Conflict of Laws in International Contracts

Conflict of Laws in International Contracts

Introduction

International contracts create some of the most important and sophisticated problems in conflict of laws.

A contract may be negotiated in one country, signed electronically from another, performed in several countries, involve parties incorporated in different jurisdictions, and require payment through a financial institution located somewhere else. If a dispute later arises, more than one legal system may have a legitimate connection to the transaction.

The central question is therefore not simply:

What does the contract say?

It is also:

Which legal system determines what the contract means, whether it is valid, what obligations it creates, and what happens when one party breaches it?

This is the central conflict-of-laws problem in international contracts.

Cornell’s Legal Information Institute describes conflict of laws as arising when two or more jurisdictions connected to a dispute have potentially applicable laws and the outcome depends upon which law is selected. In contract disputes, the controlling law may be the law selected through the forum’s conflict-of-laws rules or, where valid, the law chosen by the parties themselves.

International contracting therefore requires lawyers and courts to distinguish several different questions:

• Which court or tribunal has jurisdiction?
• Which law governs the contract?
• Is the parties’ choice-of-law clause enforceable?
• Does the CISG apply?
• Have the parties excluded the CISG?
• Which law governs contract formation?
• Which law governs interpretation?
• Which law governs remedies?
• Which rules are mandatory and cannot be displaced by agreement?
• Which country’s public policy can limit enforcement?
• Where can a judgment or arbitral award be enforced?

These questions are related, but they are not identical.

A well-drafted international contract attempts to answer many of them in advance. A poorly drafted contract may leave them for a court or arbitral tribunal to resolve after the commercial relationship has already broken down.

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1. What Is an International Contract?

An international contract is generally a contract involving a significant connection with more than one country.

The international element may arise because:

• the parties are located in different countries;
• the parties have places of business in different countries;
• performance occurs in another country;
• goods cross international borders;
• payment is made internationally;
• intellectual property is used in multiple countries;
• services are performed across borders;
• the contract is connected to property located abroad; or
• the parties expressly select foreign law or international arbitration.

Not every contract involving a foreign element creates the same conflict-of-laws problem.

A contract between a U.S. company and a Canadian company for the sale of goods is different from a contract between a U.S. company and a French company for software services performed remotely.

The relevant legal regimes may differ depending upon the nature of the transaction.

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2. Why International Contracts Create Conflicts of Law

Different countries have different rules governing contracts.

They may differ concerning:

• contract formation;
• consideration;
• good faith;
• interpretation;
• implied terms;
• warranties;
• limitation of liability;
• damages;
• specific performance;
• interest;
• limitation periods;
• termination;
• assignment;
• agency;
• electronic contracting;
• consumer protection;
• employment-related restrictions;
• mandatory regulatory rules; and
• public policy.

Suppose a company in the United States enters into a contract with a company in Germany.

The contract does not specify governing law.

The agreement is negotiated partly in Germany, signed electronically, performed in both countries, and provides for delivery of goods to the United States.

If a dispute later arises, there is no obvious answer to the question:

Which country’s contract law applies?

The answer must be determined through the applicable conflict-of-laws rules, unless a treaty or other controlling legal regime resolves the issue.

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3. Choice of Law Is Central to International Contracting

The most important contractual device for managing conflict-of-laws uncertainty is usually the choice-of-law clause.

A choice-of-law clause identifies the legal system the parties intend to govern their agreement.

For example:

“This Agreement shall be governed by and construed in accordance with the laws of the State of New York.”

Or:

“This Agreement shall be governed by the laws of England and Wales.”

The purpose is predictability.

Instead of leaving the governing law to be determined after a dispute arises, the parties attempt to decide the issue beforehand.

Cornell’s Legal Information Institute describes a governing-law provision as a contractual provision that determines which law will apply in the event of a dispute. Such provisions are generally respected by courts, although their enforceability and scope remain subject to applicable legal rules.

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4. Party Autonomy

The ability of contracting parties to select the law governing their agreement is commonly described as party autonomy.

Party autonomy is particularly important in international commerce because commercial parties often want to know the legal framework governing their relationship before they enter the transaction.

A company may prefer a particular jurisdiction because its law is:

• predictable;
• commercially developed;
• familiar to the parties;
• neutral;
• efficient;
• favorable to enforcement; or
• particularly well developed in the relevant industry.

Party autonomy can therefore reduce uncertainty and transaction costs.

But party autonomy is not unlimited.

The parties cannot necessarily contract around every mandatory rule of every jurisdiction connected to the transaction.

Nor does selecting a governing law automatically determine the location of litigation or arbitration.

These are separate questions.

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5. Choice of Law Is Not the Same as Choice of Forum

One of the most important distinctions in international contracts is between a choice-of-law clause and a forum-selection clause.

A choice-of-law clause answers:

Which law governs the contract?

A forum-selection clause answers:

Where will disputes be resolved?

For example, a contract might provide:

“This Agreement shall be governed by New York law.”

and separately:

“Any dispute arising out of this Agreement shall be submitted to the courts of England.”

The first provision concerns governing law.

The second concerns the forum.

The parties could therefore agree to have an English court apply New York law.

Likewise, parties could agree to arbitrate in Paris under an arbitration agreement while selecting New York substantive law.

The two provisions perform different legal functions.

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6. The Forum’s Conflict-of-Laws Rules Still Matter

Even when a contract contains a choice-of-law provision, the forum’s law remains important.

A court must first determine whether the choice-of-law clause is valid and what effect the forum gives it.

Different jurisdictions may apply different standards when deciding:

• whether a choice-of-law clause is enforceable;
• whether the chosen law has a sufficient connection to the transaction;
• whether mandatory local law overrides the chosen law;
• whether the clause covers the particular dispute; and
• whether the clause was incorporated into the contract.

Therefore, selecting foreign law does not necessarily eliminate conflict-of-laws analysis.

It often changes the conflict-of-laws question from:

Which jurisdiction should supply the governing law?

to:

Should the court enforce the parties’ selection of this jurisdiction’s law?

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7. The Difference Between Governing Law and the Law of the Forum

An international contract can therefore involve at least two different legal systems.

The forum’s law governs questions concerning the court’s own authority and procedures, subject to applicable federal law and other controlling rules.

The governing substantive law may come from another jurisdiction.

For example, a federal court in New York could hear a dispute concerning a contract governed by English law.

The court may apply its own procedural rules while applying English substantive contract law to the contractual issues.

This distinction is a classic manifestation of the principle that procedural and substantive questions can be treated differently in conflict-of-laws analysis.

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8. The CISG and International Sales Contracts

International sales of goods require special attention because of the United Nations Convention on Contracts for the International Sale of Goods, commonly called the CISG.

The CISG establishes a uniform legal regime for many international sales contracts.

UNCITRAL explains that the CISG is designed to provide a modern and uniform framework for international sales of goods and can apply directly when the Convention’s requirements are satisfied, thereby reducing the need to resolve the governing law solely through domestic private international law.

The United States is a party to the CISG. It entered into force for the United States on January 1, 1988.

Consequently, an international sales contract involving a U.S. party may implicate the CISG even if the parties do not realize it.

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9. When Does the CISG Apply?

The CISG generally applies to contracts for the international sale of goods when its jurisdictional requirements are satisfied.

One important situation is where the parties have their places of business in different Contracting States.

The Convention can also become relevant through applicable private international law rules where those rules lead to the law of a Contracting State.

The CISG does not govern every international contract.

It is principally concerned with international sales of goods between businesses and excludes certain transactions and subject matters.

For example, consumer sales and contracts principally involving services may fall outside its scope.

Certain matters, including some questions concerning validity and the effect of the contract on property in the goods, are also outside the CISG’s substantive scope.

Therefore, the first question is not simply:

“Is this an international contract?”

It is:

“Is this an international contract falling within the CISG’s scope?”

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10. The CISG Is Not Simply Another Choice-of-Law Rule

A common misunderstanding is to treat the CISG as merely another country’s contract law.

That is not quite correct.

The CISG is an international convention establishing substantive rules for qualifying international sales transactions.

When applicable, it operates as part of the governing legal framework rather than requiring a court to select the law of one country first and then independently decide whether to use the CISG.

This is one of the reasons international sales contracts require careful analysis.

A contract may be governed by U.S. law in the sense that U.S. law supplies the applicable legal system, while the CISG operates as the applicable federal treaty regime for matters within its scope.

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11. Can the Parties Exclude the CISG?

Yes.

Article 6 of the CISG recognizes broad party autonomy and permits parties to exclude application of the Convention or vary the effect of its provisions, subject to the Convention’s framework.

UNCITRAL identifies Article 6 as an important expression of party autonomy under the CISG.

This creates an important drafting issue.

A contract might state:

“The United Nations Convention on Contracts for the International Sale of Goods shall not apply.”

Such language is substantially clearer than merely stating:

“This Agreement shall be governed by the laws of New York.”

Why?

Because a reference to the law of a Contracting State does not automatically answer the question whether the parties intended to exclude the CISG.

International sales contracts should therefore address the CISG expressly when the parties want certainty on the issue.

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12. The Relationship Between the CISG and Domestic Contract Law

The CISG does not govern every legal question arising from an international sales contract.

When the Convention applies, it governs matters falling within its scope.

Questions outside its scope may be determined under another applicable legal system.

This can produce a layered analysis.

For example:

• the CISG may govern contract formation;
• the CISG may govern the parties’ sales obligations;
• domestic law may govern certain validity questions;
• domestic law may govern property effects;
• procedural questions may be governed by the forum; and
• arbitration may be governed by a separate procedural framework.

Therefore, “the governing law” may not be a single body of rules answering every conceivable legal question.

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13. Contracts Outside the CISG

Many international contracts do not fall within the CISG.

Examples may include:

• international service agreements;
• licensing agreements;
• many technology agreements;
• consulting agreements;
• distribution agreements;
• franchise agreements;
• employment-related agreements;
• certain financial agreements;
• intellectual-property agreements; and
• agreements involving matters outside the Convention’s scope.

For these contracts, the parties and the court may need to rely on ordinary conflict-of-laws principles, applicable domestic law, treaties, or other international instruments.

The absence of the CISG does not mean the contract lacks an international legal framework.

It simply means that another framework must supply the governing rules.

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14. Choice-of-Law Clauses in International Contracts

A well-drafted choice-of-law clause should answer the governing-law question as clearly as possible.

A clause might identify:

• a particular state;
• a particular country;
• the law of a particular jurisdiction;
• substantive law only;
• a specific international convention; or
• a combination of these.

Ambiguity can create litigation.

For example, consider:

“This Agreement shall be governed by U.S. law.”

This wording may be insufficiently precise because the United States does not have one comprehensive general contract law governing all private contracts.

Contract law generally varies among the states, subject to applicable federal law.

A clause specifying:

“the laws of the State of New York”

is ordinarily much more precise.

In international transactions, the parties should also consider whether the selected state’s law includes or excludes an applicable international convention such as the CISG.

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15. “Laws of” a Jurisdiction Versus “Conflicts Rules” of a Jurisdiction

Drafting can become particularly important when a contract states that it is governed by the law of a particular jurisdiction.

Some clauses expressly state that the jurisdiction’s conflict-of-laws rules are excluded.

Others do not.

This can matter because conflict-of-laws rules may otherwise refer the dispute to another jurisdiction’s law.

A clause that selects:

“the laws of State X”

may raise questions about whether the reference includes State X’s conflict-of-laws principles or only its substantive law.

A carefully drafted agreement may therefore specify that the selected jurisdiction’s substantive law governs without regard to its conflict-of-laws rules, where that approach is legally permissible.

The precise effect depends upon the forum and the applicable legal rules.

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16. Mandatory Rules

Party autonomy has limits because some legal rules are considered mandatory.

A mandatory rule is one that the parties cannot freely displace by contractual agreement, or that a court may apply despite the parties’ choice of another law.

Examples may arise in areas involving:

• consumer protection;
• competition law;
• sanctions;
• labor protections;
• financial regulation;
• anti-corruption laws;
• data protection;
• public safety;
• securities regulation; and
• other strongly regulated activities.

The mere fact that a contract selects foreign law does not necessarily eliminate all mandatory rules of jurisdictions with significant connections to the transaction.

This is one of the most important reasons that a choice-of-law clause should not be understood as an absolute shield against all other potentially applicable laws.

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17. Public Policy and International Contracts

Public policy can also limit the application or enforcement of foreign law.

A forum may refuse to apply a foreign rule in circumstances where doing so would seriously conflict with a fundamental policy of the forum.

This is a narrow and context-dependent doctrine.

It is not enough that the forum would have enacted a different rule.

The conflict generally must involve an important policy recognized as sufficiently fundamental to justify refusing the ordinary operation of the chosen law.

This distinction is particularly important in international contracts because commercial parties often select a law different from the law of the forum.

A court must respect contractual autonomy while also considering the forum’s fundamental legal policies.

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18. Public Policy Is Not a General Escape From a Choice-of-Law Clause

A party should not assume that it can avoid an unfavorable governing law simply by arguing that the forum has a different policy.

Conflict-of-laws doctrine generally distinguishes between:

• an ordinary difference between legal systems; and
• a genuine conflict with a fundamental public policy.

This distinction protects predictability.

If every difference between foreign law and forum law constituted a public-policy violation, international choice-of-law clauses would become substantially less useful.

The public-policy exception therefore tends to be narrow and fact-specific.

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19. Good Faith and Mandatory Contract Rules

International contracts can also raise differences concerning good faith.

Different jurisdictions may formulate the concept differently.

In U.S. contract law, good-faith obligations can arise from statutory and common-law principles, while other legal systems may treat good faith as a broader organizing principle of contract law.

The applicable law may therefore affect:

• interpretation;
• performance;
• termination;
• exercise of contractual discretion;
• prevention of performance; and
• remedies.

This is another reason why selecting governing law matters.

The parties are not merely selecting a vocabulary for their contract.

They may be selecting an entire legal framework with different assumptions about contractual obligations.

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20. Formation of International Contracts

A conflict-of-laws analysis may arise even before the parties reach the question of breach.

The court may need to determine:

• whether an offer was made;
• whether an offer was revoked;
• whether acceptance occurred;
• whether electronic communications formed the agreement;
• whether consideration was required;
• whether formalities were satisfied;
• whether a signature was necessary;
• whether an agent had authority; and
• whether the agreement is legally enforceable.

These questions can be governed by different legal regimes depending upon the nature of the contract.

For an international sale of goods falling within the CISG, the Convention may supply formation rules.

For another international contract, the applicable domestic law may govern.

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21. Interpretation of International Contracts

Once a contract exists, another conflict-of-laws question concerns interpretation.

The governing law may determine:

• how ambiguous provisions are interpreted;
• whether trade usage may be considered;
• whether extrinsic evidence is admissible;
• how implied terms are treated;
• how contractual language is understood; and
• how conflicting provisions are reconciled.

Different legal systems may approach contractual interpretation differently.

Consequently, selecting governing law can materially affect the meaning of the same contractual language.

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22. Performance and Breach

The law governing the contract may determine whether a party has breached its obligations.

In an international transaction, performance may take place in multiple jurisdictions.

For example:

• a seller may manufacture goods in China;
• ship them through Singapore;
• deliver them to the United States;
• receive payment through a European bank; and
• provide warranty services through a Canadian subsidiary.

If the contract does not adequately address governing law, several jurisdictions may have plausible connections to the dispute.

A court must therefore determine which legal system should govern the relevant contractual obligation.

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23. Remedies

Remedies can be particularly important in international conflict-of-laws disputes.

Different jurisdictions may have different rules concerning:

• expectation damages;
• reliance damages;
• consequential damages;
• liquidated damages;
• penalties;
• specific performance;
• restitution;
• interest;
• attorneys’ fees;
• limitation of liability; and
• punitive or exemplary damages.

The chosen law may therefore have substantial financial consequences.

A party that assumes the contract is governed by one country’s law may discover after a dispute that another legal framework applies to a particular remedial issue.

This is another reason why the scope of the choice-of-law clause matters.

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24. Choice of Law and Arbitration

International commercial contracts frequently contain arbitration clauses.

An arbitration agreement introduces additional conflict-of-laws questions.

The parties may separately select:

• the substantive law governing the contract;
• the law governing the arbitration agreement;
• the seat of arbitration;
• the procedural rules;
• the arbitral institution; and
• the law governing enforcement of the award.

These are not necessarily the same.

For example, a contract could provide for:

• New York substantive law;
• arbitration seated in Paris;
• arbitration under ICC Rules; and
• enforcement in the United States.

Each element can involve a different legal framework.

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25. The New York Convention

International arbitration has a particularly important treaty framework: the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly called the New York Convention.

The Convention establishes international standards concerning recognition of arbitration agreements and recognition and enforcement of foreign and non-domestic arbitral awards.

UNCITRAL describes the New York Convention as a cornerstone of international commercial arbitration and explains that it requires Contracting States to give effect to qualifying arbitration agreements and recognize and enforce qualifying awards.

The United States is a party to the Convention.

This framework is distinct from ordinary conflict-of-laws rules concerning the substantive law of the contract.

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26. The Seat of Arbitration

The seat or legal place of arbitration is another important concept.

The seat is not necessarily the same thing as the physical location where hearings occur.

The legal seat generally determines the procedural legal framework supporting the arbitration and the courts with supervisory authority over the arbitral process.

An international contract might therefore select:

• English law as the substantive governing law;
• Paris as the seat of arbitration;
• a particular arbitral institution; and
• New York as the place where enforcement may eventually be sought.

The parties should understand that these choices perform different functions.

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27. Choice of Law and Electronic Contracts

International commerce increasingly relies on electronic contracting.

A contract may be formed through:

• email;
• electronic signature platforms;
• online ordering systems;
• clickwrap agreements;
• digital marketplaces;
• automated systems; or
• other electronic communications.

This can create additional conflict-of-laws questions concerning:

• contract formation;
• authentication;
• signatures;
• incorporation of terms;
• notice;
• jurisdiction;
• applicable law; and
• evidence.

International electronic contracting can also implicate international instruments specifically addressing electronic communications.

UNCITRAL’s Convention on the Use of Electronic Communications in International Contracts provides an international framework for certain electronic contracting issues and expressly recognizes the importance of the applicable private international law rules in determining its application.

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28. International Contracts and Digital Commerce

Digital commerce makes geographical connections more complicated.

A software company might be incorporated in Delaware, have developers in several countries, host its servers through an international cloud provider, sell subscriptions to customers worldwide, and process payments through another jurisdiction.

Which country’s law governs the contract?

There may be no simple answer based solely on the location of the server or the location of the customer.

The contract may contain:

• a choice-of-law clause;
• a forum-selection clause;
• an arbitration clause;
• a data-processing provision; and
• jurisdiction-specific mandatory provisions.

Conflict-of-laws analysis therefore remains highly relevant even where no physical goods cross a border.

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29. International Contracts and Intellectual Property

International contracts frequently involve intellectual property.

Examples include:

• licensing agreements;
• software licenses;
• trademark licenses;
• patent licenses;
• copyright agreements;
• technology-transfer agreements; and
• distribution agreements.

The parties may choose a governing law for the contract, but intellectual-property rights themselves can be strongly territorial.

A contractual choice of law does not necessarily determine whether a patent is valid in another country or whether a foreign trademark exists.

The contract and the underlying intellectual-property right may therefore be governed by different legal regimes.

This is a classic example of why characterization and issue-by-issue analysis matter.

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30. International Contracts and Mandatory Regulatory Law

A contractual choice of law cannot necessarily eliminate regulatory law.

For example, a U.S. company and a foreign company may select the law of a third country to govern their agreement.

That choice does not necessarily mean that all U.S. regulatory requirements disappear if the transaction has a sufficient U.S. connection.

Depending upon the circumstances, other legal regimes may regulate:

• export controls;
• sanctions;
• anti-bribery;
• competition;
• securities;
• customs;
• taxation;
• consumer protection;
• data protection; or
• national-security concerns.

Contract law and regulatory law therefore need to be analyzed separately.

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31. Tax Law Is a Separate Question

International contracting can also create tax consequences.

The parties may specify a governing law for their contract, but that clause does not ordinarily determine which country may impose taxes.

Taxation depends upon separate domestic statutes, treaties, and international tax principles.

A contract might therefore be governed by New York law while creating tax obligations in multiple countries.

The governing-law clause should not be interpreted as a general declaration that only the selected jurisdiction’s laws apply to every aspect of the transaction.

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32. Forum Selection and International Litigation

If an international contract does not contain an arbitration clause, the parties may litigate in court.

A forum-selection clause can specify the chosen judicial forum.

For example:

“The courts of New York County, New York shall have exclusive jurisdiction over disputes arising from this Agreement.”

This provision addresses the forum.

It does not necessarily determine which substantive law will apply.

A separate choice-of-law provision may therefore be desirable.

The two clauses should be drafted consistently.

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33. Forum Non Conveniens

Even where a contract points toward litigation in a particular jurisdiction, international disputes may generate questions concerning forum non conveniens.

A court may consider whether another forum is substantially more appropriate for resolving the dispute.

Contractual forum-selection clauses can significantly affect that analysis, but the precise effect depends upon the applicable law and the circumstances of the case.

This connects international contract disputes to the broader conflict-of-laws doctrines governing jurisdiction and forum selection.

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34. Recognition of Foreign Judgments

Suppose a French court enters judgment against a U.S. company under a contract governed by French law.

The French judgment may eventually need to be enforced in the United States.

At that point, a new legal question arises:

Will the U.S. jurisdiction recognize and enforce the foreign judgment?

This is different from asking which law governed the original contract.

The court enforcing the judgment is dealing with a recognition-and-enforcement question rather than simply reconsidering the underlying contractual dispute.

Thus, an international contract can generate at least two distinct conflict-of-laws stages:

1. determining the law governing the underlying contract; and
2. determining whether a judgment or arbitral award resulting from the dispute will be recognized and enforced elsewhere.

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35. Recognition of Foreign Arbitral Awards

The same distinction applies to arbitration.

An arbitral tribunal may issue an award in one country, while the losing party’s assets are located in another.

The successful party may then seek enforcement in the second country.

The New York Convention provides an international framework for recognition and enforcement of qualifying foreign arbitral awards.

This is one reason arbitration is particularly important in international contracts.

The parties can create a dispute-resolution mechanism designed to operate across national borders.

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36. International Contracts and Public Policy at the Enforcement Stage

Public policy can become relevant not only when a court determines the substantive governing law but also when a judgment or arbitral award is presented for enforcement.

The legal standards are not identical.

A court considering enforcement may apply the specific recognition-and-enforcement framework governing the judgment or award.

In arbitration, for example, the New York Convention contains its own limited grounds for refusing recognition and enforcement.

Therefore, one should not simply assume that the public-policy rules applicable to the original choice-of-law analysis are identical to those applicable at the enforcement stage.

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37. The Importance of the CISG Opt-Out Decision

For international sales contracts involving U.S. businesses, one of the most important drafting decisions may be whether to retain or exclude the CISG.

There is no universal answer.

The CISG can provide:

• internationally harmonized rules;
• greater predictability across borders;
• a neutral legal framework;
• specialized sales provisions; and
• a body of international case law and interpretive materials.

On the other hand, a party may prefer a familiar domestic legal system or may consider the CISG unsuitable for the particular transaction.

The important point is that the decision should be deliberate.

Silence can create uncertainty about whether the Convention applies.

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38. The Importance of Defining the Scope of the Choice-of-Law Clause

A sophisticated international contract should consider what the governing-law clause actually covers.

Does it govern:

• formation?
• interpretation?
• validity?
• performance?
• breach?
• remedies?
• termination?
• damages?
• limitation periods?
• the arbitration agreement?
• non-contractual claims connected to the contract?

Different courts may interpret a clause differently.

A clause stating that a contract is “governed by” a particular law may not automatically resolve every possible dispute arising from the parties’ relationship.

Scope therefore matters as much as selection.

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39. Contractual Claims and Related Tort Claims

International disputes frequently involve both contractual and tort claims.

For example, a buyer may allege:

• breach of contract;
• fraudulent misrepresentation;
• negligent misrepresentation;
• negligence; and
• statutory violations.

The parties’ choice-of-law clause may clearly govern contractual claims but leave uncertainty concerning related tort claims.

The court may then have to determine whether the contractual choice-of-law provision extends to those non-contractual claims.

This is another example of characterization operating within international contract litigation.

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40. Severability and Multiple Legal Issues

A complex international contract may contain many provisions with different legal functions.

For example:

• the governing-law clause selects substantive law;
• the forum clause selects a court;
• the arbitration clause selects arbitration;
• the confidentiality clause creates contractual obligations;
• the intellectual-property clause addresses ownership;
• the limitation-of-liability clause restricts remedies;
• the force-majeure clause allocates performance risks.

A dispute concerning one provision does not necessarily produce the same conflict-of-laws analysis as a dispute concerning another.

The court may therefore need to analyze the contract provision by provision and issue by issue.

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41. Force Majeure and International Conflict of Laws

International contracts often contain force-majeure provisions because events affecting performance can occur across borders.

A force-majeure dispute may involve:

• war;
• sanctions;
• natural disasters;
• government restrictions;
• transportation disruptions;
• pandemics;
• export restrictions;
• supply-chain failures; or
• other extraordinary events.

The governing law determines how the contractual language is interpreted and what legal consequences follow.

But mandatory regulatory rules may also matter.

For example, a government prohibition on export may have legal consequences independent of the parties’ chosen contract law.

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42. Limitation of Liability Clauses

Limitation-of-liability provisions can also create conflict-of-laws questions.

One jurisdiction may enforce a broad limitation.

Another may restrict such clauses in particular circumstances.

Some jurisdictions may distinguish between:

• negligence;
• gross negligence;
• intentional misconduct;
• consequential damages; and
• direct damages.

The parties’ choice of law can therefore substantially affect the enforceability and scope of a limitation-of-liability provision.

Where mandatory rules apply, however, the chosen law may not control every question.

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43. International Contracts and Consumer Transactions

International consumer contracts require special caution.

Consumers may benefit from mandatory protections under the law of the jurisdiction in which they reside or where the transaction has significant connections.

A business may not always be able to eliminate those protections simply by inserting a foreign governing-law clause into its standard terms.

This is particularly important for:

• online sales;
• subscriptions;
• digital services;
• travel contracts;
• financial services; and
• other consumer-facing transactions.

The legal effect of a choice-of-law clause in a consumer contract can therefore differ significantly from its effect in a negotiated commercial agreement between sophisticated businesses.

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44. International Contracts and Adhesion Agreements

The same concern can arise with standard-form contracts.

A large corporation may draft a contract containing:

• foreign governing law;
• foreign forum;
• mandatory arbitration;
• broad liability limitations; and
• restrictive remedies.

Whether those provisions are enforceable may depend upon the applicable law and the circumstances in which the agreement was formed.

The international nature of the contract does not eliminate ordinary contract-law questions concerning assent, unconscionability, incorporation, notice, and enforceability.

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45. The Role of the Restatement in U.S. Conflict of Laws

In the United States, international contract disputes may involve state conflict-of-laws principles.

The Restatement (Second) of Conflict of Laws is an important secondary source describing and organizing conflict-of-laws principles.

Restatements are not statutes enacted by Congress or state legislatures. They are influential secondary authorities intended to synthesize and clarify common-law principles.

Courts may therefore use Restatement principles when determining which state’s law should govern a contractual dispute.

But the precise approach varies by jurisdiction.

A lawyer handling an international contract dispute must identify the conflict-of-laws methodology of the particular forum.

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46. Federal Courts and International Contracts

Federal courts can encounter international contract disputes through several forms of jurisdiction.

A case may involve:

• diversity jurisdiction;
• federal-question jurisdiction;
• federal statutes;
• treaties;
• arbitration;
• international conventions; or
• other jurisdictional bases.

In diversity cases, the federal court generally applies the conflict-of-laws rules of the forum state.

When federal law or a treaty supplies the governing rule, however, federal law may control.

International contract litigation therefore requires careful identification of the source of law before beginning the substantive choice-of-law analysis.

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47. A Hypothetical International Contract Dispute

Consider this example.

A company incorporated in California enters into a contract with a company based in France.

The contract concerns the sale of specialized machinery.

The machinery is manufactured in France and delivered to California.

The agreement states:

“This Agreement shall be governed by California law.”

It also states:

“Any dispute shall be resolved by arbitration seated in Paris.”

The buyer later claims that the machinery was defective.

Several legal questions immediately arise.

First:

Does the CISG apply?

Second:

Did the parties exclude the CISG by selecting California law?

Third:

What law governs the arbitration agreement?

Fourth:

What law governs the substantive contractual dispute?

Fifth:

What procedural law governs the arbitration?

Sixth:

If the arbitration produces an award, where can that award be enforced?

Seventh:

What mandatory laws might apply despite the choice-of-law clause?

There is therefore no single “international contract law” that answers every question.

Instead, multiple legal regimes interact.

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48. A Practical Analytical Framework

When analyzing an international contract, the following sequence is useful.

Step One: Identify the international elements

Determine:

• where the parties are located;
• where they are incorporated;
• where performance occurs;
• where goods are located;
• where payment occurs;
• where the relevant conduct occurred; and
• where the parties expect disputes to be resolved.

Step Two: Identify the nature of the contract

Determine whether the transaction involves:

• goods;
• services;
• intellectual property;
• finance;
• employment;
• distribution;
• technology;
• licensing; or another subject.

Step Three: Check for an applicable international convention

For an international sale of goods, determine whether the CISG applies.

For arbitration, determine whether the New York Convention or another relevant instrument applies.

For electronic contracting, determine whether an applicable international electronic-commerce framework is relevant.

Step Four: Read the choice-of-law clause carefully

Determine exactly what law the parties selected.

Step Five: Determine whether the parties excluded an international convention

Do not assume that selecting the law of a country or state automatically resolves the CISG question.

Step Six: Examine the forum-selection or arbitration clause

Determine where disputes must be resolved.

Step Seven: Separate substantive and procedural questions

The law governing the contract may differ from the procedural law governing litigation or arbitration.

Step Eight: Identify mandatory rules

Ask whether another jurisdiction has mandatory rules that may apply despite the contractual choice.

Step Nine: Consider public policy

Determine whether enforcement of the selected law or a resulting judgment or award could encounter a genuine public-policy limitation.

Step Ten: Consider enforcement

Finally, determine where the resulting judgment or arbitral award will need to be recognized and enforced.

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49. Common Mistakes in International Contracting

Several mistakes appear repeatedly in international transactions.

Mistake 1: Assuming “international law” governs the contract

There is no single general body of international law that automatically governs every private international contract.

Private international law, domestic law, treaties, and contractual provisions may all interact.

Mistake 2: Confusing governing law with jurisdiction

The law governing the contract and the forum hearing the dispute are separate questions.

Mistake 3: Ignoring the CISG

A U.S. business involved in an international sale of goods may inadvertently enter into a transaction governed by the CISG.

Mistake 4: Assuming a choice-of-law clause resolves everything

It may not determine jurisdiction, arbitration procedure, mandatory rules, or every non-contractual claim.

Mistake 5: Using vague governing-law language

“U.S. law” may not identify a sufficiently precise body of contract law for every transaction.

Mistake 6: Ignoring enforcement

Winning a case is not the same as collecting the judgment.

International transactions require attention to where assets are located and how a judgment or award will be recognized there.

Mistake 7: Treating every legal issue as contractual

Intellectual property, taxation, regulation, consumer protection, and other matters may be governed by separate legal regimes.

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50. Why Drafting Matters So Much

International conflict-of-laws disputes demonstrate an important principle:

The contract itself can be the first line of conflict-of-laws planning.

A carefully drafted international agreement can address:

• governing law;
• CISG application or exclusion;
• jurisdiction;
• forum;
• arbitration;
• seat of arbitration;
• arbitral institution;
• language;
• service of process;
• interim relief;
• limitation of liability;
• confidentiality;
• intellectual property;
• dispute-resolution procedures; and
• enforcement.

Poor drafting can leave these questions to courts or arbitrators after the parties are already in conflict.

The cost of resolving those uncertainties can be substantial.

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51. International Contracting and Predictability

The fundamental purpose of conflict-of-laws rules in international contracting is not merely to select one country’s law.

It is to create a predictable framework for transactions involving multiple legal systems.

Businesses entering international contracts want to know:

• what their obligations are;
• what happens if the other party breaches;
• which law governs;
• where disputes will be resolved;
• what remedies are available; and
• whether the resulting decision can be enforced.

Choice-of-law provisions, international conventions, arbitration agreements, and recognition-and-enforcement regimes all contribute to this predictability.

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52. The Deeper Principle: Multiple Legal Systems, One Transaction

An international contract may exist simultaneously within several legal environments.

The parties may create their obligations through contract.

A national legal system may determine whether the contract is valid.

An international convention may govern the substantive transaction.

Another country’s mandatory regulations may apply to the conduct.

A court in a third jurisdiction may hear the dispute.

An arbitral tribunal may issue the final decision.

And enforcement may occur in a fourth jurisdiction.

The existence of these overlapping systems is precisely why conflict of laws is necessary.

The objective is not to eliminate the differences between legal systems.

It is to determine which legal system should govern which legal question.

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53. Key Takeaways

The most important principles concerning conflict of laws in international contracts are:

1. International contracts can connect several jurisdictions to the same transaction.
2. The governing law determines the legal rules applicable to contractual issues, while jurisdiction determines where the dispute is resolved.
3. Choice-of-law clauses are a principal mechanism for increasing predictability in international contracts.
4. Party autonomy is important but not unlimited.
5. Mandatory rules may apply despite the parties’ contractual choice.
6. Public policy can sometimes limit the application or enforcement of foreign law, although the exception is generally narrow.
7. The CISG is particularly important for international sales of goods and applies in circumstances defined by the Convention.
8. The parties may exclude or vary the CISG under Article 6, making careful drafting important.
9. A choice-of-law clause does not automatically determine the forum or arbitration procedure.
10. International arbitration can involve separate choices concerning substantive law, the arbitration agreement, the seat, procedural rules, and enforcement.
11. The New York Convention provides an important international framework for recognition and enforcement of qualifying foreign arbitral awards.
12. A foreign judgment or arbitral award creates a separate recognition-and-enforcement question after the underlying dispute has been resolved.
13. International contracts may involve several different bodies of law simultaneously.
14. Characterization and issue-by-issue analysis remain important because not every legal question arising from a contract necessarily falls under the same legal regime.
15. The best international contracts anticipate conflict-of-laws problems before a dispute arises.

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Frequently Asked Questions

What is conflict of laws in an international contract?

It is the process of determining which legal system governs a contractual dispute involving connections to more than one jurisdiction.

Can parties choose the law governing an international contract?

Generally, parties have substantial freedom to select governing law, subject to the applicable legal framework, mandatory rules, public policy, and other limitations.

Is governing law the same as jurisdiction?

No. Governing law identifies the legal rules applicable to the dispute. Jurisdiction identifies the court or tribunal authorized to resolve it.

What is the CISG?

The CISG is the United Nations Convention on Contracts for the International Sale of Goods. It establishes uniform rules for many international sales of goods and applies when its requirements are satisfied.

Does the CISG apply to U.S. companies?

It can. The United States is a CISG Contracting State, and qualifying international sales transactions may fall within the Convention’s scope.

Can parties exclude the CISG?

Yes. Article 6 provides broad party autonomy to exclude the Convention or vary the effect of its provisions, subject to the Convention’s framework.

Does choosing New York law automatically exclude the CISG?

Not necessarily. Because the CISG operates as an international sales regime and the United States is a Contracting State, parties should address the Convention expressly when they intend to exclude it.

Can an international contract choose one country’s law and another country’s courts?

Yes. A contract can, depending on applicable law, select one jurisdiction’s substantive law while providing for litigation in another jurisdiction.

Can an international contract require arbitration?

Yes. International commercial contracts frequently contain arbitration clauses, and international treaties such as the New York Convention provide an important framework for recognition and enforcement of qualifying awards.

What happens if the contract has no choice-of-law clause?

The court or arbitral tribunal must determine the applicable law under the relevant conflict-of-laws rules, treaty framework, or other governing legal principles.

Can foreign mandatory laws still apply?

Yes. A contractual choice of law does not necessarily eliminate mandatory rules of other jurisdictions that have a legally significant connection to the transaction.

Why is enforcement important?

Because obtaining a judgment or arbitral award is only part of resolving an international dispute. If the losing party’s assets are located in another country, the successful party may need to have the judgment or award recognized and enforced there.

Why are international contracts more complicated than domestic contracts?

Because multiple legal systems may have legitimate connections to the transaction. The parties must consider not only the substantive contract law but also choice of law, jurisdiction, arbitration, mandatory rules, international conventions, public policy, and enforcement.