International Contracts and Conflict of Laws

International Contracts

• An international contract exists if a contract involves more than one state.
• This can be evidenced by parties from different nations or foreign elements in the contract (regardless of nationality).
• Examples of foreign elements include parties being located in different countries, or the contract requiring actions to be performed abroad.
• Multiple countries involved often mean various legal systems apply, hence a conflict of laws scenario.

Conflict of Laws

• Each state has its own set of rules to govern contracts with foreign elements.
• Private International Law provides procedural rules to determine the applicable law.
• International Civil Procedural Law is used to handle legal matters like jurisdiction and enforcement of foreign rulings.

Connecting Factors

• Key factors relevant to determining applicable law in an international contract include:
  • Citizenship/nationality
  • Domicile/habitual residence
  • Contract formation location
  • Contract execution location
  • Location of contract subject matter
  • Currency of payment
  • Payment location

National/International Substantive Rules

• National rules may apply, regardless of the international nature of the contract.
• International agreements (like the Vienna Convention on the International Sale of Goods) can dictate the use of international rules.

Closest Connection Rule

• Preferably, international contracts are governed by the legal system of the country with the closest connection to the contract.
• In the absence of party choice, the judge considers where the contract-bound party resides.

Parties' Autonomy

• Parties have the autonomy to agree on the governing law of the contract.
• This includes deciding which court will handle disputes arising from the contract.
• Parties may specify default rules of law (governing law), which cover gaps in their agreement

Choice of Law

• Choices of applicable law can be explicit or implied in a contract.
• Explicit choices are clearly stated in the contract.
• Implied choices can be inferred from contract wording and/or other related circumstances (e.g., currency used).

Freedom of Choice

• Parties have broad freedom of choice regarding contract governance.
• There are no broad restrictions based on nationality or geography of the parties.
• Choices can be made on an entire contract or section-by-section (depecage).
• However, choices are potentially limited by mandatory rules and public policy.

Lex Mercatoria

• Lex Mercatoria are rules developed by the international business community, encompassing custom, practice, and legal principles.
• UNIDROIT Principles of International Commercial Contracts, developed by UNIDROIT (International Institute for the Unification of Private Law) are sets of rules. They are directly applicable if parties choose or as gap fillers.

Aim and Model for National Legislation

• The aim is to develop consistent principles globally.
• These rules are meant to be applicable in various political and economic contexts.
• The aim is also to potentially improve domestic national legislation regarding international contracts.

Mandatory Rules and Public Policy

• Restrictions may exist (mandatories rules) which limit parties' contractual freedom.
• These reflect public interest issues (e.g., import/export restrictions, tax rules, antitrust law).
• Fundamental values within a nation's law system should not be impacted or altered by foreign laws.