International contracts: the issue of the applicable law

As it was already mentioned in the previous article, the choice of the applicable law in international contracts, aiming at the establishment of commercial relationships with foreign partners, is fundamental: in fact, every single aspect of the agreement will be regulated by the law chosen.

Normally, it is possible to imagine that, each party, according to the freedom of choice, we will try to apply the domestic rules of his/her own country. Although this is a concrete possibility for both parties, actually it is not always the case, according to the fact that there are some countries requiring the application of their rules as mandatory for some specific matters (even if it is against the will of the counterparty).

By excluding these cases of mandatory rules, normally the parties can choose their applicable domestic law (i), the law of the counter party's nation (ii), the law of a third country (iii), or the rules coming from the international conventional law (iv): is the case of the CISG or Convention of Vienna for example (for what concerns all the international business to business contractual relationships).

1. The domestic law can be a good choice according to the fact that it is the law better known by the party coming from that country. Apparently this “position of advantage” could be rejected by the counterparty, for the opposite reasons, in addition to the fact that a different bureaucracy can make his/her obligation more costly.
2. The law of the counterparty's nation opens at the the same situation of the previous point: in this case the difficulties could be encountered by the first party. Either way, it is interesting to notice that sometimes it is more convenient to accept the counterparty's system of rules than his/her own.
3. The third country's law can be an equal solution but it is important in this case to study the legal culture of the country, its bureaucratic and judicial system, if it has adopted the international uniform rules or not.
4. The CISG, literally “Convention for international sales of goods” is an important conventional instrument developed by UNCITRAL in 1978 and adopted officially in 1980 in Vienna. One of the first main elements characterizing this text is its “flexibility”, which implies, on one hand, that the applicability of the discipline requires an element of connection between the contract and a contracting state (art. 1 a) of the Convention); and on the other hand, that it is not excluded the possibility of using other different sources of law. In fact, it allows the contract's parties to exclude, fully or partially, its application (art. 6 of the Convention). In this way, they will be able to apply (as already mentioned) a different law chosen by them, or in absence of choice, the applicable domestic law according to the international private law rules (art. 1 b) of the Convention).

In conclusion, there are many different possibilities in terms of choosing the applicable law offered by the legal discipline. Apart from the limitations coming from the mandatory rules, the focal point of the choice remains the free will of the parties. This does not mean that commercial partners are exempt from the right / duty of reading up and studying well the law of the countries and the international/conventional rules, before exercising the freedom of choice. The help that can be offered by a legal advisor is, from this point of view, very important for entrepreneurs and companies.