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Choice Law in Contract

A contract can be connected to a


number of different legal systems. For
example, a contract between a French
company and a German company could
be made in Belgium for delivery of goods
to China. The court will have to decide
what system of law should govern any
dispute related to the contract.

Proper Law of Contract


Traditionally, the
proper
law
of
contract
determines applicable law where a dispute involved a
contract with foreign connections. This doctrine
applied the law chosen by the parties. In most
international contracts, the parties will have decided
what system of law should apply to their contract.
This will be written into the contract in a choice- oflaw clause. Where the parties had not made a choice
of law, the proper law of contract gave considerable
discretion to the courts to choose the most suitable
applicable law. A choice could be implied on behalf of
the parties. Where no choice could be implied the
court chose the system of law with the closest and
most real connection to the contract.

The Rome Convention 1980


The Rome Convention applied to all
contract cases where a choice was made
between the laws of different countries.
Like the common law, the Rome
Convention applied the law chosen by the
parties.
Where
the
contract
was
connected to one country only, the parties
could not avoid the mandatory rules of
that country by choosing foreign law.
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Most closely connected to the contract

Where no choice of law was made, the Convention


applied the law of the country which was most closely
connected to the contract. A system of presumptions
was laid down in Art 4 to determine the country of
closest connection. Where a contract related to a right
in immovable property, it was presumed to be most
closely connected to the country where the immovable
property was located. For a contract of carriage, the
closest connected law was presumed to be that where
the carrier had his principal place of business, if this
was also the place of loading or discharge or the
principal place of business of the consignor.
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Most closely connected to the contract

In other cases, the contract was presumed to be most


closely connected to the habitual residence or
principal place of business of the party who had to
effect performance which is characteristic of the
contract.
Characteristic
performance
is
the
performance for which payment is due such as
delivery of goods, provision of a service, insurance
etc. The use of presumptions was designed to make
the courts determination of the law with the closest
connection more certain and predictable.

Freedom of Parties to Choose Law


The parties have the freedom to choose different laws
for different parts of the contract. This is called
dcepage and allows the contract to be severed
between the different legal systems. One law could
be chosen to govern the interpretation of the contract
and a different law to govern its discharge. The choice
must be logically consistent.
The parties can change the applicable law by
agreement as long as this change does not affect the
rights of third parties. This provision enables the
parties to have maximum freedom as to when a
choice of law can be made. A choice of law can be
made either at the time of contracting or before or
after the conclusion of the contract.
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Freedom of Parties to Choose Law


There are some geographical limitations on the
parties freedom to choose applicable law. Where all
aspects of the contract are located in one country,
the choice of foreign law will not affect the application
of national law which cannot be derogated from by
agreement.
This prevents parties to a domestic
contract trying to avoid the application of national
rules by choosing foreign law. For example, contracts
for prostitution are void under Bangladesh law. The
parties cannot avoid the application of this rule by
choosing the law of another country to apply to their
contract for prostitution services in Bangladesh.

United Nations Convention on


Contracts for the International Sale of
Goods (Vienna, 1980) (CISG)
Date of adoption: 11 April 1980
Entry into force: 1 January 1988
Purpose:
The purpose of the CISG is to provide a
modern, uniform and fair regime for
contracts for the international sale of goods.
Thus, the CISG contributes significantly to
introducing
certainty
in
commercial
exchanges and decreasing transaction
costs.
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United Nations Convention on Contracts for


the International Sale of Goods (Vienna,
1980) (CISG)
Why is it relevant?
The contract of sale is the backbone of international
trade in all countries, irrespective of their legal tradition
or level of economic development.
The CISG is therefore considered one of the core
international trade law conventions whose universal
adoption is desirable.
The CISG is the result of a legislative effort that started
at the beginning of the twentieth century.
The resulting text provides a careful balance between
the interests of the buyer and of the seller. It has also
inspired contract law reform at the national level.
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United Nations Convention on Contracts for


the International Sale of Goods (Vienna,
1980) (CISG)
Why is it relevant?
The adoption of the CISG provides modern,
uniform legislation for the international sale of
goods that would apply whenever contracts for
the sale of goods are concluded between parties
with a place of business in Contracting States.
In these cases, the CISG would apply directly,
avoiding recourse to rules of private international
law to determine the law applicable to the
contract, adding significantly to the certainty and
predictability of international sales contracts.
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United Nations Convention on Contracts for


the International Sale of Goods (Vienna,
1980) (CISG)
Why is it relevant?
Moreover, the CISG may apply to a contract for
international sale of goods when the rules of private
international law point at the law of a Contracting
State as the applicable one, or by virtue of the
choice of the contractual parties, regardless of
whether their places of business are located in a
Contracting State.
In this latter case, the CISG provides a neutral
body of rules that can be easily accepted in light of
its transnational nature and of the wide availability
of interpretative materials.
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United Nations Convention on Contracts for


the International Sale of Goods (Vienna,
1980) (CISG)

Why is it relevant?
Finally, small and medium-sized enterprises as well as
traders located in developing countries typically have
reduced access to legal advice when negotiating a contract.
Thus, they are more vulnerable to problems caused by
inadequate treatment in the contract of issues relating to
applicable law.
The same enterprises and traders may also be the weaker
contractual parties and could have difficulties in ensuring
that the contractual balance is kept.
Those merchants would therefore derive particular benefit
from the default application of the fair and uniform regime
of the CISG to contracts falling under its scope.
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United Nations Convention on Contracts for


the International Sale of Goods (Vienna,
1980) (CISG)
Key provisions
The CISG governs contracts for the international sales of
goods between private businesses, excluding sales to
consumers and sales of services, as well as sales of certain
specified types of goods.
It applies to contracts for sale of goods between parties
whose places of business are in different Contracting States,
or when the rules of private international law lead to the
application of the law of a Contracting State.
It may also apply by virtue of the parties' choice.
Certain matters relating to the international sales of goods,
for instance the validity of the contract and the effect of the
contract on the property in the goods sold, fall outside the
Convention's scope.
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United Nations Convention on Contracts for


the International Sale of Goods (Vienna,
1980) (CISG)

Key provisions
The second part of

the CISG deals with the


formation of the contract, which is concluded by the
exchange of offer and acceptance.
The third part of the CISG deals with the obligations
of the parties to the contract. Obligations of the sellers
include delivering goods in conformity with the
quantity and quality stipulated in the contract, as well
as related documents, and transferring the property in
the goods. Obligations of the buyer include payment of
the price and taking delivery of the goods.
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United Nations Convention on Contracts for


the International Sale of Goods (Vienna,
1980) (CISG)

Key provisions
In addition, this part provides common rules regarding
remedies for breach of the contract.
The aggrieved party may require performance, claim
damages or avoid the contract in case of fundamental
breach.
Additional rules regulate passing of risk, anticipatory
breach of contract, damages, and exemption from
performance of the contract.
Finally, while the CISG allows for freedom of form of the
contract, States may lodge a declaration requiring the
written form.
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United Nations Convention on Contracts for


the International Sale of Goods (Vienna,
1980) (CISG)
Relation to private international law and
existing domestic law
The CISG applies only to international transactions
and avoids the recourse to rules of private
international law for those contracts falling under its
scope of application.
International contracts falling outside the scope of
application of the CISG, as well as contracts subject
to a valid choice of other law, would not be affected
by the CISG.
Purely domestic sale contracts are not affected by
the CISG and remain regulated by domestic law.
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Case Laws
http://www.uncitral.org/pdf/english/clout/
CISG-digest-2012-e.pdf

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&
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