An Analysis Of The Concept Of Choice Of Law In Private International Law: Its Implication On International Contracts

By Oyetola Muyiwa Atoyebi, SAN

INTRODUCTION

Every sovereign state exists with varying applicable substantive and procedural laws which govern its contractual transactions within and outside the state. So, the concept of choice of law in international law which involves conflicting laws administered under different judicial systems has led to sovereign states adopting peculiar procedural laws when faced with it. This conflict is not only evident in the determination of the court with jurisdiction but also extends to the law to be applied by the court and the enforcement of the resultant decision of the court.

MEANING OF CHOICE OF LAW IN CONTRACT

The choice of law in a contract is the provision that allows parties to a contract to agree that a particular country’s laws will be used to interpret the contract, even if the contract was executed in a different country.

Furthermore, this Choice of law clause is evident in cross-border contracts and the primary purpose of such clause is to have a prima facie agreement and avoid uncertainty over the law that would govern any disputes that may arise out of the relationship created by the contract.[1]

CHOICE OF LAW IN PRIVATE INTERNATIONAL CONTRACT

Due to the different state laws that parties are subject to, a dispute arising from international contracts gives rise to conflict of law. Premised on this, parties who wish to enter into cross-border contracts are usually advised to include a choice of law clause in their contract or an independent choice of law agreement, and the effect of a choice of law clause or agreement is to prevent a conflict of law in the event that a dispute arises from the contract. It also lends a sense of ease to the parties as it affords parties the privilege of choosing a law best suited to their collective interest.

FEATURES OF CHOICE OF LAW IN INTERNATIONAL CONTRACTS

1. The choice of law clause or agreement connotes the “principle of freedom of contract” or “sanctity of contract” which provides that the agreement of parties shall be respected and given force to and the court shall have respect for the agreement of parties to a contract provided it does not contravene legal standards.
2. The choice of law clause or agreement is the universal principle of autonomy recognized in over 150 countries. This principle provides that parties to contracts that are multinational in nature shall be allowed to agree, at the point of the creation of the contract, the state law that shall guide the contract. This discretion must however be applied within the acceptable boundaries and limitations.
3. Choice of law agreement provides clarity on the legal steps available to the parties based on the applicable law that is agreed upon by contracting parties. Where parties fail to include the choice of law clause or agreement in an international contract, the court shall decide the law to be applied subject to these theories[2].
4. The Lex Loci Contractus theory: This theory provides that where there is a conflict of law, the principle that should guide the court is the law under which this contract was made. This has been highly criticized by scholars who argue that the criteria of the law under which a contract is made can be difficult to ascertain and the obtainable practice of e-contracts has further complicated the application of this theory.[3]
5. The Lex Loci Solutionist Theory: This theory prioritizes the place where the contract was executed. This theory is rife with several loopholes as contracts can be executed across states, executed in counterparts, or even electronically with e-signature. Determining the state where a multi-state contract was executed might prove just as demanding as determining the choice of law itself.
6. The Teori Lex Fori theory: This theory argues that the law that ought to be applicable where parties fail to agree prior to the dispute is the law of the court where the case is instituted. This has the added advantage of the ease of dispensation of the rules that the court is familiar with and eliminates the rigour of determination of applicable law.
7. The proper law of Contract theory: this is a supplementary theory that provides that the court should examine the contract and match it with the best law available that protects the core of the contract. This theory is highly problematic as it leads the court on a voyage of discovery, placing the onus of analysis on the court and further burdening the court with the duty of comparing likely legal options.

SCOPE AND LIMITATION OF CHOICE OF LAW

As earlier stated, choice of law is subject to limitations in various jurisdictions, some codified, and others customary, with some jurisdictions totally excluding certain forms of contract from the purview of choice of law.

Uruguay a South American country is an example of a country that fully exempts certain contracts such as contracts concerning immovable property situated within its borders. The Swiss rules also provide that contracts involving consumers must be governed by the law of “residence of the consumer” in order to protect unsuspecting consumers from misinformed choices.

Furthermore, service contracts are also precluded from the scope of choice of law in countries such as China, Tunisia, and Oregon. It is worth noting that the reason for these exclusions is to protect the most vulnerable party in the contract. For instance, the limitation to employment contracts in Uruguay allows for the employee and not the employer to choose the applicable law between the place of employment or residence. The Quebec Codification in Article 3119 also provides that insurance contracts must be governed by Quebec laws to protect the insured.

One major elementary exemption from the concept of choice of law worthy of mention is “Capacity” which in Several conventions including the 1955 Hague Sales Convention, the Hague Agency Convention, the Hague Contracts Principles, and the Mexico City Convention exempt parties from choosing applicable law regarding capacity or invalidity of a contract due to incapacity meaning that parties that lack the capacity to a contract in their state of residence cannot vest capacity on themselves by opting for another law.

CONCLUSION

In practice, the effect of choice of law is usually that a court might have to be subjected to apply judiciously, the substantive rule of another country. However, courts in their specific jurisdictions are still largely allowed to employ their procedural rules irrespective of the substantive law applicable.

SNIPPET:

The choice of law in a contract is the provision that allows parties to a contract to agree that a particular country’s laws will be used to interpret the contract.

KEYWORDS: Choice of law, Party autonomy, international contracts, Conflict of law.

AUTHOR: Oyetola Muyiwa Atoyebi, SAN

Mr Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).

Mr. Atoyebi has expertise in and a broad knowledge of Law Practice and this has seen him advise and represent his vast clientele in a myriad of high-level transactions.  He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.

He can be reached via atoyebi@omaplex.com.ng

CONTRIBUTOR: Pwaveno B. Ditto

Pwaveno is a member of the Dispute Resolution Team at OMAPLEX Law Firm. She also holds a commendable legal expertise in Law Practice.

She can be reached via  pwaveno.ditto@omaplex.com.ng

[1] Tochukwu Martins Itumo “Nigeria: Analysing Nigeria’s Choice of Law Regime for Cross-Border Contracts”

[2] Franco Ferrari & Fernández Arroyo (eds.): “The Continuing Relevance of Private International Law and New Challenges” (forthcoming 2019). , Available at SSRN: https://ssrn.com/abstract=3359988  accessed on 14^th June, 202

[3] Sopamena, Ronald. (2022). Choice of Law in International Business Contracts. Balobe Law Journal. 2. 45. 10.47268/balobe.v2i2.1062.