International Commercial Law

Choice of Governing Law

University of Oslo

Giuditta Cordero-Moss, Ph.D., Dr.Juris

Professor, Oslo University

Conflict of laws

• International transactions:– Between parties having place of business in

different states (CISG art. 1.1)– Involving a conflict of laws (Rome I art. 1.1)– Transaction has a foreign element (French

CPC art 1492)

• More than one national law seem to be applicable

Mechanisms for cross-border contracts

• Conflict rules (PIL) determine the law of what country governs

• Conflict rules are part of each country’s own law

• EU has harmonised conflict rules

• Norway has own conflict rules

Mechanisms for cross-border contracts, cont.

• Judge applies his own conflict rules

• First step: identify forum

• Then: apply conflict rule

• So: conflict rule determines what country’s substantive law governs the contract

Choice of Forum

• Civil procedure of the judge

• International Instruments – Bruxells regulation– Lugano Convention– Hague Convention?

Choice of forum II

• Defendant’s forum

• Place of performance

• …

• Exhorbitant fora

• Exclusive fora

• Forum chosen by the parties

Application of conflict rules

FIRM OFFER

• Forum: Lugano convention, art. 2 or 5.1

• Governing Law:– Italian subcontractor:

Italian law– English subcontractor:

English law

FORCE MAJEURE

• Forum: Lugano convention, art. 2 or 5.1

• Governing Law:– Italian supplier: Italian

law– English supplier:

English law

Party Autonomy

• The vast majority of PILs allow parties to choose the governing law

Party autonomy is a choice of law rule

• No «universal principle»

• Depends on applicable law– Assumptions

• Internationality

– Modality of exercise• Written form, tacit exercise

– Scope• Other conflict rules

Effects of party autonomy

• Two possible effects:– Incorporation of the chosen law in the contract– Choice of governing law

Effects of Party Autonomy

• Domestic contracts:– Incorporation (e.g. Art. 3 Rome Convention/Rome I

593/2008)

• International contracts:– Choice of law (e.g. Art. 1.1 Rome Convention/Rome I)– Limitations (e.g. Art. 7 Rome Convention/art. 9 RomeI)

Choice of non-national law

• Law – Rules of Law – Ex bono et aequo

• Arbitration• Courts

Choice of non-national lawArbitration

• Parties may choose “Rules of Law”• Tribunal may, absent parties’ choice apply

“Rules of Law”– French, Swiss arbitration law– ICC– LCIA

• Tribunal applies, absent parties| choice, “Law”– UNCITRAL Model law– English, Norwegian law

Choice of non-national lawCourts

• Rome Convention: “Law”• Draft Rome I: Principles

– Gaps: autonomous interpretation, then governing law– Outside of scope: governing law– Conflict with mandatory rules?

• Rome I: “Law”

Rome I: Incorporation and prospects of choice of law

• Art. 3.1:“A contract shall be governed by the law chosen by the parties.”

• Recital 13: “This Regulation does not preclude parties from incorporating by reference into their contract a non-State body of law or an international convention.”

• Recital 14:“Should the Community adopt, in an appropriate legal instrument, rules of substantive contract law, including standard terms and conditions, such instrument may provide that the parties may choose to apply those rules.”

ESL:Optional instrument, second regime

• Must be chosen by the parties

• Creates “within each member State’s national law a second contract law regime … identical throughout the Union and existing alongside the pre-existing ! rules of national contract law” (recital 9)

• Should “not amount to, and not be confused with, a choice of the applicable law within the meaning of the conflict-of-law rules and should be without prejudice to them (recital10)

Incorporation or choice of law?

• Becomes a term of contract

• Is subject to governing law– Cannot derogate from

mandatory rules– Gaps are (ultimately) filled

by the governing law– Is (ultimately) interpreted in

the light of governing law

• Uniform application?

• Selects governing law• Ensures higher degree of

consumer protection in consumer’s country

• Preserves differences among systems

Exercise of Party Autonomy

• Expressed choice or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case

• Severability

Tacit choice of law

• Use of English contract models– Actual choice, not hypothetical– Certain– Example: Lloyd’s Marine Insurance Policy– Example: Patchwork of documents expressed

in English

Tacit partial choice of law

• Clauses that do not make sense under the governing law– Waiver of jury trial

• Clauses that have different effects under the governing law– Entire agreement

• Actual choice, certain

How to Choose Governing Law

• No need to choose a connected law• Identify particularly favourable law (difficult):

– What protection/remedy is most likely to be needed– What law provides that protection/remedy– Is a literal interpretation of the contract expected?– Is a contextual evaluation of the relationship

expected?• Avoid the other party’s law (not always necessary)• Choose a law particularly developed in the area• Choose a stable law which is sufficiently known• Choice of Lex Mercatoria is not equivalent to choice of

law

Closest Connection

• Lacking parties’ choice

• Too vague

Closest Connection- Rome Convention

• Art. 4.2 Presumption:– Habitual residence/place of business– Characteristic performance

• Art. 4.5 Exception:– Characteristic performance cannot be

determined– «It appears from the circumstances as a whole that

the contract is more closely connected with another country»

Closest Connection II

• Rome I:– Art. 4.1 (a)-(h): defined conflict rule for

contract types– Art. 4.2: Other contract types: residence of

characteristic debtor (main place of business)– Art. 4.3: »Where it is clear from all the circumstances of the case that the

contract is manifestly more closely connected with a country other than that»

– Art. 4.4: if cannot be determined: closest connection

Applicable Law – Certain Contracts

• Carriage of goods

• Consumer contracts

• Insurance contracts

• Employment contracts

Governing Law – Scope of Application

• Interpretation of the contract

• Performance of the contract

• Consequences of non-performance

• Consequences of invalidity

• Termination

• NOT choice of law rules

Other conflict rules

• Procedural rules (arbitration clause)

• Legal capacity

• Company law

• Security

• …