Conflict of laws provisions usually include identifying a governing law that the contracting parties agree to abide by in the case of a dispute related to the contract.

Governing Law Provision

A business contract usually contains a provision saying that the laws of a specific jurisdiction (for example, the laws of Delaware or the federal laws of the United States) would apply to the contract. Such a provision is called a governing law provision. It helps the contracting parties choose their own jurisdiction irrespective of the jurisdiction that would otherwise apply to the case. A governing law provision must not be illegal or against a public policy.

Excluding the Conflict of Laws Principles

The governing law provision usually includes a clause for exclusion of conflict of laws principles. There are two main reasons for this:

  • It avoids the likelihood of any future argument that the law of a different jurisdiction should be applied on the grounds of conflict of laws principles.
  • It avoids a renvoi, wherein a court refers a dispute involving conflict of laws to the jurisdiction of another country. A renvoi may result in nullifying the intention of the parties to apply the law of a specific jurisdiction to their case.

Thus, excluding the conflict of laws principles is an important clause of a governing law provision since it prevents the imposition of other laws than those intended by the contracting parties. It usually excludes the application of laws of the state where the cause of action arose.

For example, when you enter into a contract with a company located in Texas, the cause of action may arise in Texas. However, you may want the contract to be governed by the laws of Delaware instead and hence include a governing law provision. Unfortunately, the governing law provision may be in conflict with most of the state laws which state that the law of the state where the cause of action arose would apply to the case.

Now this would mean that the laws of Texas would apply to the contract despite your expressly choosing of Delaware laws. Including a clause to exclude the conflict of laws principles can help you avoid such situations.

Effectiveness of Renvoi

Renvoi is a French word which means “send back.” It refers to a situation where a court sends back a case to another state or country in the case of a conflict of laws. Several private international law systems reject the concept of renvoi since it creates legal uncertainty and brings inefficiencies in the legal process. Instead of resolving a case in an unequivocally acceptable manner, it often leads to endless rounds of referrals.

Due to this inherent flaw, even the countries accepting renvoi have reduced its application to the minimal extent. Contractual obligations and laws permitting broader autonomy to the parties are usually excluded from the scope of renvoi.

Criteria for Excluding Conflict of Laws Principles

In order to make the clause for exclusion of conflict of laws principles meaningful, it must meet all of the following three criteria:

  • The private international law of the place must accept the concept of renvoi; otherwise, the courts would refuse a renvoi on their own, and hence there would be no need for the exclusion clause.
  • The private international law of the place must not permit the parties to choose the law of their preferred jurisdiction. If it does, then the choice of law by the parties would be conclusive in itself without any need for the exclusion clause.
  • Courts must not determine the validity of the choice of law provision or the intention of the parties in putting down such provision in the contract.

Conflict of Laws Explained

When a case is subject to the laws of two or more jurisdictions, and the laws have contradicting provisions with respect to any of the matters in dispute, such a situation is referred to as conflict of laws. The conflict can be between the laws of different states, municipalities, and countries or between any of these laws and a federal law.

The process through which a court determines which law to apply in the case of conflict of laws is called characterization or classification. When faced with the question of which law to apply in a given case, courts usually have two choices:

  • Lex fori or the law of the forum.
  • Lex loci or the law of the place where the transaction took place.

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