Choice of law in national contracts

You have probably seen it before: two parties from the same country (rather: jurisdiction) who insert a choice of law clause in the agreement. Is it valid? What happens if one party moves abroad? Can the parties choose a foreign law? That’s what this blog post is about.

In order for a choice-of-law clause to be effective, a contract must be ‘international’. If a contract is not ‘international’, the effect of the choice-of-law clause is that only the supplementary law (ius dispositivum) from the local law of the contracting parties is replaced by the chosen law; the mandatory law of the contracting parties’ jurisdiction cannot be contracted away.

A contract is ‘international’ if there is an element of some significance in the agreement that points to a jurisdiction other than the law which would otherwise be assumed to apply in the usual course of things. This is most obvious if the two parties are established in different jurisdictions but also when both contracting parties are from the same jurisdiction and delivery of the goods takes place abroad; a sales contract is generally considered to be ‘international’. It is not clear in all jurisdictions when a contract becomes ‘international’ but the prevailing opinion is that the criteria are relatively easily met.

Time of internationality. The relevant time for measurement is always the moment of contracting (the time of consensus) between the parties. This implies that if one party relocates abroad, in principle, this does not affect the internationality of the agreement. In other words, the agreement does not become international as a consequence of such event after entering into the agreement. Nevertheless, the threshold for assuming internationality is low and if the parties anticipated the relocation, that might be sufficient to expressly choose the applicable law (and accordingly, but subject to the court’s assessment, a foreign law can be chosen).

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