What laws apply in international contracts?

Private relations increasingly include an element of foreignness due to the internationalization of economic exchanges and the multiplication of population displacements. In doing so, international contracts are common in all economic activities.

There is a very wide variety of international contracts and, therefore, a multitude of applicable regulations. However, contract law is based on principles often common to the majority of states. Thus, the principle of the binding force of the contract is a universal principle; no foreign law will derogate from it. It is therefore easy to understand why, in international contract law, the public policy exception is rarely implemented.

I. Determination of the applicable law in international contracts

From the moment you have an international situation, the question of the law applicable to that situation inevitably arises. Private international law distinguishes three methods of determining the applicable law among which it is necessary to distinguish the method of the rules of conflict of laws (which one calls traditional method), the method of the material rules (which one calls modern method) and, to a lesser extent, the recognition method.

The method of conflict of laws rules, also called “conflict method”, is an indirect method which leads to the rule of an international situation by rules developed for internal situations. The material rules method, for its part, leads to the development of a rule specifically provided for international situations, instead of regulating the situation by a rule provided for internal reports. Thus, parties to an international contract can choose to apply to their contract the rules derived from an international convention expressly provided for international relations rather than those from a particular country. By way of illustration, the Vienna Convention of April 11, 1980 provides specific rules for the sale of goods which apply only to international contracts.

There remains the method of recognition, based on cooperation, which tends to compete with the conflict method by giving, in contrast to the latter, more importance to foreign laws. In practice, it is still little used, which is why we will not dwell on it more.

In medieval times and the system continued for several centuries, the law applicable to the contract was determined using the maxim “locus redit actum” which means that the act is governed by the law of the place where it is drawn up. This maxim was of fundamental importance when international trade came down to the existence of large fairs in certain European cities.

The development of international trade has brought to light the unsuitability of the rule and, little by little, it is the principle of the autonomy of the will which has prevailed in contractual matters. In other words, the parties could choose the law applicable to their contract. The ruling in principle in this matter is the American Trading Co. v. HE Heacock Co. judgement of December 5, 1910, which expressly states that “the law applicable to the contract is that which the parties have adopted”. This formula raised a debate between the partisans of the subjectivist theory and the partisans of the objectivist theory. In the theory of subjectivism, the will is all powerful and the determination of the applicable law can only be done according to the will of the parties. In the theory of objectivism, the will is not all-powerful; this is only a localization element of the contract. This theory requires the use of the beam of evidence method: we will try to locate the contract according to its characteristic elements such as its place of conclusion, its place of performance or even the place of establishment of the parties. In other words, the choice of law made by the parties simply serves to locate the contract. Taken to the extreme, this theory of objectivism could lead to the application of a law that was not the one chosen by the parties initially.

In France, the Court of Cassation has retain a dualist system, borrowing from the two theories, in the Société des Fourrures Renel ruling of July 6, 1959. Indeed, the Court will retain the subjectivist system when the parties have chosen the law applicable to their contract. On the other hand, it will retain the objectivist system in the absence of choice by the parties of the law applicable to their contract. It will then be necessary to locate the contract without seeking any implicit will. This system, as it results from the Société des Fourrures Renel ruling, was later taken up by the Rome Convention.

The conflict of laws rules are still based on a triple system. First, and this is the system that has applied for decades, the determination of the law applicable to the contract resulted from case law solutions. Then, under the influence of the European authorities according to which it appeared necessary to harmonize the rules of conflict of laws in contractual matters, the Member States adopted the Rome Convention on the law applicable to contractual obligations. Then, due to the new competence recognized to the European authorities, this convention gave way to the Rome I Regulation. Currently, these three systems (jurisprudential, Rome Convention and Rome I Regulation) coexist due to the different dates of entry into force of these texts. The Rome Convention entered into force on April 1, 1991 and therefore, only applies to contracts concluded from that date, while the French case law system only applies to contracts concluded before that date. The Rome I Regulation entered into force on December 17, 2009 and therefore, only applies to contracts concluded from that date. It is therefore essential to know the date of conclusion of the contract to know which system is applicable, although in reality there is no break but, on the contrary, a kind of continuity in the principles implemented. Although the conflict of laws rules method has been very successful, it has sometimes shown its limits in international contract law. The material rules method has filled the existing gaps.

II. The method of the material rules

A large list of contracts are subject to international material rules. For example, most transport contracts are subject to international material rules of conventional origin. The same goes for international factoring contracts. The leasing contract, on the other hand, is governed by the 1988 Ottawa Convention. In contract law, the most widespread international substantive rule results from various provisions of the Vienna Convention. The Vienna Convention has been ratified by more than eighty countries, making it a very common tool.

The provisions of this convention will come to apply in two cases: either because the buyer and the seller are established in different States which are parties to the Convention, or because the Vienna Convention is in force in the State whose law has been designated by the conflict of laws rule (in which case we will have a complementarity with the conflict of laws rule).

The Vienna Convention is a supplementary convention, which means that the parties can decide to exclude it. For a time, the Vienna Convention was considered to have been rejected if the parties had not provided for it. Today, on the contrary, it is considered to apply unless the parties have expressly excluded it. At European level, there has long been talk of adopting a European Contract Code. Although many French lawyers are involved in this cause, the European Contract Code has not yet emerged.

This article was written by Anna CIBERT (Paris-Saclay).