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 law Arbitration 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 law Courts 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 …