Absence of choice

Absence of choice means that the parties have no agreement on choice of law (e.g., no choice of law clause inserted in their contract), or when a choice of law clause is invalid. In the absence of contractual choice, the adjudicator (judge or arbitrator) must determine the law applicable to the transaction/case.

Arbitral awards vs. court decisions

An “award” is a decision by which the arbitrator(s) decide(s) on claims submitted by the parties in the arbitration. Arbitral proceedings, as a rule, end with the rendering of the final award. In general, an arbitral award is not merely the first step on a ladder of appeals, as is the case with State court judgments. This is due to the fact that the grounds for a possible challenge of an arbitral award, and the number of state court instances vor its correction, are very limited. In light of the territorial limitation of jurisdictions, a State court judgment has no automatic force outside the jurisdiction where it is rendered. Absent any treaty to that effect, States are under no obligation to recognize and enforce foreign judgments. Arbitral awards differ from State court judgments as a result of the wide acceptance of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (better known as New York Convention) globally.

Arbitration

Arbitration is a mechanism whereby the settlement of a dispute between two or more parties is entrusted to one or more persons (the arbitrator(s)). The arbitrators derive their powers from a private agreement (the arbitration agreement) and not primarily from the authority of a State. They proceed and decide the case on the basis of the arbitration agreement by rendering a final and binding arbitral award. The parties may specify, either in the arbitration agreement itself (ad hoc arbitration) or indirectly by choosing a set of arbitration rules (institutional arbitration), the method of appointing the arbitrators, the seat (or place) of the arbitration, and also the procedure to be followed while conducting the arbitral process. The guiding principle in arbitration is party autonomy.

Arbitrators vs. State judges

While State court judges derive their decision-making authority from State powers, arbitrators derive their jurisdiction solely from the arbitration agreement and the acceptance of such powers by the State. Arbitrators are private individuals who are primarily selected by the parties. The arbitrators enjoy the powers conferred on them by the arbitration agreement or the framework chosen by the parties. State court judges, on the other hand, enjoy powers which are conferred on them by the State laws and are limited to disputes within the judicial system.

Comparative method

The “Comparative method” refers to a legal approach where laws, legal principles, and court decisions from other jurisdictions are considered and analyzed as part of the decision-making process. When using the comparative method, a judge or arbitrator (or any person applying legal rules) may look at how different legal systems have approached similar legal issues or disputes. The purpose of this method is not to directly apply foreign law to a case, but rather to gain insights, perspectives, or guidance that can inform the interpretation and application of domestic law. The ultimate decision must still be based on and be compliant with the domestic legal system and its principles.

Connecting factors

“Connecting factors” refer to the elements or considerations used to establish a link or relationship between a legal issue and a particular jurisdiction or legal system in the context of private international law. These criteria help in determining the most appropriate law or jurisdiction to govern a particular legal issue, especially in cases involving international elements. For example, the concept of “establishment” is often used as a connecting factor in various jurisdictions to ascertain the internationality of a contract and to determine the law applicable to the parties' agreement on choice of law.

Connection

“Connection” is a link or relationship between a legal issue and a particular jurisdiction or legal system in the context of private international law.

Conventions (hard law)

Hard law refers generally to legal obligations that are binding on the parties involved and which can be legally enforced before a court. If States sign an (international) Convention, they are, in general, obliged to directly apply or incorporate it into their domestic law.

Dépeçage

Dépeçage is a private international law concept which refers to the process of applying different legal systems or laws to different issues within the same legal relationship. Instead of applying a single jurisdiction’s laws to all aspects of a case, dépeçage allows dissecting the case and applying different laws to different parts of it, based on the most relevant connections those parts have to particular legal systems. Dépeçage enables the resolution of legal issues by engaging in a choice-of-law analysis on an issue-by-issue basis, but bears the risk of inconsistencies among the various legal systems applied.

Express choice

An “express choice” of law is a clear and explicit choice of law stated by the parties, typically in contractual provisions. It reflects the principle of party autonomy, acknowledging that parties are best positioned to select the legal system most suitable for their transaction. This express choice is widely recognized across various international, supranational, and national legal frameworks, albeit within certain limits, such as those imposed by public policy and overriding mandatory rules.

Incorporate rules by way of reference

Incorporating rules by way of reference in an international commercial contract means that the parties explicitly agree to be bound by certain rules or laws that are not detailed in the contract itself but are referenced within it. This allows for the inclusion of comprehensive legal frameworks, industry standards, or technical specifications without the need to spell out all the details in the contract, simplifying the document while ensuring that the referenced rules are legally binding. For example, a contract might state that it is governed by “INCOTERMS” (a set of commercial/trade rules established by the International Chamber of Commerce) without reproducing those rules in the contract. These rules become part of the contractual terms agreed between the parties. As per the HCCH Principles, incorporation by reference is different from allowing parties to choose “rules of law” as the law applicable to their contract.

Institutional (arbitral) rules

“Institutional arbitration” refers to proceedings administered by a specific arbitral institution under its rules of arbitration. Arbitral institutions usually provide a comprehensive set of arbitration rules, which allows the parties to follow established rules without having to think about all possible problems or rules that they would have to establish in their arbitration agreement or when the dispute arises.

International (commercial) contracts

According to the HCCH Principles, a contract is international unless each party has its establishment in the same State and the relationship of the parties and all other relevant elements, regardless of the chosen law, are connected only with that State. These relevant elements may be, for example, the place of conclusion of the contract, the place of performance, a party’s nationality, and a party’s place of incorporation or establishment.A contract is regarded as commercial when each party is acting in the exercise of its trade or profession. E.g., consumer or employment contracts are not commercial contracts.

Legislation

Legislation consists of rules of national legal systems and supranational instruments. Legislation refers to the preparation and enactment of laws by a legislative body through its lawmaking process.

Mandatory rules

Overriding mandatory rules can be defined as mandatory rules that are crucial for the countries’ economic, social and political purposes, and their application is required for the disputes within their scope in order to implement the previously mentioned purposes. There are three categories of overriding mandatory rules: overriding mandatory rules pertaining to lex fori; overriding mandatory rules pertaining to lex causae; and finally, overriding mandatory rules of a third country. Overriding mandatory rules take precedent over rules chosen by the parties and therefore supersede them.

Modification of a choice of law clause

A “modification of a choice of law clause” refers to the process of the parties modifying an existing contractual choice of law clause. A choice of law clause can only be modified with the mutual consent of all parties to the contract. The modification should be made by drafting an amendment to the original contract which specifies the new choice of law.

Neutral law (“law of a 3rd country”)

A “neutral law” or the “law of a third country” describes a choice of law made by the parties, in which they agree on a law to govern their relationship that is not the law of a country directly connected to either party or their relationship (contract) itself. This approach is often used in cross-border agreements where parties are from different countries. Parties often choose the law of a jurisdiction known for its well-established and stable legal system, predictable legal outcomes, and sophisticated commercial law. This helps in avoiding any perceived home advantage and aims to eliminate any potential bias or conflict of interest that might arise from using the law of a country to which one of the parties is connected.

Non-State law (rules of law)

“Non-State law or rules of law” refers to regulations that are generally accepted on an international, supranational, or regional level as a neutral and balanced set of rules. These can include non-binding instruments formulated by established international bodies, such as the UNIDROIT Principles of International Commercial Contracts (UPICC). Arbitration statutes and rules often permit contractual disputes to be resolved under such “rules of law.”

Observance of a choice of law clause

When courts or arbitral tribunals “respect a choice of law clause,” it means they acknowledge and apply the specific legal system (the law of a particular country or set of rules) that the parties to a contract have agreed upon to govern their contract. This is a fundamental aspect of upholding party autonomy in contract law, especially in international contexts. Courts or arbitral tribunals will normally respect the parties' contractual choice of law clause, provided that the choice of law is made within the limits set out by the applicable law, usually the lex fori or the lex arbitri.

Partial choice

Partial choice is the prerogative of the parties to indicate that the chosen law does not apply to the entirety of the contract.

Party autonomy

Party autonomy refers to the power of the parties to a contract to choose a neutral law or the law they consider most appropriate for their specific contract. It enhances certainty and predictability within the parties’ primary contractual arrangement and recognizes that parties to a contract may be in the best position to determine which set of legal principles is most suitable for their transaction. Many States have reached this conclusion and, as a result, giving effect to party autonomy is the predominant view today. However, there are considerable differences regarding the scope of this concept (e.g. with respect to consumer or employment contracts).

Persuasive authority

The persuasive authority of a given soft law instrument refers to its capacity to influence courts, lawmakers, and legal practitioners, despite not being legally binding in the same way as hard law (e.g., statutes or treaties). Some important factors that contribute to the persuasive authority of a soft law instrument are the practical utility of the soft law instrument.

PIL codification

The concept of “PIL codification” refers to the process of systematically arranging and integrating the rules of private international law into a coherent legal framework or code. This codification is aimed at addressing various aspects of private international law, such as choice of law in international contracts. Codification may involve the consolidation of existing laws, the introduction of new legal principles, and the harmonization of laws to facilitate their application in a global context.

Principles (soft law)

The term soft law is used to denote agreements, principles and declarations that are not legally binding. Soft law instruments are predominantly found in the international sphere. Principles do not constitute a formally binding instrument, and therefore, States are not obliged to directly apply or incorporate them into their domestic law. Principles can guide the reform of domestic law and operate alongside existing instruments on the subject.

Public policy

Public policy, in the context of private international law, typically refers to a nation's core legal principles that protect fundamental values and interests, which can override the application of foreign laws or judgments that contravene these principles.

Refer to an instrument

When judges “refer to an instrument” in a legal context, it typically means that they are citing or making reference to a specific legal document or authoritative text in their legal reasoning, decision-making process, or written judgment. This could be a statute, a treaty, a judicial decision, a soft law document (e.g., guidelines or principles), or any other authoritative legal text. The judge then analyzes the content of the instrument by interpreting its provisions, understanding its context, and determining how it applies to the specific facts and legal issues of the case. This may involve drawing analogies, noting differences, or using the instrument to clarify or fill gaps in existing law. The judge uses the instrument to support the legal reasoning, and the reference to the instrument may be documented in the judge’s written opinion or judgment.

A revision or reform in the context of private international law refers to the process of examining existing laws (e.g., Civil Code), regulations (e.g., PIL Act), or legal frameworks (e.g., Principles or rules) and making changes or adaptions to them. Revision are often minor modifications, while a legal reform describes a more comprehensive change. In private international law, this can be reflected as a new PIL Act or suppression of “outdated” rules. For the purposes of choice of law provisions, jurisdictions might consider or adopt new approaches such as accepting non-State law as a valid choice of law agreement.

Tacit choice

A “tacit choice of law” is a not explicitly stated choice of law, which can be inferred from contractual provisions or the circumstances surrounding the parties’ agreements. While a tacit choice stems from the principle of party autonomy, it requires clear evidence from the contract or its circumstances, indicating that the parties intended a specific legal system to govern their contract.

Weaker (vulnerable) parties

When parties engage into contractual relationships with each other, one party may hold significantly more transactional power, placing the other party in a vulnerable position in the contractual negotiations. Therefore, laws and regulations often differentiate between different types of contracting parties according to their relational or social weakness. Some laws and regulations protect certain weaker parties through the implementation of measures ranging from general rules against unfair exploitation or abuse of circumstances to more specific sets of rules protecting certain categories of contracting parties, such as employees, tenants, and consumers.