HARMONIZATION OF CONTRACT LAW PRINCIPLES THROUGH CHOICE OF LAW

HARMONIZATION OF CONTRACT LAW PRINCIPLES THROUGH

CHOICE OF LAW

Introduction

International business activities are based on the condition that no country can be

independent because they need each other. Each country has different characteristics, both

natural resources, climate, geography, demography, economic and social structure, etc. These

differences lead to differences in commodities produced, the composition of costs required,

the quality and quantity of products. The existence of interdependence is what causes

international business relations. Inter- business relations International business relations are

cross-border transactions involving two or more parties that cross national borders. The

greatness and glory of countries in the world cannot be separated from the success and

activities of these countries in international business relations. As one example, China's past

glory is inseparable from its trade policy famously known as the "Silk Route".

After the triumph of China, other countries such as Spain with its Spanish

Conquistadors, England with its British Empire and its first multinational company in the

world, ‛the East India Company', the Netherlands with its VOC, etc. followed. The triumphs

of these countries are inseparable from the government's policy to conduct international

business transactions.

The awareness to conduct international business transactions has also been realized by

traders in the country for a long time. Amanna Gappa, a Bugis chief who realized the

importance of trade. The excellence of the Bugis tribe in sailing using only small Bugis boats

has sailed the vast ocean to Malaya (now the territory of Singapore and Malaysia)4 .

The complexity of international business relationships or transactions is partly due to

the existence of technological services, especially information technology. Thus, business

transactions are increasingly taking place quickly. Even with the rapid pace of technology,

today's business people do not need to know or know who their business partners are. This

can be seen with the birth of transactions called e-commerce.

Today's business transactions are a new manifestation of the development of capitalism

as an international economic system. As in the past, to overcome the crisis, multinational

corporations seek new markets and maximize profits by exporting capital and reorganizing

production structures. In the 1950s, foreign investment concentrated on calling on natural

resources and raw materials for its factories. In the last thirty years, manufacturing companies

have spread all over the world. With the division of operating areas beyond national borders,

companies no longer produce all products in one country alone, management in various

continents, personnel assignments are no longer bound by language, national boundaries and

nationality. As a result, territorial boundaries are almost no longer a barrier for the

development of various human activities, both commercial and non-commercial. The

tendency to live in unity is a human instinct.

In the world society described above, the legal instrument of 'international treaties' has

become increasingly important. It is through international treaties that states, both those who

make agreements and those who participate later, can create new legal norms needed to

regulate relations between states and between communities.

However, in reality, the provisions of international treaties aimed at creating efficiency,

consistency, and coherence in the unification and harmonization of international trade law are

inadequate regarding electronic transactions, the provision of credit associated with standard

agreements in the implementation of bank functions as recipients and providers of funds. Due

to the demands of a dynamic and rapidly changing society, a model or reference is needed in

the development of international trade law, such as the right to choose and the applicable law

in an agreement (choice of law) which is expected to be able to become an instrument of legal

harmonization.

Problem Formulation

Starting from the reality of the world community, several things are interesting to study,

including :

 Is choice of law compatible with the principles of international business transactions?

 Can choice of law be used to harmonize different legal systems?

Discussion

Principles of International Treaty Law

The fundamental principles known in international trade law were introduced by

international trade law scholar Aleksander Goldstajn. He introduced 3 (three) such

fundamental principles, namely (1) the principles of the freedom of contract; (2) the principle

of pacta sun servanda; and (3) the principle of the use of arbitration.

Basic Principles of Freedom of Contract

The first principle, freedom of contract, is actually a universal principle in international treaty

law. Every system The law of treaties recognizes the freedom of these parties to enter into

(international) business contracts.

This freedom covers a fairly broad field of law. Namely, it includes the freedom to make the

types of contracts that the parties agree on, including the freedom to choose a forum for

resolving business disputes. As well as the freedom to choose the law that will apply to the

contract, etc.

 Basic Principles of Pacta Sunt Servanda

The second principle, Pacta Sunt Servanda, is a principle that requires that the agreement or

contract that has been signed must be implemented as well as possible (in good faith). This

principle is also universal. Every legal system in the world respects this principle.

 Basic Principles of Dispute Resolution Through Arbitration

The third principle, the use of arbitration, seems a bit odd. However, arbitration in

international trade is an increasingly common forum for dispute resolution. Arbitration

clauses are increasingly included in business contracts.

 Basic Principles of Freedom of Communication (Navigation)

In addition to the three basic principles above, another basic principle according to Huala

Adolf is a basic principle known in international economic law, namely the principle of

freedom to communicate (in a broad sense, including freedom of navigation).

Communication or navigation is the freedom of the parties to communicate for business

purposes with anyone through various means of navigation or communication, whether by

land, sea, air, or electronic means. This freedom is essential for the conduct of international

trade. The rules of (international) law facilitate this freedom.

Choice of Law in International Business Contracts

National legal rules in the field of international business are an important source of law

in international business law. However, there are various national legal rules that differ more

or less from one another. This difference is then feared will also affect the smoothness of the

business transaction itself.

To deal with this problem, there are actually 3 techniques that can be used:

 Countries agree not to apply their national laws. Instead they apply international trade

law to govern their trade law relationships.

 If the rules of international trade law do not exist and are not agreed upon by either

party, then the national law of a particular country may be used. The method of

determining the national law that will apply can be used through the application of the

principle of choice of laws. Choice of law is a choice of law clause agreed by the parties

as set out in the (international) contract they make. 6

 The technique is to unify and harmonize the substantive rules of international trade law.

This third technique is considered quite efficient. This method allows avoiding conflicts

between the legal systems adopted by each country.

As has been stated in the background of the problem that the reality of international

treaty provisions aimed at creating efficiency, consistency, and coherence in the unification

and harmonization of international contract law is inadequate associated with international

business activities, due to the demands of a dynamic and rapidly changing society, a model or

reference is needed in the development of international trade law, for example the right to

choose the applicable law in an agreement (choice of law) which is expected to be able to

become an instrument of legal harmonization.

Choice of Law in international treaty law is the freedom given to the parties to have

their own law that they want to use for their agreement.7 The benefits of choice of law are

satisfying the parties because they exercise their basic rights, providing certainty because it

allows the parties to easily determine the law and efficiency. This is very relevant to the

principle of freedom of contract or party autonomy.

The implementation of the autonomy of the parties in the field of International Civil

Law, the most famous is the aspect of choice of law.8 Where the parties are given the

freedom to determine for themselves which law they will use and determine which forum to

choose if in the future there is a dispute. Juridically, the choice of law can be done with the

existence of objective points of connection, such as citizenship (lex patriea), domicile (lex

domicilie), where the object is located (lex rei sitae), where the contract is carried out (loci

contractus), and so on. The choice of law clause is not mandatory in international contracts,

so that if the parties do not determine the choice of law and then a dispute occurs, the theory

of International Civil Law will apply, for example, lex locy contractus theory, mail box

theory, lex lecy, and so on solutions theory, the proper law of contract theory, the most

characteristic connections, and the lex mercatoria theory.

Harmonization of Law through Choice of Law

Harmonization in the field of law including contract law is one of the important

objectives in organizing legal relations. The main objective of legal harmonization seeks

uniformity or common ground of the fundamental principles of the various existing legal

systems (which will be harmonized). Finding common ground is not an easy task, as each

country has fundamental differences in terms of its historical, legal and cultural background.

The pluralism of countries' legal systems is one of the basic obstacles. As a result, efforts to

achieve legal harmonization are not easy.

To create legal relationships that are regulated by a country will be in line with its

application with the provisions that apply in other countries, it can be done by choice of law.

The existence of freedom to determine the law through choice of law is in accordance with

the principle of freedom of contract which is universally recognized by the legal system of

any country, so that it will be able to guarantee the flexibility and intensity of business

activities. This freedom of contract implies flexibility in determining the form, type, and

content of the agreement.

It is further explained that the principle of freedom of contract, which is one of the

pillars of the Law of Treaties, is a runway that is very conducive to facilitating the pace of

business activities. When there is an agreement to make a choice of law and sign a contract,

the principle of pacta sunt servanda applies. The contract contains promises that must be

fulfilled and the parties are bound to obey the contract. The binding force of the contract is as

binding as the law. This freedom of contract is not without limits, as long as the contract is

not in conflict with public order, legislation, and decency.

Likewise, in the choice of law, public order and propriety function to limit the freedom

of the parties to avoid legal smuggling.11 Public order is implemented by paying attention to

model trade laws such as provisions on Human Rights, Environmental Law, Banking Law,

PP on Franchising, while propriety is implemented that both parties must act with the

reasonable interests of the other party in mind. In addition, choice of law may be waived if

violate the fundamental policies of other countries that are of greater importance to the

underlying decision.

Against this limitation provision, choice of law can be waived if the chosen law has no

substantive relationship with the transaction and there is no sufficient reason for the parties'

choice of law, then the judge will determine which law applies.

This shows that the choice of law uses the principles of national contract law which are

also the principles of international contract law in an integrated and balanced manner, namely

the principle of consensualism, the principle of freedom of contract, the principle of the

binding force of the agreement as the main pillar supporting the building of the Law of

Treaties. Meanwhile, as a basis for the enactment of choice of law, it can be ruled out if it

violates the provisions which are restrictions on the enactment of the principle of good faith

in carrying out the agreement.

Indeed, it is not easy to harmonize contract law, especially since international law is

complex. However, the existence of the same principles alone is a success. The complexity of

problems in the era of globalization is a necessity to seek solutions. Solutions are intended at

least to avoid conflicts of interest. Or even if there is a conflict of interest, the consequences

that occur are sought to be minimized.

Conclusion

Closing the presentation as well as answering the above problems, here are two things

that the author wants to put forward:



Choice of law, which gives parties the right to determine the law applicable to their cost

transactions, fulfills the basic principles of international contract law.



The same principles of choice of law and contract law that are universally recognized in

state legal systems can be used to harmonize the law.