General Rules for Choice of Law in the Absence of a Contractual Provision

In a situation where the contracting parties have not agreed upon applicable law, the uniform rules on choice of law give guidance. Rules for choice of law in contractual relations are stipulated in the regulation of the European Parliament and of the Council on the law applicable to contractual obligations, the “Rome I regulation”. The Regulation aims to ensure that the rules for choice of law in the European Economic Area are uniform and foreseeable. However, some issues relating to contractual relations are exempted from the scope of the regulation, such as obligations arising out of dealings prior to the conclusion of a contract.

The deemed intent of the parties is taken into account when choosing the choice of law. In other words, an explicit reference to applicable law is not required, for the agreement can also be implied. In such cases, questions of evidence provide challenges. When assessing whether the circumstances of the case demonstrate that the choice of law has been made, attention is drawn e.g. to earlier contracting activities and the whole contractual structure as well as to the existence of a contractual clause containing the forum of jurisdiction.

In the absence of an agreement, the law of the country with which the contract is most closely connected takes precedence. When determining the closest connection, a range of factors are considered, such as the registered or principal offices of the contracting parties or the place for fulfillment of the contract. The Rome I Regulation also lists presumption rules that guide the choice of law for different types of contracts. According to the Regulation, contracts for the sale of goods are governed by the law of the country where the seller has his habitual residence and, respectively, contracts for the provision of services are governed by the law of the country where the service provider has his habitual residence. With some exceptions, contracts for the sale and tenancy of immovable property are governed by the law of the country where the property is situated. Franchise and distribution contracts are governed by the law of the country where the franchisee or distributor have their habitual residences. For contracts regarding the sale of goods by auction, the applicable law is the law of the country where the auction takes place. Contracts for certain kinds of financial instruments are governed by the law that is applied to the system within which the contract has been concluded.

If the contract does not pertain to any of the types mentioned in the Regulation, the contract shall be governed by the law of the country where the characteristic performance required by the contract is performed. If such location for characteristic performance is not possible to determine, the contract will be governed by the country with which it is most closely connected. Rome I Regulation contains also specific rules for choice of law regarding contracts of carriage, consumer contracts, insurance contracts and individual employment contracts. The mandatory provisions for the protection of employees cannot be derogated from by reference to a law.

In addition to the Rome I regulation, the provisions of the Convention on Contracts for the International Sale of Goods (CISG) and the Hague Convention must also be taken in to account while determining the choice of law for contracts regarding international sale of goods. The predecessor of the Rome I Regulation, the “Rome Convention”, is also still applied to contracts that are concluded before the entering into force of the Rome I Regulation. The provisions of the Rome I Regulation and the Rome Convention are uniform to some extent, although some differences can be found between them.