governing law in international contracts

II, p. 1146 et seq. 12 For examples of such ambiguous provisions and veritable lacunae to be found in CISG, see M.J. Bonell, An International Restatement of Contract Law. 422, 426 et seq. 44 See the full text at https://www.hcch.net/de/instruments/conventions/full-text/?cid=135 (accessed 31 December 2017). 55 See recently, e.g., F. Bortolotti, The Unidroit Principles as a Basis for Alternative Choice-of-Law Clauses with Particular Reference to the ICC Model Contracts, in Uniform Law Review 2014, p. 542 et seq. Updated October 28, 2020: International contracts are the primary legal tool put in place for companies to limit their risks when working in the global or international market. Karrer, in Honsell, Vogt, Schnyder (eds. 3 Hague Principles: The Final Breakdown for the Choice of Non-State Law?, in Uniform Law Review 2017, p. 369 et seq. A valid alternative may be the recourse to the Unidroit Principles.32 They are available in all of the major international languages and provide a balanced set of rules covering virtually all of the most important topics of general contract law.33 To quote an eminent Swiss scholar, [t]he Principles represent a codification of high quality and homogeneity in contents, which in many respects even surpasses the quality of traditional national legal orders they represent a clear and stable codification created by an approved international organization.34 What still remains to be seen is whether, and, if so, to what extent under the relevant rules of private international law, parties or, in the absence of any choice of law by the parties, courts and arbitral tribunals are permitted to apply the Unidroit Principles as the rules of law governing the contract or applicable to the substance of the dispute in lieu of a particular domestic law. What are the consequences? one for inclusion in the contract and one for use after a dispute has arisen, in Unidroit (ed. July 1, 2021 Contracts will very frequently contain a clause that specifies which 'governing law' is to apply to the contract. What is Governing Law and what Juristiction to choose? | Legly Certainly not the argument that the Principles as a merely private codification lack the democratic legitimacy necessary to be a veritable binding or positive set of legal rules.93 Apart from the fact that the Unidroit Principles have not been prepared by individual companies or national trade associations but, rather, by independent experts from all over the world working under the supervision and with the final approval of an intergovernmental organization like Unidroit, domestic courts, when asked to apply a foreign State law, do not care at all about how that law has been produced in its country of origin but only make sure that its content does not violate the international ordre public of the forum, and there are no provisions in the Unidroit Principles that would not meet that test.94, Nor should it matter that the Principles cover only issues of general contract law but do not contain rules for specific contracts.95 Apart from the fact that such rules are normally agreed upon by the parties on a case-by-case basis or by a reference to their standard terms, nothing prevents parties, when choosing the Principles as the rules of law governing their contract, to indicate in addition a particular domestic law to which to resort to fill possible gaps in the Principles.96. 46 The more concise formulation of Art. in the United States 5571% of lawyers typically/generally opt out, in Germany around 45%, in Switzerland around 41%, in Austria around 55%, in China 37% or less (cf. (p. 284): [The Unidroit Principles are] one of the most successful and ambitious recent soft law instruments. 1.1, no. Essays in honour of Michael Joachim Bonell, Rome 2016, p. 273 et seq. ), Transnational Commercial Law. 1 R. Goode, Commercial Law in the Next Millennium, Sweet & Maxwell, London 1998, pp. Of the various reasons commonly given, none is really convincing. dssid=2377&dsmid= 13621&x=1 (accessed 31 December 2017) (under issues no. (at p. 176). It is true that such reference is made in the context of paragraph 1302, laying down the principle of freedom of contract and not in the context of paragraph 1301, which deals with the parties right to choose the applicable law, with the consequence that a partys agreement to have its contract governed by the Unidroit Principles will be respected only to the extent that the Code grants parties the right to derogate from its provisions. ), Internationales Privatrecht, Zrich 1996, sub Art. Moreover, the Unidroit Principles expressly provide that parties may designate them to govern their contract and suggest choice of law clauses to that end (see the footnote to the Unidroit Principles Preamble and the Model Clauses for the Use of the Unidroit Principles of International Commercial Contracts). 31 P. Finn, The Unidroit Principles: An Australian Perspective, in Australian International Law Journal 2010, p.193 et seq. For a comment on this award see M.J. Bonell, A Global Arbitration Decided on the Basis of the Unidroit Principles, in Arbitration International 17 (2001), pp. Developing neutral legal standards for international contracts This understanding allows all parties to comprehend how the law will apply and interpret the contractual clauses. Examples of choice of law clauses include: Example 1: Oil & gas companies when working offshore. And yet, notwithstanding the continuing dominance of national laws, there exist market niches that the Unidroit Principles actually fill with considerable success. What is a Governing Law Clause? ; F. Dasser, Internationale Schiedsgerichte und lex mercatoria, Zrich 1989, p. 77 et seq. 3, cit., General Remarks, Comment 4. 63 See the relevant decisions at http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13621&x=1 (accessed 31 December 2017) (under issues nos. They may, for instance, provide for the issuance of variation orders by one party for acceptance by the other party (e.g. This book is about the advantages and the risks involved in the choice of law governing an international contract or other transaction, plus the accompanying choice of courts, in the fields of wholesale (non-consumer) financial, corporate, commercial, and insolvency lawbroadly business lawon a comparative basis. What does the governing law clause do? 56 See e.g. For an overview of the most significant decisions falling in this category with a brief indication of the legal issues respectively addressed, see M.J. Bonell, An International Restatement, cit. 57 See e.g., Art. With respect to some domestic laws, it may even be almost impossible to find out what solution they provide for the issue at stake because of the rudimentary character of the legal sources and the difficulty of accessing them. Failing to ensure that both tort and contract claims are governed by the same law creates the very uncertainty the agreement was designed to avoid. 71 See, also for further references M.J. Bonell, An International Restatement, cit., p. 228 et seq. pp. The limits of the traditional state law-centred conflict-of-laws approach, III. 25 The same endorsement was repeated in 2012 for the 2010 edition and is likely to be adopted also for the current 2016 edition. 24.1 A of the 2002 ICC Model Commercial Agency Contract; Art. ); D.P. Assuming that the parties have regulated their transaction in the contract with . Lisa Spagnolo, A Glimpse through the Kaleidoscope: Choices of Law and the CISG, Vindobona Journal of International Commerce Law and Arbitration 2009, p. 135 et seq. Abstract. In the sense that the Principles may be used as repertory of possible solution not in their entirety, but only provision by provision R. Michaels, The Unidroit Principles as Global Background Law, in Uniform Law Review 2014, p. 643 et seq. law governing international commercial contracts and the actual role of Hopt (eds. Joint ventures: choice of law and choosing the right dispute resolution 15 Suffice it to mention the numerous standard commodity contracts issued by the long established and prestigious London-based Grain and Feed Trade Association, the Federation of Oil, Seed and Fats Associations, the London Metal Exchange and the Refined Sugar Association, and so on. Furthermore, a reference to the possibility for parties to agree on the applicability of the Unidroit Principles is contained in the Official Comments to the United States Uniform Commercial Code. For a detailed analysis of this in many respects innovative legislation see J.A. 85 See the list of the relevant decisions at http://www.unilex.info/dynasite.cfm?dssid= 2377&dsmid= 13621&x=1 (accessed 31 December 2017). Following the example of the US Restatements of the Law, they are composed of black-letter rules (Articles ); in the current 2016 edition, a total of 211 articles divided into 11 chapterseach of which is accompanied by comments and by illustrations largely based on actual cases and intended to explain the reasons for the black-letter rule and the different ways in which it may operate in practice. 77 For more detailed references to the respective decisions see M.J. Bonell, An International Restatement, cit. ICC Model International Sale Contract; ICC International Franchising Contract; ICC Model Occasional Intermediary Contract; ICC Model Commercial Agency Contract; ICC Model Distributorship Contract (Sole Importer-Distributor); ICC Model Contract for the Turnkey Supply of and Industrial Plant. Introduction. Needless to say, the dichotomy between common law and civil law systems is also not strict in this context, given the considerable differences between, for example, the US and English contract law and, within the civil law systems, those between the Romanistic and German legal traditions. 28 See more in details M.J. Bonell, An International Restatement, cit., pp. 66566). Jurisdiction and choice of law clauses in international contracts Berger (ed. The first case concerned a contract between a Danish multinational company and a Brazilian company for the delivery of goods in Hong Kong. It will be applied to interpret the contract and its effects if a dispute arises, thereby reducing uncertainty for both parties. 20 See e.g. However, in a number of cases, the courts and arbitral tribunals have resorted to the Unidroit Principles in support of the adoption of one of several possible solutions under the applicable domestic law or in order to fill a veritable gap in the latter.87, Even more important, there are decisions, including decisions of courts of second and last instance, referring to the Unidroit Principles as a source of inspiration for openly revisiting the current law of their country. However, this power to choose an appropriate governing law and the jurisdiction requires careful consideration. 78 Cour de Cassation of Belgium, 19 September 2009 (English abstract and full text at http://www.unilex.info/case.cfm?id=1456 (accessed 31 December 2017). While most international uniform law instruments, be they of a legislative or non-legislative nature, are restricted to particular types of transaction (sales, leasing, carriage of goods by sea, road, or air, and so on) or to specific topics (delivery terms, modes of payment, and so on), the Principles provide a comprehensive set of principles and rules relating to international commercial contracts in general, comparable to thecodified or unwrittengeneral part of contract law found in domestic law. Perillo, Unidroit Principles of International Commercial Contracts: The Black Letter Text and a Review, in 43 Fordham Law Review (1994), p. 281 et seq. p. 53: [C]hoices of law and forum are primarily driven by factors other than the substantive merits of the respective regimes legal rules. 24.1 of the 2002 ICC Model Distributorship ContractSole ImporterDistributor; Art. Thus, of the 434 decisions of this kind collected in the UNILEX database,61 112 decisionsprecisely 16 court decisions, eight of which uphold arbitral awards applying the Unidroit Principles, and 96 arbitral awards, including nine ICSID awards relating to investment disputes between States and foreign private investorsapplied the Unidroit Principles as the rules of law governing the substance of the dispute. On the relevance that, in this context, is increasingly being given to the Unidroit Principles, see infra, pp. Choice of Law Clause: Meaning & Samples (2022) - Contract Lawyers And not in the second case because it would be up to the adjudicating body to determine in each given case what was the precise meaning of such vague formulas, with the result that the solution finally adopted would be rather unpredictable and, in most cases, rather arbitrary. The Unidroit Principles of International Commercial Contracts, 3rd ed. Indeed, in addition to the already highlighted role of the Principles as global background law,100 the Principles may also fulfil useful functions as lex contractus. Indeed, they cover a wide range of subjects such as freedom of contract, good faith and fair dealing and usages, as well as contract formation including contracting on the basis of standard terms, interpretation, validity including illegality, third party rights, conditions, performance, non-performance and remedies, set off, assignment of rights, limitation periods, plurality of obligors and of obligees, and so on. First published in 1994 and now in their fourth edition adopted in 2016, they have been welcomed from their first appearance as a significant step towards the globalisation of legal thinking.24 In formally endorsing the Unidroit Principles in 2004, the United Nations Commission on International Trade Law (UNCITRAL) congratulated Unidroit on having made a further contribution to the facilitation of international trade by preparing general rules for international commercial contracts and unanimously commended the use of the Unidroit Principles, as appropriate, for their intended purposes.25. When the seller refused restitution of the first payment, alleging its illegality because it was made in violation of the Venezuelan exchange regulations, the buyer filed a legal action, and the Court, in determining the law governing the substance of the dispute, again decided to disregard as a connecting factor the place of conclusion of the contract and, in application of the proximity principles and the most significant relationship rule, based its decision on the CISG and, with respect to matters outside the scope of the Conventionas was clearly the case of the alleged illegality of the first payment and the claim for restitutionon the Unidroit Principles.54, Yet, apart from these significant, but still isolated, cases of explicit recognition at the legislative level or by the judicature of the possible role of the Unidroit Principles as lex contractus, what ultimately matters, of course, is how often the Principles are actually chosen or applied as such in practice. 29798; M.J. Bonell, The Unidroit Principles and CISF: Sources of Inspiration for English Courts?, in Uniform Law Review 2006, p. 305 et seq. The traditional and still prevailing approach to nationalize cross-border transactions and to subject them to the law of a particular country as if they were purely domestic contracts, may be criticized for a number of reasons. 135 rev., January 2016 Annex 10. in an arbitration proceedings concerning highly sophisticated equipment and involving half a dozen jurisdictions, the parties, after lengthy discussions were unable to find out which of the competing domestic laws should prevail (i.e. For a complete list of domestic laws based on the Model Law, see http://www.uncitral.org/ uncitral/en/uncitral_texts/arbitration/1985Model_arbitration_status.html (accessed 31 December 2017). Juenger, The Lex Mercatoria and Private International Law, in Uniform Law Review 2002, p. 171 et seq. 27 So e.g. 5 So expressly Article 28(1) of the 1985 UNCITRAL Model Law on International Commercial Arbitration: for further details see infra at p. 11. When some years later a dispute arose the Arbitral Tribunal, noting that the voluminous Agreements, though drafted by legions of lawyers, did not provide a clear cut answer to the numerous intriguing legal questions that had to be decided, declared that it would apply general principles of law commonly accepted by the legal systems of most countries, and that to this effect it would have resort to the Unidroit Principles defined as a reliable source of international commercial law in international arbitration for they contain in essence a restatement of those principes directeurs that have enjoyed universal acceptance and, moreover, are at the heart of those most fundamental notions which have consistently been applied in arbitral practice. And so it did, basing its decision in a dispute worth billions of US dollars not on this or that other domestic law but on numerous provisions of the Unidroit Principles. 47 Cf. Regulation (EC) no. Governing law and jurisdiction clauses may ultimately change the way an international contract is interpreted and enforced (ie in line with the laws of a specific country or in accordance with the precedents by which a certain court is bound). On a different note, in an Official Explanatory Note of 2008, the High Commercial Court of Ukraine stated that the Unidroit Principles, like other documents such as the UCP and the Incoterms, enshrine the trade customs applied in Ukraine and are therefore applicable if they do not conflict with the terms of the contract or the mandatory provisions of Ukrainian law.
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