarding Austrian law submitted by defendants, the Court nevertheless determined that Austrian law governed the forum selection clause’s interpretation and that, under Austrian law, the provision was mandatory, requiring dismissal of the Delaware claims.

The Supreme Court reversed the Court of Chancery’s decision, ruling that, considering the complexity of the foreign law issues and the lack of any focused and orderly engagement on those issues by the parties, the trial court erred in finding that defendants had carried their burden to establish the substance of Austrian law. While emphasizing that it was not establishing a per se rule that expert testimony is required to establish the substance of foreign law, the Supreme Court concluded that defendants had provided too little support on the interpretation of the forum selection clause under Austrian law to meet their burden. Because defendants had failed to carry their burden, the Supreme Court held that Delaware law should have applied to the forum selection clause’s interpretation. Applying Delaware law, the Supreme Court found that the forum selection clause was permissive, not mandatory, based on the clause’s lack of clear exclusivity.

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