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forthcoming in
Jrgen Basedow, Klaus Hopt & Reinhard Zimmermann (eds), Max Planck
Encyclopedia of European Private Law, Oxford University Press (2012)
Gisela Rhl
1. Concept and function
Choice of law by the parties, also known as party autonomy, refers to the
parties right to designate the law applicable to their legal relationship.
Alongside the freedom to select the competent forum ( jurisdiction
agreements), choice of law is, thus, an expression of the parties autonomy
also to be found in substantive law. However, it goes beyond the parties
substantive autonomy ( freedom of contract) because it allows parties to
avoid the default as well as mandatory provisions of the otherwise applicable
law.
As a connecting factor ( connection and connecting factors) choice of
law plays a prominent role in a globalized world: it facilitates the proper
regulation of individual cases, fosters legal certainty and reduces the costs of
determining the applicable law. From an economic point of view, efficiency
speaks for choice of law: since rational parties only choose a law when they
expect the choice to make them better off, choice of law regularly increases
social welfare and therefore leads to the desirable economic state of pareto-
efficiency. This holds true irrespective of the reasons for the parties choice.
Therefore, it does not matter, whether they choose a law because it best fits
their needs or whether other factorsfamiliarity, neutrality, reputationare
decisive. As long as the parties freely choose a particular law the choice is
pareto-efficient. However, choice of laws fundamental role in a globalized
world stems not only from the advantages it brings to parties and the
economic efficiency it represents. It is significant, moreover, because it is an
important instrument for fostering competition between legal orders
( competition between legal systems). Since parties choosing a foreign law
can avoid the otherwise applicable law, national legal orders haveunder
certain conditionsan incentive to ensure that their rules are attractive for
contracting parties. Provided that there is no market failure, choice of law
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contracts in both Europe and the United States. In other fields of private
international law it is lagging behind.
3. Scope of application
The classicand until today the least contestedarea of application of
choice of law are international contracts ( contractual obligations (PIL)).
Here, with the exception of some South American and Middle Eastern
countries, it claims widespread application. In other fields, it has gained
recognition in recent years. This holds particularly true for the private
international law of non-contractual obligations ( non-contractual
obligations (PIL)). Here, national legal orders and international instruments
very often provide that agreements on the applicable law are permissible
after the event generating the non-contractual obligation has taken place. Art
14(1) Rome II (Reg 864/2007), for example, allows parties to submit non-
contractual obligations to the law of their choice by an agreement entered
into after the event giving rise to the damage has occurred. In international
family and probate law the parties are now in many legal orders allowed to
choose from a range of laws ( family law (international); international
succession law). According Art 5(1) Rome III (Reg 1259/2010), for
example, spouses may designate the law applicable to their divorce or legal
separation provided that it is the law of their common habitual residence, the
law of their last common habitual residence, the law of the nationality of
either spouse, or the law of the forum. By the same token, Art 15 of the new
Maintenance Regulation (Reg 4/2009) providesreferring to Art 8(1) of the
Protocol to the new Hague Maintenance Conventionthat the parties may
submit their maintenance obligation to the law of either partys nationality or
habitual residence.
Against this background, the scope of choice of law is already large. The
only field where it does not claim widespread application is international
property law. Here, the applicable law is for the most part determined with
the help of the lex rei sitae. A noteworthy exception to this rule is to be
found in the Hague Convention on Securities issued by the Hague
Conference on Private International Law: according to its Art 4(1) the
disposal of securities is subject to the states law, which is expressly agreed
upon in the account agreement. This version of choice of law, however, has
to be distinguished from the above insofar as it does not concern the
relationship of the parties who are privy to the transactionthe securities
transfer. The choice of law, therefore, is not made by the issuer and the
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purchaser of the security, but by the issuer and his bank on one side and the
purchaser and his bank on the other.
4. Object
The object of a choice of law can, in most national legal orders and
international instruments, only be the law of a state. Non-state law ( lex
mercatoria), like the UNIDROIT PICC ( UNIDROIT Principles of
International Commercial Contracts) or the PECL ( Principles of
European Contract Law (PECL)) cannot therefore be chosen. In view of
European private international law this follows from the fact that the relevant
or framing norms speak of the choice of a state law. In view of Art 3
Rome I (Reg 593/2008) recital 14 adds that the parties may choose
contractual instruments issued by the European Union, and in particular
the Common Frame of Reference ( European private law). This means, in
turn, that other non-state laws must not be the object of a choice of law. In
the United States the situation looks very much the same. The relevant
provisions, in particular 187 Restatement (Second) of Conflict of Laws
( restatements), 1-301(a) UCC speak of the law of a state. Only the
recently adopted private international law codifications of Louisiana and
Oregon do not use this term and mention that the parties can choose the
applicable lawand not solely the law of a state. The same holds true in the
dominantthough contestedopinion about the Mexico Convention of
1994. However, there is no express provision to this effect in the text. The
authors who support the choice of a non-state law refer to Art 9(2)2 of the
Convention which allows courts to consider and apply general principles of
trade law which are recognized by international organizations.
Further, many national orders and international instruments provide that
the object of the choice of law may only be the law of a state to which the
parties have a connection. This holds particularly true for international
family and probate law ( family law (international); international
succession law). Here, the relevant European rules provide that the parties
can only choose from a certain group of laws. Normally, these laws include
the law of the parties nationality and the law of the parties habitual
residence. In the private international law of contracts, the relevant norms
diverge: in the United States, on the basis of 187(2)a Restatement (Second)
and 1-301(a) UCC, a choice of law clause will be respected only if the
parties or the contract evince a relationship to the chosen law ( contractual
obligations (PIL)). In Europe, in contrast, the parties may submit their
contract to an unconnected law pursuant to Art 3 Rome I. Only for contracts
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c) Technical limitations
Technical limitations limit the freedom of choice of the parties in those
instances where a particular legal instrument favours othersuperior
interests. These instruments are overriding mandatory provisions on the one
hand ( overriding mandatory provisions; unilateralism (PIL)) and the
ordre public on the other ( public policy (ordre public)). Overriding
mandatory provisions are national prescriptions which are to be enforced
irrespective of the otherwise applicable law in international situations. They
can be recognized in that they express a public interest in the widest sense,
and, unlike norms of classical private law, do not serve merely to balance
private interests. Frequently, they are of an economic or socio-political
nature and aim at the central regulation of areas of private life. Ordre public
impedes the application of the chosen law if the result achieved violates the
public policy of the forum state. It functions as an ultima ratio if
fundamental values of the forum cannot be enforced in another manner.
Literature. Hessel E Yntema, Autonomy in Choice of Law (1952) 1 Am
J Comp L 341; Hessel E Yntema, Contract and Conflict of Laws:
Autonomy in Choice of Law in the United States (1955) 1 NYLF 45;
Andr Aloys Wicki, Zur Dogmengeschichte der Parteiautonomie im Inter-
nationalen Privatrecht (1965); Larry E Ribstein, Choosing Law by
Contract (1993) 18 J Corp L 245; Dorothee Einsele, Rechtswahlfreiheit im
Internationalen Privatrecht (1996) 60 RabelsZ 417; Peter E Nygh, Auto-
nomy in International Contracts (1999); Yuko Nishitani, Mancini und die
Parteiautonomie im Internationalen Privatrecht (2000); Stefan Leible,
Parteiautonomie im Internationalen PrivatrechtVerlegenheitslsung oder
Allgemeines Anknpfungsprinzip? in Heinz-Peter Mansel, Thomas Pfeiffer,
Herbert Kronke, Christian Kohler and Rainer Hausmann (eds), Festschrift
fr Erik Jayme, vol I (2004) 485; Giesela Rhl, Party Autonomy in the
Private International Law of Contracts: Transatlantic Convergence and
Economic Efficiency in Eckart Gottschalk, Ralf Michaels, Giesela Rhl and
Jan von Hein (eds), Conflict of Laws in a Globalized World (2007), 153;
Giesela Rhl, Rechtswahlfreiheit im europischen Kollisionsrecht in
Dietmar Baetge, Jan von Hein and Michael von Hinden (eds), Die richtige
Ordnung. Festschrift fr Jan Kropholler (2008) 187; Jrgen Basedow,
Theorie der Rechtswahl oder Parteiautonomie als Grundlage des
Internationalen Privatrechts (2011) 75 RabelsZ 32.
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