UNCITRAL endorses Hague Principles on Choice of Law in International Commercial Contracts 

The United Nations Commission on International Trade Law (“UNCITRAL”) has endorsed Principles on Choice of Law in International Commercial Contracts (“Hague Principles”).  This decision was taken by UNCITRAL in its Forty-eighth session at Vienna( 29 June to 16 July 2015).

The Permanent Bureau of the Hague Conference on Private International Law (“Hague Conference”) had requested UNCITRAL to consider endorsing the Hague Principles. These principles are based on the principle of party autonomy and therefore complement the UNCITRAL instruments such as United Nations Convention on Contracts for the International Sale of Goods  and the UNCITRAL Model Law on International Commercial Arbitration. The Secretariat was an observer in the meetings of the Hague Conference Working Group on Choice of Law in International Commercial Contracts, thereby ensuring uniformity and consistency.

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A contract will be an international contract unless each party has its establishment in the same State and the relationship of the parties and all other relevant elements, regardless of the chosen law, are connected only with that State. [1]  The scope of Hague Principles is limited to international contracts where each party is acting in the exercise of its trade or profession. They do not apply to consumer or employment contracts. [2] Such non-commercial contracts usually have limited party autonomy.

Under the Principles, the freedom of parties to choose the law or rules of law governing their contract is not dependent on the method of dispute resolution involved, whether before a court or arbitral tribunal.

It is noteworthy that these principles do not address the law related to the capacity of natural persons;  arbitration agreements and agreements on choice of court; companies or other collective bodies and trusts; insolvency;  the proprietary effects of contracts; the issue of whether an agent is able to bind a principal to a third-party.

Apart from stating that a contract is governed by the law chosen by the parties, the principles also reaffirm the principle of dépeçage. Dépeçage is a phenomenon that involves partial or multiple choice of law. Article 2(2) states The parties may choose: (a) the law applicable to the whole contract or to only part of it; and (b) different laws for different parts of the contract.

The Hague Principles are broad enough to include rules of law that are not drawn from formal  State sources of law. Such rules of law must be accepted on international, supranational or regional level and a  neutral & balanced set of rules.

Article 7 introduces the principle of severability.  It states that a choice of law cannot be contested solely on the ground that the contract to which it applies is not valid. The invalidity of the contract does not render invalid the choice of law. The principle of severability is already a part of the international instruments. It is a part of the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 16(1) of UNCITRAL Model Law as well as the ICC Rules (Art. 6.3 1998 Rules; Art. 6.9 2012 Rules) , Art. 23 1998 London Court of International Arbitration Rules; Art. 15.2 American Arbitration Association Rules; Art. 21.2 Swiss Rules of International Arbitration; Art. 23 UNCITRAL Arbitration Rules 1976 as revised in 2010.

Article 8 excludes the possibility of an unintentional renvoi by clarifying that a choice of law does not refer to rules of private international law of the law chosen by the parties unless the parties expressly provide otherwise. Further, these Principles do not prevent a court from applying overriding mandatory provisions of the law of the forum which apply irrespective of the law chosen by the parties.However, a court may exclude application of a provision of the law chosen by the parties if and to the extent that the result of such application would be manifestly incompatible with fundamental notions of public policy (ordre public) of the forum. [3]

Giving effect to the choice of law as decided by the parties is the predominant view and the courts and tribunals all over the world are giving effect to such choice. The Hague Principles are a codification of the best practices of this regime and will aid in its development and refinement.

(Inputs from Commentary on Draft Articles)

Read the principles here.

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[1] Article 1(2), Hague Principles

[2] Article 1(1), Hague Principles

[3] Article 11(3), Hague Principles

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