1. Introduction
In cross-border contracts, the question of which law governs is not merely a contractual choice—it is a matter regulated by both international instruments and national conflict of laws rules. The regulatory framework ensures legal certainty, protects weaker parties, and upholds public policy.
2. International Regulatory Sources
2.1. Rome I Regulation (Regulation (EC) No 593/2008)
The Rome I Regulation applies to contractual obligations in the EU (except Denmark). Key rules include:
- Article 3 – Party Autonomy: The parties may choose the governing law explicitly or implicitly.
- Article 4 – Default Rule: In the absence of a choice, the contract is governed by the law of the country most closely connected, often determined by the characteristic performance test.
- Article 9 – Overriding Mandatory Provisions: Certain domestic rules apply regardless of the chosen law.
- Consumer & Employment Contracts – Limited choice to protect weaker parties.
2.2. Hague Principles on Choice of Law in International Commercial Contracts (2015)
These principles, drafted by the Hague Conference on Private International Law, are non-binding but influential. They confirm:
- Broad freedom of choice.
- The choice may be made or modified at any time.
- Mandatory rules of another country with a close connection may still apply.
2.3. CISG and Other Uniform Laws
While the United Nations Convention on Contracts for the International Sale of Goods (CISG) does not govern choice of law directly, it can apply automatically if both parties are from contracting states—unless excluded.
3. National Regulatory Examples
3.1. Turkey – International Private and Procedural Law Act No. 5718 (IPPL)
- Article 24 – Party Autonomy: Parties may choose the applicable law; absent a choice, the law of the country with the closest connection applies.
- Characteristic Performance Test – Used to determine closest connection.
- Public policy and mandatory rule safeguards.
3.2. United States – Restatement (Second) of Conflict of Laws
- Strong emphasis on most significant relationship approach.
- Balances factors such as place of contracting, place of negotiation, and performance.
4. Regulatory Limitations
4.1. Overriding Mandatory Rules
These are statutory provisions a country considers crucial for safeguarding its public interests (e.g., anti-corruption, currency control, labor law). They apply regardless of the chosen law.
4.2. Public Policy Exception
If applying the chosen law would produce a result contrary to fundamental principles of the forum state, courts may refuse to apply it.
4.3. Special Protection for Weaker Parties
Regulations often restrict choice of law in consumer contracts, employment agreements, and insurance contracts, ensuring the weaker party retains the protection of their habitual residence.
5. Enforcement Challenges in Multi-Jurisdictional Contexts
Even if the applicable law is chosen and valid under conflict rules, practical enforcement may be complicated by:
- Divergent interpretations of “characteristic performance”.
- Recognition of foreign judgments or arbitral awards.
- Overlap between substantive law and procedural law issues.
6. Conclusion
The regulation of choice of law in contracts is a blend of party autonomy and regulatory safeguards. While international instruments like the Rome I Regulation and Hague Principles promote contractual freedom, national laws preserve certain non-negotiable interests. Effective contract drafting should balance both, ensuring enforceability and predictability in cross-border dealings.
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