Party Autonomy in International Contracts

Few principles are as widely recognized as the autonomy of parties to international contracts to designate the law that will apply to their transactions and the forum in which they will resolve their disputes. Traditionally, the scope of this autonomy has been confined to matters that otherwise would be governed by private law, which in the context of commerce, essentially means the main body of contract law. Within this context, parties to international contracts are free to designate the law or principles that will govern their transaction to the exclusion of all otherwise applicable law. They also are free to privately arbitrate any disputes that might arise between them to the exclusion of otherwise compulsory public court litigation.

The autonomy of parties to international contracts to select private arbitration for dispute resolution to the exclusion of national courts has a somewhat shorter and more tumultuous history than that of the autonomy of parties to designate applicable law to the exclusion of otherwise applicable law. Both types of autonomy, however, have emerged from their respective pasts virtually unfettered by restriction; and the history of each is documented thoroughly in an abundant and growing literature. Party autonomy has gained acceptance in international law and has received recognition in almost all national jurisdictions. The principle provides a right for the parties of an international commercial agreement to choose applicable substantive law. When the parties have made a choice of substantive law this choice generally refers to the law governing the parties’ contractual relationship. Unless otherwise provided for, such choice does not refer to the conflict rules arising under private international law.

The modern view is that the parties have the freedom to choose any substantive laws or rules of law even if these do not have any connection to the parties or the specific dispute. The parties are not only free to choose a system of national law, but may also choose to rely on trade usage, a-national rules of law, transnational law, lex mercatoria, general principles of law or general principles of international law. The primary advantage of party autonomy is that the parties can choose a law that they are familiar with and whose provisions are suitable for the agreement in question. The parties can further avoid the application of a law with a close connection to the transaction, and which therefore would apply, by choosing another applicable law. By making a clear choice of law the parties will know what they can expect from each other and the arbitral tribunal. Party autonomy is therefore often argued to provide for certainty and predictability.