Hague Conference on Private International Law Adopts Choice of Law Principles | Practical Law

Hague Conference on Private International Law Adopts Choice of Law Principles | Practical Law

The Hague Conference on Private International Law has adopted Principles on Choice of Law in International Commercial Contracts (Principles). The non-binding Principles set forth general tenets and rules concerning choice of law agreements in international commercial contracts.

Hague Conference on Private International Law Adopts Choice of Law Principles

Practical Law Legal Update 7-611-4445 (Approx. 7 pages)

Hague Conference on Private International Law Adopts Choice of Law Principles

by Practical Law Commercial
Published on 05 May 2015 • USA (National/Federal)
The Hague Conference on Private International Law has adopted Principles on Choice of Law in International Commercial Contracts (Principles). The non-binding Principles set forth general tenets and rules concerning choice of law agreements in international commercial contracts.
On March 19, 2015 the Hague Conference on Private International Law, to which the US is a member, formally adopted the Principles on Choice of Law in International Commercial Contracts (Principles). According to the preamble, the Principles affirm party autonomy, subject to certain exceptions and courts and arbitration tribunals may apply the Principles if they find them persuasive. The Principles are expected to be generally influential, both in establishing the principle of party autonomy to select the law governing commercial contracts (including non-state rules) and in developing the principle and its limits.
Substantively, the non-binding Principles put forth precepts concerning choice of law in international commercial contracts, intended to harmonize international choice of law rules and are organized in the following twelve Articles:
  • Article 1: Scope. The Principles only affect private, international contracts, which are defined as agreements between two or more entities that were not established in the same country. The Principles do not impact consumer or individual employment contracts, or the law for any of the following subjects:
    • the personal capacity of natural persons;
    • arbitration and choice of forum agreements;
    • companies or other collective bodies and trusts;
    • insolvency;
    • the proprietary effects of contracts; and
    • whether an agent can bind a principal.
  • Article 2: Freedom of choice. The parties are free to choose any law to govern all or part of any agreement. No connection is required between the parties and the law they choose. The parties' choice can be modified at any time.
  • Article 3: Rules of law. It is acceptable for parties to choose a general, international or regionally-accepted rule of law, as opposed to the law of a specific jurisdiction, unless prohibited by the law of forum.
  • Article 4: Express and tacit choice. Express choice of law agreements are preferable to tacit understandings but tacit choices are also acceptable, if the parties' intent is clear from the contract's provisions or circumstances. Choice of law agreements are distinct from choice of forum agreements.
  • Article 5: Formal validity of the choice of law. There are no formal requirements to make a binding choice of law, unless the parties otherwise agree.
  • Article 6: Agreement on the choice of law and battle of the forms. In a battle of the forms scenario, where the parties use standard terms and designate different governing laws:
    • if the same standard terms prevail under both laws, the law designated by the prevailing terms governs the agreement; or
    • if different standard terms prevail or no standard terms prevail under one or both laws, there is no choice of law.
    For information on battle of the forms scenarios in the US, see Battle of the Forms Checklist.
  • Article 7: Severability. Choice of law agreements should be considered separate from the contracts to which those agreements or provisions refer. The parties' choice of law cannot be challenged solely on the grounds that the relevant contract is invalid.
  • Article 8: Exclusion of renvoi. In a conflict of law scenario renvoi, under which a forum court will consider and apply another forum's conflict of law rules, is excluded, unless the parties otherwise agree. For information on conflicts of law in the US, see Practice Note, Conflict of Laws in Contracts under the Uniform Commercial Code and the Restatement.
  • Article 9: Scope of the chosen law. The law chosen by the parties governs all aspects of the parties' contract, unless they expressly agree to the contrary.
  • Article 10: Assignment. If the parties to an assignment contract have agreed to a governing law, the law chosen governs the mutual rights and obligations of the creditor and the assignee arising from the contract. If the parties to a contract between the debtor and creditor have agreed to a governing law, the law chosen governs:
    • whether the assignment can be invoked against the debtor;
    • the rights of the assignee against the debtor; and
    • whether the obligations of the debtor have been discharged.
  • Article 11: Overriding mandatory rules and public policy. The Principles are subject to the following rules concerning public policy and mandatory rules:
    • the Principles shall not prevent a forum court from applying mandatory laws of the forum that apply regardless of the law agreed to by the parties;
    • the law of the forum determines when a court may or must apply mandatory provisions of foreign law;
    • a court can only reject a provision of law chosen by the parties if and to the degree that its application would be manifestly incompatible with the forum's fundamental notions of public policy;
    • the forum's law determines whether a court may or must apply a country's public policy, the law of which would apply if the parties did not make a choice of law; and
    • the Principles shall not prevent a court or other tribunal from applying public policy or from taking account of mandatory provisions of a law that the parties did not choose, if the court is required or entitled to do so.
  • Article 12: Establishment. Parties that have more than one country of establishment are considered established in the country that has the closest relationship with the contract.
For information on choice of law and forum in the US and between US parties, see Practice Note, Choice of Law and Choice of Forum: Key Issues. For a sample choice of law clause to be used in an US agreement between US-domiciled parties, see Standard Clause, General Contract Clauses: Choice of Law. For information on conflicts of law under the Uniform Commercial Code and Restatement (Second) of Contracts, see Practice Note, Conflict of Laws in Contracts under the Uniform Commercial Code and the Restatement.