Law & contractsen
Governing law
The national law chosen by the parties or determined by conflict-of-law rules to govern their international contract.
Governing law (or applicable law) refers to the national legal system that governs an international contract. Its determination is crucial as it conditions contract interpretation, parties' rights and obligations, and remedies in case of dispute.
The fundamental principle is freedom of choice: parties may designate the governing law in their contract (party autonomy). This choice is respected by state courts and arbitral tribunals in most countries.
In the absence of choice, the governing law is determined by conflict-of-law rules:
- Rome I Regulation (EU): in principle, the law of the seller's country (characteristic performance)
- CISG: applies automatically if both parties are in contracting states
- Lex mercatoria: may be applied by arbitrators
Practical advice:
- Always choose the governing law explicitly in the contract
- Prefer a neutral law if neither party accepts the other's law
- Coordinate the choice with the jurisdiction or arbitration clause
- Check compatibility with the CISG (which applies unless excluded)