Many contracts, and the vast majority of professionally-drafted contracts, contain what is known as a “choice of law” clause. Choice of law clauses specify the law that will be used to interpret the contract.
Choice of law clauses and choice of jurisdiction clauses (sometimes called choice of forum clauses) must be distinguished. Whilst choice of law clauses relate to the law that will be used to interpret a contract, choice of jurisdiction clauses specify the courts (or other decision making bodies) that will resolve disputes arising under the contract. For example, a contract could specify that it should be interpreted in accordance with English law, whilst at the same time granting exclusive jurisdiction to the courts of Germany to resolve disputes arising under the contract.
Like many other kinds of contractual clause, choice of law clauses are subject to a certain amount of judicial interference. This note focuses upon the ways in which the English courts will interfere with choice of law clauses.
Some types of law will regulate contractual relations before the English courts irrespective of an express choice of law. For example, the following pieces of legislation may apply in whole or part to contracts which relate to England and Wales but which expressly choose another governing law:
- Competition Act 1998
- Unfair Contracts Terms Act 1977
- Unfair Terms in Consumer Contracts Regulations 1999
The ways in which the English courts will interfere with a choice of law clause depend to an extent upon whether the contract is a consumer contract. For example, the Unfair Contract Terms Act 1977 (UCTA) will apply to contracts that are not governed by English law where it appears to the court that the choice of law clause has been used for the purpose of avoiding the effects of UCTA, or where one of the parties is a UK consumer who took the steps necessary to enter into the contract in the UK. Note, however, that the UCTA rules on excluding and limiting liability do not apply to international supply (of goods) contracts.
National consumer protection measures may also apply more generally by virtue of the Rome Convention (which has been incorporated into English law via the Contracts (Applicable Law) Act 1990). Article 5(2) of the Convention provides: “a choice of law made by the parties shall not have the result of depriving the consumer of the protection afforded to him by the mandatory rules of the law of the country in which he has his habitual residence: - if in that country the conclusion of the contract was preceded by a specific invitation addressed to him or by advertising, and he had taken in that country all the steps necessary on his part for the conclusion of the contract, or - if the other party or his agent received the consumer's order in that country, or - if the contract is for the sale of goods and the consumer travelled from that country to another country and there gave his order, provided that the consumer's journey was arranged by the seller for the purpose of inducing the consumer to buy.”
Where there is no express choice of law in a contract, the courts may still determine that there has been an implied choice of law if the circumstances warrant such a finding. For example, where a contract contains a choice of jurisdiction clause but no choice of law clause, then the law of the chosen jurisdiction may be deemed to apply.
References to other national laws in a contract may also have an effect. Where the courts are unable to identify and express or implied choice of law, the usual rule is that the governing law will be that law that is most closely connected to the contract. Article 4(2) of the Rome Convention provides: “... it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration. However, if the contract is entered into in the course of that party's trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated.” Note, however, that there are a number of exceptions to this general rule.