INTRODUCTION INTERNATIONAL COMMERCIAL LAW

INTRODUCTION INTERNATIONAL

COMMERCIAL LAW

Due to transactions or private relationships across borders or

territories, national courts are usually faced with disputes that involve

making a decision based on the law of another country. Therefore,

apart from national laws that deal with crime, tort and commerce,

countries have developed a system of law that decides disputes which

involve a foreign law. This is called private international law or

conflict of laws. Private international law is a branch of law that deals

with cases involving a foreign element. Foreign element means that an

event or transaction before the court has close connections with a

foreign system of law which necessitates the court’s recourse to that

system of law. A foreign system of law is “a distinctive legal system

prevailing in a territory other than that in which the court functions.4”

Private international law is not a distinct branch of law, like

contract or tort, but an all-pervading branch of law. It has been noted

that It [private international law] starts up unexpectedly in any court

and in the midst of any process. It may be sprung like a case in a plain

common law action, in an administrative proceeding in equity, or like

a mine in a divorce case, or a bankruptcy case… The most trivial

action of debt, the most complex case of equitable claims, may be

suddenly interrupted by the appearance of a knot to be untied only by

Private International Law.

Owing to its all-pervading nature, one of the aims of conflict of

laws is to achieve uniform judicial decisions in legal disputes,

regardless of the jurisdiction where litigation takes place. This is to

promote transnational trade between persons from different

jurisdictions or legal systems. Thus, if disputes are resolved by

common criteria in different legal systems of the world, parties are

certain of the consequences of their legal relations in international

trade, and by these they are encouraged to make international

contracts.

However, despite efforts by scholars, international instruments

and conferences, the goal of uniformity has been elusive over the

years, especially on the scope of party autonomy, which is the freedom

of parties to choose their contractual governing law. This thesis

examines these efforts, especially the introduction of the new soft law

by the Hague Conference in 2015 – Principles on Choice of Law in

International Commercial Contracts. The thesis argues that despite the

introduction of this instrument, the scope of party autonomy may still

remain globally divergent because the Principles do not take into

consideration national interests, especially those of developing

countries in Africa and Latin America. It argues that the

history/development of party autonomy, as well as factors bordering

on inequality of bargaining power and state regulation of contracts in

these regions (Africa and Latin America), may still account for the

divergence in the scope of party autonomy. It, therefore, suggests ways

that the Principles may be interpreted/ recalibrated/ revised to achieve

uniformity and certainty of the scope of party autonomy in most of the

jurisdictions of the world.

This thesis deliberately uses the phrase “in most jurisdictions”

because it acknowledges that it may be an overstatement to talk of a

“global” scope of party autonomy. This is because the sovereignty of

each country dictates its political, economic and social approach to

party autonomy in handling international contracts disputes. However,

we must not neglect to seek uniformity by accommodating the core

interests of countries in relevant provisions in applicable international

instruments. Indeed, Kamba agrees that “it is now readily conceded

that unification at the international level is only feasible and desirable

in more limited spheres of law such as: commercial law, maritime law,

conflict of laws, and in new areas such as space law, broadcasting law

and atomic law.” To this extent, reference to “uniformity” in this thesis

relates to substantial uniformity and not necessarily a globalized one.

Scope of the Thesis/ Statement of Limitation

Generally, discussions on conflict of laws focus on three issues: choice

of law, choice of jurisdiction and enforcement of foreign judgments.

Considering the broad scope of these issues, this thesis is limited to

discussions on choice of law. Furthermore, discussions of choice of

law can be divided into: choice of law in contractual relationships, and

choice of law in non-contractual relationships.15 Also, there are two

types of contracts: contracts executed between parties within the same

jurisdiction – domestic contracts; and contracts executed where at least

one party resides or carries out business outside jurisdiction –

international contracts. Relying on these classifications, this thesis is

concerned with the choice of law in contractual relationships, that is,

international commercial contracts.

Discussion of choice of law is also limited in this thesis.

Although there are various choice of law rules, this thesis focuses on

party autonomy or express intention rule which allows parties to

choose the governing law in international contracts. Although this

thesis examines some other choice of law rules, including the law of

the place of contracting (lex loci contractus), law of the place of

performance (lex loci solutionis), law of the place that validates the

contract (lex validitatis), and the law of the place of domicile (lex

domicilii), it only does so “comparatively” with the party autonomy

rule. While discussions on other choice of law rules are by no means

comprehensive, they are enough to show that their application,

sometimes, results in uncertainty and absurdity. Also, due to the time

and space constraint of this thesis, party autonomy only refers to cases

where parties have, either through a choice of law clause or an

independent choice of law agreement, expressly stated the governing

law of their contract – express choice of law; and not cases where

courts infer or imply the choice of law from contracts terms or the

surrounding circumstances of the contract – implied choice of law.

Finally, although this thesis seeks to examine efforts via regional

instruments to unify the scope of party autonomy, the examination is

by no means exhaustive. It does not go into the details of the

provisions of these instruments; it only generally examines their

weaknesses as a justification for the enactment of a new soft law. It

particularly argues that the limited contribution of these instruments to

universal recognition and application of the scope of party autonomy

necessitated the emergence of a new instrument to serve as a model

law for adoption, not only in national conflict of laws statutes, but in

regional choice of law instruments.

Purpose and Rationale of the Study

It has been noted that transnational trade or commerce is inevitable in

the world today. Transnational commerce has, therefore, generated

transnational disputes which national courts must settle. Given the role

of private international law in helping national courts to resolve

disputes that are connected to a foreign system of law, there is a need

to ensure that private international law encourages uniform

transnational judicial decisions. As explained above, this ensures

certainty of contractual relations for international parties on choice of

law. Party autonomy, arguably the most acceptable conflict of law

rule, is a way of ensuring such uniformity. This is because a “universal

acceptance” of the scope of the principle will promote transnational

commerce because contractual parties will be sure of their legal

choices, especially on issues relating to the choice of the governing

law. This way, the reasonable expectations of parties are protected.

Consequently, litigation costs arising from prolonged disputes over

choice of law is eliminated since parties know the scope of the

governing law.

This thesis, therefore, examines party autonomy and some

provisions of the soft law instrument that seeks to propose global

uniform provisions for countries and regional legislative bodies. It

suggests better ways to achieve certainty and uniformity through these

provisions in order to boost transnational trade and commerce.

Literature Review

Generally, there has been no agreement on choice of law issues,

especially on the application and scope of party autonomy. Kermit

Roosevelt III remarked that “choice of law is a mess. That much has

become a truism. It is a dismal swamp, a morass of confusion, a body

of doctrine killed by a realism intended to save it, and now universally

said to be a disaster.” Rodriguez also notes that “as an unfortunate

legacy of developments that unfolded during the nineteenth century,

choice of law in international contracts has become chaotic,

characterized by conflicting solutions around the world.” Party

autonomy, as a choice of law rule, has not been excluded from this

chaos; its application and scope have been wrapped in one controversy

or the other. For example, early writers like Beale argue that the

doctrine usurps state powers and should be neglected. Other writers

like Mancini argue that it is the best expression of the will of the

parties. Cheshire takes a middle position: he argues that, although

parties can choose the governing law, the validity of their contract is

outside the scope of the party’s will.

However, most modern writers now acknowledge the

importance of party autonomy. Nygh says, “[t]oday the freedom of the

parties to an international contract to choose the applicable law and its

corollary, to choose the forum, judicial or arbitral, for the settlement of

their disputes arising out of such contract is almost universally

acknowledged.” Party autonomy has been described as “perhaps the

most widely accepted private international rule of our time,” “leading

principles of contemporary choice of law,” “a fundamental human

right,” and “a proverbial motherhood and apple pie.”

Mathias Lehmann asks why party autonomy continues to gain

recognition in different jurisdictions. He observed that state-recognised

legislation could not be used to explain the growing influence of party

autonomy. To him, party autonomy must be viewed from the

perspective of contracting parties, who are at the centre of negotiation,

and not the state. Giesela Rühl comparatively studied convergence of

the scope of party autonomy in the United States and Europe. He

points out that, if viewed from an economic perspective, there is

convergence between the scope of party autonomy in Europe and the

United States of America. However, Symeonides, who examined

various limitations of party autonomy in different jurisdictions, noted

that varying factors affect the scope of party autonomy in most

jurisdictions and that wide divergence still exists. Felix Maultzsch also

examined the general scope of party autonomy in European

international instruments. He agrees with Symeonides that there is a

varying scope. Helena Carlquist reviewed some of the rules for

determining the scope of party autonomy and argued that the closest

connection test is the best rule.38 However, she also agrees that there is

no universal rule for determining the scope of party autonomy.

Commentators have also examined various regional instruments

that seek to unify the scope of party autonomy. For example, Francisco

Alférez examined provisions of the Rome 1 Regulation and argued that

its provisions are inadequate because: it does not lay down a uniform

and consistent regime of international contracts; it does not solve the

problems of interaction between the Rome I Regulation and the

unilateral conflict rules contained in some Directives on consumer

contracts; and it does not determine the law applicable to the property

effects of the assignments of credits.40 Friedrich K. Juenger also

compared the provisions of the Inter-American Convention on the Law

Applicable to International Contracts 1994 (Mexico Convention) with

other regional instruments.41 He highlighted the improvements in the

Convention against the backdrop of the existing instrument

(Convention on the Law Applicable to Contractual Obligations, with

Protocol, and Joint Declaration – Rome Convention).42 Despite these

improvements, Maria Mercedes Albornoz pointed out that the Mexico

Convention is “a categorical failure of an international treaty” because

of the low signatures that it commands.43 The Hague Conference’s

introduction of the Principles to provide uniform provisions on the

scope of party autonomy has been welcomed by scholars.44 However,

this instrument, especially the provision for the application of non-state

law, has generated controversies among scholars. For example, Ralf

Michaels45 and Andrew Dickinson46 argue that the provision of non-

state law is problematic and unnecessary in the Principles, but

This thesis contextualizes these scholars’ views to unravel the

controversy surrounding the doctrine of party autonomy and, more

importantly, to provide another perspective to the argument – that the

application of party autonomy and its scope is determined by

historical, colonial, economic, and religious factors. It uses this as a

background to examine the new Hague Conference’s Principles and to

argue that the Hague Conference may have neglected these factors in

some of the Principles’ provisions. To this end, it examines the likely

reactions of states, particularly developing ones, to some of the

Principles’ provisions, and proposes better ways to persuade countries

to adopt the Principles.

Research Questions

This thesis asks why there is an existing differing scope of party

autonomy and why the recent Hague Conference’s legislative effort

(Principles) may not signify a new dawn in the global application of

the scope of party autonomy. Indeed, Yntema accepts that the scope of

party autonomy “deserve[s] further and intensive comparative

investigation.” This thesis answers this call, and recommends better

ways to unify the scope of party autonomy, especially within the new

instrument on the subject. To answer these research questions in light

of its aim, this thesis employs some relevant research methodologies.

Research Methodologies

Historical Method

It has been noted that “what [historians] do … is a commitment to

conscious and careful scrutiny of the past.” In order to understand the

basis of the doctrine of party autonomy as contained in national

statutes, cases, and international instruments, it is necessary to examine

the history of party autonomy. This is in line with Danzig’s opinion

that doctrines must be understood in the light of their historical

developments. It is also pertinent to examine the history of party

autonomy in this thesis because “a page of history may illuminate

more than a book of logic.” Thus, the legal history of party autonomy

is important because it tells us not just the source of party autonomy,

but its development in various countries over the years. It also allows

us to reflect on the treatment of party autonomy in the past and to see

whether we could treat it differently presently, especially as it relates

to the scope of party autonomy proposed in the Principles. This thesis

relies more on “external” legal history than on “internal” legal history.

Gordon succinctly described these concepts as follows:

The internal legal historian stays as much as

possible within the box of distinctive-appearing

legal things; his sources are legal, and so are the

basic matters he wants to describe or explain,

such as changes in pleading rules, in the

jurisdiction of a court, the texts assigned to

beginning law students, or the doctrine of

contributory negligence. The external historian

writes about the interaction between the boxful of

legal things and the wider society of which they

are a part, in particular to explore the social

context of law and its social effects, and he is

usually looking for conclusions about those

effects.

The external history of party autonomy shows the social and

economic effects on the growth of the doctrine. As Gordon remarked,

this thesis draws inferences from this history to argue that the social

and economic influences on the doctrine in different countries

accounts for the varied scope of party autonomy in international

contracts.

However, the historical method utilized in this thesis is different

from an indepth historical account that only “historians” may lay claim

to. My foray into the historical method utilizes an approach which

Brown called “progressive evolutionary functionalism.” The basic

idea of this approach is that law develops with society. To this extent,

this thesis seeks to show that before the 19th century, party autonomy

was not recognized or established in most countries but because of the

increase in transnational contracts, especially from the 19th century

onwards, there was need for countries (society) to accept or recognize

party autonomy. This is because the doctrine ensures certainty in

transnational transactions, especially as it relates to choice of law. In

order words, the need for smooth economic interactions accounted for

the development of the doctrine. However, due to social and economic

factors, not all countries recognized party autonomy during this period.

Also, this thesis shows, through this approach, that despite wide

acceptance of the doctrine, countries developed various methods for

limiting its scope because, as the doctrine grew, they realized that

parties may “manipulate” the doctrine to evade the mandatory laws of

a state or to gain economic advantage over one another. This historical

account shows that the growth of the doctrine was limited differently

by countries. Under this account, national statutes and case law from

some countries are examined to show the development of various

limitations. Different countries’ criteria on the scope of the doctrine

create uncertainty in choice of law in international contracts. In

response to this uncertainty, regional legislative bodies proposed some

provisions through Conventions that seek common criteria for

determining the scope of the doctrine. It is the aim of these

Conventions in ensuring uniformity of the scope of party autonomy

against which this thesis assesses the new instrument on the subject –

the Principles.

From the standpoint of this historical account of the doctrine,

this thesis shows that the doctrine developed from a need for economic

efficiency and, since then, it has grown with society in different

jurisdictions. Generally, the aim of using the historical method is to

speak to such matters as: (1) that the historical development of the

principle, which differs from country to country, accounts for the

divergence in its scope; (2) that the Hague Conference’s reaction

through its uniformity-inducing formulations or suggestions via the

Principles may not be enough to secure the much-desired uniformity.

This is because the history/development of the party autonomy

doctrine in most countries is neglected in the attempt to secure a

uniform scope for the doctrine.

Doctrinal Research

Doctrinal research is described as the analysis of a legal principle or

doctrine through texts, cases, and legislation which usually result in

suggesting better ways of treating an established principle. Due to the

type of analytical process that this doctrinal method requires, it is

described as a “black letter law” method. This thesis analyzes the

decisions of national courts, especially in relation to international

commercial contracts. The exercise relies on case law and the statutes

of some jurisdictions, to show that national courts have differently

interpreted national private international rules which limit the scope of

party autonomy in international commercial contracts. While some

have liberally interpreted the statutes, others employ a strict

interpretation.

On another level, this thesis, through the “black letter law”

approach, analyzes some provisions of some regional instruments and,

more importantly, the new soft law – Principles. The analysis seeks to

show that, apart from the regional instruments, the Principles may not

yet yield a uniform scope for party autonomy by any acceptable

convergence of the rules set out by national statutes and case law. In

effect, this thesis argues that the Principles may still not provide the

needed convergence if some pivotal national interests and

interpretational issues are reconsidered. Thus, it recommends an

amendment of the Principles to accommodate the issues raised in this

thesis.

Theory as Method

Theories explain the underpinnings or rationale of an event, a doctrine

or legal rule. They usually seek to answer/respond to “why” in this

quest. It is noted that through theoretical exercises, “reality is

described, ordered and created.” In effect, theory, adds meaning to life.

Party autonomy is enmeshed in the world of theories. For

example, scholars who argued against the recognition of party

autonomy is based on the positive theory of law – a theory which

proposes that law is “given’ by the State.67

Those scholars who argue for the recognition of party autonomy

are based on the liberal theory of law – one that “recognizes and

respects the power of individuals to effect changes in their legal

relations.” Even after the “triumph” of party autonomy, scholars

continue to advance theories on why party autonomy should be limited

and the extent of such limitation. For example, the local law theory

propounded by Walter Wheeler Cook, a conflict of law scholar, states

that a country or state should only apply its local law and never a

foreign law in the determination of cases before it. As such, if the local

law does not recognize party autonomy, reference cannot be made to

the foreign law to recognize party autonomy. Ruhl also explains that

an economic theory justifies the scope of party autonomy in

international commercial contracts. This theory says that due to the

inequality of bargaining power between contracting parties – an

economic factor – a state must regulate the scope of party autonomy in

order to achieve fairness among contracting parties. According to her,

“limitations to party autonomy, especially those in consumer,

insurance and employment contracts, can be explained by the presence

of market failure, most importantly opportunistic behaviour and

information asymmetry.”

This thesis does not engage in the debate as to the merit of these

theories. It only contextualizes them for advancing the argument that

these theories account for reasons why countries treat the scope of

party autonomy differently. Thus, this thesis seeks to critically “think

about theories” on the scope of party autonomy. This is what Richard

Devlin calls an “explicit”, as opposed to an “implicit” level of theory.

The discussion on these theories answers a critical question in this

thesis: why do countries limit the scope of party autonomy in the way

they do? This gives a complete understanding of the statutes and cases

that this thesis analyzes via a doctrinal method.

Comparative Methodology

Comparative research involves the systematic comparison of two or

more legal systems (macro comparison) or parts, branches and aspects

of two or more legal systems (micro comparison). Therefore, it is the

“systematic application of comparison to law.” It has been noted that

“the Conflict of laws has long relied on the comparative method as a

natural ally.” However, there is controversy on the extent of the

contribution of legal comparative scholarship to law reform or legal

theory. For example, a writer claimed that:

it is fair to say that comparative law has been a

somewhat disappointing field. For the most part,

it has consisted of showing that a certain

procedural or substantive law of one country is

similar to or different from that of another.

Having made this showing, no one knows quite

what to do next.77

But Konrad Zweigert and Hein Kötz contend that comparative

law “does not merely provide a reservoir of different solutions; it

offers the scholar of critical capacity the opportunity of finding the

"better solution" for his time and place.” Zweigert and Kötz’s position

can be analogized thus: a society is like a train, with the law as the

engine. The comparatist is a mechanic whose job is finding the parts

that will make the engine run more smoothly.79

From this analogy, it can be deduced that the former argument

ignored the function of making the society run “smoothly” that the

latter argument presents. In other words, the former argument looks at

comparative scholarship from a “dry” perspective with no practical

function in society, while the latter views it as a practically oriented

exercise which seeks to answer a particular legal issue. Thus, while the

former argument sees comparative scholarship as an end, the latter

sees it as a means to an end.

Indeed, the comparative method has been used over the years by

scholars to achieve various objectives/functions. It has been used to:

(1) achieve comparability between two or more systems, (2) emphasize

or show similarities among legal systems, (3) build a particular system

of law by formalizing various systems of law, (4) determine a better

system of law by evaluating two or more systems, (5) prepare legal

unification by universalizing a particular rule, (6) provide tools for the

critique of a law, and (7) understand a legal rule or institution.

This thesis exhibits three functions of comparative law as

highlighted above. First, to understand the development of party

autonomy in different jurisdictions, it uses a comparative historical

method (function 7). This helps to contextualize party autonomy as

one of the most important conflict of laws rules developed over the

years in most countries. This comparative function works with the

historical method discussed above. Through these methods (historical

and comparative), the legal rule or doctrine of party autonomy is

explicated for better understanding.

Secondly, a comparative analysis of the development of party

autonomy and the various limitations developed by countries will be a

tool to critique the international instruments which seek to unify the

scope of party autonomy, especially the Principles (function 6). As

opposed to showing similarities between laws (function 2), this thesis

seeks to show countries’ divergence in the treatment of the scope of

party autonomy, which they do for different reasons, including public

policy and protection of national interests.81 This helps to advance the

criticism that the Principles did not consider the peculiar

development/history of party autonomy in some countries. It explains

why some countries, especially the developing ones, may not find

reason to incorporate the provisions of the Principles into their

national statutes. As a result, lack of uniformity in the scope of party

autonomy may persist.

Finally, the comparative method utilized in this thesis takes an

evaluative form (function 5). In this manner, it evaluates the national

statutes and cases on whether disputes relating to the scope of party

autonomy are treated uniformly. It should be noted that this

comparative analysis is not to show that a country has a better system

of law (function 4), but to show the differences between countries’

emphases regarding the elements of the principle, a state of affairs

which makes it difficult to achieve a uniform scope of party autonomy

around the world.

Apart from jurisdictional evaluation, this thesis engages in

legislative evaluation. It examines various regional attempts to codify

party autonomy in response to the jurisdictional variation in its scope.

The aim of this examination is to show why, most likely, they have all

failed to achieve a uniform application of the scope of party autonomy.

The result of both evaluations (jurisdictional and legislative) is to

establish a basis upon which to propose a better unification system or

procedure to define and frame the scope of party autonomy in the new

international soft private international law – Principles.

1.6.5. Interdisciplinary Method

It has been noted that interdisciplinary research “combines components

of two or more disciplines in the search or creation of new knowledge,

operations, or artistic expressions.” This thesis does not boast of

“creating new knowledge” through an interdisciplinary method.

Rather, it draws on the existing knowledge from interdisciplinary

scholarship on party autonomy to drive home the point that the scope

of party autonomy has been limited because of the interconnectivity of

law with other disciplines. For example, knowledge of the relationship

between law and economics is one of the factors that determine the

scope of party autonomy in most countries. This is not limited to

employment, adhesive, and consumer contracts, but to international

contracts generally. This is because some persons are economically

weak and need state protection to ensure equal bargaining power when

they enter into an international contract. In effect, it is generally

believed that some parties may be “forced” to agree to any term

proposed by the other, including a clause on choice of law. This thesis

points out that the list of contracts which requires regulation because

of economic reasons differ from state to state – a factor that the Hague

Conference neglected in the drafting of the Principles.

Also, this thesis examines the relationship between law and

history. The result of this analysis advances the argument that the

history of party autonomy in the four different regions examined in

this thesis accounts for the varied scope of the doctrine. Without taking

into consideration this relationship, it is impossible for the new Hague

Principles to propose provisions that seek to globally unify the scope

of the doctrine. In effect, this interdisciplinary approach accounts for

reasons why it may not yet be a new dawn in the achievement of a

global uniform scope of party autonomy. Again, it should be noted that

this thesis does not lay claim to “do history” as historians do; it only

attempts to treat the available texts and documents in a progressive

evolutionary manner as discussed above.

1.7. Structure of the Thesis

The substance of the material and argument of this thesis follows in

Chapters 2 to 6. Chapter 2 uncovers the meaning, history, and

arguments for and against party autonomy. It defines party autonomy

in the light of its relevance to international commerce. Apart from the

general English jurisprudence on freedom of contract, and its

Hellenistic history, chapter 2 traces the history and development of

party autonomy from four different regions: continental Europe,

Anglo-America, Latin America, and Africa. The history or

development of party autonomy in these regions was characterized by

arguments for and against the doctrine. This thesis classifies arguments

in favour of recognition of party autonomy as pro-autonomy argument.

It classifies arguments against it as anti-autonomy arguments. It points

out that, notwithstanding the argument against party autonomy, the rise

of international trade in the 20th century made it necessary for countries

to recognize party autonomy. However, despite its wide recognition,

some countries, especially in Latin America and Africa, still, do not

recognize party autonomy or fundamentally restrict it. It argues that

this is not unconnected with the late development of the doctrine in

these regions, the effects of colonialism, their fragile economies, and

scholars’ arguments against party autonomy.

Chapter 3 examines other choice of law rules associated with

party autonomy (express intention rule). This is because the argument

against party autonomy necessarily features arguments in favour of

other choice of law rules. The analysis seeks to show that the

application of other choice of law rules, which include the law of the

place of contracting (lex loci contractus), law of the place of

performance (lex loci solutionis), law of the place that validates the

contract (lex validitatis), and the law of the place domicile (lex

domicilii), is characterized by uncertainty and absurdity. Juxtaposing

these characteristics with party autonomy (express intention rule), it

points out that the application of party autonomy ensures certainty and

uniformity in choice of law decisions in international commercial

contracts. In effect, party autonomy, because of its certainty and

uniformity functions in international commerce, is the “least

problematic” choice of law rule. However, as advantageous as party

autonomy is to international trade, it cannot be unrestricted because

parties with superior economic bargaining power may be placed in an

advantageous position over those with less bargaining power. National

laws, therefore, restrict the scope of party autonomy to prevent or

minimize the inherent abusive trait that the doctrine possesses.

Chapter 4 comparatively examines how and why countries have

limited the scope of party autonomy. The comparative analysis shows

that (1) party autonomy is essentially a manifestation of national,

rather than supranational recognition, (2) absolute or unlimited party

autonomy is almost impossible in any legal system, and (3) there are

varying degrees or scope of party autonomy in different countries. The

scope is determined by political, national and economic interests, legal

history, public policy, academic opinion and even, sometimes,

religious beliefs, as in the case of the United Arab Emirates; and (4)

the relative exceptions and expansion of the doctrine and constraints in

most jurisdictions challenge the prospect of achieving a uniform scope

of party autonomy. Chapter 5 examines efforts to unify the divergent

scope of party autonomy presented in chapter 4. This chapter, which is

divided into four sections, focuses on the new soft law instrument –

Principles. It first examines the efforts of international organizations

and regional legislative bodies to unify the scope of party autonomy

through different codification approaches or techniques. It then

particularly examines the scope of the Principles and the Hague

Conference’s justifications for using a soft law approach. It concludes

that a soft private international law rule, especially on the scope of

party autonomy, the first of its kind in choice of law international

legislation, is a step in the right direction to unify the divergent

scope/limitations of party autonomy. Section 2 argues that, although

the Principles constitutes a step in the right direction, the Hague

Conference did not consider factors for its acceptance in developing

countries. These factors mainly relate to the economic imbalance

between parties in the developed and developing countries. It points

out that it is imperative for the Hague Conference to consider these

factors because the acceptance of the Principles in different countries

depends on its intrinsic values, that is, “on the substantive content of

its rules, rather than on external or political factors.”

Section 3 examines the relationship of the Principles, as soft

law, with two hard law instruments on choice of law – the Rome 1

Regulation and the Mexico Convention. It particularly examines the

provisions of a choice of non-state law in these instruments. It argues

that the choice of non-state law may not be persuasive to countries in

continental Europe because the Rome 1 Regulation, which prohibits

the choice of a non-state law, is a binding instrument. The Principles’

conditions for the application of non-state laws in litigation

proceedings even make it more problematic, not only for countries in

Europe but for developing countries that do not recognize the choice of

non-state law. Finally, Section 4 examines the nature of the Principles

and its relationship with another soft law instrument – the UNIDROIT-

Principles of International Contracts 2010 and non-state law – the

United Nations Convention on Contracts for the International Sale of

Goods 1980. It first explains the scope of the Principles and then

argues that it cannot normatively empower the choice of another soft

law or non-state law because they are either in the same legal

normative order, or they outrank the Principles. Even if the Principles

empowers the choice of other soft laws, it cannot do so in areas that

the soft laws have not made provisions for or situations where the soft

laws are inapplicable. It concludes that, if the Principles’ provisions

are not “creatively” interpreted, their application with other soft laws

or non-state law may produce problematic, uncertain and unintended

results.

Chapter 6 recommends solutions for some of the challenges

identified in this thesis that may yet face the Principles – acceptability

and interpretational challenges. It proposes that, to achieve a uniform

scope of party autonomy in most jurisdictions, the Principles must

generally protect parties in international contracts, and not

employment and consumers contracts alone. It must also inform

countries, especially countries where party autonomy is prohibited or

fundamentally restricted, of the usefulness of applying the Principles.

The Principles must further expatiate on some of its provisions,

especially about its relationship with other soft

CHAPTER 2: PARTY AUTONOMY: MEANING, HISTORY, AND

ARGUMENTS

Meaning of Party Autonomy

The manner in which parties exercise freedom of contract to choose a

law or legal system to govern their transaction is called party

autonomy in conflict of laws. In this regard, it is a choice between two

or more alternative laws. Therefore, party autonomy is “the entitlement

of parties to select the law under which their contractual terms will be

interpreted [governed], and the jurisdiction in which those terms will,

in the event of a dispute, be enforced.” In other words, party autonomy

is a form of freedom of contract as espoused by English philosophical

jurisprudence in the 19th century. The English jurisprudence is founded

on the principle that an individual is “the best judge of his own welfare

and of the means of securing it.” Since a contract is a product of the

parties’ free will which they exercise by deciding the terms in their

contracts, the phrases “party autonomy,” “private autonomy” and

“freedom of contract” have often been used interchangeably. Thus,

except that party autonomy is used in a conflict of laws context, the

three terms exhibit the characteristics of the autonomous will of

individuals. Notwithstanding the similarities, the three concepts differ

contextually. They differ in the sense that “party autonomy emphasizes

the respect of personal rights, private autonomy is opposed to the

constraint and or restriction of public law, and the freedom of contract

is an extension of the idea of equality and utility with the situation that

commodity economy fully developed.”6

Furthermore, unlike the philosophical freedom of contract,

parties can only choose the governing law of a contract if a national

system of law or private international law rules of a state permit them

to do so. Indeed, “the forum State [national system of law], which

ultimately controls the choice of law, has to determine the conditions,

the limits and the scope of the parties’ autonomy.” Thus, party

autonomy is a function of the conflict of laws rules of every state. It

should be noted that party autonomy is not only used in terms of the

applicable law in contracts; it has also been applied in other areas of

law, including torts, family, succession, and trusts.

History of Party Autonomy

Party autonomy is “almost as ancient as conflicts law itself.” However,

the history of party autonomy varies from country to country.

Therefore, a holistic history of all countries may be impossible in this

chapter. It should be noted that notion of individual rights across states

which influences the growth and development of party autonomy in

states is outside the scope of this thesis. However, the history of party

autonomy in each state cannot be divorced from the history of how

they have balanced the right of an individual to enter into contracts and

states’ intervention in such contracts.11 For example, the United States

Supreme Court invalidated a New York employment law which

limited the daily number of hours a baker could work as unduly

“favouring one party to the contract.

This chapter attempts to give a general account and developments of

the doctrine in four major legal systems: continental Europe, Anglo-

America, Latin America, and Africa. These historical accounts aim to

show that there is an uneven development of party autonomy in these

legal systems. While the developments in continental Europe and

Anglo-America (The United States and the United Kingdom) vary “in

degree rather than in substance,” the same cannot be said of Latin

America and Africa because the doctrine developed late in these

regions due to many factors, including territorialism and apathy to the

development of private international law rules on choice of law. Also,

the historical analysis shows that the influence of scholars on the

development of the doctrine in these legal systems varies. While

scholars in continental Europe in the 16th century laid the foundation of

the doctrine, scholars in Anglo-American countries espoused the

doctrine as developed by courts. Similarly, most scholars opposed the

principle in Latin American countries, while their contemporaries in

the African region simply showed apathy to conflict of laws issues

generally.

General History

The problem of choice of law predates the existence of any nation-

state. It is claimed that choice of law issues arose as soon as two

individuals from different “matured” legal systems began to deal with

one another. However, the history of party autonomy as a conflict rule

may be traced, albeit indirectly, to a decree issued in Hellenistic Egypt

in 120-118 BC. The decree provided that contracts written in the

Egyptian language were subject to Egyptian courts which applied the

Egyptian law, while contracts written in Greek were subject to the

Greek Court which applied the Greek law. Invariably, a choice of

language necessarily meant both a choice of court and choice of law.

The decree has been criticized as not having any conflict of laws

intent, but a political gesture that allows persons to patronize the

Egyptian Courts because of the latter’s loss of influence to the Greek

Courts. However, regardless of its intent, this example remains one of

the early cases of history where an individual has a choice to decide

the applicable law and court.

2.2.2. Continental Europe (Civil Law Countries)

In Europe, party autonomy can be traced to Roman times. This is

because the Roman Empire regarded a law as a peculiar property of

persons entitled to it, who can lay claim to it or ignore it. This means

that while Roman citizens can claim an entitlement to Roman law

anywhere in the world, they could also discard such law by choosing

the law of the place where they reside. This influenced the

development of party autonomy in Europe because it is said that “it is

a prevailing doctrine on the Continent of Europe that in the case of all

voluntary obligations, parties, since they have the right to choose

whether or not they will be bound, have also the right to choose the

law under which they shall be bound.” Thus, the word “autonomy” has

its root in two Greek words: “auto-” (self) and “nomos” (law) which is

used to describe the rights that certain noble families and

incorporations enjoy in Germany to regulate their affairs through

private legislations.

However, beyond these concepts, party autonomy in contracts

was not recognized. Even early writers like Bartolus, a statutist, did not

recognize party autonomy as the right of parties to choose the

governing law. Instead, he advocated that the national law of the place

where the contract was made (lex loci) or the law of the place of

performance (lex solutionis) should be the applicable law. The early

predominant view is that a contract is like a child who is subject to the

law of the place of birth. In other words, a contract is subject to the law

of the place of contract because parties have tacitly acceded to the law

of the place of contracting.

It was in the 16th century that the French scholar, Dumoulin,

posited that the will of the parties, express or implied, should be the

determining factor of the governing law of a contract. He thought that

the will of the parties is sovereign and that if not expressly made; the

governing law must be determined by the surrounding circumstances

of the contract, the place of the contract being only one of these

circumstances (tacit choice). Thus, he stretched the application of the

principle to situations where the choice of law is not expressly made.

This “tacit choice” as espoused by Dumoulin may be regarded as a

foundation for the “proper law” doctrine which in turn founded the

notion of the “reasonable connection test” formula of the Restatement

(second) of the Conflict of Laws in the United States.His doctrine was

given judicial confirmation by the court of cassation in 1836.

Huber, a Dutch scholar, in 1689, also sees the will of the parties

as supreme, as opposed to an alternative, because he believes that the

place of contract can be dispelled by the wills of parties. He declares

that “the place, however, where a contract is entered into, is not to be

considered absolutely; for if the parties had in mind the law of another

place at the time of contracting the latter will control.” His works, as

shown later in this chapter, influenced the development of the doctrine

in the Anglo-American world.

Savigny, a German jurist, built on this theory in 1849. He

posited that the law of the place of performance, the law of the place of

contracting and the nationality of the parties should govern the contract

unless there is a contrary choice.32 He explained that every legal

relation has a seat, that is, the territorial law on which the legal relation

is based, but that the parties’ intention may replace the law of the seat

through the voluntary submission of parties to the law of another State.

It was the Italian jurist, Pasquale Mancini, who in 1851, formulated the

doctrine as we know it today as the expression of the will of the

parties. He, however, in theory, conceded that autonomy must be

exercised within the bounds of law because he believed that “the

principle of party autonomy should yield to territorial sovereignty only

with respect to matters concerning public policy sovereignty, and

rights in real estate.” Laurent, a Belgian jurist, also explained the

meaning of “bounds of law” as follows:

It is certain that the contracting parties cannot

determine their status and capacity; these matters

belong to public order, and as such fall within the

exclusive province of the legislator. Still less can

they regulate what belongs to the sovereign

power. To express myself in the language

ordinarily used, everything belonging to status

and to the real statute is beyond the autonomy of

the individuals.

The development of the doctrine of party autonomy in continental

Europe shows a recurrent theme for its history; that is, while the

doctrine was erstwhile shackled with the territorial limitations of place

of contract and performance, it grew considerably through the works of

scholars, and despite some early opposition, it has been accepted as an

established doctrine. Also, while the recognition of the doctrine may be

traced to the 16th centuries (or even earlier),40 the growth of

international trade in the 19th and 20th century further increased the

acceptance of the doctrine because party autonomy was seen as a means

of achieving economic efficiency. It could be said that the “final

victory” of the doctrine in continental Europe came in 1980 when it was

incorporated in the Rome Convention. Article 3 of the Convention

provides that contracts shall be governed by the law chosen by the

parties.

2.2.3. Anglo-America (The United States and The United Kingdom)

Compared to the civil law jurisdictions, the doctrine’s acceptance in

common law countries was a slower business. Generally, the judicial

authority upon which the doctrine of party autonomy is based in

Anglo-America is Robinson v Bland. The much-quoted Lord

Mansfield’s dictum in the case is to the effect that a particular law

which would otherwise be applicable may be excluded if parties at the

time of making the contract had the law of “another kingdom” in mind.

However, this decision did not state the means of knowing when

parties have a view to a different law. This leaves room for scholars

and latter cases to develop the doctrine, drawing influences from their

civil law contemporaries. Indeed, it has been noted that Huber’s

teachings influenced Lord Mansfield’s decision and Joseph Story’s

treatise in the United States.

The United States

Joseph Story is one of the early advocates of party autonomy in the

United States who relied on Lord Mansfield’s dictum. In 1834, he

argued, in his Commentaries on the Conflict of Laws, that if the place

of contracting is also the place of performance, then the contract is

automatically governed by the law of the place of contract (lex loci

contractus). But where the place of contract is different from the place

of performance, then the presumed intention as to the law of the place

of performance (le loci solutionis) must be recognized and given effect

to in the interpretation and validity of the contract. While the United

States courts, especially the Supreme Court applied the doctrine, some

American scholars, chief among whom is J.H. Beale, an ardent

supporter of vested/territorial right theory, opposed the doctrine. He

argued that the doctrine as developed in civil law countries should not

be adopted in the United States because it enables parties to legislate

themselves out of the reach of the territorial law. Much of his

arguments will follow in the next section, but suffice to say that Beale

was successful in convincing the American judiciary and scholars to

omit the principle from America’s First Restatement of the Conflict of

Laws (the Restatement). He was able to do this because of his position

as the Reporter for the proposed Restatement of Conflict of Laws

discussed at the 1927 American Law Institute conference which

considered chapter 8 (contract) of the Restatement. He was directed to

prepare a revision of the chapter on contract. He did this without

including party autonomy or the intention theory. Thus, section 322 of

the final version on contract in the Restatement did not acknowledge

that parties to an international contract could depart from the law of the

place of contract. At best, parties could only incorporate the provisions

of a foreign law as terms of their contract.

This omission drew criticism from American scholars who argue

that parties should be allowed to contract out of the law of the place of

contract, with the exception that they may not do so where the law

mandates its compulsory application – mandatory laws. Since this

omission in the Restatement, the development of the doctrine was

described as “erratic.” This is because there was no uniform

application of the doctrine by American courts. However, contrary to

Beale’s prediction that the doctrine is a dying one, case law continued

to recognize the doctrine after the Restatement, although they

acknowledged that the doctrine ought to be restricted for the protection

of the forum state.

The first major step of the “uniform” acceptance of the doctrine

was the enactment of the Uniform Commercial Code in 1952, drafted

with the support of the American Law Institute. This was followed by

the Restatement (Second) of the Conflict of Laws in 1968. These

statutes, in section 105-1 and 187, respectively, recognize the doctrine

of party autonomy with qualifications. Courts have, therefore, applied

these statutes together with their qualifications. For example, in 1972,

the Supreme Court of the United States held in The Bremen v Zapata

OffShore Co61 that parties in a “freely negotiated private international

law agreement, unaffected by fraud, undue influence, or overweening

bargaining power” can freely choose the applicable law to their

contract. Thus, while party autonomy is now recognized in the United

States, the qualifications may be different in the 50 states of the United

States because states adopt the statutes differently.

2.2.5. The United Kingdom

As stated earlier, the doctrine in the Anglo-American jurisdictions can

be traced to the English decision of Robinson v Bland. Briefly, the fact

of the case is that an action was instituted in the English Court to

enforce a gambling debt incurred in France. Despite similarities of

French and English law on whether such debt is recoverable, the

King’s Bench considered a situation where the laws of both countries

were different. The three judges: Chief Justice Lord Mansfield,

Denison and Wilmot JJ applied different tests to deny enforcement of

the gambling debt in England. Denison J believed that since the case

was instituted in England, English law will govern the contract (law of

the forum). Wilmot J stated that since the debt was to be paid in

England, English law is the most appropriate (law of the place of

performance). Lord Mansfield added that since the parties intended to

apply English law, the English law was applicable (the law intended by

parties – party autonomy). The latter judge also stated that since the

place of payment of the debt was in England, the security was in

England, and the parties had intended to apply English law, English

law must be applied (the law of the place of performance as that

presumably intended by the parties).

Notwithstanding that the first two dicta have been overruled in latter

cases, Lord Mansfield’s “intention dicta” has been accepted as the rule

by which to determine the validity of contracts in England. Some

judicial authorities, including P. & O. Steam Navigation Co. v Shand,

Lloyd v Guibert, and Jacobs v Crédit Lyonnais also established that

parties’ intention could be made either expressly or impliedly, and the

court can decipher parties’ intention by examining the surrounding

circumstances. In effect, these cases held that the court is at liberty to

construe the intention of parties and give effect to it. These decisions

established the doctrine of “proper law” that was distinctly developed

in the United Kingdom. One of the judicial authorities which explains

this doctrine is Vita Food Products v Unus Shipping Co., where Lord

Wright, delivering the opinion of the Judicial Committee, said that:

It is now well settled that by English law (and the

law of Nova Scotia is the same) the proper law of

the contract “is the law which the parties intended

to apply.” That intention is objectively

ascertained, and, if not expressed, will be

presumed from the terms of the contract and the

relevant surrounding circumstances.

Two scholars, Westlake and Dicey, espoused the theoretical

basis of this doctrine. Westlake thinks that the proper law means that

English courts would take into consideration the close connection of

the contract (subjective theory). He puts his view as follows:

In the circumstances it may be said that the law by which to

determine the intrinsic validity and effects of a contract will be

selected in England on substantial considerations, the

preference being given to the country with which the

transaction has the most real connection, and not to the law of

the place of the contract as such.

Dicey’s concept of proper law emphasized the intention of the

parties (objective theory) rather than the close connection test. He

thinks that proper law means the “law, or laws, by which the parties

intended, or may fairly be presumed to have intended, the contract to

be governed.” These theories, which interpreted case law, developed

the doctrine of party autonomy in English jurisprudence.

In sum, the development of party autonomy in the United

Kingdom relied on case law and contribution from scholars. It avoided

the early rigid approach of civil law countries which is based on the

place of contract or place of performance; instead it embraced the

elastic criteria of the “close connection test” or “proper law.” Like the

continental European experience, party autonomy was further

recognized in the 19th century in the United Kingdom. Indeed, it has

been noted that “until the nineteenth century, the idea of proper law

was hardly distinguished from that of the proper jurisdiction. The

questions of choice of law and choice of jurisdiction were confused.”81

This is because, hitherto, English courts in the 17th and 18th centuries

held that a litigant who institutes an action in England automatically

intended English Law – tacit confusion of choice of forum and choice

of law issues.

It should be noted that, just like in the United States, party

autonomy has been codified in the United Kingdom. The Contracts

(Applicable) Act 1990 has largely replaced the doctrine of proper law

of contract. This statute implements the Rome Convention which has

been replaced by Regulation (EC) No 593/2008 on the Law Applicable

to Contractual Obligations (Rome 1 Regulation).

Notwithstanding the codification, references are still made to case law

that establish party autonomy.

Party Autonomy in Latin America and Africa

The development of party autonomy in Latin America and

Africa was slower than their counterparts in continental Europe and

Anglo-America. The history of party autonomy in Latin America and

Africa is characterized by territorialism and uneven treatment of the

doctrine by different countries in the same region. The history of the

doctrine in Latin America is discussed first, followed by that of Africa.

Latin America

It has been noted that “in the Americas, the question of what law

applies to contracts that cross national frontiers may charitably be

described as unsettled.” It has also been particularly noted that “in

Latin America, the road towards recognition of the principle of party

autonomy has been arduous and long.” The judicial and legislative

response to the problem of choice of law in this region was different

from the approach in continental Europe and Anglo-America.87 This is

because, until recently, most courts and legislations favoured the law

of the place of contract or the place of performance over party

autonomy.88 For example, the Civil Code of Chile (1855) stated that

“the effects of contracts made abroad and to be performed in Chile are

determined by Chilean laws.”89 The Supreme Court of Chile held that

if a contract is to be performed in Chile, Chilean law would be applied,

while a Chilean contract to be performed abroad will be susceptible to

a different law.90 Honduras, Colombia, Panama, Ecuador and El

Salvador adopted choice of law rules similar to Chile.91 This

nationalistic tendency is premised on the theory that the state is

entitled to dictate the lex obligationis to its subjects.92 Indeed, it has

been noted that “the territorialism of the Latin American continent has

caused the assimilation of party autonomy to be slow.”93 The

nationalist tendencies of countries in this region did little to promote

transnational trade within and outside the Americas.94

The late development of this doctrine in Latin America may also

be attributed to the fact that most countries saw no need for

transnational trade. As a result, there was a reluctance to develop

choice of law rules which govern transnational contracts. Coupled with

the foregoing is also the need to protect the economy of Latin

American countries from foreign manipulation or intervention.

Allowing party autonomy in international commercial contract was

believed to encourage the choice of a foreign law over and above the

national law of the Americas.

The “premature attempts at regional codification of choice-of-

law rules [also] bear some responsibility for the underdeveloped state

of the law on contract conflicts.” Even the Montevideo Civil

International Law Treaty of 1889 rejected party autonomy. Instead, the

treaty instead emphasized the place of performance as a connecting

factor for choice of law in international contracts. The Additional

Protocol to the treaty declared that “jurisdiction and law applicable

according to the respective treaties cannot be modified by the intention

of the parties, except to the extent this law authorizes them so to do.”

It is arguable that the “victory” of party autonomy came through the

enactment of the Inter-American Convention on the Law Applicable to

International Contracts(Mexico Convention)101 which, is in most

respects, similar to the provisions in Rome 1 Convention 1980.102

Article 7 of the Convention provides that “[t]he contract shall be

governed by the law chosen by the parties.”103 Although American

countries participated in the preparation of the draft text, only Mexico

and Venezuela ratified it. Because of the low ratification that the

Convention commanded, it has been described as a “categorical

failure.”104 Indeed, some countries in Latin America still do not

recognize party autonomy because they are neither signatories to the

Convention nor persuaded by it.105

Finally, a reason for the late development of the doctrine in

Latin America may be because of the “hostility” of the region’s

scholars towards the doctrine. While some Latin American scholars

favoured the doctrine, most scholars disapproved of it on “positivist

and conceptualistic grounds.”106 For example, Ildefonso Garcia Lagos,

an Uruguayan jurist, argued that party autonomy should be the general

rule to determine the choice of law, and that the law of the place of

performance should only be a subsidiary/secondary rule. But another

scholar argued that “party autonomy amounts to an alien element in

the conflict of laws and, in spite of its venerable history, merits censure

rather than approbation.” Notwithstanding these arguments, “hostility”

towards party autonomy generally waned after 1950 but controversy

over the doctrine still exists among Latin American scholars. This is

why some Latin American countries still do not accept party

autonomy. As Juenger puts it, there is “an uneven evolution of party

autonomy in our continent.”

Africa

Generally, private international law in Africa has been described as

“underdeveloped” or one with stunted development. This is because

conflict of laws is an area of law that, until recently, scholars have

given little or no attention to. To this end, conflict of laws issues,

including party autonomy, were isolated from development in Africa’s

civil and common law countries. One jurist noted that “one issue that

gives occasional problem [in Africa] is the choice of law or choice of

the jurisdiction of contracting parties.”

However, British-colonized African countries have applied the

doctrine of proper law as developed in the United Kingdom on choice

of law issues. This is because the English common law is one of the

sources of private international law in these countries. Therefore,

unlike their European counterparts, most issues in conflict of laws,

including party autonomy, had no theoretical underpinnings. For

example, before colonization, “African system of law” applied the lex

fori to problems involving a foreign element.118 This is because it is

inconceivable to apply any other system of law than the native laws of

the land since transnational trade was restricted or unknown during the

15th century. Thus, application of the lex fori was a result of the

dynamics of power and pragmatism, but not a product of legal

reasoning inspired by any theory of conflict of laws.120

Apart from the implicit choice of law in Egypt discussed above,

there is little evidence of the development of party autonomy in Africa.

However, in the late 20th and 21st centuries, there were judicial

decisions that have recognized parties’ freedom to choose the

applicable law in international contracts. For example, in 1961, a

South African Court held that “according to English law and our law[,]

the proper law of the contract is the law of the country which the

parties have agreed or intended or are presumed to have intended shall

govern it.” Also, a Kenyan Court, in Fonville v Kelly III, held that “the

position in law is that where parties have expressly stipulated that a

contract is to be governed by a particular law, that law is the proper

law of contract.”

However, in some instances, the application of the doctrine in

some countries appears to be unsettled. For example, a Nigerian case

law decided in 1987, suggests that the doctrine may be subject to

nationalistic and territorial scrutiny. In Sonnar (Nigeria) Ltd. v

Partenreedri M S Nordwind, a Justice of the Supreme Court, Oputa

JSC, while considering the conflict aspect of the case, held that “as a

matter of public policy, our courts should not be too eager to divest

themselves of jurisdiction conferred on them by the Constitution and

by other laws simply because parties in their private contracts choose a

foreign forum and a foreign law.” In this case, a Liberian shipwoner

and a Nigerian shipper chose German law to govern their bill of

lading. The court, relying on Australian decisions, held that the choice

of law is “capricious and unreasonable” because it has no connection

with the parties’ contract. The court further held that “luckily

nowadays, a choice of the proper law by the parties is not considered

by the Courts as conclusive.” Therefore, the Court, in its discretionary

exercise, disregarded the parties’ express choice of law. This decision

reflects the nationalistic tendencies in Latin America.

It may be safe to conclude that African courts are still hesitant to

acknowledge party autonomy in those cases that are not clear cut. This

is because private international law rules are underdeveloped in the

various jurisdictions. Since there is no treaty regulating choice of law

issues in Africa, instances where the doctrine may be disregarded

depend on the discretion of the judge, applicable local statutes,

application of the common law doctrine (proper law), and the type of

contract in issue. Indeed, as shown in subsequent chapters, African

countries generally restrict or prohibit party autonomy through local

statutes to protect their national interests form foreign economic

exploitation. This is not unconnected to their fragile economies and

their colonial experiences. Just like in the Americas, it is believed that

allowing parties to contract on choice of law in contracts of national

interest exposes African parties to monopolistic tendencies by parties

in developed countries.

Arguments for and against Party Autonomy

As the history shows, the quest for the recognition of party autonomy

globally has been controversial, and even presently there are still

controversies over the recognition of the doctrine. As discussed above,

the disapproval of party autonomy in international commercial

contracts in some Latin American and

African countries has been largely influenced, among others, by this

controversy.

There are two positions on the doctrine: some scholars believe parties

should not be allowed to choose a law that governs their transaction,

while other scholars are of the view that a choice of law is like any other

clause or term in the contract which should be left for the parties to

decide. This thesis briefly captures the reasons for arguments on both

sides here. The arguments are tagged “anti-autonomy” and

“proautonomy,” respectively.

Anti-Autonomy Arguments

The main argument of the anti-autonomists is that recognizing party

autonomy “makes a legislative body of any two persons who choose to

get together and contract.” Lorenzen adds that “the validity or

invalidity of a legal transaction should result from fixed rules of law

which are binding upon the parties. Allowing the parties to choose

their governing law in this regard involves a delegation of sovereign

power to private individuals.” The reason for this argument is that the

choice given to parties to determine the contract’s governing law is in

itself an act of making law. Pillet and Niboyet argue that parties’

choice of law in a contract enables them to evade domestic legal

obligations which are closely connected to their contract. They think

that the sovereign nature of a state prevents parties from choosing an

extra-territorial law. This view suggests that contracts are born into a

certain law and that if parties cannot modify this law in a domestic

sphere, they cannot do so by an agreement that another law should

govern their contract.

Furthermore, anti-autonomists assert that it is impossible to

predict how the court will view the intention of the parties on their

choice of law. For this reason, parties cannot make an advanced valid

contract through a choice of law until the applicable law is decided by

the court. Therefore, individuals do not have freedom to choose the

law that may govern their contracts. This argument suggests that it is

the law of the place where the contract is made or performed that

dictates the applicable law. A very similar argument is that a choice of

law is like any element/clause in the contract which “localizes” the

contract within a specific legal system and that the court is not bound

by the will of the parties since other clauses/elements may point to

another legal system. Although this argument agrees that parties could

agree on a law, it still denies a complete autonomy in choice of law.

Reflecting on these arguments, it is safe to conclude that anti-

autonomy arguments are based on the positive theory of law. This is

because they suggest that the law regulates human conduct, and not

vice-versa. In other words, their arguments reflect a positivist

territorial approach to regulatory legitimacy. The pith of their view is

that the law of the place of performance or place of execution of the

contract determines the applicable law and not the will of the parties.

In sum, parties cannot determine the law that governs/validates their

contracts because it is the law that performs this function.

Pro-Autonomy Arguments

On the other side of the divide, some scholars have advocated

recognition of the doctrine. The theme of their argument is that parties

to a contract should be allowed to choose its governing law. They

argue that notwithstanding the law of the place of a contract, or

performance, parties should be allowed to choose a different law to

govern a contract. In contrast to the argument that a contract is born

into a certain law, pro-autonomists see a contract as a creation of the

human mind which is not fixed to any locality. These scholars see the

will of the parties as the basis of legal obligation in contracts.

Although they acknowledge that law may set the limit, they believe

that legal obligations flow from the choice of the parties. Thus, the law

may only regulate parties’ freedom to choose a law where public

policy demands that party autonomy be rejected.

A scholar has even argued that the principle of party autonomy

is protected by international human rights instruments, for example,

the Universal Declaration of Human Rights. According to her, since

the Universal Declaration of Human rights protects the liberty of

individuals, such liberty should not just be exercised in the personal

and political sphere, but also in the economic sphere by allowing

parties to “liberally” choose the legal system which governs their

contracts.

In response to the anti-autonomists’ argument that party

autonomy is synonymous with party legislation, pro-autonomists argue

that parties are not legislating by choosing a legal system to govern

their contracts. Rather, they are exercising a power conferred on them

by the law of the place where the contract is executed. The law of the

place where the contract is litigated (forum state) may, therefore,

choose to ignore their choice or accept it. In a related argument,

proautonomists argue that there is a difference between the operative

fact and legal consequences of a contract. Since the law allows parties

to choose the applicable law, they are only exercising that power by

altering the operative facts of their contracts to which the law attaches

legal consequence. For example, whether a contract is in writing or not

depends on the choice of the parties which has a legal consequence for

their contract. Similarly, parties’ choice of law clause may alter the

otherwise applicable legal consequences in the conflict of law rules.

Thus, parties do not alter the provisions of a statute, but only facts,

that, in turn, alter the legal consequences of their contracts.

Pro-autonomists further argue that assuming that parties are,

indeed, legislating through party autonomy, such legislations are made

only for the parties and no other person. They argue that, in any event,

party autonomy is not the only circumstance where parties “legislate.”

They conclude that “party legislation” does not transcend into a

“crime.” Also, they argue that in an international contract where the

contract is associated with more than one law, no national law has the

right to exclusively govern the contract. Therefore, if we remove one

national law in preference to the other, we should able to remove all of

them in preference for a third law.

In sum, pro-autonomy arguments resonate a common theme –

that parties should be autonomous in choosing the law that governs

their contract. These arguments reflect a liberal theory of contract

which “recognizes and respects the power of individuals to effect

changes in their legal relations inter-se.” Proautonomists claim that the

will of the parties dictates the applicable law that must govern the

contract, as opposed to the positivist contention that the choice must be

made by the sovereign.

Conclusion

Generally, the history of party autonomy shows that the development

of the doctrine is uneven in the legal systems of the world. While

Anglo-America and Continental Europe share similarities in the early

development of the doctrine, Latin America and Africa share

similarities in the late/underdevelopment of the doctrine and even

presently, it is still not recognized in some countries in these regions.

The slow development in these regions may be attributed to their

colonial experiences and fragile economies. Sometimes, they see party

autonomy in international commercial contracts as a threat to their

national and economic interests. Therefore, territorialism and

nationalism have shackled, and still shackle, the development of party

autonomy in Latin America and Africa.

The arguments against the doctrine as a conflict rule further

reflect the reasons for the hostility toward the doctrine, especially in

Latin America and Africa. Although anti-autonomist arguments started

from the Anglo-American and Continental regions, they reflect the

positivistic and territorial tendencies in Latin America and Africa

towards party autonomy. However, the responses to these arguments

show that anti-autonomists’ objections to party autonomy may not be

based on sound theoretical footings – anti-autonomist arguments do

not reflect the realities of transnational trade in the 21st century.

Notwithstanding the debate, and some Latin American and African

countries’ resistance, party autonomy has been globally recognized as

an important conflict rule from the 19th century.

From the historical account and arguments against party

autonomy, it is gleaned that there are different rules on choice of law,

of which party autonomy is one. The next chapter describes and

analyzes these rules and argues that, because of the advantages that

party autonomy brings to bear in private international law, it is the best

choice of law rule for resolving conflict issues in international

commercial contracts. The next chapter also points out that,

notwithstanding these advantages, there are various limitations to party

autonomy. It briefly discusses these limitations with a note that, just

like the history of party autonomy, the tests for determining the

limitation or scope of the doctrine vary from country to country.

CHOICE OF LAW RULES IN CONTRACT

The obligations and validity of a contract rely exclusively on the

contract’s connection with a law. In other words, for a contract to be

enforceable, a legal system must recognize the validity of the contract,

as well as the obligations arising from it. It is a truism that states

usually (whther consciously or not) determine a contract’s connection

to a legal system based on their choice of law rules. A choice of law

rule, therefore, is a “rule for choosing the [applicable] law.” This is

because the rules only select the applicable legal system without

determining the legal obligations of the parties; the chosen law

performs this function. Thus, choice of law rules as discussed in this

chapter relate to rules that determine the validity and, in appropriate

instances, construction of a contract.

It has been argued that the determination of the applicable law in

a contract should not be made subject to any rule or principle but

should be based on the “juridical conscience” of the forum judge in

each case. By this, the judge is free to choose the applicable law based

on his appreciation of the facts of the case. Advocates of this position

argue that this will free a judge from the shackles of choice of law

rules, and allows him to do justice in each case. A flaw in this

argument is that it unwittingly proposes a generalized rule itself. It

proposes a shift from “rigid” rules to “no rule,” thereby creating an

individualized choice of law rule that focuses on the peculiarities of

each contract type. This proposition leaves the outcome of a decision

at the mercy of the conscience of a judge. It also breeds uncertainty in

the outcome of a decision because parties do not know the opinion of a

judge about their dealings prior to a dispute. No matter how

insufficient or narrow the choice of law rules may be, it is better than

no rule because a “no rule system” breeds international judicial

anarchy. For example, in a case that has a foreign element, a judge is

free to neglect the rules of both the lex fori and the law of the foreign

country, since he is at liberty to decide a case based on his intuition or

personal appreciation of the case. In sum, this rule is “anti-juridical”

because it is against every principle of structural judicial decision

making. Indeed, the importance of choice of law rules cannot be over-

emphasized. Choice of law rules create coordination or symmetry

between states, a state of affairs which is “essential” in international

litigation. It also helps parties to evaluate the rules applicable to their

actions and make adjustments, if need be.

The choice of law rules discussed in this chapter are the law of

the place of contract (lex loci contractus), the law of the place of

performance (lex loci solutionis), the law of the domicile of parties; the

law that validates the contract, the law that is closely connected with

the contract (center of gravity rule), and the express intention of the

parties (party autonomy). This analysis shows, among other things,

that all but one of the rules (the party autonomy rule), suffers from a

common defect – they do not promote the objectives of the choice of

law theory which include certainty and uniformity of decisions. In

other words, the application of these rules, except the party autonomy

rule, sometimes, produces uncertainty and arbitrary results; hence the

preference for the party autonomy rule.14

Generally, a comparison of the party autonomy rule with other

choice of law rules may be likened to comparing “apples and oranges.”

This is because most countries usually apply party autonomy and other

choice of law rules in different contexts. While the party autonomy

rule is applicable where parties have made, or intended to make a

choice of law, other rules apply where parties have not made such

choice.15 However, it should also be noted that some countries still rely

on some of these rules regardless of the parties’ choice.16 This thesis

does not seek to make a parallel comparison of the rules, but to point

out reasons why parties may prefer to make an express choice of law

in their contract, and why courts usually give preference to this choice.

It does this by examining the rules one after the other.

3.1.1. The Law of the Place of Making (Lex loci contractus)

This choice of law rule connects the law of a territory to contracts

made within that territory.17 It is rooted in the territorial or vested right

theory supported by Beale

resource of the lex fori, and the like.” See Hessel E Yntema, “The

Objectives of Private International Law” (1957) 35 Can Bar Rev 721 at

734-735.

14 Louis C James, “Effects of the Autonomy of the Parties on Conflict of

Laws Contracts” (1959) 36:1 Chicago-Kent L Rev 34 at 45.

15 See e.g. Spanish Civil Code 1899, §10 (5) as amended in 1974 which

provides that “[t]he law to which the parties have expressly submitted

shall apply to contractual obligations, provided that it has some

connection with the transaction in question; in the absence thereof, the

national law common to the parties shall apply; in the absence thereof,

that of their common habitual residence and, lastly, the law of the place

where the contract has been entered into.”

16 For example, Brazil relies on the personal law of parties and the law of the

place of contracting to determine capacity of parties and validity of

contracts respectively. See Brazil’s Civil Code’s introductory law 1942,

art 9; see also María Mercedes Albornoz, “Choice of Law in International

Contracts in Latin American Legal Systems” (2010) 6:1 J Priv Intl L 23 at

44; Rodrigo Octavio, “Conflict of Laws in Brazil” (1919) 28:5 Yale LJ

463 at 467.

17 Joseph Henry Beale, A Treatise on the Conflict of Laws, vol 2 (New York:

Baker Voorhis & Co, 1935) at

1044-1045; See also Ernst G Lorenzen, Territoriality, Public Policy and the

Conflict of Laws” (1924) 33

Yale LJ 736 at 743-744; Milliken v Pratt, 125 Mass Jud Sup Ct 374 (1878);

Creutzburg v Commercial Bank of Namibia Ltd, [2006] 4 All SA 327 at 331

(“if a contract is formally valid in terms of the lex loci contractus, one need

look no further”).

and his followers. Indeed, it is a time-honoured principle that parties in

a given territory ought not to violate the law of the territory, lest their

contract be invalidated by the law of that territory. This theory

proposes that a contract is born into a legal system and that rights are

“vested” in a contract through its “place of birth.” This vested

territorial right is inherent in the contract, no matter where it is

interpreted or enforced. Courts and writers favour the application of

this rule when in doubt about the application of other choice of law

rules. They justify it on the basis that the territoriality principle is

similar to the one applicable to crime and tort cases – territorial

principle and lex loci delicti. Proponents of this rule conclude that it

gives certainty in choice of law issues because the place where a

contract is “made” is usually established and certain.

However, this rule has some inherent weaknesses. First, because

of different modes and rules of creating contracts, it sometimes

produces uncertain and absurd results. This is evident in international

or interstate contracts where contracts are concluded by

correspondence. If a Canadian and a Norwegian enter into a contract

via electronic communication, telegram or mail without meeting in a

particular territory, it is difficult to determine the law of the place of

contract. Dicey and Morris say that the rule is “useless” in this

instance. An attempt to explain away this weakness by referring to the

last place of correspondence (place of acceptance – mailbox rule), in

the course of negotiation, as the place of contract, is an arbitrary and

artificial refinement and may not even be applicable in oral electronic

contracts. Indeed, the last place of acceptance is usually “accidental”

or “fortuitous” because it has no connection with the contract. If a

Canadian and a German, traveling from Egypt to Brazil, while on a

train passing through Spain, agreed and executed a contract, should

Spanish law govern their contract just because the contract was

executed on Spanish soil? Advocates of this rule argue that so far as

they were not dragged into the train by fraud or by force, there is no

reason why Spanish law should not be the governing law. This

argument is weak because parties may not be aware that they are on

Spanish soil, or of the effect of Spanish law on their agreement and

contract. This scenario shows that the place of contract may be

fortuitous and irrelevant to the contract because the rule attaches

importance to unintended actions. It is safe to conclude that the law

governing a contract requires more spatial connection than the one that

the lex loci contractus rule offers.

This rule is also problematic in unilateral contracts where parties

agree that the contract be performed in different states to establish it.34

Since the contract has different places of establishment, it may be

difficult to ascertain the governing law. This is because there are

differences in the contract laws of states regarding the place of

contract.35 While the forum court may regard an “event” as done in a

particular place, it may not be regarded as such by the law of the place

where the contract was purportedly made.36 For example, at common

law, a contract is deemed executed as soon as the addressee of an offer

dispatches his acceptance; but some civil law countries only recognize

acceptance when it is declared, or when it arrives at the offeror's

address, or received by the addressor, or even when it comes to the

addressor’s knowledge.37 On this basis, the differences in the theory of

acceptance in different countries make the lex loci contractus

impracticable in some instances.38 Indeed, Rabel says that “[i]t [lex loci

contractus] defies common sense every time when it makes the fate of

a contract dependent on the legalistic fitness determining at what place

the deal was completed in the juristic sense.”39

Despite its shortcomings, this rule is not completely useless in

determining an applicable law in most countries. In the absence of the

parties’ express choice of law, courts usually consider the place of the

making of a contract as one of the factors for determining a tacit or

implied choice of law.

The Law of the Place of Performance (Lex Loci Solutionis)

This rule shares a theoretical underpinning with the lex loci contractus

rule – the vested right theory or territorial principle. The difference is

that, while lex loci

based on express intention rule (party autonomy) because the

performance of a contract is usually based on the intention and

agreement of the parties. Although the lex solutionis rule usually

answers questions regarding the performance, discharge, and breach of

a contract, opponents of this rule argue that it cannot be used to

determine the validity of a contract. This is because the vested rights

theory only refers the question of the validity of a contract to the place

of execution and not the place of performance.

Just like the lex loci contractus rule, it is also difficult to

determine the place of performance in cases of multiple places of

performance, unless the contract is divisible and each is treated as a

separate contract. For example, it is difficult to know the exact place of

performance in a case of a freight contract that obligates a party to

distribute goods to different destinations or countries. Advocates of

this rule try to explain away this weakness by postulating that in the

event of a breach of a contract that requires multi-state performance,

the law of the place where the breach occurred will be the applicable

law.46 This postulation ignores the fact that multiple actions, occurring

in different places and times, may culminate into a breach. In such an

instance, it may be difficult to determine the place of the action that

materially caused the breach of performance. Advocates of this rule

also neglect the fact that a contract may not involve a breach to

activate a conflict of law issue. Matters involving validity and the

formalities of a contract do not involve breach, but they are matters

that require the application of a choice of law rule.

In another attempt to solve this multi-state performance

problem, proponents of this rule rely on the most connected place of

performance or the place of contract making. But courts’ reliance on

the most connected place of performance, without any criteria for

determining the “most connected place,” usually results in “nebulous

evaluations” which breed uncertainty in the application of the rule. In

the event that the place of performance is ascertainable, it may bear

little or no relation to the contract, or may even be accidental, just like

the lex loci rule. The most connected place supposition offers no

explanation to argue away the uncertainty and absurdity that the lex

loci solutionis generates.

The rule also becomes problematic where a contract is silent on

the place of performance; or where it is difficult to determine

performance in the contract; or where there is no place of performance

at all. Also, it is difficult to know the law of the place of performance

where the performance of a contract is optional, that is, where a party

may perform in one or several places that he deems fit; or where the

performance of a contract is to be agreed upon at a later date which

never happened. In these instances, advocates argue that the contract is

performable in the place of its making, or at some other superficial

place. The weakness of this argument has been pointed out above – it

is difficult to ascertain the place of contract making. The rule also

creates an unfair and absurd result in a bilateral contract where both

parties are required to perform obligations. The law of one party may

exempt him from performance, but he may still be able to demand

performance from the other party because the law of the place of

performance of the other party enforces performance.

Conflicts of law cannot schematically rely only on the lex

solutionis rule to solve choice of law problems. This rule does not

only, sometimes, produce unfair results; it breeds uncertainty in the

application of choice of law rules.

Personal Law of the Parties (Lex Domicilii)

This rule proposes that matters concerning an individual should be

governed by the system of law mostly connected to the individual. It

connects the law of the domicile of parties to their contracts. This rule

stems from Mancini’s theory that the law of domicile should be

applied to a contract, subject to the ordre public of the lex fori. The

application of this rule appears straight-forward because parties can

only have one domicile at a time. However, it becomes problematic in

a contract where parties possess different domicile – an unavoidable

situation in international contracts. The difficulty arises from choosing

the domicile that prevails. For example, the rule proposes that the

debtor’s domicile should determine rights and obligations arising from

the debt. As a result, he cannot promise more than what his domicile

allows. This makes the domicile of the debtor more important than that

of the creditor. This means that the debtor’s domicile governs the

performance of a debt in another country – an unintended extra-

territorial effect. The application of this rule could have produced an

absurd result in Milliken v Pratt.61 Here, Mrs. Pratt, who was domiciled

and resident in Massachusetts, agreed with a supplier, who was

resident in Maine, that she would stand surety for her husband, who

was buying goods on credit from the supplier. Mr. Pratt defaulted, and

the supplier sued Mrs. Pratt in Massachusetts. Under the

Massachusetts law as it stood at that time, a married woman could not

bind herself as surety; but under Maine law, she could do this. The

court rejected the arguments on the law of domicile because this means

that the surety would not be liable for her actions. The Court relied on

the “place of acceptance”, which is Maine, to hold that Mrs. Pratt was

liable. This decision avoids the absurdity that could arise from a

situation where a surety is absolved form responsibilities. Indeed, the

development of personal laws is more advanced in some countries than

in others. It is, therefore, not uncommon to see that sometimes, the law

of the domicile of a country may lose touch with current developments

in the world. If the objective of conflict of laws is to do justice in

private matters, the domicile law of some countries, as depicted in

Milliken v Pratt, may not reflect this justice.

Relying on the law of domicile as a connecting factor also

means that parties have the “onerous” task of investigating each

other’s domicile, as well as ascertaining the law of that domicile,

however remote. This investigation involves discovering the parties’

intention as to domicile. It is difficult to determine the scope of the law

of the debtor’s domicile because the contract of the debtor may not

have any factual connection to his domicile. Even if this is successfully

done, a party may abandon his domicile after the execution or

performance of the contract.66 This results in absurdities because

parties, during negotiation, may have executed the contract based on

the law of the domicile of each other. Therefore, it is not an

overstatement to conclude that, because of these weaknesses, lex

domicilii law does not play a significant role as a connecting factor in

choice of law issues.

Center of Gravity or Close Contact Rule

This choice of law rule proposes that the terms of a contract, including

a choice of law clause, must be weighed together in determining the

applicable law of a contract. It is believed that the validity of a contract

must be weighed independently of the intention of the parties.70 Thus,

this rule seeks to weigh or group the terms of a contract to determine

the applicable law or validity of the contract.71 It seeks to choose the

law that has the closest connection or contact with the contract. It is

believed that this will produce an “equitable result” in determining the

“proper law.”72 As stated in Auten v Auten,73 this rule “gives control to

the place having the most interest in the case, enables the court to give

effect to the probable intention of the parties, and provides courts with

an opportunity to give consideration to the states offering the best

practical result.”74

There are two levels of contact under this rule – policy

consideration level and the contract counting level. The first considers

the policy of states connected to a contract –jurisdiction-selecting

theory and government interest analysis.75 United States scholars

usually advocate policy considerations for determining the contact of

the contract and, by extension, the applicable law of a contract.76 These

theories remove the application of conflict of laws rules from the realm

of individual will and fix it between state policies. This jurisdiction-

selecting theory particularly encourages the development of “narrow

rules” that enable courts to determine the contact of the contract

through an “objective [state] approach.”77 These theories poses

challenges to the autonomy of parties.

A choice of law based on the theoretical underpinnings of “state

interest” is problematic because parties are at the center of contracts

and not states. In fact, the origin of contract disputes starts with parties.

It is the individuals, and not states, who bear the consequences of their

actions. Parties should be able to fashion their relationships the way

they like, because they must have considered how their choice of law

will affect their controversy. The jurisdiction-selecting theory and

government interest analysis advocate for the recognition of state

policies, but states themselves recognize the autonomy of parties to

choose the applicable law. It is not surprising that the “government

interest” theory has been the subject of theoretical criticism since its

introduction by Currie. Currie’s analysis has been tagged irrelevant in

the determination of choice of law rules.

The second level of contact – contact counting – considers other

choice of law rules, including the place of contract, performance,

domicile of parties or place intended by the parties. While this level of

contact counting seeks to avoid criticisms against anti-autonomy by

acknowledging that a choice of law clause is one of the “contacts” in a

contract, its application is characterized by uncertainty. This is because

it is conjectural to determine the applicable law of a contract by

deciding the contracts’ contact with a legal system. It is difficult to

determine the most vital and substantial contact in cases of competing

or evenly balanced clauses in a contract. Thus, a judge may attach

significance to the most trivial connection, which may be the forum

law, because the trivial connection may be the best law for some

judges.

Also, it is common for parties to select different laws to govern

different areas in their international contracts. In this instance, it is

difficult to group different choice of law clauses to determine an

applicable law of the contract because chosen laws apply to different

individual contract terms. Realizing that the application of this rule

may sometimes be futile, advocates argue that where it is impossible to

group contacts in a contract, party autonomy should be applied. This

argument paradoxically accords a subsidiary role to party autonomy,

instead of making it the main rule.

Finally, contract counting encourages parties to engage in

“contact building.” This means that parties, because of an impending

litigation, may intentionally tie the events of a contract to a particular

legal system, such that the intended legal system becomes the center of

gravity or the closest connection to the contract. The wisdom in the

dissenting opinion of Judge Desmond in Dym v Gordon sums up the

weaknesses of this rule as follows:

Contacts,’ ‘interest,’ ‘center of gravity,’ etc... are

catchwords representing at best not methods or

bases of decision but considerations to be

employed in setting up the new rules of law

required by changing times. Counting up

‘contacts’ or locating the ‘center of gravity’ or

weighing the respective ‘interests’ of two states

can never be a satisfactory way of deciding actual

lawsuits.92

In sum, the center of gravity rule depends on some sort of logic

on the part of the court and parties to determine the applicable law. But

it is a truism that the life of the law is not dependent on logic but on

experience.

The Law of the Place Which Validates the Contract (Lex Validitatis)

This rule is usually applied when a court is faced with the question of

the validity of a contract. The rule seeks to select from two competing

rules – the law that invalidates and that which validates the contract. It

ignores the law that invalidates the contract and selects that which

validates it. It is based on the theoretical presumption that the parties

have intended that their contract be governed by the law under which it

is legally effective. It presumes that individuals do not act in folly or

dishonesty but “rather that they intended in good faith that their acts

shall be valid and what they purport it to be.”96 It has also been pointed

out that the application of this rule “better serve[s] business

convenience... by making their [parties’] acts an enforceable promise.”

This is because it is only practical and sensible that parties should be

held to their bargains and that, in any event, parties’ “true intent is not

so much that a particular law governs, but that their contract be

binding.” Therefore, proponents of the lex validitatis rule argue that

regardless of the chosen law, the only practical thing to do is to uphold

the validity of a contract.

Just like other rules, the justifications for this rule also suffer

from some weaknesses. First, as to the argument that it is the intention

of parties that their contracts be valid, it is difficult to decipher the

intention of parties in the absence of a choice of law clause or in cases

where the choice is one that is not inferable. Thus, this rule relies on

presumptions. Also, parties may be genuinely mistaken as to the effect

of their intended applicable law, such that the law invalidates the

contract. In this instance, the parties’ choice of law invalidates their

contract and, because of this, the purpose of the rule is defeated.

However, it may be argued that the court will search for another law to

validate the contract. Clearly, an application of another law to “save

the day” is not a manifestation of parties’ intention in this instance. In

effect, the application of the lex validitatis rule in some instances may,

like preceding rules, lead to absurdity or uncertainty.

The Law of the Place of Litigation (Lex Fori)

This choice of law rule dictates that, regardless of the contract’s

contact with another state’s law or the intention of the parties, the law

of the place where the matter is litigated should be applied (forum

law). The party who argues for the application of a foreign law must

show reasons for its application. The lex fori rule is based on the

theory that “if the forum and a foreign state each have a domestic rule,

the underlying policies of which are applicable to the interstate case in

issue, it is improper for a court to give effect to the policies of another

State in preference to those of its own State.” Therefore, the forum’s

policy interest trumps the application of any foreign law. By this rule,

the notion of justice to a case is based on the superiority of a state

policy rather than the human conduct which is at the center of the

dispute

Thus, the forum state, which may be fortuitous to hear a case, is

portrayed as a depository of just laws.107 While this rule promotes the

forum state’s policies, it encourages forum shopping because a

plaintiff that is aware of a favourable estate policy on an issue may

litigate in that forum as opposed to the “appropriate” or agreed forum.

Also, because of different state policies, similar facts will lead to

different results in different states. This necessarily results in a lack of

uniform decisions on the same facts. This rule also creates a tension

between states because it fixes the choice of law issue among states

instead of individuals. In effect, the application of this rule results in a

lack of uniformity on the one hand, and breeds conflict between states

on the other hand. Conflict between states means that the decision of a

state is based on how its citizens are treated in another state –

reciprocity. For example, if a Nigerian court, based on Nigerian state

policy, refuses to enforce a loan contract between a German creditor

and Nigerian debtor, German courts and legislature would, as a matter

of reciprocity, necessarily deny Nigerian creditors such an opportunity

in Germany. This hinders international or transactional contracts

because citizens of these countries would avoid doing business with

each other.

Express Intention of the Parties (Party Autonomy)

The discussion in chapter 2 above explains the meaning and

development of party autonomy. So here, it suffices to say that the

application of parties’ will through choice of law clauses has “sprinted

ahead” of other choice of law rules. It has been noted that “within its

realm, it [party autonomy] trumps all other conflict rules.... thus, [party

autonomy] prevails over other conflicts rules, which are denigrated to

mere default rules.”110 In effect, other choice of law rules have been

treated as “subsidiary” rules when courts make choice of law

decisions.

Party autonomy has grown in many dimensions over the years. It

has been described as “one of the fundamental principles of private

international law;” and a “master” of all rules in conflict of laws.113 It

has also been characterized as “perhaps the most widely accepted

private international rule of our time, a “fundamental human right” and

an “irresistible principle that belongs to the common core of the legal

systems.” The doctrine has also been likened to “motherhood and the

proverbial pie: virtually nobody is against it and most commentators

enthusiastically endorse it.” In effect, party autonomy is described as a

“universal approach which has also been a success in practice.” The

last characteristic is an overstatement because there is no universal rule

for all situations. 119 Indeed, it is impossible to have just one approach

to all circumstances because there are many variables that prevent this

possibility. Thus, other choice of law rules still co-exist with the party

autonomy rule, albeit in different circumstances.

Those rules may be applied symmetrically with the party

autonomy rule to determine the applicable law of a contract. But

countries usually begin the choice of law process by looking for the

will of the parties before considering other rules. Therefore, the

application of other choice of law rules is treated as dependent on an

absence or presence of the parties’ intention. Lord Wright explained

that “English law in deciding these [choice of law] matters has refused

to treat as conclusive rigid or arbitrary criteria such as lex loci

contractus or lex loci solutionis and has treated the matter as

depending on the intention of the parties to be ascertained in each case

on a consideration of the terms of the contract...”

However, a German scholar described party autonomy as a

“stopgap” that is only applicable to choice of law issues where there is

no other satisfactory rule.

By this, party autonomy is a make-shift rule. This proposition is

oblivious to the fact that party autonomy possesses inherent traits

which endear both parties and courts to recognize choice of law

clauses in contracts. This proposition does not reflect the importance

and advantages of party autonomy in choice of law theories, especially

in international or multi-state contracts. This thesis has shown that the

inadequacies of other choice of law rules have been most evident in

international or multi-state contracts. Party autonomy fulfils the

objectives of choice of law rules in multi-state contracts. Some of the

objectives which the party autonomy rule fulfils are as follows:

Certainty and Predictability

A major advantage that party autonomy has over other choice of law

rules is that it enables parties to predict the applicable law to their

contracts. This means that the governing law of a contract is not left to

circumstances outside the reach of the parties; it is controlled by the

parties through a choice of law clause.127 This function is important

because parties are unable to claim opportunistically the protection of

contractual rights which they did not envisage as applicable in their

contract. Therefore, party autonomy enables the parties to plan their

transaction according to the proposed chosen law.

Also, through party autonomy, contractual parties are sure of their

legal choices, especially on issues relating to the choice of the

governing law. Thus, persons of different nationalities or regions are

able to enter into a contract without the fear that the law of the country

of one party will “override” the other. This gives security to

contractual parties. The need for certainty is important in international

contracts where more than one national law may equally be applicable

to the contract because:

An international contract, like any other contract,

requires certainty. Where several fora are

available and several laws potentially applicable,

the parties should be able to avert such

uncertainties through an agreed choice of law

and/or forum. To leave that determination to a

court invites uncertainty since national choice of

law rules ...differ and even if they involve similar

non-rule statements, such as the ‘centre of

gravity’ or ‘close connection’ test, they are open

to judicial chauvinistic manipulation.”

To this end, parties can avoid a fortuitous application of other

choice of law rules which may, sometimes, yield uncertain and

unexpected results. Because of this advantage over other choice of law

rules, some writers have argued that party autonomy promotes the

reasonable expectation of parties. For example, a writer stated that

“The theory [party autonomy] provides, in general, for the fulfillment

of the ‘actual’ reasonable expectations of the parties to the contract.”

However, it should be noted that the satisfaction of parties’ reasonable

expectation is limited to instances where such expectations deserve

satisfaction.136 As the next section shows, parties’ expectations are

curtailed or limited in certain cases to satisfy national interests and also

to protect weaker parties.

Commercial Convenience/Flexibility

Party autonomy promotes international or transnational commerce.

This is because parties can choose laws outside their respective

domestic legal systems. This encourages “internationalization” of

choice of law rules. As a result, parties are able to choose a “neutral

law” that has no connection with their contract. Indeed, the growth of

various types of contract laws in the 21st century makes the application

of the party autonomy rule inevitable. Through party autonomy, parties

enjoy the freedom to choose any “sophisticated” contract law of any

country to suit their commercial need. In international contracts, there

are usually various motives for selecting the law of a country, one of

which is the “attractiveness” of the law of the chosen country. For

example, English law has enjoyed patronage from contractual parties

in international insurance and maritime contracts because of its

development in these areas of law.141 The ability of parties to choose

these laws or venues, regardless of geographical location of the

contract or nationality of the parties, promotes legal commercial

convenience. It is arguable that parties will be able to settle their

disputes with ease if a contract is governed by the law of the country

which has “best practices” in that area of law and in which there are

settled judicial precedents and robust legislative frameworks.

Finally, to achieve commercial convenience in an international

contract, there is a need for flexibility in the choice of law rules. Party

autonomy ensures that parties enjoy flexibility in their choice of law

rules, such that they can satisfy their peculiar transactional needs by

choosing the best applicable choice of law rule most suited to their

transactions.

Uniformity

Generally, uniformity of decisions in different national courts is one of

the aims of choice of law theory. Indeed, one of the reasons for

applying choice of law rules is to ensure uniform decisions. For

example, advocates of the lex situs rule argue that the reason for

applying the law of the place of a contract is that such a place is

certain. But because of developments in contract law, as well as

different national contract laws, it is difficult to achieve uniformity by

this rule.

The application of the autonomy rule fulfills this important

objective for choice of law because it proposes that, regardless of: the

national court; domicile of the parties; the center of gravity; or place of

performance, parties’ choice of law is accepted as the applicable law.

In the “ticket case” of Siegelman v Cunard White Star Limited,144 an

agent of the defendant issued tickets which contained a choice of law

clause (English law) to persons of different nationalities on board a

ship. It was held that the rationale for including the choice of law

clause in the ticket is that, regardless of the forum, there will be a

uniform applicable law. Indeed, this example shows that the

recognition of party autonomy is a way to achieve uniform decisions.

Uniformity in the application of a choice of law rule also

encourages easy enforcement of judgments because, if countries

recognize the power of individuals to choose the applicable law in

their contracts, arguments on the applicable law are eliminated during

enforcement of the judgment. Related to the foregoing is the fact that

party autonomy discourages forum-shopping because parties would

have agreed on the applicable law and, sometimes, court.147 Thus, a

party may object to the jurisdiction of a court based on agreement of a

choice of law or forum clause.

Less Burden on National Courts and parties

Other choice of law rules, apart from party autonomy, share a common

characteristic – they, sometimes, involve the consideration of different

factors to arrive at an applicable law. For example, the application of

the center of gravity rule involves a “preliminary test” of every

occurrence connected to the contract. This may not be an enviable task

for judges who listen to counsel arguments from divergent views. First,

the judge collates the facts (characterization); decides which facts are

relevant to the determination of the applicable law and those that are

not; examines the applicable laws to justify each state policy; and most

onerously, determines the law of the country that is closely connected

to the contract. This process is just a preliminary decision which is

exclusive of the trial. In an extreme situation, a dissatisfied party, after

the preliminary decision on the choice of law, may apply for a stay of

proceedings to appeal the decision. In countries with slow judicial

process, it may take years before this point is resolved, by which time

evidence may be lost and witnesses or the parties may have died.

Party autonomy removes the burden of making decisions on the

applicable law from the court to parties. This is because allowing

parties’ will to decide the applicable law removes the preliminary

judicial inquiries on the applicable law. This simplistic nature of party

autonomy is preferred to other “complex” choice of law rules. Indeed

Walker says that “conflict of law rules should be easy and simple and

easy to apply: they should facilitate the judicial task.”151 Once a choice

of law clause is included in a contract, courts, often-times, do not see

the need to inquire about the application of other rules. This was

demonstrated in Siegelman v.

Cunard White Star Limited when Judge Harlan said:

We see no harm in letting the parties' intention

control ... Instead of viewing the parties as

usurping the legislative function, it seems more

realistic to regard them as relieving the courts of

the problem of resolving a question of conflict of

laws. Their course might be expected to reduce

litigation, and is to be commended as much as

good draftsmanship which relieves courts of

problems of resolving ambiguities.

The parties’ burden of choosing the applicable law does not

include analyzing the intricacies of the application of other choice of

law rules. The only requirement is that, based on their preferences,

parties should agree on the applicable law. Thus, if the parties agree on

a law, it will be unnecessary to engage the services of solicitors from

different countries to analyze the intricacies of the otherwise

applicable rules or laws (although it is sometimes good). This saves the

parties’ time and energy on the choice of law clause in a contract and

allows them to concentrate on other contract clauses. In some cases,

the choice of law clause may even be a product of negotiation and

compromise. For example, a party may concede to a particular law in

exchange for another favourable clause in the contract. This introduces

the flexibility that parties need in a contract to strike a “balanced”

negotiated contract.

3.1.7.5. Sense of Justice between the Parties

The search for justice between parties is one of the objectives of the

application of choice of law rules. Indeed, the desire to do justice in

cases involving legally relevant foreign elements is one of the most

important objectives of any legal system. In cases where parties are of

equal bargaining power and the choice results from the free will of

parties, the application of the party autonomy rule gives parties a sense

of justice. This is because “the law chosen by the parties may on

occasions be more sensitive to fair dealings and moral concepts than

even that of the domicil of the parties [or any other choice of law

rule].”158 Parties, therefore, become partners in the administration of

justice to their disputes. Also, since there may be more than one

applicable law in an international contract, it is difficult to justify

application of one law over the other because “it is highly unlikely in

the mid-twentieth century that any one state is the sole depositary of

just laws.” It is difficult to answer the question that: in the case of two

applicable laws that seek to do justice, which one should prevail? Party

autonomy, therefore, solves this problem by allowing the parties to

choose the applicable law. This ultimately creates parties’ sense of

belonging and responsibility in the judicial process.

3.1.8. Criticism of the Party Autonomy rule

Apart from the early opposition to party autonomy discussed in chapter

2, scholars also criticize it as a conflict of laws rule. The criticism is like

Beale’s “party legislation” argument. It is argued that “it [party

autonomy] allows the intention of private parties to determine the scope

of the legislative jurisdiction of states that have not delegated such

power to them.” A writer concluded that “it will be hopeless for one to

predict the validity of a contract according to the intention theory.”

This argument is flawed because most states recognize party

autonomy. The argument also ignores the fact that a choice of law

clause is just a piece of paper with no legal force until the courts

“breathe life into it.” In effect, parties’ choice of law is still subject to

the forum courts’ scrutiny.165 In some cases, the choice of law does not

even change the risk allocation in a contract which is based on contract

law principles. Indeed, regardless of the applicable law, party autonomy

does not affect the legislative jurisdiction or interests of states.

Another justification for the party autonomy rule, contrary to

what critics say, is that it is not an unruly horse. This is because it

operates within a delineated legal limit. This point is discussed next.

Party Autonomy: An Unruly Horse?

Notwithstanding the advantages of party autonomy, should countries

allow parties to choose the applicable law without any restraint? The

answer is in the negative. Indeed, it has been noted that “everyone

agrees that however desirable party autonomy may be, it cannot be

absolute. While individuals and enterprises ought to be free to select

any law they please, they should not be able to abuse that freedom to

the detriment of one of the contracting parties or society at large.”

There are reasons why party autonomy has been limited in some

circumstances, and how this has been done. The limitations which vary

from country to country, are mainly twofold – unequal bargaining

power and public policy.

Unequal Bargaining Power

As noted in Chapter 2, party autonomy is an exercise of contractual

freedom in regard to choice of law. However, there are instances

where a party is unable to exercise the freedom to choose the

applicable law, because the other party possesses overwhelming

bargaining power. This may be because of inequality

(asymmetries) of information between the parties.169 An example of

this scenario

exists in adhesion contracts, the types in fine print in standard form

containing prearranged and offered by a “stronger” party to the other

party on a take it or leave it basis. Adhesion contracts include loan

agreements, consumer contracts, franchise, employment contracts and

transportation contracts. These contracts either completely remove the

freewill of the adhering party or fundamentally restrict it. There is,

therefore, the need to balance freedom of contract and fairness

between parties in these types of contracts.

Generally, party autonomy is a product of two opposing

principles. First is the need to assign the judge the role of an umpire

with no discretion to interfere with the choice of law clause in a

contract. Second is the need for fairness which encourage judges’

“active” participation in determining whether parties are not, by any

means, coerced or influenced in a choice of law decision, such that the

choice is not autonomous in the true sense of it. In support of the latter

principle, Ehrenzweig describes true autonomy as freedom to contract

and not freedom to adhere. Thus, courts strive to balance these

principles to ensure justice in individual cases.

3.2.2. Public Policy

Since party autonomy is a function of the choice of law rules of each

state, states, in order to protect their policies, limit the will of the

parties to choose the applicable law. These policies seek to protect the

interest of the public, third party interests, or even the interests of the

parties themselves. Indeed, it has been noted that “appropriate

constraints on party autonomy are necessary to protect the autonomy

of others.” This why states seek to balance the competing interests at

stake in the exercise of party autonomy, with their legitimate

protective interests. The protective measures of public policies are,

often times, expressed as mandatory rules that limit the right of parties

to choose laws that are against the “fundamental values” of the forum

state or, otherwise, the applicable law.

A mandatory rule, therefore, “is an imperative provision of law

which must be applied to an international relationship irrespective of

the law that governs that relationship.” The principles of territoriality

and sovereignty are exemplified in the application of mandatory rules

because the forum or the country whose law would otherwise be

applicable, dictates the scope and manner of application of party

autonomy.182 For example, the insurance, usury, franchise, and

consumer laws of most countries contain provisions that protect the

national interests, such that parties cannot evade the application of

these laws to their contracts.183 It should be noted that mandatory rules

do not just restrict the scope of party autonomy; sometimes they

prohibit party autonomy altogether. For example, public policy

expressed in the form of mandatory rules may dictate the legality or

otherwise of a contract. To this end, parties cannot make some

contracts because mandatory law deems them illegal. For example,

gaming and lottery contracts are prohibited by the law of most

countries.

Generally, the limitations of the party autonomy rule discussed

in this section produce unpredictable results for its application because

the determination of the scope of the rule is left to the discretion of

each state. States’ balancing of public rights against private ones has

never been done according to uniform criteria. More so because

“public policy” has not lent itself to an easy definition, nor has it been

easy to apply. As the next chapter shows, the scope or limitation of

party autonomy is usually determined by political, national and

economic interests, legal history, public policy, academic opinion and,

even sometimes, religious beliefs. To avoid or reduce this uncertainty,

parties must be aware of the specific limitations to party autonomy in

the laws of the countries that they choose.

Conclusion

The choice of law rules examined in this chapter show that all but one

of the rules cannot satisfy choice of law objectives—certainty,

flexibility, simplicity and uniformity. Party autonomy is the only

conflict of law rule that satisfies these fundamental objectives. By

highlighting the advantages of party autonomy, this thesis seeks to

justify its application, especially in international commercial contracts.

This discussion in this chapter has portrayed party autonomy as a

leading choice of law rule, but points out that it carries limitations, two

major reasons for limiting it being unequal bargaining power between

contracting parties and public policy. These limitations, however,

threaten the certainty and uniformity justifications of the doctrine

because they are influenced by varying factors in each states.

The next chapter deals with these limitations in detail. It examines

party autonomy in some jurisdictions to exemplify its differing scope

in different countries. The emphasis is on how and why the countries

discussed have applied these limitations to party autonomy. The

conclusion is that the scope or limitation of party autonomy is usually

determined by political, national and economic interests, legal history,

public policy, academic opinion and even, sometimes, religion.

SCOPE OF PARTY AUTONOMY IN CHOICE OF LAW IN

CONTRACTS—THE CHALLENGE OF UNIFORMITY

It is a truism that an absolute or unqualified party autonomy rule or

doctrine is more “mythical than realistic.” Since the party autonomy

rule is dependent on its recognition by sovereign states, this chapter

analyzes the scope/limitation of the rule and its application in some

jurisdictions. This is done through a comparative examination of

national private international law rules and cases which apply them.

The comparative examination shows that there is no convergence in

the application of the doctrine in the world today.

Generally, countries apply differing limitation tests of party

autonomy in different circumstances and for different purposes. The

purposes range from the economic to the religious. Some countries do

not even have a systemized private international law rule that sets out

these limitations; the limitations are left to the interpretation of judges

and individual national legislation. As a result, decisions on choice of

law are based on precedents and judicial discretion. This further

deepens the divergence of the scope of party autonomy across

jurisdictions.

Though this thesis reflects a textual analysis of some statutes

and case law, it does not reflect what courts presently do or what they

will do. Therefore, the discussion here constitutes “prophecies” of

what courts may do based on what they have done (precedents) and

what national statutes contribute to this predictive picture. Also, this

thesis does not cover all the limitations and their applications in

national private international rules; it selects the ones relevant to its

theme. This selective approach is pragmatic, given the limited space

this thesis allows. Nonetheless, analysis of the selected national

statutes will contribute to the overall goal of this chapter – to show that

the application of the party autonomy rule, through its varying national

limitations, is far from uniform. Some of the limitations and their

applications are now examined.

The Substantial or Close Connection Test

This limitation requires that a choice of law should possess a territorial

connection to the contract. It relies on the theory that a choice of law

must be related to a particular place in the contract and not merely a

fictitious relation to the contract. Thus, this test “rests in reality upon a

compromise between the concept of party autonomy and the principle

of territoriality.” This means that parties are not bound to choose the

closest connection or vital law of any place connected to their

contracts; they are only required to choose the law of a place that is

related to the contract, albeit “substantially.” Indeed, the real meaning

of party autonomy is lost if parties are compelled to choose the law of

the place that is closest or vital to their contracts. This test seeks to

prevent contractual parties from evading the laws of the place that is

closely connected to their contracts by choosing a “neutral” or totally

unrelated law. In other words, as long as they choose the law that has a

relation or is connected to their contract, the parties may evade what

might otherwise be an applicable law.

For a choice of law to satisfy the substantial or close connection

test, it may be sufficient to show that the chosen law is that of a

jurisdiction “where a significant enough portion of the making or

performance of the contract is to occur or occurs.” This test may also

be satisfied if the choice of law is that of the place of domicile of one

of the parties, the place of negotiation, the state of incorporation of the

parties, parties’ principal place of business, the situs of the property of

goods, or the place through which the goods were shipped. It is

doubtful that a forum clause is enough to create a substantial or

reasonable connection. However, courts may be inclined to treat the

forum clause as a connection to the forum because judges will be

happy to apply the forum law which they are familiar with. Indeed, it

is a natural inclination of every judge to apply the law of his country.

Some countries that apply this test are examined briefly.

The United States of America

The United States is one the countries that applies this limitation.

Section 187(1) of the Conflict of Laws Restatement (Second) generally

provides that parties can choose the applicable law “if the particular

issue is one which the parties could have resolved by an explicit

provision directed at the issues.” Subsection 2 of the same section

provides that where such an issue is not one that could be “resolved by

an explicit provision in their agreement directed to that issue, the

chosen law must bear a substantial relationship to the parties or the

transaction and there must be a reasonable basis for the parties’

choice.” The Uniform Commercial Code, 2008, also has a similar

limitation. This Code is a set of non-binding provisions drafted by the

National Conference of Commissioners on Uniform States Laws

(NCCUSL) and the American Law Institute (ALI). The Code aims to

achieve a uniform application of choice of law rules and to facilitate

easy commercial transactions through its adoption in the 50 states of

the United States. States have therefore adopted it, albeit with

variations in detail without any threat of obligation. Section 1-105 (1)

of the Code provides that “when a transaction bears a reasonable

relationship to [the forum] state and also to another state or nation, the

parties may agree that the law of either [the forum] state or of such

other state or nation shall govern their rights and duties.” In effect, the

Code requires that a choice of law must have a “reasonable relation” to

the contract.

Despite some academic comments on these provisions, judicial

decisions that apply this test are few. This may not be unconnected to

the fact that the test permits courts’ discretion in determining a choice

of law that has a “substantial connection,” or a choice of law that is

“reasonable.” Indeed, there is no definition of these ambiguous words

in the statutes. This means that courts determine the definition of these

words and the application of this test on a case by case basis.

Practically, it is difficult for a choice of law to fail this test because if

the parties fail to satisfy the “connection” requirement, they may be

able to show that the there is a reasonable justification for the choice of

an unconnected law. For example, in Radioactive, JV v Manson,23 a

case that involved a music recording contract, the court noted that the

choice of law (New York) was connected with the contract, and that

even if it were to be unconnected, New York law would have been

reasonable because New York courts “have significant experience with

music industry contracts.” Indeed, parties may not be short of reasons

for choosing a particular law. Such reasons include the developed or

neutral nature of the chosen law,26 or the parties’ familiarity with the

chosen law.

A commentator argued that the “close connection” and

“reasonable choice” limitations are identical because satisfaction of

one necessarily leads to the satisfaction of the other. This may not be

so in cases where a law is chosen for its neutrality and commercial

convenience. A neutral law may satisfy the reasonable test but not the

close connection test. This is because a neutral choice of law is usually

unconnected to the contract. Nevertheless, these limitations are not

mutually exclusive. The “reasonable” relationship requirement only

presents a “lower hurdle” than the “significant connection” test.

Spain

Spanish private international law rule also requires proximity of the

chosen law with the contract. Article 10(5) of the Spanish Civil Code

states that: “The law to which the parties have expressly submitted

shall apply to contractual obligations, provided that it has some

connection with the transaction in question.” Unlike the United States’

provision, the Spanish Code does not require parties to show the

reasonableness of their choice of law. Since the “reasonable choice”

condition permits a wider judicial discretion to uphold a choice of law,

it may be argued that Spanish courts do not possess as wide a

discretion as the United States’ courts.

Panama

Another national legislation that regulates the proximity of the chosen

law is the Panamanian Private International Code, which came into

force on 1 August 2015. Article 75 of the Code expressly provides that

“the applicable law must bear a link with the economy of the

transaction or derive from a law known by the parties.” The first

criterion seeks to protect the economic interest of countries connected

with the contract (presumably Panama), while the second criterion

seeks to ensure that parties know the choice of law. This provision

generally seeks to prevent evasive contracts, as well as protect “weak”

domestic parties against economic exploitation in international

contracts.

Two authors ask: “what would happen if only one of the parties

knows [the] law: would such law be considered to satisfy the proximity

requirement?” It is suggested that the word, “parties,” as used by the

Code, means mutual, not unilateral knowledge. The more perplexing

issue is the scope of the parties’ knowledge. Should parties know all

the legal effects of their choice? Is a party under any obligation to

disclose adverse legal effects to the other party? It is submitted that the

knowledge required is one that will enable the parties to predict the

outcome of their choice; only Courts can determine the legal effect of

their choice. On the second question, parties must disclose the adverse

legal effect of a choice. This is because non-disclosure may be

interpreted to be a misrepresentation made in bad faith.

Nigeria

Although Nigeria does not have a national statute like Panama, Spain,

or the United

States, the Nigerian Supreme Court decision in sonnar (Nigeria) Ltd v

Panlenreedi MS Nordwind suggests that Nigerian Courts may limit

party autonomy in cases where the choice of law has no relation to the

contract—in this case, the parties chose German law. The court found

as a fact that the contract was between a Liberian shipowner and a

Nigerian shipper. The following are the geographical connections to

the contract: (1) Bangkok was the place of the supply (rice), (2)

Nigeria was the place of the delivery of the rice (the place of

performance), (3) The bill of lading was issued in Liberia. The only

connection with Germany was that the shipowner’s agent, who served

as a transporter in this case, carried on its business in Germany. The

court saw no relevance of German law to the contract. It held that for a

choice of law to be effective, it must be reasonable. In this instance,

the choice of German law was unconnected with the contract. At the

same time, it was unreasonable, since it had little or no connection to

the parties’ contract.

Other African countries that require proximity of the chosen law

with the contract include Algeria, Cape Verde, Angola, Mozambique,

and GuineaBissau.

The United Arab Emirates

The United Arab Emirates (UAE) also applies the proximity rule.

Section 19 of the United Arab Emirate Civil Transactions Code (CTC)

provides that:

Contractual commitments in form and context

shall be governed by the law of the State where

the common residence of the contracting parties

is located. Should they have different residences,

the law of the State where the contract is made

shall apply, unless the parties agree otherwise, or

the conditions show that another law is to be

applied.

This Code acknowledges the will of the parties to choose an

applicable law but the choice of an unconnected law is a source of

debate. Some commentators argue that an unconnected choice of law

should be recognized because section 23 of the CTC permits an

Emirati court to apply general principles of private international law

where there is no express provision in the Code. They conclude that

reliance on private international law principles justifies the recognition

of an unconnected choice of law. Other commentators argue that an

unconnected choice of law should not be recognized “because the

applicable law is restricted by the aim of the contract.”44

The latter view has judicial support. In a reported case, the

Emirati court of appeal rejected the choice of English law in a contract

because the payment of four promissory notes was made in Abu

Dhabi. The contract had no connection with English law. The court,

relying on article 20-23 of the Civil Procedure Law (CPL),46 held that

notwithstanding the choice of English law, Abu Dhabi courts had an

“international jurisdiction” to entertain the claim. It relied on section

21 of the CPL which states that the UAE courts shall have jurisdiction

to hear proceedings against an alien who maintains no residence or

domicile in the UAE in the following cases:

a. If he has elected domicile in

the UAE;

b. If the proceedings concern

property in the UAE,

inheritance accruing to a

citizen or an estate opened

therein;

c. If the proceedings involve an

obligation that was made,

performed or was supposed to

be performed in the UAE, a

contract to be attested in the

UAE, an event that occurred

in the UAE or bankruptcy

declared by a UAE court.

The Court specifically relied on the last condition to ignore the

English choice of law because article 24 of the CPL states that if the

parties’ choice is contrary to the provision of article 21, it must be

struck down.

The Close Connection Test is not a Universal Test

Not all private international law rules require connection with a chosen

law. Most countries in Europe, as well as Canada, and China do not

require a substantial connection. The most often cited authority for this

proposition is the Privy Council decision in Vita Food Products Inc. v.

Unus Shipping Co.50 The dictum of

Lord Wright that “connection with English law is not, as a matter of

principle, essential,” has been followed by countries mentioned above.

To this end, some national statutes are silent on whether the choice of

law requires a connection with the contract. It is presumed that such

silence mean that connection with the contract is unnecessary.

The Choice of Law must be Bona fide, legal and not contrary to

public policy

This limitation is evidenced in the dictum of Lord Wright, speaking on

behalf of the Judicial Committee of the Privy Council in Vita Food.

This case arose from damage to a shipment of fish carried on a

Canadian ship (The Hurry On) from Newfoundland to New York,

under bills of lading issued in Newfoundland in 1935. The cargo was

damaged off the coast of Nova Scotia, Canada, and the suit was

brought in Nova Scotia where the carriers were domiciled. Even

though the bill of lading had no connection with English law, both

parties expressly stated in the bill of lading that English law is the

governing law. This was because an old contract clause was used in

error, instead of a new contract clause (paramount clause) that would

have reflected provisions of The Hague Rules and section 3 of the

Newfoundland Carriage of Goods by Sea Act that were in force in

1935.56 Although the trial and Appeal Courts invalidated the contract

because it was contrary to the provisions of the statute (Newfoundland

Act), the Privy Council, based on the governing clause (English law),

upheld the validity of the contract.

One of the issues was whether the parties could choose English

law instead of the Newfoundland Act that was closely connected to

their contract. Lord Wright answered the question in the positive. He

stated that “connection with English law is not, as a matter of

principle, essential.” Therefore, an express intention of the parties is

conclusive under the common law. His classic dictum is as follows:

It is objected that this is too broadly stated and

that some qualifications are necessary...But where

the English rule that intention is the test applies,

and where there is an express statement by the

parties of their intention to select the law of the

contract, it is difficult to see what qualification

are possible, provided the intention expressed is

bona fide and legal, and provided there is no

reason for avoiding the choice on the ground of

public policy.

The Vita Food decision generally raises some choice of law

issues, but this thesis focuses on the scope of party autonomy as

espoused by Lord Wright. This is treated under four headings: Bona

fide, legality, mandatory laws, and public policy.

Bona fide Test

The meaning of “bona fide” as used by Lord Wright is a subject of

academic comments. One commentator even thinks that it has no

meaning.62 My contrary opinion is that words are not used in vain; they

usually have a meaning. Tetley thinks that a bona fide choice means

that the choice of law must be clear, express, made in good faith and

innocently.63 He argues that the choice of law clause in Vita Food was

based on an “old” standard form which was relied on in error or

“innocently.” This interpretation may be inaccurate because the word

“good-faith” itself is ambiguous and relatively subjective. Cheshire &

North “presumes” that the words “bona fide” mean that “parties

cannot pretend to contract under one law in order to validate an

agreement that clearly has its closest connection with another law.”64

They think that the fact that the choice of law was made in bad faith is

evidenced by a lack of connection between the contract and the law

chosen.65 But if the bona fide test is an anti- evasion test, the Vita

Food case would have failed this test because the choice of law in this

case had no connection with the law chosen.

Indeed, the essence of party autonomy is to “evade” the otherwise

applicable law. 66

Mann thinks that the word means a choice of law that is

reasonable and not arbitrary, capricious, eccentric or fanciful.67 This is

because there are cases where parties have made an unrelated choice of

law decision and the choice was upheld because they were reasonable.

Dicey and Morris, whose definition is similar to that of Cheshire and

& North, disagree. They argue that the word “bona fide” means more

than a “capricious” and “eccentric” choice of law.

These scholars’ definitions may be academic because there is no

reported English decision where a choice of law was struck down

because it failed the bona fide test. Also, though most common law

countries recognise this test, they deny its existence because it is rarely

applied. Regardless of the academic nature of this definition, my view

is that “bona fide,” as used by Lord Wright, means that the choice of

law must be a genuine one. Parties must have intended or declared to

be bound by their choice. It must not be feigned agreement or a mere

facade. This interpretation has its root in the intention theory because a

choice of law clause must be supported by an intention to be bound by

it.

Legality, Public Policy, and Mandatory Law

These limitations are treated under the same heading in this thesis

because laws prohibiting illegal contracts and mandatory laws possess

the element of public policy. In effect, similarities in the application of

these limitations do not make any differences between them clear cut.

Indeed, “every rule of law should be based upon, and reflect policy

considerations.” However, there is a difference between statutes

prohibiting illegal contracts and public policy. While court decisions

that a contract is illegal are usually based on positive laws (statutes),

decisions of courts on public policy are based on values so

fundamental to the society as to necessitate the courts’ intervention,

even though there has been no breach of a legal obligation in a

contract. There is also a difference between mandatory laws and public

policy. While public policy operates negatively because it disallows

the application of an otherwise applicable law, mandatory rules operate

positively because they are super-imposed on the applicable law of the

contract. Simply, for purposes of this thesis, it is taken that a limitation

imposed by public policy is also deemed to be imposed by mandatory

law.

Most jurisdictions limit party autonomy in contracts that are

tainted with illegality. However, countries, or even states within a

country, classify illegal contracts differently. For example, though the

United States’ federal statute prohibits the sale of marijuana, its sale is

legal in 23 of its states. While Singaporean courts will not enforce a

gaming contract because it is illegal under Singaporean law, Canadian

courts will enforce it. Therefore, it is necessary to determine the law of

the country that defines an illegal contract in an international contract.

This is because there is no consensus on the law of the country by

which legality is to be determined. Generally, illegality may be

determined by the law of the place of performance, the proper law, or

the law of the place of contracting. The predominant view is that the

proper law of the contract and the law of the place of performance

usually determine the legality of a contract in most common law

countries. In effect, if a contract is illegal by the law of the place of

performance and the proper law, a choice of law of another jurisdiction

will usually not be recognized or enforced.

Just like determining illegality, the definition and scope of the

applicable public policy in a multi-state contract is not settled. One

view is that the public policy of the forum and its scope is the

applicable public policy. Another view is that both the public policy of

the forum and the public policy of a country which would have been

applicable had the parties not made a choice of law would be the

applicable law (mandatory law of the third countries). Countries that

fall under this latter category include the Netherlands, the United

States of America, and Switzerland.

Determining the scope of party autonomy under these

limitations is, therefore, characterised by lack of uniformity and

uncertainty in various jurisdictions.

Choice of Mode of Expression

There are different modes of expressing the parties’ intention. It may

be through an express or a tacit (implied) choice. Parties make an

express choice through the choice of law clause in a contract, while

parties make a tacit choice if the terms or surrounding circumstances

of the contract point to a particular system of law. Contract terms that

indicate a tacit choice include an exclusive jurisdiction clause, an

express choice made in a related transaction or in a previous course of

dealing, and a standard form known to be governed by a particular

system of law.

The application of an express choice does not pose much threat

to the uniform scope of party autonomy because most jurisdictions

permit parties to make such choice, but the application of a tacit choice

produces such a threat. This is because some countries do not permit or

restrict the application of a tacit choice of law because of the fear that

such choice may lead to an arbitrary result or a choice unintended by

the parties. This arises from the fact that tacit choices are usually

inferred based on judges’ assumptions from the terms or surrounding

circumstances of a contract. To prevent judges from making arbitrary

tacit choices, countries either totally prohibit tacit choices or, when

they permit it, adopt different approaches to ensure that the inferred

choice of law reflects the will of the parties. Some countries infer a

choice of law based only on the terms of the contract, while some rely

on the surrounding circumstance of the case. Others even rely on both

the terms of the contract and surrounding circumstance of the case.

Indeed, there is no universal approach as to the indicators of a tacit

choice of law.

Lack of uniformity of the scope of party autonomy is further

deepened by some countries’ stance on the scope of party autonomy

generally – they do not set out the modes of exercising the parties’

choice of law. This creates uncertainty in the choice of law process

because parties are unsure about how to make a choice of law.94 Thus,

parties and courts are enmeshed in the argument as to the proper mode

of exercising party autonomy and the validity of the mode adopted by

a party.

In the discussion that follows, the divergence in the mode of

exercising party autonomy is further exemplified through legislative

provisions and judicial practices in some countries.

Countries that do not Recognize a Tacit Choice

Peru is one of the countries that require parties to make an express

choice only.95 For a choice of law to be valid under Peruvian law, it

must be express, not tacit. The Peruvian Civil Code provides that

“contractual obligations are governed by the law expressly chosen by

the parties....”96 Chinese law also stipulates that a choice of law should

be made expressly. Article 3 of the Law of the People’s Republic of

China on the Laws Applicable to Foreign-Related Civil Relations

(Chinese PIL Act) provides that “the parties may explicitly choose the

law applicable to their foreign-related civil relation in accordance with

the provision of this law.”97 A commentator noted that this limitation is

justified on the basis that “the boundary line that separates reasonable

interpretation from arbitrary fabrication is not

clear.” He concludes that “given the judicial environment in China is

far from perfect,” limiting the autonomy of the parties to an express

choice of law protects parties from arbitrary results that may arise from

an inferred choice of law.

Provision for a tacit choice – divergent indicators

In countries that permit a tacit choice of law, the criteria for

determining it are divergent. These criteria run along two lines –

determination of the choice of law through contract terms or through

the surrounding circumstances of the contract. For example, the

national private international law statutes of Armenia,101 Quebec, and

Uruguay determine a tacit choice through the terms of the contract

only. On the other hand, the national statutes of Slovakia and

Liechtenstein determine a choice of law based on the surrounding

circumstances of the contract only. National statutes that combine both

criteria, that is, the terms of the contract and the circumstances of the

contract, include Turkey, Qatar, and Albania. In fact, Article 116 of

Switzerland’s private international law statute provides that “[t]he

choice of law must be express or result with certainty from the

provisions of the contract or from the circumstances...”

As earlier noted, countries that permit inference from the terms

of a contract fear that if decisions are based on the circumstances of

the case, it may cause judges to reach arbitrary decisions. They assume

that “justice between the parties will be promoted by the application of

a rule of law which leaves only limited scope for judicial discretion.”

As a result, they limit the discretion of judges in the determination of

tacit choices.

Internationality of the Contract

Most countries accept that party autonomy should be limited to

international contracts and not domestic contracts. This is because

“party autonomy” is a doctrine of conflict of laws that applies to a

contract that has a foreign element. Wolff accepts that “it is common

ground that in the case of contracts with a foreign element foreign

domicil, foreign nationality, foreign place of contracting, foreign place

of performance—the parties themselves have, within limits, a right to

determine what law is to be applied to their contract.”

Limiting party autonomy to international contracts do not only

encourage transnational trade because parties from various

jurisdictions are free to choose the applicable law, it also prevents

domestic parties in a domestic contract from evading the mandatory

legislation of a country. Restricting party autonomy to international

contracts, therefore, allays parties’ fear of the compulsory application

of the law of the place of contract or performance to their contact. It

also ensures that parties are certain of the legal effect of their choice.

In effect, while most countries recognize the advantages of party

autonomy, they prevent parties in domestic contracts from abusing the

principle. This abuse stems from the parties being able to evade the

domestic laws which would ordinarily regulate their contracts. Thus,

this limitation ensures that “socially undesirable anomalies are not

created by having another state’s law applied to persons or activities

that are part of its own social or economic system.”115 However,

despite the limitation of party autonomy to international contracts,

parties in a domestic contract can incorporate foreign law into their

contract.116 Indeed, incorporation of a foreign law is a matter of

construction by the court and not a question of conflict of laws.

There is no universal acceptance of the definition of an

international contract, or the criteria for its determination. This

prevents the uniform application of the scope of party autonomy in

most jurisdictions because parties interpret “internationality”

differently. Countries may define domestic contracts broadly, such that

categories of contracts regarded as international are limited, that is,

they may classify a contract as a domestic one if the proper law of the

contract, upon objective consideration, is that of the forum, regardless

that the contract has a foreign element. Countries may also strictly

define a contract as domestic where the state has an “interest” in the

contract.119 These interpretations depend on how a country defines the

connecting or qualifying factors for internationality. Therefore, the

meaning of an international contract usually depends on the connecting

factors set by each country. These factors include: the fact that the

parties have their places of business in different states, the different

domiciles or habitual residences of the parties, the fact that the place of

performance is abroad, and the fact that payments relating to the

contract are in foreign currency or in a foreign place.120 The application

of this limitation in some countries to determine the internationality of

a contract in some countries is exemplified below.

Broad interpretation of an International Contract

An example of a country that broadly interprets “internationality” is

Uruguay. The Uruguayan Draft Code defines an international contract

as one in which the parties have their habitual residence or

establishments in different states or which has “objective links” with

more than one state. This appears broad because “objective links” may

be subject to interpretations to suit different purposes. Similarly,

Paraguay, in Article 2 of its private international legislation, it is

provided that the internationality of a contract should be interpreted in

“the broadest way possible.” It is submitted that broad interpretations

like these ones permit courts to consider economic factors in

determining the international character of a contract. However, this

may not protect developing countries’ economies from “external

exploitation” because courts, in their discretion, may interpret an

otherwise domestic contract to be an international one.

Narrow Interpretation of an International Contract

The Chilean private international law rule is an example of a statute

that limits the scope of an international contract. Although the Chilean

Civil Code does not define an international contract,124 a joint reading

of Article 16 of this Code and Article 113 of the Chilean Commercial

Code reveals that a contract is not considered international where the

place of execution is abroad and the place of performance is Chile. In

other words, a contract entered into in one country to be performed in

Chile is not an international contract as far as the Chilean law is

concerned.127 Also, notwithstanding the presence of a foreign element

in a contract, section 21 of the United Arab Emirates’ Civil Procedure

Law restricts the international character of such contracts.128 The

Vietnamese Code states that “a contract entered into and performed

entirely in Vietnam must comply with the law of the socialist Republic

of Vietnam.”129 This strict or limited interpretation was criticized in the

decision of the highest South American court, the Venezuela Supreme

Tribunal of Justice, in Embotelladora Caracas C.A et al v Pepsi Cola

Panamericana S.A130 as insufficient in the realm of international

commerce. The court held that all factors should be taken into

consideration to arrive at a broad definition of an international

contract. However, the provision of the Code reflects the history of

Latin American countries’ hostility to party autonomy. As pointed out

in chapter 2, Latin American and African countries restrict or prohibit

the choice of a foreign law because they believe that it gives foreign

laws, and by extension foreign countries, an economic advantage over

their domestic laws. This explains why Article 2(3) of the Panamanian

Private International Law Code 2014131 requires courts to make

international commerce a consideration in choice of law decisions.132

Can Parties’ Choice of Law Create an International Contract?

The issue is whether the choice of a foreign law in a contract is enough

to turn an otherwise domestic contract into an international contract.

Some national private international law rules suggest that parties can

transform an otherwise domestic contract into a cross-border contract

if they choose the law of another state. In effect, parties can choose a

foreign law in their domestic contracts. The only limitation is that the

choice of law is subject to the mandatory domestic rules of the

country. For example, Article 3111 of the Quebec Civil Code provides

that “[a] juridical act, whether or not it contains any foreign element, is

governed by the law expressly designated in the act...where a juridical

act contains no foreign element, it remains nevertheless subject to the

mandatory provisions of the State which would apply in the absence of

a designation.” Article 113 of the Chilean Commercial Code also

allows parties to choose a foreign law in a domestic contract. Other

countries with similar provisions include Albania, Bulgaria, Estonia,

Russia, and Serbia.

However, some countries expressly prohibit the

internationalization of a contract through a choice of law clause or the

will of the parties. For example, the Ukrainian Private International

Law prohibits the choice of a foreign law if the contract does not have

a “foreign element.” The Uruguayan Draft Code is more explicit, it

expressly provides that “a contract cannot be internationalized through

the sheer will of the parties.”

The differing criteria for determining the internationality of a

contract, therefore, accounts for the scope of party autonomy.

Countries autonomously determine the criteria that best suit their

judicial, economic, social, and political interests.

Exclusion of Party Autonomy in certain types of Contracts—

Varying Considerations

Generally, through local statutes, states exclude certain contracts from

the scope of party autonomy. By this, parties whose bargaining power

is weak are protected from other parties who possess strong bargaining

power that enables them to choose a “one-sided” unfavourable law to

the business interest of the domestic party. A commentator tagged

these statutes as “localizing statutes” that co-exist with other statutes.

These localizing statutes contain express provisions that make a

domestic statute applicable in multi-state situations. In effect,

localizing statutes exclude “both the judicial and the contractual choice

of another state’s law.” Because localised statutes are specific

legislations, they override choice of law or conflict of laws statutes,

which usually contain generalized provisions. Although a localising

statute may qualify as a mandatory rule, its application is different. A

localizing provision expressly declares its application to a multi-state

situation with or without expressing a public policy; but for a rule to

qualify as a mandatory rule, it must contain an element of public

policy.145

In enacting localized statutes, most countries seek to strike a

balance between enthusiasm for party autonomy and comity on one

side, and protection of their citizens, economy and sovereignty on the

other side. Common examples of such contracts are employment

contracts, insurance contracts, consumer contracts, construction

contracts, carriage contracts, charter contracts, franchise or

distributorship contracts, and contracts involving real property or

immovable properties.

However, considerations for enacting localised laws that

prohibit or restrict party autonomy differ from state to state. Localised

laws are influenced by historical, economic, social, political, colonial,

and religious factors. As discussed in chapter 2, hostility to party

autonomy in Latin America and some parts of Africa is largely

influenced by historical, colonial, and economic factors. Latin

American and African countries’ colonial experience and fragile

economies largely dictate that the content of their localised laws must

protect their citizens from economic exploitation and foreign political

domination. Developing countries do not restrict localised laws to the

conventional contracts mentioned above, a situation that largely

accounts for the varying scope of party autonomy in the world. While

localised laws are affected by a common factor in developed countries

– Continental Europe and Anglo- America (asymmetry of information

between private individuals); it is affected by different factors in

developing countries – Africa and Latin America (national economy

and colonial history). Some of the localised laws, especially those in

Africa, are examined to illustrate this point.

Localizing contracts in Africa

Local African laws show that developing countries’ statutes prohibit

party not be applied. Although there is no uniformity on what type of

contract should exclude party autonomy in Africa, some examples

exist. A Nigerian judge stated that in maritime and aviation matters,

“Nigerian courts ... ma[k]e use of local laws, occasionally English laws

and we take into account international [maritime] conventions.”

Indeed, section 20 of the Nigerian Admiralty and Jurisdiction Act

precludes parties from making a choice of jurisdiction. In effect, the

statute removes the discretion of a judge to enforce forum selection

clauses. One of the objectives of the statute is to protect Nigerian

shipping companies from instances where foreign parties or large

multinational companies may insist on foreign jurisdictions where

Nigerian law may not be applied. Although this statute has been

criticized for not allowing parties to autonomously choose their

jurisdiction (party autonomy), it remains the law in Nigeria.

Also, in technology transfer agreements, some African countries

prohibit the parties’ choice. For example, Clause 13 of the Revised

Guidelines on Acquisition of Foreign Technology, issued in 2003 by

the National Office for Technology Acquisition and Promotion

(NOTAP), mandatorily prescribes Nigerian law for technology transfer

agreements between a foreign investor and a

Nigerian. In effect, the statute prohibits both the choice of a foreign

law and nonstate laws. The objective of the Guideline is to ensure that

Nigerians secure the best terms in the contract. This objective is in line

with section 4 of the NOTAP Act which gives NOTAP the mandate to

secure the interest of Nigerians in foreign technology contracts. This

Regulation has been criticized on the basis that most Nigerian statutes

are not suited to protect the interest of Nigerians and that provisions of

foreign laws are better in this regard. Regardless of criticism, the

objective of the statute is not in doubt – to protect Nigerians from

unequal bargaining power that arises during contract negotiations

between them and foreigners or large manufacturing companies.

The Egyptian law on technology transfer agreements contains

more stringent provisions against party autonomy. The Egyptian

Competition Law provides that Egyptian technology transfer

provisions shall apply to any agreement for the transfer of technology

to be utilized in Egypt, irrespective of whether such transfer takes

place outside or inside Egyptian borders or the nationalities or

countries of the parties. The law also applies to internal transfer and a

crossborder transfer of technology, as well as arbitration proceedings

involving disputes as to such transfer. It applies to both independent

contracts for the transfer of technology, as well as contracts involving

transfer of technology components. An agreement which stipulates a

foreign law is to be struck down. The statute, just like the one in

Nigeria, aims to protect the interest of Egyptians from foreign

exploitation through unequal bargaining power in contracts with

foreigners and large manufacturing companies.

Other areas of Limitation and Divergence

It is impossible to exhaustively discuss the varying limitations on the

scope of party autonomy within the confines of this thesis, but it

suffices to mention that other limitations exist. This includes the

limitation of parties’ choices to state laws as opposed to a non-state

law. Indeed, “Courts often do not respect choice of law agreements in

which parties have chosen a set of principles without choosing a

national law.” Although most countries make this restriction, there are

national statutes like those of Paraguay and Venezuela that allow

parties to choose a non-state law.165 Other limitations touch on the

validity of the contract,166 the capacity of parties, and consent of the

parties, that is, whether parties have consented or whether such consent

was free from error or duress.

Conclusion

The foregoing comparative analysis of countries’ varying application

of the limitation of party autonomy shows that the importance of party

autonomy which relates to certainty and uniformity, may be “under

threat.” In essence, it has been established that: (1) party autonomy is,

essentially, a manifestation of national will, rather than a matter of

supranational recognition; (2) absolute or unlimited party autonomy is

almost impossible to find in any legal system; (3) there are varying

degrees to which party autonomy exists in different countries. The

scope of such autonomy is determined by political, national and

economic interests, legal history,167 public policy, academic opinion

and as in the United Arab Emirates, religious convictions;168 (4) in

most jurisdictions, the relative exceptions and

expansion of the doctrine and its constraints challenge the prospect of

realizing a uniform scope for party autonomy.

The next chapter examines regional and international legislative

efforts to unify the scope of party autonomy. It looks at it from two

international legislative classifications/approaches – hard law and soft

law. It points out the advantages and weaknesses of both

classifications, and ultimately answers the question of whether the new

international soft law instrument on choice of law – the Principles on

Choice of Law in International Commercial Contract – as it is, can

yield an “international uniform scope of party autonomy.” In other

words, can the Principles harmonize the divergent national scope of

party autonomy?

INTERNATIONAL CODIFICATIONS OF THE SCOPE

OF PARTY AUTONOMY ON CHOICE OF LAW – A NEW

DAWN?

This chapter, which is divided into four sections, focuses on a new soft

law instrument – Principles on Choice of Law in International

Commercial Contracts. It first examines the efforts of international

organizations and regional legislative bodies to unify the scope of

party autonomy through different codification techniques. It

particularly examines the scope of the Principles and the Hague

Conference’s justifications for using a soft law approach for this

process. It concludes that a soft private international law rule,

especially on the scope of party autonomy, is a step in the RIGHT

direction to unify the divergent scope/limitations of party autonomy.

Section 2 argues that although the Principles constitute a step in the

right direction, the Hague Conference did not consider factors for its

acceptance in developing countries where party autonomy is still

viewed with skepticism because of the possibility of its abuse by

dominant parties. It is imperative for the Hague Conference to consider

these factors because the acceptance of the Principles in these

countries depends on its collective intrinsic values, that is, “on the

substantive content of its rules, rather than on external or political

factors.”

Section 3 examines the relationship of the Principles, as soft

law, with some hard law instruments on choice of law – the Regulation

(EC) No 593/2008 on the Law Applicable to Contractual Obligations

(Rome 1 Regulation)4 and the Inter-

American Convention on the Law Applicable to International Contracts

(Mexico Convention). It particularly looks at the provisions on a choice

of non-state law and on the mandatory choice of law in these

instruments. It argues that the choice of non-state law may also be less

persuasive in continental Europe because the Rome 1 Regulation, which

prohibits the choice of a non-state law, is a binding instrument. The

Principles’ conditions for the application of non-state laws even make it

more problematic, not only for countries in Europe but for developing

countries. Finally, section 4 examines the nature of the Principles and

its relationship with other soft laws – the UNIDROIT-Principles of

International Contracts and non-state law – the United Nations

Convention on Contracts for the International Sale of Goods.

Explaining the scope of the Principles, it argues that the Principles

cannot, normatively, empower the choice of another soft law or nonstate

law because they are all either in the same legal normative order, or the

others outrank the Principles. Even if the Principles empowers the

choice of some soft laws, it cannot do so in areas that those soft laws

have not made provision for. The analysis concludes that, if the

Principles are not “creatively” interpreted, its application with other soft

laws or non-state law may produce problematic, uncertain and

unintended results.

This analysis points out that the overall intrinsic value of the

Principles, especially for developing countries, create a new set of

debates and problems for the goal of arriving at a uniform scope of

party autonomy, a goal which scholars, governments and international

organizations must, consequently, find new ways to attain.

Unifying the Scope of Party Autonomy – Regional and

International Classification Efforts

Due to the divergence in the scope of party autonomy in national legal

systems, regional and international efforts have been made to unify the

scope of the doctrine.

These efforts are in the form of private international law instruments

that set out general general provisions on choice of law. The

instruments aim to achieve certainty in decisions of national courts and

uniformity in private international law rules. The objective has been to

encourage transnational trade, as the growth of transnational trade and

commerce is the goal of choice of law international or regional

instruments. The instruments are classified here via two codification

techniques – hard law and soft law.

Hard laws are binding instruments that command compliance

from member states that are signatories to them. Examples of hard

choice of law instruments include the Rome 1 Regulation 2008,10 the

Mexico Convention, and Convention on the Rights and Duties of States

1933 (Montevideo Convention) 1979. These instruments, as explained

in chapter 2, are regional and are intended to apply within their

identified geographical areas. Thus, the Rome 1 Regulation is in force

in continental Europe, and the Mexico and Montevideo Conventions

are in force in Latin America. These choice of law instruments have

been the subjects of academic comments, and in some cases, are

bedeviled by low ratification. These comments generally reflect the

insufficiency in choice of law issues and, insensitivity to national

conflict of laws issues.

There are other hard laws that seek to achieve uniform

substantive contract terms. An example is the United Nations

Convention on Contracts for the International Sales of Goods (CISG).

This instrument is acknowledged as the “most successful attempt to

unify a broad area of commercial law at the international level.” The

CISG seeks is to regulate terms in international sale of goods

contracts; it does not cover private international law issues, especially

the validity of a contract of sale. CISG emerged from the efforts of

experts working under the auspices of the United Nations Commission

on International Trade Law (UNCITRAL). This treaty, which came

into force on 11 April 1980 at Vienna, has been ratified by 84 states

from different regions and legal backgrounds. In effect, the CISG is

international hard law that is applicable to contracts for the sale of

goods among contracting states.

In contrast, a soft instrument is non-binding. It relies on the

effectiveness of its contents to persuade countries to adopt it, whether

they are members of the drafting organization or not. Their application

is not bound by geographical space or the countries that are its

signatories. Indeed, the provisions of a soft law instrument are open to

all countries to adopt. One example here is the Principles of

International Commercial Contracts (PICC).19 The PICC is a set of

black letter rules that deal with a “broad range” of issues related to

international commercial contracts.20 It is a product of the International

Institute for the Unification of Private Law (UNIDROIT) – an

independent intergovernmental organization.21 This instrument, which

is a private codification output, aims to promote principles to regulate

international commercial contracts. In effect, it is a form of a

restatement of “the commercial contract law of the world” which is not

intended to be adopted as a treaty but as a model to countries.22 Parties

can expressly choose the PICC, either because there is a deadlock of

choice of law, or because of its neutrality,23 or if the contract stipulates

that the contract is to be governed by “general principles of law.”24

Also, the PICC could be used to interpret or supplement other

international uniform law instruments or domestic laws.25 It should be

noted that “non-state law” as used in this thesis means “laws” similar

to the PICC, that is, rules of international organization that suggests

substantive commercial contract terms between private entities only.

Therefore, “non-state law” in this thesis does not fit into the broader

category of non-state laws.

Although there have been soft law instruments, like the PICC,

that make provisions for the regulation of international commercial

contracts, there had been no soft private international law on this

subject until 19 March 2015 when the

The next section examines the Principles in detail and in the

light of reasons for the divergence of the scope of party autonomy

between developed and developing countries, particularly, economic

and colonial history. It also examines some provisions of the

Principles and generally argues that the debate on developing a

uniform scope for party autonomy is far from over.

Synoptic History, Scope, and Justification of the New Soft law

(Principles)

Although regional hard laws on choice of law produced some

convergence,27 there has been no global convergence on the scope of

party autonomy; hence the need for a “global instrument” that unifies

the scope of this doctrine.28 The Hague Conference took up the task to

produce a global instrument through its Permanent Bureau. The

Permanent Bureau reviewed various regional instruments on choice of

law and noted particularly that there is a regional “proliferation of

instruments” on party autonomy.29 This is coupled with the fact that

there are still varying limitations on the doctrine, especially in Latin

America. After consultations with “interested parties in the field,” the

Bureau concluded that promoting party autonomy at the international

level meets “a real need for the actors in the field of

international commerce.” The Bureau, therefore, constituted a

Working Group made up of 29 scholars to draft the text of the

instrument. The Working Group, which first sat on 21 January 2010,

completed the draft and the commentary on the Principles on 28

January 2014. The final text, which consists of 12 articles with some

“innovative” provisions in articles 3, 5, 6, and 8, was approved by the

Hague Conference on 19 March 2015.

Thus, the Principles is a supranational instrument that seeks to

provide a uniform application of party autonomy and its scope, albeit

in a global manner, just like the existing hard laws on choice of law.

Its scope is limited to express choice of law in international

commercial contracts that are subject to arbitration and litigation

proceedings. It shares similar characteristics with the PICC because it

serves as a model guide for private international hard law instruments,

national legislation, and arbitrators. It can also be used to interpret,

supplement or develop private international law rules, just like the

PICC. In effect, the Principles shares a codification approach similar

to the PICC – they are both sets of black letter laws supplemented by

illustrations and comments to help users with interpretation. Its

envisaged users are lawmakers, courts and arbitrators, parties and their

legal advisors.39 Although the Principles do not have legal force to

ensure compliance from its users because they are soft law, they

persuade compliance through the intrinsic values that they possess.

Notwithstanding arguments against the choice of soft law as a

codification technique or approach, the Hague Conference is justified

in adopting this approach for the Principles. First, the effectiveness of

hard laws is hindered by challenges, one of which is ratification. Apart

from the fact that it is usually difficult for countries to reach an

agreement, there is no assurance that a hard law instrument will be

adopted or ratified by states because, often times, ratification depends

on political factors or policy concerns. Even if a hard law instrument is

ratified, states may implement it differently from one another.46 The

implementation of a hard law instrument also creates cost for states

because

In effect, the choice of the soft law approach is beneficial for the

potential influence/impact/effectiveness of the Principles because: (1)

it is faster, easier and less costly to negotiate than a hard law

instrument; (2) it is flexible to adapt to different emerging trends in

dealing with conflict of laws issues; (3) it allows experts who are

familiar with the complexity of the realities in conflict of laws disputes

to decide on the technical aspect of the law; and (4) it serves as an

interpretative guide for existing hard law instruments. Indeed, it is

noted that the Principles aim to achieve three goals simultaneously –

to serve as a source of inspiration to legislators, as a tool for

interpretation by courts and arbitrators, and as a binding set of rules in

contracts between public parties.50

Because of the codification technique of the Principles and its

intended effect on regional private international law instruments and

national statutes, it furthers the effort to unify the disparate scope of

party autonomy as discussed in chapter 4. The ultimate aim is to unify

both interpretations of existing regional instruments and national

statutes on limitations of party autonomy. The Principles could also be

applied in countries where there is no regional private international law

instrument on choice of law. In effect, countries can adopt this

instrument without any obligation to comply with it. By this, certainty

in the application of the doctrine and its scope is “universally

achieved” without compulsion. The next section examines how

justifiable these claims are for developing countries.

The Hague Principles and the Developing Countries

To achieve universalism or the acceptance of a common scope for

party autonomy, provisions of the Principles must allay the fears or the

skepticism of the countries that do not recognize any fundamental

limits to the application of the doctrine. The fears or skepticism

peculiar to some developing countries in Latin America and Africa

arise from the economic and political dominance exerted by some

developed countries. Unlike developed countries, developing countries

generally experience stunted and uneven economic growth. Therefore,

the provisions of the Principles must be seen to facilitate compromise

of national interests between parties from developed and developing

countries.

It must be pointed out that the Principles, as a composite

instrument, has not facilitated a compromise. It only addresses the

technical aspects of the doctrine; It does not speak to the competing

national interests and concerns, especially in relation to unequal

bargaining power between parties in developed and developing

countries. The underlying competing national interests merit

consideration because jurisdictional and legislative tasks reflect the

status of sovereignty of each country. This thesis has pointed out that

the arguments against party autonomy or its limitation in Latin

America and Africa are based on the regions’ economies that are weak

and fragile, compared to the economies of the developed countries, and

the colonial experience inflicted by the developed countries. Indeed,

parties or large multinational companies from developed countries

wield strong economic power in contracts involving parties from the

developing states.56

It is a truism that party autonomy, if unrestricted, permits

oppression of the weak by the strong.57 Even advocates of party

autonomy acknowledge that “in the event of unfair advantage arising

from contractual disparities, State intervention is advisable.”58A

situation of “unfair advantage” arises where parties from developed

countries use standard forms containing a choice of law favourable to

them to the detriment of parties from developing countries.59 In effect,

due to the “insufficient technological and managerial capacities of

developing countries, and in part to the monopolization of world trade

by industrialized countries,”60 parties from the developing countries

who are confronted with a take it or leave it situation may be in a

disadvantageous position to bargain a favourable choice of law. This

occasions abuse of party autonomy by contracting parties from

developed countries, especially multinational corporations. For

example, a multinational corporation that is aware of the advantage

that a law confers on it, and to the detriment of the business of the

party from a developing country, may insist on such choice of law. The

latter reluctantly agrees because of the economic geographical sphere

in which it operates.

In sum, “[b]argaining power disparities are a real phenomenon

that affect the ability of the ‘weak’ party to obtain its preferred terms

in a contractual

Due to this imbalance arising from economic disparity between parties

from developed and developing countries, there is a need for

transnational justice or “state intervention.” This is why some

developing countries restrict the choice of an applicable law and forum

to protect their domestic parties if there is a likelihood of an unfair

outcome dictated by unequal bargaining power. Factors that courts

take into consideration to determine unequal bargaining power include

the status of the contracting parties, the business sophistication of a

party, illiteracy, poverty, economic background, gender, and

monopolization of a particular market.

Although the Principles recognised disparity or unequal

bargaining power in employment and consumer contracts, it generally

assumes that parties are equal in other types of international contracts.

This does not represent the current state of the context of international

contracts. This thesis argues that an abuse of party autonomy is not

only inherent in employment or consumer contracts. Generally, it

exists between parties in any international contract. Regardless of the

context, there is a general tension between the principle of party

autonomy and the desire to protect the weaker party.

To protect weaker parties, article 11 (1) & (2) of the Principles

subjects parties’ choice of law to the mandatory laws of the forum and

third states.

However, this does not completely protect parties in developing

countries. This is because, while article 11(1) directs the compulsory

application of a forum law, article 11(2) leaves the application of a

third state law to the discretion and interpretation of the forum court.

By this, the application of a mandatory law of a third state can be

avoided by a choice of a forum court that is less likely to adopt the

mandatory law of third states. In effect, a party can remove the legal

efficacy of the third state law by manipulating the choice of a forum.In

any event, Article 11 does not enjoin the forum court to apply a local

law. As explained in chapter 4, a local law is different from a

mandatory law. While a local law does not possess a public interest

element, a mandatory law possesses such an element. A forum court

may, therefore, ignore the application of the local law of a third state

because it does not fall under the two categories contemplated by

article 11 of the Principles – public policy and mandatory laws.

Also, article 2(4) of the Principles provides that “[n]o

connection is required between the law chosen and the parties or their

transaction.” This provision permits parties to make an unrelated

choice of law without any provision to check an abuse that may arise

from it, especially in international contracts between developed and

developing countries. This provision may not reflect developing

countries’ national interest. In fact, an African commentator noted that

principles like pacta sunt servanda which is the foundation of article

2(4), “deny Third World States, whose only measure of sovereignty is

the control of their natural resources, the right to make fair rules about

the adjudication of disputes arising in connection with the exploitation

of such resources.” This is not unconnected to the argument of Latin

American commentators that it enables parties to choose the law of a

foreign country whose economy is bigger than that of the domestic

country. It is, therefore, unsurprising that representatives from Brazil

and Uruguay, in response to questions as to whether they will adopt

this article, answered in the negative.

The argument that the choice of an unrelated law enables parties

to choose a neutral law is hard to defend because a neutral law is never

neutral. Such law is usually related more to one party than the other,

hence the proposal for the choice of the neutral in the first place. The

party in whose favour a neutral law is made may, therefore, find it

more advantageous than the other party. If the purpose of private

international law rules is to do justice in different transnational

relationships, it is impossible to argue that the Principles ensure justice

for weaker parties in this circumstance. Without a proposal that

balances the choice of an unrelated law and incidents of abuse, it is

difficult to determine the response of these countries to the Principles.

Although three African scholars were members of the working group,

it is difficult to argue that these persons represent the interest of

African society.

It may be argued that if a party is strong enough to enter into an

international contract, it does not need much state protection.

However, this argument is less persuasive because the strength of a

party may be a relative reality. A party that is generally strong may be

considered weak when dealing with another party that possesses

stronger economic power in the context of negotiating an international

contract. It is commonplace that “African countries rightfully feel

threatened by the overwhelming power of certain multinational

corporations whose financial resources far surpass their own and

whose tentacles extend into many different countries.” It is, therefore,

not an overstatement that parties do not possess equal bargaining

power in the making of international contracts.

In view of the foregoing, it is noteworthy that though Paraguay

adopted article 2(4) of the Principles in its private international law

legislation, it excluded franchising, agency, representation and

distributorship contracts from it. Except the franchising agreement,

these issues are governed by Paraguay’s Law 194/1993. This law

protects local investors from foreign manufacturers or foreign firms by

dictating the terms of their contract, just like the Egyptian Competition

Law and the Nigerian Technology Regulation discussed in chapter 4.81

It also subjects any dispute arising from these contracts to the

jurisdiction of Paraguay.82 International contracts that fall under this

law are interpreted strictly against the foreign manufacturer because

the contract is interpreted from a “domestic perspective.”83 A

commentator sees the law as discriminatory, because “it restricts

freedom of contract, [whose] single purpose is to punish foreigners.”84

The 2014 proposed amended draft of the Law 194/1993 still shares

similar characteristics with the old law. In fact, it has been noted that

“the draft legislation aims to provide more elements of protection for

Paraguayan representatives, agents or distributors.”85

Assuming that every country adopts the Principles but also

excludes some local or private contracts form their domestic

application, the logical enquiry must be what then is the achievement

of the Principles. Specifically, the issues to resolve are whether it has

achieved uniformity or certainty in transnational commerce and choice

of law; and whether as soft law, it is not redundant, as Klabbers

claimed.86 If the Principles recognize the reality of unequal bargaining

power between contracting parties, perhaps its provisions would have,

apart from the mandatory clause, included a clause that makes a

uniform provision for weaker parties. Today, the economy-protecting

localised statutes in Latin America and Africa not only threaten

uncertainty in the scope of the doctrine. They also show that states that

recognize party autonomy are still conscious of the economic threat

that an abuse of party autonomy poses.

In sum, the Principles may remain less persuasive because of

some of its negative economic consequences for developing countries.

It is difficult to argue that, in relation to unequal bargaining power, the

Principles put due weight on the underlying economic concerns of

developing states and the general effect that this has on the economic

bargaining power of parties, as well as the impact of the abuse of party

autonomy on the economy of developing countries that this induces.

Indeed, a Latin American commentator noted that “party autonomy

cannot be judged purely from a technical standpoint because it puts

values at stake. That is why we cannot give a blank cheque to party

autonomy.” Some other commentators see a law of this nature as

“hardly anything short of an ego trip by a few writers of the developed

world eager to impose, for the advantage of their countries and

regions, rules that they are conversant with on the poor less heard

nations without caring about the sensibilities of the latter’s local setting

and peculiar dynamics.”

It is plausible to argue that the Working Group drafted the

Principles without caring about the sensibilities of the developing

countries’ local systems and peculiar dynamics, most likely because

the developing countries, especially those from Africa, did not

participate in the Hague Conference’s survey that sampled the

application and scope of party autonomy in various countries. Majority

of the 33 members states that responded to the questionnaires are

European countries.90 A reason for this omission may be that the

Hague Conference does not consider the agreement of countries as a

condition for the acceptance of the Principles; it only hopes that the

Principles “constitutes a preliminary stage which, in a more distant

future, might facilitate the adoption of a veritable international

convention on this topic within the Hague Conference.” But agreement

on the Principles is not the same as consultation before the enactment

of the Principles. It is difficult to imagine how developing countries

who were not consulted or whose interests were not taken into account

at the “preliminary stage,” would become signatories to the future

Convention in its final form.

Possible Effect and Acceptance of Article 3 in Developing Countries

Article 3 of the Principles provides that “the law chosen by the parties

may be rules of law that are generally accepted on an international,

supranational or regional level as a neutral and balanced set of rules,

unless the law of the forum provides otherwise.” It also allows parties

to choose a hard law, regardless that they are not contracting states.

Thus, in an indirect way, article 3 of the Principles turns a hard law

into soft law for contracting parties in regions without Conventions

that regulate choice of law issues. For example, it was pointed out in

chapter 2 that there is no regional instrument that regulates choice of

law in Africa. If the provisions of the Principles, especially article 3,

are adopted in national private international rules in African countries,

it enables parties in African states to choose international instruments

from other regions as the governing law in their contracts. This fosters

transnational trade because private international law instruments can

be applied beyond their initial geographical area. Continents like

Africa, with few experts on conflict of laws, can also benefit from the

industry and resources channelled into these Conventions. Also, parties

in Latin America that are not signatories to the Mexico Convention can

indirectly benefit from the Principles’ provisions through the adoption

of article 3.94

However, it is unclear how developing countries, especially in

Africa, would accept the choice of a non-state law in their domestic

courts even if no treaty prohibits it.95 Some developing countries

mistrust and are unconvinced by non-state law because they seem like

“classical principles of international law.”96 Indeed, it has been noted

that “lex mercatoria [non-state law] is a creation of a coterie of western

scholars…who [load them] with norms entirely favourable to

international business.”97 As well, non-state laws were made at a time

when developing countries were not members of international

organizations.98 As a result, most developing countries do not consider

that such laws represent their interest.99 It is even believed that the

interests expressed in the non-state laws are “inimical” to the interests

of developing countries.100

The Principles is a non-state law that proposes another non-state

law. In this sense, it is doubly unappealing to African states for

adoption. This is notwithstanding that three African scholars were

members of the working group that drafted the Principles. In sum, the

Principles’ provisions can hardly be said to cater to the preferences of

most African states. This overall distrust on the part of developing

countries against non-state laws means that the Principles’ elevation of

party autonomy to the level of non-state law may be seen as designed

to entrench

the existing imbalance of bargaining power between developed and

developing countries.

It is not uncommon that a stronger party, with the unsuspecting

approval of the weaker party, may exclude his liability under some

non-state laws through contract clauses. For example, article 6 of the

CISG enables parties to derogate from provisions of the Convention,

including those meant to protect weak contracting parties. This may

not be problematic if the CISG is interpreted together with the private

international rules of a contracting state, as localized laws of these

states protect the parties. But where the choice is made through the

Principles, localized laws cease to apply because they are not covered

by Article 11 of the Principles. Since the CISG is the chosen law,

stronger parties can evade localized laws to their benefit. This situation

may be prevented if parties are subject to local laws that contain non-

derogable fair contract terms.

However, in defence of a non-state law, it has been argued that

even if a non-state law creates disadvantages for parties in developing

countries, only parties are affected, not the larger society. This larger

society is not identified, nor who its members may be. However, this

argument creates a distinction between members of a society or a state.

The function of a country is to protect every member of its constituent

communities, large or small. Even if discrimination is permitted as

between these communities and their members, it is not true, as

otherwise argued, that the choice of a non-state law does not affect

developing countries. As stated above, the law chosen creates either an

adverse or a positive network effect on the economy of a developing

country. For example, if a party, through a superior bargaining power,

chooses a non-state law that adversely affects the business of a party in

a developing country such that the latter becomes insolvent. This

necessarily reduces the per capita income of the developing country.

Furthermore, article 3 may be less persuasive because of the

Principles’ conditions for its application. As earlier quoted, article 3

states that “[t]he law chosen by the parties may be rules of law that are

generally accepted on an international, supranational or regional level

as a neutral and balanced set of rules, unless the law of the forum

provides otherwise.” In effect, even if a forum court permits the

application of a non-state law, parties can only choose it if it possesses

some characteristics. These include that the non-state law must be a

generally accepted neutral and balanced set of rules. The questions that

arise from these conditions include: who determines if the rule is

neutral or balanced? Is it the parties or the court? If it is the parties, it

creates an unnecessary burden on them because they could also choose

a state law. In effect, if parties have to justify their choice of non-state

law, they may not likely choose a non-state law.

Article 3 explains the term “neutral”, but it remains vague and

controversial, especially when the “neutral law” is made by an agency

or organization of which the forum state is not a member. By whose

standard is the acceptance to be measured – the parties or national

courts? How do we quantify the level of acceptance or who determines

when the rule is balanced enough? To subject a nonstate law to these

tests is a heavy burden that even states find difficult to bear. The issue

is more problematic because some countries classify some non-state

laws as “seller friendly” or “buyer friendly.” For example, while some

delegates at the Vienna Conference on the CISG classify it as “seller

friendly,” other countries classify it as “balanced.”110 Thus, if a forum

country accepts a non-state law as neutral, it may not be accepted as

such by the enforcing country, that is, where the judgment creditor

seeks to enforce his judgment. The judgment may be set aside for

being contrary to the enforcing country’s public policy.

Can developing countries, especially in Africa, be swayed or

persuaded by the Principles and its adoption by other countries, even if

there is no treaty obligation that is against it? It is difficult to answer

this question in the positive. This is because of the challenges engaged

by the application or interpretation of non-state laws. These exercises

are difficult or challenging because: (1) the law’s content cannot be

established with sufficient certainty, and (2) there is no authoritative

source for interpreting it. This may lead to differences in interpretation

– a situation that ultimately breeds uncertainty in the decisions of

national courts.

To overcome interpretational challenges, a commentator

suggested national courts should invite scholars to proffer

interpretations on “internationally accepted” non-state laws. But this

may not also produce certainty because, apart from the debate on the

sufficiency of such opinion, opinions of scholars on private

international law issues are divergent. Also, the argument that non-

state laws should be applied like foreign law is fraught with some

challenges because, while a foreign law is an external law that belongs

to another sovereign state, a non-state law does not belong to any

sovereign state. Non-state laws can, therefore, not be treated as

“external law” because, if the former is recognised by national private

international law, it becomes part of the domestic law that is applied in

such a state without need for “proof” like foreign law. Even if a non-

state law is treated like a foreign law, it will lead to uncertainties

because some states use different principles to determine the content

and interpretation of a foreign law.

Even if arguments on the application of non-state laws are

persuasive, the problematic interpretations of the application, such as

the “general acceptability” and “neutrality” concepts of the Principles

may produce arbitrary results in developing countries.116 More so for

their lack of the calibre of seasoned judiciary that can bring judicial

expertise to handle this sort of situation.117 Thus, to avoid decision-

making uncertainties, some developing countries may not adopt article

3 altogether.118 Consequently, courts may favour the application of the

forum law whose complex interpretations of non-state law may lead to

arbitrary application of the same.119

Overall, the conditions attached to article 3 breed another set of

disputes over the suitability of non-state law. The choice of non-state

law may be challenged on the basis that it does not meet the criteria set

out by the Principles.120 This is because parties, and even courts, may

interpret the Principles’ criteria differently. In countries with slow

judicial processes, resort to non-state law may be a way to delay trial

in cases where there is no defence to the plaintiff’s claim. As an

analyst concluded, the conditions in Article 3 of the Principles are

“riddled with uncertainty, obfuscation and self-serving

terminology.”121

The Hague Principles and Hard laws

Apart from the effects of the Principles on weak parties and its

application in developing countries, they may also be faced with legal

normative challenges from hard laws on choice of law issues. This

section argues that treaty compliance may also influence some

countries’ decision to ignore some provisions of the Principles.

Although its Working Group sought to avoid any immediate risk of

conflict of standards with other hard law instruments, there is still a

divergence between the provision of some hard laws and the

Principles. This discussion focuses on the Principles and two private

international law documents – the Mexico Convention and the Rome 1

Regulation. It discusses two provisions under these instruments –

mandatory law and non-state law.

Mandatory Laws

The scope of the application of mandatory laws under the Rome 1

Regulation, Mexico Convention and the Principles appears divergent.

The Principles permits a wider application of mandatory laws than the

Rome 1 Regulation and Mexico Convention. Article 11(2) of the

Principles permits the forum court to determine when mandatory

provisions of third states override the parties’ choice of law. Also, it

does not require proximity of third states’ mandatory law with the

contract. However, article 11(2) of the Mexico Convention, although

worded differently, requires that the mandatory law of a third state

must bear “close ties” to the contract. Article 9(3) of the Rome 1

Regulation specifically refers to the mandatory law of the place of

performance.

Although there are differences between the provisions of these

international instruments, some of these could be harmonized by resort

to the purpose of the Principles to achieve collaborative interpretation

with other instruments. For example, the Principles may be regarded

as a general statute that suggests a wide discretion to apply mandatory

laws of third states while the Mexico Convention and the Rome 1

Regulation may be regarded as specific statutes that curtail the

discretion of the judge. This interpretation could mean putting a soft

law and hard laws on the same legal or normative order. However, this

may not necessarily be so if the soft law (Principles) is seen in the

light of the older treatise on the subject (Mexico Convention and the

Rome 1 Regulation). If seen in this light, it can be argued that the three

instruments permit the discretion of the forum court to apply the law of

a third state.

Non-state law

The Principles proposes the possibility of choice of a non-state law –

an issue that has been the subject of academic comments and

criticisms. As earlier quoted, article 3 provides that “[t]he law chosen

by the parties may be rules of law that are generally accepted on an

international, supranational or regional level as a neutral and balanced

set of rules, unless the law of the forum provides otherwise.”

Notwithstanding criticism, Paraguay’s national private international

law legislation have incorporated this provision. However, none of the

countries in Europe have adopted it. This may not be unconnected to

the fact that Rome 1 Regulation does not allow a choice of non-state

law; it only allows it if parties incorporate it in their contracts. This

thesis answers the question whether countries signatory to the Rome 1

Regulation can adopt the Principles or use it as a guide for the

interpretation of a choice of a non-state law, as contemplated by the

preamble of the Principles. Put more generally, can signatories to a

Convention that does not allow the choice of a non-state law adopt the

Principles’ non-state law provision, even if persuaded by the provision

in the Principles? The answer is in the negative because the Principles

is a soft law that has no normative legal force to ensure compliance

like the Rome 1 Regulation. The Principles can only serve as a

supplement when there is no conflict between it and the Regulation.

Indeed, in 2008, the European Commission proposed non-state law

provisions to the European Council and parliament for inclusion in the

Rome 1 Regulation but it was rejected in the final draft. It is

unsurprising that representatives from the European Union opposed the

choice of non-state law in the Principles “with vehemence.”

The Scope of Article 3 of the Principles and its Relationship with

other Soft laws or Non-State Law – The PICC and the CISG

Assuming that countries under a treaty obligation are persuaded to

adopt article 3 of the Principles, the application of the Principles still

raises some interpretational issues that arise from its relationship with

some soft laws and non-state laws – PICC and CISG. This discussion

argues that article 3, which makes provision for non-state laws,

sometimes poses a challenge to systematic application and

interpretation of the Principles with other soft laws and non-state laws

—PICC and CISG. Also, the Principles, when interpreted in the light

of its article 3, poses difficulty for determining the nature and scope of

its provisions. This thesis proposes interpretations that avoid some of

the difficulties that arise from the Principles’ application.

The Problematic nature and Scope of the Principles

The introduction to the Principles states that parties and their legal

advisors are part of the envisaged users of the Principles. Does this

mean that parties can choose the Principles as a soft law? If article 3

permits the choice of a soft law, is this provision not self-selecting of

the Principles, which itself is soft law? A commentator thinks that

parties can opt into the Principles, like the CISG or PICC, because the

Principles is also soft law or non-state law. His reason is that the

Principles did not expressly foreclose parties from opting into it. This

interpretation arises from a principle that everything that is not

forbidden is permitted. But this may not necessarily be so because the

Principles could be interpreted by another statutory interpretation to

the effect that the express mention of a thing in a statute excludes the

other (expressio unius est exclusio alterius). Since the Principles did

not expressly allow parties to opt into it, parties should be excluded

from adopting it. Although the introduction to the Principles states that

legal advisers and parties are its envisaged users, the preamble, which

sets out the Principles’ application, did not extend its application or

scope to adoption by parties. Thus, the aim of the Principles is,

through legal advice, to “guide” parties in their contracts clauses

(incorporation); it does not aim to be a party-selecting governing law.

It may be argued that article 3 of the Principles contemplates

that the Principles should be a self-selecting rule for parties. Comment

3.10 of the

Principles requires that for a law to qualify as a non-state, such law

must be used to solve “common contract problems in the international

context.” It can, therefore, be argued that since the Principles intends

to solve common choice of law problems that arise from international

contracts, it qualifies as a non-state law that parties may choose. This

argument may not go too far because, generally, soft laws can be

classified into two– procedural and substantive transnational law. A

procedural soft law aims to process the differences between the

national laws – rules of private international law. It is a sort of

transnational conflict of laws system, but a substantive soft law seeks

to harmonize the targeted body or area of law – rules of law.

Therefore, a soft law can be classified as “rules of law” or “rules of

private international law.” The PICC and the CISG are examples of

rules of law, while the Principles is an example of a rule of private

international rule. In effect, since article 3 only mentions “rules of

law,” it impliedly excludes rules of private international law – thereby

preventing the Principles from self-selecting itself. In fact, an earlier

version of article 3 of the Principles explicitly stated that “parties may

also designate non-state private international law rules.” Since this

provision was removed in the final draft of the Principles, it forecloses

the Principles from becoming self-selecting.140

Does Article 6 (1) (a) of the Principles Contemplate that the Choice

of a Non-state law be applied to Putative Issues?

Article 6 (1) (a) of the Principles provides that “whether the parties

have agreed to a choice of law is determined by the law that was

purportedly agreed to.” This provision subjects the agreement on

choice of law to the putative proper law. This means that where one

party challenges the existence of a choice of law agreement, either

through duress, misrepresentation or any other vitiating contract

element, reference must be made to the law to which the parties

purportedly agreed. It answers the “bootstrap” arguments discussed in

chapter 2 on whether the validity of a choice of law should be legally

determined independently of parties’ choice.

The pertinent issue is whether reference to “law” in article 6

means reference to a state law or a non-state law. This issue is

important because parties, through article 3, can solely choose a non-

state law as the governing law of their contract. In this instance, it may

be argued that the non-state law is the putative law of the contract.

This argument may arise because the Principles does not clarify when

it refers to state laws as opposed to non-state laws. However, this

thesis argues that reference to a putative law in article 6 means a state

law because the commentary to article 6 did not refer to a non-state

law. Even when the Principles referred to the CISG, it treated it as a

state law, and not as a soft law instrument to be applied outside its

intended geographical scope.

This foregoing position is a plausible interpretation of article 6

(1) (a) of the Principles because the determination of a putative law

through a choice of non-state law produces some problematic results.

The application of non-state laws to putative issues means that they

will be applied outside their intended scope. The PICC and CISG

intend to answer substantive contract law questions; they do not intend

to primarily cover private international law issues. Although the PICC

makes provisions for validity and formation of an agreement, these

provisions can be excluded by parties. Thus, parties can exclude

provisions of the PICC relating to mistakes, impossibility of initial

performance, and misrepresentation.149 If parties exclude these

provisions, the PICC cannot accept a reference on putative issues from

the Principles.The same scenario applies where the CISG is the chosen

putative law. TheCISG expressly limits its application to matters

relating to the “formation of the contract of sale and the rights and

obligations of the seller and the buyer arising from such a contract.” It

excludes questions relating to the validity of a contract. The CISG,

therefore, does not contemplate the resolution of conflict of law issues

especially on the choice of law. It has been noted that “any issue of

validity [of contract] ... falls outside the scope of the Convention and is

governed by the rules of the domestic jurisdiction whose law is

otherwise applicable.” The rationale is that validity issues usually

reflect public policy issues that are peculiar to each domestic legal

system. Indeed, the CISG cannot accept the Principles’ reference to

independently determine the validity of a choice of law because the

former is usually applied as part of the conflict of law rules of each

forum state.

The application of the CISG and PICC in putative decisions,

therefore, creates a sort of “renvoi” between the Principles and the

non-state laws. For example, while the Principles refer questions of

validity of choice of law to the CISG, the latter refers it back to the

Principles as a private international law rule because the CISG does

not contain provisions that cater for this situation. This reference may

go on indefinitely if the two non-state laws are not “creatively”

interpreted.

The application of article 6(2) of the Principles may be a

solution to these “renvoi” cases. It provides that “the law of the State

in which a party has its establishment determines whether that party

has consented to the choice of law if, under the circumstances, it would

not be reasonable to make that determination under the law specified

in paragraph 1.” This means that if it will be “unreasonable” to

determine the choice of law under the law referred to, the court can

resort to the law of the place of establishment of the party who seeks to

impugn consent. This article enjoins users of the Principles to consider

both the circumstance of the case, and the reasonableness of the law.

There are two ways to interpret this provision to solve “renvoi” cases.

First, it could be argued that Article 6(2) is inapplicable to

situations where the chosen non-state law does not contemplate its

application in the first instance. For Article 6(2) to apply, the non-state

law must contain provisions that are unreasonable or will lead to an

absurd result. Since choice of law rules governing choice of law

agreements are absent or may be excluded in these non-state laws –

PICC and CISG – there is nothing that produces an unreasonable

result. The second interpretation takes into consideration both the

circumstance of the reference and the effect of the application of a

non-state law. The Principles’ reference to nonstate law, which leads

to a renvoi situation is, in itself, an unreasonable result that needs gap-

filling by state laws. This is because “reasonability” is a subjective

term that arises from different scenarios. This thesis prefers the latter

argument because it furthers the purpose of the Principles – to serve as

a supplement for national statutes and international instruments.

However, to avoid difficulty in the interpretation and application

of article 6 (1) (a) of the Principles, the Hague Conference should

clearly define “law” in subsequent amendments/reviews of the

Principles. If the Hague Conference wishes that non-state law should

be applied to putative circumstances, this should be explicitly stated.

Also, article 6(2) could be amended to include situations where it is

impossible to determine the issues on validity of choice of law through

a choice of a non-state law. By this amendment, the renvoi situation is

avoided because the applicable law, in cases where non-state law is not

applicable, will be the law of the place of establishment of the party

that seeks to challenge the choice of a law.

The Normative Relationship of the Principles with other Non-State

Laws

The application of article 3 of the Principles raises normative issues

with other soft laws. The pertinent issue in this regard is whether the

Principles, being soft law, can empower the choice of another soft law.

For example, the PICC contemplates that parties might empower its

application if they choose a forum’s private international law rule.

However, parties cannot choose through the Principles because the

Principles does not have any legal force like national private

international rules. Since the Principles and the PICC are both soft

laws, the former cannot empower, direct, or control the application of

the latter. In effect, the Principles and the PICC are in the same legal

normative hierarchy. The Principles can only empower the PICC if the

states adopt the former. It is the national private international rule that

empowers the Principles to adopt another soft law.

The relationship between the Principles and the CISG is

different from the PICC because the CISG is a binding convention in

contracting states. The CISG is applicable when the rules of private

international law lead to the application of the law of a contracting

state. Clearly, this criterion does not contemplate soft private

international rules like the Principles; it only contemplates private

international law rules of countries. It is, therefore, impossible for the

Principles to control, empower, or direct the application of the CISG

without the force of a national private international law rule. Thus, the

Principles must first be adopted by countries, whether they are

member states of the Hague Conference or not, before it could control

the application of the CISG. This is because the Principles – a soft law

– is lower in the legal normative hierarchy than the CISG – a hard law.

Even if the CISG is chosen as a soft law in non-contracting states –

where it becomes soft law – the Principles is still in the same legal

normative hierarchy with CISG. Therefore, it cannot control the

application of the CISG.

In sum, it is difficult to argue that some envisaged users of the

Principles – parties and their legal advisers – can directly choose the

Principles to control other soft laws, either because they are in the

same legal normative hierarchy or because they outrank the Principles.

Conclusion

This discussion answers the question posed in this chapter in the

negative, namely that the Principles cannot effect uniformity in the

scope of party autonomy. Although scholars have expressed optimism

for global acceptance of the Principles, and, thus, a uniform scope of

party autonomy, application of the Principles raises a new set of

problems or challenges which range from acceptability to

interpretational. This thesis showed the possible reluctance of both the

developed and developing countries to accept or adopt some

provisions of the Principles. The developing countries consider some

of its provisions as lacking in sensitivity to their fragile economies and

colonial history. The developed countries consider some of the

Principles’ provisions (for example, article 3) as an invitation to flout a

treaty obligation. The Principles also face interpretational challenges.

Though its provisions are explained through commentaries, it still

encounters interpretational challenges that face most soft laws. These

challenges arise from the ambiguity surrounding its scope as soft law,

and its relationship with other soft and non-state laws. These issues, if

not addressed, may make the Principles redundant as Klabbers has

claimed.

The next chapter assesses the development of party autonomy so

far, and recommends possible solutions to the new challenges that

arise from the introduction of the Principles. The aim is to propose a

better way to unify the scope or limitation of party autonomy in most

jurisdictions and to solve some of the interpretational challenges

identified in the discussion in this chapter.

CONCLUSION

Uniform Scope for Achieving Party Autonomy: Assessment

The universal recognition and development of party autonomy has been

arduous and long, but the determination of its scope has been more

arduous. The scope of party autonomy, as discussed in this thesis, still

presents a global challenge for regional legislative bodies, international

organizations and actors, and private international law scholars. As this

thesis shows, various regional instruments have championed the cause

to unify the scope with little success. However, there appears to be a

new dawn with the Hague Conference’s approval of the global soft

model law – Principles on Choice of Law in International Commerce –

that serves as a code of best practices on party autonomy and its scope

in international commercial contracts. But, as this thesis shows, this

instrument is not without its challenges, especially because it is the first

of its kind in international choice of law instruments.

This thesis presented examples of sovereignty and

interpretational challenges to the application of the Principles. These

challenges, which arise from the divergent historical and economic

backgrounds of countries, and the nature and scope of the Principles

itself, militate against the uniformity and certainty goals of party

autonomy in transnational trade or commerce. For instance, although

Paraguay has adopted the provisions of the Principles, this lone

“success” must not detract attention from the challenges that the

Principles face. The question to be answered is how the Hague

Conference can solve or, at least, minimize the challenges so as to

achieve the Principles’ objective – global acceptance and application of

party autonomy and its scope.

The sovereignty of states is one of the reasons why the scope of

party autonomy still lacks global uniformity. As this thesis shows,

states limit party autonomy for various reasons. One reason, common

to developing countries – Latin America and Africa – is the protection

of national economies/interests from foreign exploitation. Countries in

Latin America and Africa believe that allowing contracting parties to

choose the governing law, in some instances, gives foreign parties an

opportunity to choose laws inimical to the interest of their economies.

As a result, these countries show little interest in international

instruments that permit wide application of party autonomy such as the

Principles. Consequently, these developing countries are barely

conversant with the content and application of instruments like the

Principles. To remedy this situation, especially as it relates to the

Principles, the Hague Conference must create avenues to address this

apathy toward the Principles and to fill the information gap in order to

interest developing countries in its potential benefits.

The Hague Conference can create awareness for the Principles

by literally taking the Principles to the “doorsteps” of developing

countries, especially countries where party autonomy is not accepted or

where it is fundamentally restricted. This can be done by explaining the

application of the Principles through workshops and seminars that

highlight the benefits of adopting it, and to allay the fears associated

with some of Principles’ provisions, and to suggest ways to better apply

its provisions. Already, the Principles have generated discussion from

the academy, but further discussion, especially from developing country

scholars,, may generate knowledge and improve awareness of the

Principles. This may improve information for, among others, the

Principles more generally, notwithstanding its wide-ranging party

autonomy provisions. Of course, as the experience with the Mexico

Convention shows,4 knowledge of the application of the Principles

would not necessarily translate into its global acceptance.

To make the Principles a universal, acceptable code of best

practices on the doctrine of party autonomy and its scope, the Hague

Conference must, when reviewing the Principles, consider some

underlying factors of concern to the developing countries. As discussed,

the Principles did not, generally, take into consideration the reality of

unequal bargaining power in international contracts, especially as it

affects developing countries. Provisions in the Principles, especially

article 11 which subjects every choice of law agreement to public

policy and the operation of the mandatory laws of the forum and third

states, are limited in their application and, as a result, “they do not

necessarily coincide with the need to protect the weaker party.”5 If the

Principles’ provisions are not reviewed to generally protect against the

adverse impacts of unequal bargaining power in international contracts,

it may be of no interest in developing countries that are eager to protect

their economies. Left in its current form, the Principles’ provisions,

especially in relation to unrestricted party autonomy, may expose

developing countries’ economies to threats from developed state parties

or large multinational corporations from developed countries.

The Hague Conference should take a cue from two regional

instruments in the inter-American sphere that make provisions for weak

parties. If it does, it may help developing countries to cease thinking of

the Principles’ provisions as a “disguised attempt to consecrate policies

amenable to Western interests as rules of universal validity.”6 Article 4

of the Buenos Aires Protocol on International

Jurisdiction in Contractual Matters provides that parties may choose a

jurisdiction

“provided that [the] agreement has not been obtained abusively.” Also,

article 1(d) of the Inter-American Convention on Jurisdiction in the

International Sphere for the Extraterritorial Validity of Foreign

Judgments provides that the forum choice is valid “provided that such

jurisdiction was not established in an abusive manner and had a

reasonable connection with the subject matter of the action.” These

clauses take into consideration the actual negotiating capacity of parties

and the possible abuse that arises from unrestricted party autonomy.9

These provisions are recommended to the Hague Conference.

Article 11 of the Principles could also be amended by including a

provision that generally protects a weaker party as follows:

Notwithstanding the mandatory laws and public

policy of the forum state and a third state, the

forum court shall apply the law of the habitual

residence of the weaker party or parties with less

bargaining power in cases where parties have not

really agreed on the choice of law or there is a

likelihood of abuse due to unequal bargaining

power. Such application may be raised by the

weaker party or by the court suo motu.

Apart from the issue on unequal bargaining power, the

Principles’ proposal for applying non-state laws (article 3) in

international litigation proceedings merits a review. This provision

should be removed from the Principles because it does not have any

effect on the goals that the Principles seek to achieve as to the scope of

party autonomy – certainty, predictability and uniformity. It is difficult

to imagine how the proposal or the introduction of non-state laws in

international commercial litigation proceedings will ensure certainty or

uniformity of party autonomy, as most countries, except Paraguay and

Venezuela, do not allow the choice of nonstate law. It is doubtful that

article 3 of the Principles will be accepted in the European community,

especially because a regional treaty – Rome 1 Regulation – prohibits

parties to choose a non-state law. It also presents a big step for

developing countries that had, hitherto, not recognized party autonomy.

Now, they will not only recognize party autonomy but also recognize a

non-state law. Of course, the Principles, may be used by for

interpretation of national statues, but is this the best that the Principles

can achieve?

So, how can the introduction of non-state law represent

“international best practice” in international commercial contracts as

claimed by the Principles? It is not clear to whom the introduction of

non-state law represents best practices: countries, or the Hague

Conference’s Working Group. It is not the countries because, since the

Principles is a soft law, they did not negotiate on this provision. The

conditions of neutrality, general acceptance and the balanced nature of

a nonstate law create another set of disputes on its own because these

words are ambiguous, resulting in uncertainty of decisions. Such a

situation had hitherto been absent from the application of non-state law,

albeit, in arbitral proceedings. In effect, instead of the Principles

finding solutions to the existing divergence on the scope of party

autonomy, the application of non-state law creates a new set of

problems. Indeed, the introduction of this provision creates an

unnecessary distraction from other issues of party autonomy which

require uniform application in most jurisdictions. The Hague

Conference may wish to draft a comprehensive hard law instrument that

will give states the opportunity to negotiate a non-state law proposal,

instead of experts’ proposal in a soft law.

The Hague Conference should also review interpretational

challenges which arise from the nature of the Principles and its

relationship with other soft and nonstate law. For example, the

Conference should negatively answer the question of whether the

Principles is a self-selecting rule for parties. Also, the relationship of

the Principles with other soft laws merits further review, especially

where it is impossible to solve conflict of law issues through reference

to a putative soft law (article 6(1) (a)). In this case, article 6(2) could be

amended to include situations where it is impossible to determine the

issues on validity of choice of law through a choice of a non-state law.

By this amendment, the renvoi situation is avoided because the

applicable law, in cases where non-state law is not applicable, will be

the law of the place of establishment of the party that seeks to challenge

the choice of a law.

In sum, the Principles could mean the beginning of a new dawn

if the Hague Conference on private international law accommodates

some of the issues of concern in the developing countries and also

further expatiates on some of the Principles’ provisions. However, this

is not to boldly claim that total uniformity is achievable once these

issues are resolved. This is because of the peculiar sovereignty

challenges that constantly arises in private international law. As stated

in chapter 1, the role of scholars concerned with private international

law is to constantly seek common criteria through which cases that has

foreign elements are decided. Even if total uniformity may be

unrealistic in private international law, we must “substantially” seek

uniform rules that do justice between private individuals in

transnational contract. For example, although the disparity of

bargaining power is a reality among states, the Hague Conference can

make rules that minimize the effect of such disparity, even if it may not

be able to totally bridge it. The Hague Conference may have

acknowledged this in its provisions on mandatory rules and public

policy. However, these provisions are not enough to bridge such

disparity gap in unequal bargaining power of parties across

jurisdictions. A general clause as suggested in this subsection would

mean that the effect of the disparity is realistically considered.

General Conclusion

Transnational trade is a natural phenomenon in the world, just like

sleeping, eating, laughing, and crying are natural to human life. Party

autonomy, which is a function of every legal system, is the freedom of

contracting parties to choose a governing law for their transnational trade

contracts. Therefore, as a choice of law rule, party autonomy would

encourage transnational trade or commerce in the 21st century, because if

parties can choose the governing law of their contracts, business persons

who engage in trans-border trade are certain of their contractual choices

and would be encouraged to carry on business. Thus, it is, of interest for

transnational trade that there should be a global application and scope of

party autonomy. In effect, if parties in international contracts know when

they are permitted to choose a governing law, and to what extent such a

choice is permissible, they will be eager to do business with each other.

This thesis examined the history of party autonomy in four

different regions: Continental Europe, Anglo-America, Latin America,

and Africa. The histories and developments in party autonomy in these

regions are uneven, influenced by varying factors – scholarship in

continental Europe; case law in Anglo-American society; colonialism in

Latin America and Africa with their resultant fragile economies. The

development of party autonomy in these regions was also characterized

by arguments for and against the doctrine. Some scholars argued that

party autonomy is the enthronement of the parties’ will within the ambit

of the law, but other scholars regard the doctrine as a license for

contracting parties to perform a “legislative act.” The latter, therefore,

argue that party autonomy must be subject to the sovereign power of a

state through its legislation.

Notwithstanding the arguments against the doctrine, the rise of

international trade in the 20th century required most countries to

recognize party autonomy. Notwithstanding the recognition, some Latin

American and African countries have still not recognized party

autonomy or fundamentally its scope, partly for reasons of the late

development of the doctrine in the regions, but mainly for the adverse

economic effects of their colonial experiences.

It is the case that the history of party autonomy cannot be isolated

from other choice of law rules. Consequently, arguments against party

autonomy necessarily feature arguments in favour of other choice of law

rules. This thesis examined other such rules, including the law of the

place of contracting (lex loci contractus), law of the place of

performance (lex loci solutionis), law of the place that validates the

contract (lex validitatis), and the law of the place of domicile (lex

domicilii). As noted, these are all characterized by uncertainty and

absurdity in their application. However, the application of the party

autonomy rule (express intention) ensures certainty and uniformity in

choice of law decisions. The thesis argued that party autonomy, because

of its certainty and uniformity function in international commerce, is the

“least problematic” choice of law rule. Although courts still apply other

choice of law rules, they only resort to them in cases where parties have

not made an express choice of law.

However, as advantageous as the doctrine of party autonomy is to

international trade, to leave it unrestricted is to open it to abuse by

parties with superior bargaining power over those with less bargaining

power. National laws, therefore, restrict the scope of the doctrine to

prevent or minimize this potential. In other words, the sovereignty of

states permits them to control the scope of party autonomy for different

reasons ranging from the economic to the political.

The comparative analysis of countries’ varying applications of the

limitation of party autonomy showed that the importance of party

autonomy, certainty and uniformity may be under threat because (1)

party autonomy is essentially a manifestation of national intent, rather

than a matter of supranational recognition; (2) absolute or unlimited

party autonomy is almost impossible in any legal system; (3) there are

varying degrees or scope of party autonomy in different countries,

depending on which factors held sway, from the economic, through

history, to the religious; (4) the relative exceptions and expansion of the

doctrine and constraints in most jurisdictions challenge the realization of

the uniform scope of party autonomy.

For the foregoing reasons, regional instruments, including the Rome 1

Regulation, the Mexico Convention, and the Montevideo Convention, have

sought to unify the scope of party autonomy. Notwithstanding that these

conventions are hard laws, the scope of party autonomy remains divergent

around the world. One of the reasons may be that these instruments, being

regional instruments, concentrate on the regional peculiarities of each

enacting body. They have also been criticized as lacking to cater for all

conflict of laws situations and are sometimes, insensible to the peculiar

needs of countries. This accounts for low ratifications of some of the

instruments.

To push uniformity forward, notwithstanding, the Hague

Conference on private international law developed an instrument that

possesses characteristics different from the existing regional hard law

instruments on the subject, Principles on Choice of Law in International

Commercial Contracts. This soft law instrument commands no

obligation from states; it only serves as a model law for states to adopt.

It aims to solve the existing global challenge on party autonomy and its

scope that this thesis examined in chapter 4. For the first time in the

history of a choice of law instrument, this soft law seeks to make

uniform provisions on the scope of party autonomy, not just for courts

but for arbitral proceedings. Some commentators have expressed hope

that if its provisions are globally adopted, it will eradicate or, at least,

reduce the challenges as to uniform scope of party autonomy.

But this thesis highlighted some challenges that may still confront

the Principles. These challenges arise from the uneven development of

party autonomy in the four regions examined in this thesis. The Hague

Conference did not consider, or neglected the interests of developing

states in some of the provisions of the Principles, especially articles 3

and 2(4) of which relate to the introduction of nonstate laws, and an

unrestricted party autonomy, respectively. Although the Principles

exclude consumer and employment contracts from its scope, developing

countries may still feel threatened by provisions that give wide latitude

to parties to choose any governing law in their international contracts,

simply for reason of economic power disparities that favour the

developed countries, and/or their multinational companies.

Article 11 of the Principles which provides that parties shall not

derogate from the application of mandatory statutes or the public policy

of the forum or third state, is not enough to prevent the abuse of party

autonomy. This is because it makes the mandatory law of a third state

discretionary and a matter of interpretation for the forum court.

Moreover, article 11 does not cover the provisions of localised laws that

most developing countries enact to protect their residents and national

economies. A forum court can, therefore, refuse the application of a third

state’s mandatory law, either because it does not consider it to be

mandatory, or because it does not recognize its localized law. To this

extent, the Principles may not command global adoption, especially in

some developing countries.

The Principles’ proposal of non-state law in its article 3 in

national courts may also be a step too far in a soft law. Although

Paraguay has recognized the application of non-state laws in its national

courts, non-state laws have been rejected by most jurisdictions. One

reason for its rejection, especially in Africa, is that most African

countries were not part of organizations that drafted some soft laws, and

so, their interests were not represented in them. A likely reason for its

rejection in continental Europe is that a hard law – the Rome 1

Regulation prohibits the application of soft laws in national courts to

resolve in disputes arising from international contracts. The best possible

way to introduce a non-state law in international commercial litigation is

through a hard law, where states have the opportunity to negotiate the

application and scope of such a law.

The Principles’ conditions for the application of a non-state law,

which relate to acceptance and the neutral and balanced nature of the

non-state law, also create difficult interpretational hurdles for parties and

national courts to cross for reasons of their ambiguity, creating another

set of interpretational disputes. Parties and national courts may interpret

the conditions differently, such that certainty and uniformity in the

application of non-state laws are lost both in international commercial

litigation and arbitration proceedings. This, in turn, creates uncertainty in

the enforcement of judgments decided on a non-state law because the

application of a non-state law may be against the enforcing country’s

public policy.

Apart from the neglect of national values in some developing

countries and the controversial introduction of non-state laws in

international commercial litigation proceedings, the nature of the

Principles and its application, just like other soft laws, creates further

interpretational issues. The Principles shares a similar legislative

approach with other soft laws, especially UNCITRAL’s Principles of

International Commercial Contracts. However, its application is

different from them. Other soft laws regulate the substantive contract

terms in specific contract situations – rules of law. In contrast, the

Principles regulates only the choice of law as it relates to party

autonomy – rules of private international law. Therefore, since party

autonomy is a function of national private international rules, parties

cannot adopt or choose the Principles as the governing law in their

contracts, like other soft laws. They can, however, incorporate its

provisions into their contracts. In effect, although the Principles shares

the characteristics of other soft laws, it is different in application.

Finally, on the international legislative hierarchy, the Principles

possess no legal normative force, just like other soft laws. Thus, it

cannot empower the choice of another soft or hard law because it does

not possess the legal normative power to do so. Its provisions must,

therefore, remain persuasive to its envisaged users. Consequently,

reference to other soft or hard laws in the Principles is subject to

national private international law rules. This is more so because

reference to other soft laws, sometimes, produces unintended results

because the latter does not contemplate such reference or even refers the

issues back to private international law rules.

In sum, the Hague Conference’s introduction of the Principles as

a soft choice of law instrument constitutes a step in the right direction to

unify the scope of party autonomy. However, the Principles face

acceptance and interpretational challenges in its application to

international commercial contracts. It is, therefore, too early to think that

a new dawn on the uniform scope of party autonomy has arrived.

Students also viewed