A. Introduction
The term “party autonomy” as used in this Article is a shorthand expression for the notion that parties to a multistate contract should be allowed, within certain parameters and limitations, to agree in advance on which law will govern the contract.
After a late and slow start in the nineteenth century, this notion is now considered a universal principle of private international law (“PIL”) or conflicts law. In 1991, the Institut de Droit International characterized it as one of the “fundamental principles” of PIL that has also been “enshrined as a freedom of the individual in several conventions and various United Nations resolutions.”Footnote 1 In 2015, the year in which the Hague Conference on Private International Law adopted the Hague Principles on Choice of Law in International Commercial Contracts,Footnote 2 only eleven of the 161 countries surveyed did not adhere to this principle.Footnote 3 According to another survey of recent PIL codifications, all but two of the ninety one codifications enacted between 1960 and 1974 have endorsed this principle for contract conflicts.Footnote 4
It is therefore no surprise that today party autonomy enjoys the status of a self-evident proposition, a truism. It has been characterized as “perhaps the most widely accepted private international rule of our time,”Footnote 5 a “fundamental right,”Footnote 6 and an “irresistible” principleFootnote 7 that belongs to “the common core” of nearly all legal systems.Footnote 8
The rest of this Article is divided into three parts. Part B, corresponding to the word “then” in the title, traces the historical origins and subsequent evolution of the basic principle.Footnote 9 Part C, corresponding to the word “now” in the title, describes two contemporary variations among legal systems regarding the scope and limitations of this principle. Part D tells the story of the connection between the city of Bremen, the venue of this conference, and the acceptance of exclusive choice-of-court agreements in U.S. law.Footnote 10
B. Historical Development
I. The First Known Example
Most western authors place the birth of PIL in Bartolus’s fourteenth century Italy. Surely, however, problems of conflicts of laws predated that period, even if our general knowledge about their solutions is minimal. However, for the subject at hand, some information is available thanks to the research of Otto GradenwitzFootnote 11 and Hans Lewald.Footnote 12 From their work, we learn about an edict issued in Hellenistic Egypt by King Ptolemy VIII Evergetes II, on April 28, 118 B.C. Reproduced below is a relevant excerpt from lines 211–20:
From this excerpt we learn that, by choosing the language of their contract, certain parties could directly choose the eventual forum and indirectly the applicable law. Contracts written in the Egyptian language would be subject to the jurisdiction of the laokritai, that is, the Egyptian judges, who applied local Egyptian law, whereas contracts written in Greek would be subject to the jurisdiction of the chrematistai, that is, the Greek judges, who applied Greek law. Although the parties’ choice was limited to these two laws, this was a choice, nevertheless.
Some authors dispute whether this provision sanctioned party autonomy as such. For example, Alex Mills states that “[s]trictly speaking this is not party autonomy,” which he defines as the parties’ freedom to directly choose the applicable law as opposed to choosing an objective connecting factor that leads indirectly to that law.Footnote 14 Mills also notes, however, that, “in relying on the language of the contract, th[is] rule would be open to indirect party choice, at least for those parties capable of contracting in more than one language.”Footnote 15 From a different perspective, Hans Wolff characterized this provision as a mere political concession to the Egyptian courts, which were losing business after Egypt’s takeover by the Ptolemaic Greeks.Footnote 16 However, if this characterization is accurate, it pertains to the motives of the edict’s drafters rather than its function and effect.
Fritz Juenger expressed doubts about “the propriety of characterizing [this provision] as conflicts legislation.”Footnote 17 He was right in the sense that this is not a choice-of-law rule in the modern sense of the term, which deals primarily with external conflicts, that is, conflicts between the laws of countries as such rather than intra-country conflicts, but it is a rule of interpersonal or interethnic conflicts law of the type that is common in polyethnic countries in which different laws govern each ethnic group.Footnote 18 Rules of this type have existed throughout history, especially in occupied countries, such as Visigothic Spain, in which the occupiers did not displace the indigenous private law. Under the principle of personality, which was the operating principle until it was displaced by territoriality in the seventeenth century,Footnote 19 the local law remained applicable to the indigenous population, whereas the occupier’s law applied to the occupying population. The difference is that, while in most of those situations the determination of the applicable law was primarily a matter of sovereign compulsion rather than party choice, the Ptolemaic edict delegated that determination to the parties’ choice. In this sense, this was a choice-of-law rule.
Other writers also questioned the “relevance” of this edict to contemporary notions of party autonomy.Footnote 20 One can hardly argue otherwise. This isolated, indirect, and perhaps accidental recognition of party autonomy did not find any imitators in the subsequent centuries. Nevertheless, as Juenger conceded, the edict illustrates that “the power of private parties to control the selection of a forum and the choice of the applicable law is by no means a novel idea.”Footnote 21 Or, perhaps, it should not have been.
And yet, as far as our knowledge goes, this idea did not receive another legislative endorsement until nineteen centuries later, in the Austrian Civil Code of 1811.Footnote 22 Even in the academic literature of the intervening centuries for which our knowledge is more complete, the first systematic discussion of party autonomy as we understand it today did not appear until the writings of Pasquale Mancini (1817–1888).Footnote 23
II. Early Modern Period: The Parties’ Implied Intention and the Lex Loci Solutionis
It is of course true that the French commentator Charles Dumoulin, or Mollinaeus (1500–1566),Footnote 24 referred to the parties’ implied or presumed intention as a reason for deviating from the then established choice-of-law rules for contracts in general and the marriage contract in particular. For contracts in general, the established rule of lex loci contractus mandated the application of the law of the state of the making of the contract. Dumoulin argued that, in contracts in which the place of performance did or was to take place in a state other than the state of making, the applicable law should be the law of the state of performance (lex loci solutionis) based on the assumption that, normally, this would be the parties’ intention.Footnote 25
For marriages, the then applicable rule of lex loci celebrationis required the application of the law of the place of celebration of the marriage, which usually coincided with the wife’s domicile. Dissatisfied with this rule, Dumoulin argued that the applicable law should be the law of the husband’s domicile, again because of the assumption that this would be his intention.Footnote 26 In those days, the husband’s intention was all that mattered and the wife’s intention or even expressed contrary volition were immaterial. As Peter Nygh pointed out, “[f]rom a modern point of view the rule that the marriage contract is governed by the law of the husband’s domicile because the wife is compelled to live there, is quite the reverse of party autonomy.”Footnote 27
Indeed, it is. Nevertheless, the question is not whether the will of two private parties should be treated equally, but rather whether the will of even one private party, as opposed to the will of the sovereign, should be a factor in choice of law. By positing that the intention of private parties, as he conveniently inferred it, should be a choice-of-law factor, Dumoulin took a baby step in the direction of party autonomy.Footnote 28 Perhaps understandably for his time, he did not take the next step of considering the role of the parties’ express volition regarding the applicable law, and much less their ability to choose a law other than the lex solutionis.
Ulrich Huber (1636–1694) followed Dumoulin’s path, but he too limited himself to the parties’ implied intention and to the lex solutionis. Huber wrote that the lex loci contractus should not govern a contract in which the parties “had in mind” the law of another state: “The place…where a contract is to be entered into is not to be considered absolutely; for if the parties had in mind the law of another place at the time of contracting the latter will control.”Footnote 29 If taken at face value, this statement would seem to honor not only the parties’ implied intention but also their express designation, or at least contemplation, of the law of a third state, that is, a state that was neither the state of making nor the state of performance of the contract. However, Huber did not think in those terms. In fact, he based his above-quoted conclusion on a sentence from Justinian’s Digest, which stated that “[e]veryone is deemed to have contracted in that place, in which he is bound to perform.”Footnote 30 Thus, as with Dumoulin, Huber’s reference to the parties’ intention was nothing more than an a posteriori rationalization for a narrow exception to the lex loci contractus in favor of the lex loci solutionis.
A similar narrow reliance on the parties’ implied intention characterized the academic literature until the middle of the nineteenth century. Writers such as Paul Voet (1619–1677), his son John Voet (1647–1714), and Louis Boullenois (1680–1762) in the civil law world,Footnote 31 as well as Lord Mansfield (1705–1793) and Chancellor Kent (1763–1847) in the common law world, followed Huber by using the parties’ implied intention as the reason for applying the lex loci solutionis.Footnote 32
Lord Mansfield is often credited with importing party autonomy into English law, in the 1760 case Robinson v. Bland. Footnote 33 The case involved a loan contract made in France but payable in England between two Englishmen who were temporarily in France. There was no conflict between French and English law, and all three members of the court based their decision on that ground. However, two of them discussed the hypothetical scenario in which the two laws conflicted. Justice Denison opined that English law should govern as the lex fori. Lord Mansfield gave three reasons for the application of English law in such a scenario. His first reason was that, in this case:
[T]he parties had a view to the laws of England. The law of the place [of contracting] can never be the rule, where the transaction is entered into with an express view to the law of another country, as the rule by which it is to be governed…. Now here, the payment is to be in England; it is an English security, and so intended by the parties.Footnote 34
Obviously, this statement, which was followed with a quotation from Huber, was no more than a dictum. Moreover, because we are dealing with hypothetical scenarios, Mansfield, like Huber before him, did not say whether he would give any deference to the parties’ intention in the event that it pointed to a law other than the lex loci solutionis.
A similar statement by the United States Supreme Court in the 1825 case Wayman v. Southard Footnote 35 was also a dictum. The Court referred in passing to “a principle of universal law…that in every forum a contract is governed by the law with a view to which it was made,”Footnote 36 but that principle was hardly at issue in that case.Footnote 37
Writing in 1834, Joseph Story (1779–1845) discussed all of the above authorities and extracted from them the following rule:
[W]here the contract is, either expressly or tacitly, to be performed in any other place,…the general rule is, in conformity to the presumed intention of the parties, that the contract, as to its validity, nature, obligation, and interpretation, is to be governed by the law of the place of performance.Footnote 38
He agreed with this rule, stating that it was consistent with both “natural justice” and the maxims of Roman law.Footnote 39 It should be noted that Story’s use of the word “explicitly” referred to an explicit statement regarding the place of performance rather than to a direct statement regarding the applicable law, that is, an express choice-of-law clause. Like the writers before him, Story did not consider the ability of parties to choose a law other than the lex loci solutionis.
This brings us to the great Friedrich Carl von Savigny. He wrote that a person’s “voluntary submission” to the law of a state can be the basis for assigning the “seat” of the relevant relationship to that state and that, in contract cases, the submission could be by either an express or a tacit agreement.Footnote 40 This submission, he wrote, “sometimes…consists in the free choice of a particular local law where another law might have been preferred; as, for example, in obligatory contracts, in which the freely elected local law is itself to be regarded as part of the contract.”Footnote 41 Statements like this have led some writers to conclude that Savigny endorsed party autonomy as understood today.Footnote 42 For example, in commenting on the Greek Civil Law of 1856, which contained the first legislative endorsement of party autonomy after the publication of Savigny’s Treatise and the second such endorsement overall,Footnote 43 Greek writers stated that that endorsement was based, or could be based, on Savigny’s ideas.Footnote 44 However, Savigny’s other statements are contradictory or at best ambiguous. While some statements are susceptible to an interpretation favoring broad party autonomy, other statements, such as his express rejection of the very term “autonomy”Footnote 45 point in the opposite direction. A reading of Savigny’s whole discussion of voluntary submission leads to the conclusion that the parties could only “submit” to the law of the state of performance.Footnote 46 He did not discuss—and more than likely did not approve of—the parties’ submission to the law of a state other than the state of performance. Nevertheless, one could agree with Alex Mills who found “some evidence” that Savigny’s Treatise shows “a subtle but decisive shift — from the intentions of the parties being used as justification for a particular choice-of-law rule,” the lex loci solutionis, “to party intentions becoming themselves foundational.”Footnote 47
To summarize, with the possible exception of Savigny: Νone of the writers discussed above focused on party autonomy in a purposeful, much less systematic, way. Their main concern was to introduce and justify an exception to the then dominant lex loci contractus rule for a contract made in one state but contemplating performance in another state. To this end, they used the parties’ implied or presumed intention as an a posteriori factor that justified the application of the lex loci solutionis in derogation from the otherwise applicable lex loci contractus. Story and Savigny also considered the possibility of an express agreement identifying the place of performance and through it the applicable law. However, neither they nor the previous writers considered the possibility or permissibility of an implied or express agreement choosing a law other than the lex loci solutionis. In other words, none of these writers endorsed party autonomy as a direct a priori choice-of-law rule.
From today’s perspective, it seems paradoxical that all these erudite writers thought that the parties’ implied intent was a good enough reason for an exception to the lex loci contractus rule—and only in favor of the lex loci solutionis rule—but they never discussed the logically antecedent question of whether an express party agreement would also be a reason for such an exception. The first major writer who took that major step forward was the Italian jurist and statesman Pasquale Stanislao Mancini (1817–1888).
III. A New Beginning with Mancini: Party Autonomy as an A Priori Rule
Mancini is best known for his strong advocacy of nationality as the principal connecting factor for many conflicts problems. However, as Yuko Nishitani’s excellent analysis demonstrates,Footnote 48 Mancini’s views on party autonomy have had a more lasting influence. His adoption of the nationality principle, which is a subset of the personality principle, presupposed the rejection of territoriality as the grand operating principle of PIL and, with it, a rejection of the territorialist lex loci contractus/solutionis dichotomy that had consumed earlier generations of writers.
Freed from that preoccupation, Mancini adopted a different dichotomy. He divided private law into: (1) A mandatory part, which encompassed all issues of personal status, capacity, family relations, and succession, and (2) a dispositive part, which encompassed other issues, including most aspects of contract law. Mancini posited that, while the principle of personality, with nationality rather than domicile as the connecting factor, should govern the issues of the first group, the principle of “freedom” should be the overarching principle for issues of the second group. For contracts, this principle meant that: (1) Subject to certain limitations, the parties should be free to agree in advance on the law that would govern their contract; and (2) this freedom should not be limited to choosing the law of the place of performance.Footnote 49
Thus, the principle of party autonomy as we understand it today began to take shape. As the drafter of the Preliminary Dispositions of the first Italian Civil Code of 1865, Mancini was in a position to codify this principle—and he did. Article 9(2) of the Dispositions provided that contracts were to be governed by the lex loci contractus and, in the case of a contract between foreigners of the same nationality, by their national law. In both cases, however, a “demonstration of a contrary volition” (la dimostrazione di una diversa volontà) by the parties prevailed.Footnote 50
IV. Legislative Endorsements in the Nineteenth Century
During the nineteenth century, at least six other national codifications endorsed party autonomy.Footnote 51 The fact that two of them, the Austrian (1811) and the Greek (1856), predated the Italian codification indicates that Mancini was not the inventor of party autonomy, although he was one of the earliest and most effective promoters.
Article 36 of the Austrian General Civil Code of 1811 provided that an Austrian contract between two foreigners was to be governed by Austrian law, but “only in the absence of proof that [it] was made in view of a different law.”Footnote 52 Article 37 provided that a contract entered into outside Austria between foreigners or between a foreigner and an Austrian was to be governed by the lex loci contractus, “unless clearly made in view of another law.”Footnote 53
Article 6(1) of Greek Civil Law of 1856 assigned a dual role to party autonomy. It provided that contracts were to be governed by the law of the state in which, according to the parties’ “express or tacit agreement,” performance was to take place, unless the parties had, expressly or tacitly, “designated the law to which they wished to submit themselves.”Footnote 54
Thus, like the Italian provisions cited earlier, the above Austrian and Greek provisions recognized party autonomy in a true sense. They honored the parties’ express or implied choice of law, without confining it to the lex loci solutionis or subjecting it to other geographic limitations, except for the requirement for the internationality of the contractFootnote 55 and the general constraints of ordre public.
The same liberality characterized the remaining nineteenth century codifications of party autonomy, which are listed below in chronological order: Article 8 of the Civil Code of Lower Canada (Quebec) of 1866 provided that the lex loci contractus was to govern contracts, “unless the parties agreed otherwise,” or unless “it appears that the intention of the parties was to be governed by the law of another place”;Footnote 56 Article 4 of the Portuguese Commercial Code of 1888 provided that, “in the absence of contrary agreement,” contracts were to be governed by the lex loci contractus;Footnote 57 Article 11(2) of the Civil Code of the Belgian Congo of 1891 provided that, “in the absence of contrary intention by the parties,” contracts were to be governed by the lex loci contractus;Footnote 58 Article 7 of the Japanese Hôrei of 1898Footnote 59 provided that the “intention of the parties” determined the law applicable to contracts, and only if that intention was “uncertain” would a contract be governed by the lex loci contractus.Footnote 60
By contrast, the Montevideo Treaty on International Civil Law of 1889—which was ratified by Argentina, Bolivia, Colombia, Paraguay, Peru, and Uruguay—was silent on the issue of party autonomy, thus generating disagreements among commentators regarding whether the Treaty recognized party autonomy.Footnote 61 An Additional Protocol to the Montevideo Treaty adopted many years later, in 1940, purported to be a compromise between countries such as Argentina, which favored party autonomy, and Uruguay, which did not. Article 5 of the Protocol provided that “[t]he…law applicable according to the respective Treaties cannot be modified by the will of the parties, except to the extent authorized by said law.” The first part of the quoted phrase was a victory for Uruguay, while the “except” clause was a concession to countries such as Argentina because it permitted those countries to decide independently whether to authorize party autonomy. That permission, however, was available only when their law was “applicable” under the Treaty. Only Paraguay and Uruguay ratified the Protocol. In 2015, Paraguay adopted the Hague Principles essentially in toto, Footnote 62 while Uruguay introduced party autonomy in its 2020 PIL codification.Footnote 63
V. The First Half of the Twentieth Century
The pro-autonomy momentum that characterized the end of the nineteenth century slowed down with the turn of the century. Before World War II, one finds only five legislative endorsements of party autonomy, in the following chronological order: French Morocco (1913),Footnote 64 Brazil (1916),Footnote 65 China (1918),Footnote 66 Poland (1926),Footnote 67 and Greece (1940).Footnote 68
At the same time, sixteen Latin American countries ratified the Convention on Private International Law of 1928, also called the Bustamante Code, which, like the Montevideo Treaty, was silent on party autonomy.Footnote 69 The Code’s drafter later argued that the Code allowed party autonomy,Footnote 70 but that argument was not widely embraced, although courts in some of the sixteen countries eventually began to accept party autonomy.
While the skepticism of certain Latin American countries toward party autonomy finds an explanation in the experience of those countries with foreign creditors, the resistance to party autonomy in pre-WWII Europe was somewhat surprising. Some influential academic writers of that period took a very negative position,Footnote 71 and one of them, Jean Paulin Niboyet, referred to the movement in favor of party autonomy as “le paroxysme de la volontè des parties.”Footnote 72 In turn, Hessel Yntema attributed this negativity to “nationalistic doctrines” prevalent during that period, which “emphasize[d] the authority of the sovereign state as the exclusive source of the rules of international private law.”Footnote 73 It would be more accurate to speak of positivistic doctrines. While most nationalists tend to be positivists, the reverse is not true—and positivists who are not nationalists may still reject party autonomy.
Ironically, during that same pre-WWII period, courts in many European countries, such as Belgium, France, Germany, Hungary, the Netherlands, and Switzerland, began to recognize party autonomy, even in the absence of legislative authorization.Footnote 74 In the 1930s, the House of Lords in England decided R. v. International Trustee for the Protection of Bondholders,Footnote 75 and the Privy Council decided Vita Food Products, Inc. v. Unus Shipping Co., Ltd.,Footnote 76 which turned the tide in favor of party autonomy in all the common law world, except the United States. In Vita Food, Lord Wright, writing for the Privy Council, articulated a party autonomy rule in the broadest possible terms. After noting that in conflicts law “rules cannot generally be stated in absolute terms,” he concluded that the English party autonomy rule was one of few rules that did not need any qualification:
[W]here the English rule that intention is the test applies and where there is an express statement by the parties of their intention to select the law of the contract, it is difficult to see what qualifications are possible, provided the intention expressed is bona fide and legal, and provided there is no reason for avoiding the choice on the ground of public policy.Footnote 77
In the United States, party autonomy suffered a temporary setback in the hands of Professor Joseph H. Beale, the drafter of the first Conflicts Restatement of 1933. As noted earlier, the first reference to party autonomy in American conflicts law appeared in an 1825 Supreme Court decision, which referred in passing to a principle of “universal law” that a contract is governed by the law “with a view to which it was made.”Footnote 78 Although that statement was a dictum, the Court reiterated it in Prichard v. Norton, adding that “[t]he law we are in search of…is that which the parties have, either expressly or presumptively, incorporated into their contract as constituting its obligation.”Footnote 79 As was common during most of the nineteenth century, the Prichard contract did not contain an express statement regarding the applicable law, but that began to change toward the end of the century. From 1875 to 1900, eleven reported cases involving contracts with express choice-of-law clauses in lending agreements, shipping contracts, and insurance contracts appeared in the law reports.Footnote 80 After the turn of the century, express choice-of-law clauses began appearing in non-commercial contracts, such as employment contracts and marital property settlements, and, by the 1930s, the use of these clauses, as well as their acceptance by courts, became more frequent.Footnote 81
Nevertheless, in drafting the first Restatement, Beale chose to ignore party autonomy because it did not fit into his positivist territorialist scheme. Echoing views previously expressed by party autonomy writers in Europe but adding his own twist, Beale opined that giving contracting parties the freedom to agree on the applicable law would be tantamount to giving them a license to legislate.Footnote 82 Instead, he proposed, and the first Restatement adopted, an absolute and unqualified lex loci contractus rule mandating the application of the law of the state in which the contract is made to all aspects of the contract.Footnote 83
During the discussion of this rule at the 1928 meeting of the American Law Institute (“ALI”),Footnote 84 Beale had to admit that party autonomy—which was then known as the doctrine of the parties’ intention—had been accepted by “a majority of the cases.”Footnote 85 Nevertheless, he posited that its affirmation in the Restatement would lead to uncertainty because it would often be difficult to ascertain the parties’ intent. When asked about situations in which the parties clearly expressed their intent in the contract, he replied with answers that assumed that the parties were attempting to evade a fundamental policy of the locus contractus. When asked about situations in which no fundamental policy was involved, he replied that “the man is not yet born who is wise enough” to inventory all gradations of public policy.Footnote 86 The discussion was obviously hopeless.Footnote 87 Judge Edward R. Finch, an ALI member, presciently warned Beale:
[Y]ou will never be able to hold your courts to that sort of a rule [that is, the lex loci contractus]. You can lay it down, but human nature is not so constituted that you can make a court adopt a general rule which will do injustice in a majority of the cases coming with it.Footnote 88
History proved Judge Finch right and Beale terribly wrong. Even before the American choice-of-law revolution of the 1960s, which demolished Beale’s Restatement, most courts chose to ignore his proscription of party autonomy.Footnote 89
VI. The Subsequent Triumph and Contemporary Dominance of Party Autonomy
In 1952, the drafters of the Uniform Commercial Code recognized this reality and codified the principle of party autonomy with the promulgation of what was then Section 1-105(6) of the Uniform Commercial Code (“UCC”). In the course of a few years, virtually all states adopted this section and, in 1968, the American Law Institute followed suit by endorsing party autonomy in the all-important Section 187 of the Restatement (Second) of Conflict of Laws.Footnote 90 Today, twenty-three U.S. states follow the Restatement (Second) in contract conflicts,Footnote 91 but on the issue of party autonomy, this following is much higher. Section 187 “is followed by more American courts than any other provision of the Restatement (Second), including some courts that otherwise follow the traditional theory.”Footnote 92
In the meantime, party autonomy was steadily gaining ground in the rest of the world. In 1951, Article 17 of the Benelux Uniform Law on Private International Law recognized the parties’ power to “submit their contract, in whole or in part” to a law other than that of the country with which the contract was most closely connected. The Uniform Law never went into effect, but the substance of Article 17 reappeared in more categorical terms in Article 13 of the 1968 Benelux Uniform Law. That article began with the statement that “[c]ontracts shall be governed by the law chosen by the parties as regards both imperative and suppletive provisions of that law.” Although this law also did not go into effect, it provided a basis for Article 3 of the Rome Convention of 1980,Footnote 93 later Article 3 of the Rome I Regulation of 2008,Footnote 94 which assigned a prominent role to party autonomy and has been emulated by several national codifications. During the same period, the winds were shifting in the rest of the world. As noted in the Introduction, all but two of the ninety-one PIL codifications enacted since 1960 have endorsed party autonomy.Footnote 95
In addition, several conventions, such as the Mexico City ConventionFootnote 96 and four Hague Conventions,Footnote 97 and of course the Hague Principles, have adopted party autonomy rules. Finally, as documented in another publication,Footnote 98 party autonomy has migrated from its traditional birthplace, the field of contracts, to other diverse fields, such as succession,Footnote 99 trusts,Footnote 100 matrimonial property,Footnote 101 property,Footnote 102 torts,Footnote 103 and even family law.Footnote 104
Thus, after a late and slow start, the principle of party autonomy has triumphed.
C. Party Autonomy Now—Some Variations
Despite the universal acceptance of party autonomy, there are still significant differences among various legal systems regarding the exact scope, modalities, parameters, and limitations of this principle, as well as its theoretical source and justification. This Part discusses only some of these differences.
I. The Scope of Party Autonomy
1. In General
Although they are often overlooked, the differences on the permissible scope of party autonomy are significant. As Figure 1 illustrates, many systems narrow the scope of party autonomy by: (1) excluding from it certain contracts, in whole or in part, such as contracts conveying real rights in immovable property, consumer contracts, employment contracts, insurance contracts and other contracts involving presumptively weak parties; (2) excluding certain contractual issues, such as capacity, consent, and form; (3) confining party autonomy to contractual as opposed to non-contractual issues; or (4) otherwise limiting what “law” the parties may choose—that is, confining the law to substantive, as opposed to procedural law; substantive or internal, as opposed to conflicts law; and state law, as opposed to non-state norms, also called soft law.
Figure 1. The scope of party autonomy.
These differences have been extensively discussed elsewhere.Footnote 105 Because of the length limitations of this Article, this discussion is limited to two issues: (a) Choice of procedural law, and (b) choice of law for non-contractual issues.
2. Choice of Procedural Law
All PIL systems limit the scope of party autonomy to the chosen state’s substantive law and exclude its procedural law. This is consistent with the principle that the law of the forum governs matters of procedure, a principle that prevails over the principle of party autonomy. Indeed, it would not be sensible or practical to allow the parties to impose on a court the burden of complying with the rules of conducting a trial or other purely procedural rules of another state. Consistent with these principles, Rome I exempts from its scope—and thus from the scope of choice-of-law clauses—“the rules of evidence and procedure.”Footnote 106
However, the line between substance and procedure is not drawn in the same way in all systems, nor is the line always clear in each system. For example, in the civil law world, liberative prescription rules, or statutes of limitation, are generally considered substantive.Footnote 107 Consistent with this characterization, Rome I includes within the scope of the applicable law, which may be chosen contractually or judicially, “the various ways of extinguishing obligations, and prescription and limitation of actions.”Footnote 108 The Hague Sales Convention, the Mexico City Convention, and the Hague Contracts Principles, as well as several codifications, contain similar provisions.Footnote 109
By contrast, common law systems have traditionally characterized statutes of limitations as procedural. In the United States, at least twenty eight states continue to adhere to this traditional characterization, even after having abandoned the traditional choice-of-law theory in other respects.Footnote 110 Perhaps for this reason, most American cases that have considered this issue have concluded that the choice-of-law clause did not include the chosen state’s statute of limitations.Footnote 111 Recently, however, a handful of cases decided in the few states, such as California, that have abandoned the traditional procedural characterization of statutes of limitation have held that a choice-of-law clause included the chosen state’s statute of limitations.Footnote 112 The particular facts of some of these cases, coupled with the questionable quality of their reasoning, suggest that they are of limited persuasive value, at least compared to the more numerous cases that have reached the opposite result.
Nevertheless, these cases illustrate, or at least suggest, that prescription or statute-of-limitations conflicts are sui generis conflicts that do not easily fit within the existing formulae for conflicts resolution. For reasons explained in detail elsewhere,Footnote 113 a prescription rule may be motivated by both procedural and substantive policies, or primarily by the one rather than the other. Thus, the uncritical assumption that, for choice-of-law purposes, prescription is always substantive or always procedural can be problematic. The traditional American characterization of statutes of limitation as procedural necessarily excludes them from the scope of a choice-of-law clause. While this exclusion may unduly restrict party autonomy, the opposite solution of characterizing these statutes as substantive presents its own problems as well.
A substantive characterization automatically subjects prescription to the chosen law, even if the choice-of-law clause is silent on the particular issue. If the chosen law has a much shorter prescriptive period than the lex fori, the creditor’s only hope will hinge on the mandatory rules or public policy of the lex fori. If the chosen law has an exceedingly long prescriptive period, its application deprives the forum state of the ability to protect its courts from the burdens and dangers of adjudicating claims that have long prescribed under its own law.
On balance, it would be preferable to adopt a middle solution that recognizes the sui generis character of prescription. Under such a solution, prescription would not be automatically governed by the chosen law unless the choice-of-law clause expressly so provides. This would give contracting parties the opportunity to consider the pros and cons of including prescription in the chosen law and to reach an informed decision on the matter. However, no codification has adopted such a solution.
3. Non-Contractual Issues
Party autonomy has been born—albeit with some difficulty, as explained in Part A—in the law of contracts. In the last four decades, it has migrated into other fields, such as matrimonial regimes, trusts, and successions, which allow room for the will of the parties.Footnote 114 But what about non-contractual matters, such as torts? Should contracting parties be allowed to choose a law to govern a past or especially a future tort between them? This question arises in two different scenarios: Post-dispute and pre-dispute agreements.
3.1. Post-Dispute Agreements
The first, and not so common, scenario is when the tortfeasor and the victim, after each had knowledge of the events giving rise to the dispute, agree on the law that will govern the dispute. Such post-dispute agreements present no problem whatsoever. After all, they differ little from agreements encompassing only contractual claims; indeed, they help facilitate settlement.
A common variation of this scenario is when neither litigant raises the applicability of foreign law. In such a case, most American courts will apply the law of the forum under a variety of rationales, one of which is that the parties have tacitly acquiesced to the application of the lex fori.Footnote 115 Although express post-dispute agreements to apply non-forum law are slightly different, the need for predictability, efficiency, judicial economy, and respect for party autonomy are good reasons to enforce, indeed, encourage, these agreements.
These solutions encounter conceptual difficulties in those countries in which courts are required to apply the forum’s choice-of-law rules, even when the parties do not invoke them, and to ascertain ex officio the content of the applicable law.Footnote 116 Nevertheless, one suspects that in actual practice courts overcome these conceptual difficulties and apply the law that the parties agree upon, at least when that law is the law of the forum.Footnote 117
3.2. Pre-Dispute Agreements
The second, and increasingly more common, scenario involves pre-dispute agreements in which the eventual tortfeasor and the victim agree in advance on the law that will govern their obligations and rights arising from a future tort. This scenario can occur only when: (a) The eventual tortfeasor and the victim are parties to a pre-existing contract, such as a contract of employment, carriage, or sale; and (b) the contract contains a choice-of-law clause that is phrased in a way that purports to include not only contractual claims but also non-contractual claims that may arise from, or which are connected to, the contractual relationship. If both of the foregoing elements are satisfied, then the next question is whether the legal system should enforce the clause.
The answer requires some caution because te parties’ position in pre-dispute agreements is qualitatively and significantly different from their position in post-dispute agreements. Before the dispute arises, the parties usually do not, or should not, contemplate a future tort, and the parties do not know (a) who will injure whom, or (b) the nature or severity of the injury. An unsophisticated party, or a party in a weak bargaining position, may sign uncritically or unwittingly a choice-of-law agreement, even when the odds of that party becoming the victim are much higher than the odds of that party becoming the tortfeasor. Thus, pre-dispute agreements may facilitate the exploitation of weak parties. In contrast, this danger is less pronounced in post-dispute agreements because, after the dispute arises, the parties are in a position to know their rights and obligations and have the opportunity to weigh the pros and cons of a choice-of-law agreement.
For this reason, the prevailing practice internationally has been to enforce only post-dispute agreements. The codifications of Belgium, Bulgaria, China, Germany, Japan, North Macedonia, and Turkey expressly provide to this effect.Footnote 118 The codifications of Estonia, South Korea, Lithuania, Russia, Switzerland, Taiwan, Tajikistan, Tunisia, and Ukraine also do likewise but limit such agreements to the law of the forum.Footnote 119 The codifications of Armenia, Austria, Belarus, Kyrgyzstan, and the Dutch Torts Act of 2001 authorize such agreements, but without any express limitation as to their timing and without limiting them to the law of the forum.Footnote 120
By contrast, Article 14 of Rome II allows enforcement of both pre- and post-dispute choice-of-law agreements for non-contractual claims, but subjects them to different requirements.Footnote 121 Post-dispute agreements are enforceable regardless of the identity of the parties,Footnote 122 but pre-dispute agreements are enforceable only if: (a) The parties are “pursuing a commercial activity”;Footnote 123 (b) the agreement is “freely negotiated”;Footnote 124 and (c) the choice of law is “expressed or demonstrated with reasonable certainty by the circumstances of the case.”Footnote 125
The requirement for free negotiation should be understood as being applicable even to post-dispute agreements. Despite a possible a contrario argument, the quoted phrase should be understood as evidence of the drafters’ intent to ensure higher judicial scrutiny of pre-dispute agreements, rather than as a license to enforce coercive or not “freely negotiated” post-dispute agreements. The same argument could be made regarding the requirement for an express or clearly demonstrated choice of law. After all, Rome I contains a similar requirement for all choice-of-law agreements regarding contractual issues.Footnote 126 However, it is also possible that the drafters of Rome II intended to allow enforcement of merely implied post-dispute agreements, such as when both litigants tacitly acquiesce to the application of the lex fori.Footnote 127
In any event, the most crucial difference between pre-dispute and post-dispute agreements under Rome II is that pre-dispute agreements are enforceable only if the parties are engaging in “commercial activity.” In all other respects, the two agreements are subject to the same restrictions, which are delineated by (a) the mandatory rules of a state in which “all the elements relevant to the situation…are located” in fully-domestic cases;Footnote 128 (b) the mandatory rules of Community law, in multistate intra-EU cases;Footnote 129 and (c) the “overriding” mandatory rulesFootnote 130 and the ordre public of the forum state in all cases.Footnote 131
Proponents of clear-cut rules have reason to applaud Article 14 of Rome II. However, the critical question is whether Rome II provides sufficient safeguards to ensure that strong contracting parties would not abuse this newly granted contractual power. By limiting pre-dispute choice-of-law agreements to situations in which all the parties are “pursuing a commercial activity,” Rome -II- seeks to protect certain presumptively weak parties, such as consumers, employees, and certain (but not all) individual insureds. However, as discussed in detail elsewhere, this limitation leaves a whole host of small commercial actors, such as franchisees, without any protection.Footnote 132
One reason many European commentators may find this result unobjectionable is because they have grown accustomed to the idea of applying the same law to the torts aspects of a case as the one that governs the underlying contract between the same parties. Rome II preserves this idea. In stating the “manifestly closer connection” exception to the lex loci damni rule, Article 4(3) of Rome II provides that “[a] manifestly closer connection…might be based in particular on a pre-existing relationship between the parties, such as a contract, that is closely connected with the tort/delict in question.”Footnote 133 One commentator has stated:
Even if [the parties’] agreement would be invalid under Article 14(1), an action sounding in tort would still be governed by the law of their choice, as there is likely to be a closer connection between their contractual relationship and the tort at issue.Footnote 134
This statement would be true only if the agreement chooses the law of a state that in fact has the “manifestly closest connection” with the case. However, Article 14 does not impose such a requirement. Indeed, Article 14 does not require any connection to the chosen state. Moreover, there is a difference between, on the one hand, applying the law of a given state because a court determines, after considering all the circumstances and exercising all proper discretion, that a state has a “manifestly closer connection,” and, on the other hand, applying a law solely because of a choice-of-law clause, which often is not negotiated at all. Rome II seems to recognize this difference, as well as the risk inherent in allowing pre-dispute choice-of-law clauses for non-contractual claims, by stating in Recital 32 that “[p]rotection should be given to weaker parties by imposing certain conditions on the choice.”Footnote 135 As the franchise example illustrates, Rome II does not always live up to this principle. As with some other freedom-laden ideas, Article 14 may well become the vehicle for taking advantage of weak parties, many of whom are parties to “commercial” relationships.
Finally, it is not a consolation to assume that “in the area of non-contractual obligations parties seldom exercise their freedom of choice.”Footnote 136 Even if this assumption were true today, it will not remain true for long. In the future, choice-of-law agreements encompassing tort claims will become routine. For example, one should not be surprised if product manufacturers begin inserting clauses selecting a pro-manufacturer law—the law of Bhutan might be a good choice—in all contracts by which they sell their products to business entities, as opposed to consumers. Because Article 14 does not require any particular connection with the chosen state, and because both parties would be pursuing a commercial activity, the clause would pass the initial test of Article 14, thus shifting to the injured party the rather heavy burden of proving the clause unenforceable under one of the grounds discussed above. If Rome II were really concerned with protecting the “weaker parties,”Footnote 137 it should not have imposed such a burden on them.
In the United States, only two states, Louisiana and Oregon, have taken a clear position against enforcing pre-dispute agreements. The 1991 Louisiana codification explicitly confines pre-dispute choice-of-law agreements to contractual issues.Footnote 138 Similarly, Oregon’s contracts codification of 2001 does not allow pre-dispute choice-of-law agreements for non-contractual issues.Footnote 139 Oregon’s torts codification of 2009 continues this policy. It differentiates between pre-dispute agreements, which are unenforceable, and post-dispute agreements, which it subdivides into those choosing Oregon law and those choosing the law of another state. Post-dispute agreements that choose Oregon law, if otherwise valid, are enforceable without any limitation.Footnote 140 Post-dispute agreements choosing the law of another state are enforceable, provided they conform to the statute that prescribes the requirements for enforcing choice-of-law agreements regarding contractual claims, including the public policy limitations of the otherwise applicable law.Footnote 141
Outside these two states, the case law remains unsettled,Footnote 142 but the trend is that pre-dispute agreements are presumptively enforceable as long as they are sufficiently explicit in encompassing non-contractual issues. Indeed, few courts seem to doubt the parties’ power to choose in advance a law that will govern a future tort between them. Instead, the courts assume the existence of this power and then try to ascertain whether the parties have exercised it by examining the parties’ intent as evidenced in the wording of the choice-of-law clause.Footnote 143 For example, courts have held that a clause that subjects “the agreement” or “the contract” to the chosen law does not encompass non-contractual claims, whereas a clause subjecting the parties’ “relationship” or “any and all disputes” between them includes their non-contractual claims. Under this test, which is often inconsistently followed, most cases so far have held that the choice-of-law clause did not encompass tort claims or other non-contractual claims, but a sizeable number of cases have reached the opposite conclusion.Footnote 144
II. Limitations to Party Autonomy Within Its Delineated Scope
In addition to the aforementioned differences in delineating the scope of party autonomy, various legal systems differ with regard to the substantive limitations they impose on the exercise of party autonomy within its delineated scope. In general, these limitations fall under the rubric of public policy, and they depend on the answers given to two basic questions.
The first question is: Which state’s public policy limitations should provide the yardstick for policing party autonomy? That state is referred to hereinafter as the state of the lex limitativa. The second question is: Which precise level or threshold of public policy should be used in this policing? This section examines the answers given by various legal systems to these two questions.
1. Identifying the Lex Limitativa
Theoretically, the search for the state of the lex limitativa encompasses three candidate states: (1) The state whose law the parties have chosen; (2) the state whose law would have been applicable if the parties had not chosen a law (lex causae); and (3) the state whose courts are called upon to decide the case (that is, the forum state, the law of which is hereinafter referred to as the lex fori).Footnote 145
Of these three candidates, the chosen state must be eliminated for a variety of reasons, including the possibility of leading to circular or bootstrapping results.Footnote 146 This leaves the states of the lex fori and the lex causae. The lex fori is relevant because party autonomy operates only to the extent that the lex fori is willing to permit through its choice of law rules. The lex causae is relevant because when party autonomy operates, it may displace the lex causae.
When the application of the chosen law exceeds the public policy limitations of both the lex fori and the lex causae, the choice of law clause is unenforceable.Footnote 147 Difficulties arise when the chosen law: (1) Exceeds the limits of the lex fori, but not the lex causae; or (2) exceeds the limits of the lex causae, but not the lex fori.
The positions of the various systems on this issue can be clustered into three groups: (1) Those that assign the role of lex limitativa to the lex fori exclusively; (2) those that assign the role of lex limitativa primarily to the lex causae; and (3) those that follow a combination of the above two positions.
1.1. Group 1: The Lex Fori—Exclusively
Most legal systems assign the role of the lex limitativa exclusively to the lex fori. This group consists of: (1) All of the old or “traditional” codifications that recognize party autonomy; (2) nearly half of the codifications adopted in the last fifty years; and (3) three international conventions.Footnote 148 These codifications do not impose a public policy limitation specifically addressing party autonomy in multistate contracts. Instead, they all contain a general public policy (ordre public) reservation or exception not limited to contracts, which authorizes the court to refuse to apply a foreign law that is repugnant to the forum’s public policy.Footnote 149 Some of those codificationsFootnote 150 and two conventionsFootnote 151 contain an additional, albeit partly overlapping, exception in favor of the “mandatory rules” of the lex fori.
The underlying premise of these systems is the supremacy of forum law and a concomitant indifference about the policies of other involved states. According to this logic, because only the forum legislature can decide whether to allow party autonomy, only that legislature can delineate the limits of that autonomy. Consequently, party autonomy is prohibited only when it exceeds the public policy limits of the forum state, but not when it violates the limits of another state, including the state whose law would have been applicable if the parties had not chosen a law, that is, the state of the lex causae.
1.2. Group 2: The Lex Causae—Primarily
American law is based on a different premise, which—far from being forum centered—takes into account the interests of the state of the lex causae. Without questioning that the systemic decision to allow party autonomy rests with the forum legislature, American law focuses on the undeniable fact that the implementation of that decision—that is, the decision to honor the parties’ choice in the particular case—displaces the lex causae. The question then becomes whether the parties’ power to make that choice should be unlimited or whether it should remain within the public policy limits of the lex causae. American law takes the latter position, which means that the parties cannot evade certain public policies—defined by a threshold explained later—of the state of the lex causae merely by choosing the law of another state. Thus, American law assigns the primary role of policing party autonomy to the lex causae and only a secondary and almost rarely used role to the lex fori.Footnote 152 Under this regime: If the parties’ choice exceeds a specified public policy threshold of the state of the lex causae, the choice is unenforceable, even if it remains within the public policy limits of the forum state; and if the parties’ choice does not exceed the public policy threshold of the lex causae, the choice is enforceable, unless it exceeds a significantly higher public policy threshold of the forum state.
1.3. Group 3: Intermediate Solutions and Combinations
In between the above extremes, one finds several combinations between the standards of the lex fori and those of another state, which may be either the state of the lex causae or a third state.
a) Rome I
The Rome Convention enunciated the most widely followed model of such a combination,Footnote 153 which the Rome I Regulation preserved with slight modifications. Under Rome I, the chosen law must always remain within the limitations imposed by the ordre public and the “overriding mandatory provisions” of the lex fori.Footnote 154 However, in consumer and employment contracts, the chosen law must also remain within the limitations imposed by the “simple” mandatory rules of the lex causae.Footnote 155 And in all other contracts, the chosen law must remain within the limitations of the “simple” mandatory rules of the country in which “all other elements relevant to the situation”—other than the parties’ choice—are located.Footnote 156
b) Other Systems
Several national choice of law codifications outside the EU follow this model, at least to the extent they protect consumers and employees through the mandatory rules of the lex causae.Footnote 157
At least a dozen of the codifications that subject the chosen law to the limits of the ordre public and mandatory rules of the lex fori provide in addition that the court “may” apply or “take into account” the mandatory rules of a “third country” with which the situation has a “close connection.”Footnote 158 It is safe to assume that the state of the lex causae would always qualify as a state that has a “close connection” because, ex hypothesi, it is the state whose law would have been applicable in the absence of a choice of law clause. This “close connection” will always render relevant the mandatory rules of the lex causae but will not necessarily guarantee their application because the pertinent articles are phrased in discretionary terms.
The Mexico City Convention follows a variation of the above position. Article 18 reiterates the classic ordre public exception in favor of the lex fori and paragraph 1 of Article 11 preserves the application of the mandatory rules of the lex fori. Footnote 159 However, paragraph 2 of Article 11 allows the possibility of applying the mandatory rules of a third state by providing that: “It shall be up to the forum to decide when it applies the mandatory provisions of the law of another State with which the contract has close ties.”Footnote 160
c) The Hague Principles
The Hague Principles recognize the reality described above − namely, that some legal systems assign the role of the lex limitativa exclusively to the lex fori (Group 1) and some systems assign that role primarily to the lex causae (Group 2). Consistent with this reality, Article 11 of the Hague Principles contains separate paragraphs for each of the two groups.
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(1) Paragraphs 1 and 3 restate the practice of the lex fori systems. Specifically, Paragraph 1 preserves the application of the overriding mandatory rules of the lex fori, Footnote 161 while paragraph 3 restates the classic ordre public exception in favor of the “fundamental notions of public policy (ordre public)” of the forum state.Footnote 162
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(2) Paragraphs 2 and 4 restate and accommodate the practice of the lex causae systems.Footnote 163 Specifically, Paragraph 2 allows the forum state to “apply or take into account” the overriding mandatory rules of a third state;Footnote 164 and likewise Paragraph 4 allows the forum state to “apply or take into account the public policy (ordre public)” of the state of the lex causae.Footnote 165
1.4. The Differences
As discussed in detail elsewhere, the systems of Groups 1 and 2 produce antithetical results in several patterns of cases.Footnote 166 One example would suffice for the purposes of this brief discussion. Suppose that a franchise contract between a corporation based in State A and a franchisee domiciled in State B for a franchise operated in State B contains: (1) A choice of law clause selecting the law of State C; and (2) other terms that violate the public policy of States A and B, but not C. If a dispute arising from this contract is litigated in either State A or State B, the choice of law clause will likely be held unenforceable, regardless of whether the forum state belongs to Group 1 or 2. However, if the dispute is litigated in a third state, then the outcome may depend on whether the forum state belongs to Group 1 or Group 2—that is, on which state’s law the forum designates as the lex limitativa. If the forum state belongs to Group 2, the court will hold the choice of law clause unenforceable because the application of State C law would violate the public policy of the lex causae—which could be the law of either State B or State A. However, if the forum state belongs to Group 1,Footnote 167 then the result will depend on whether the franchisee can carry the heavy burden of demonstrating that the application of State C law would be manifestly incompatible with the ordre public of the lex fori as such. If not, the clause will be enforceable.
If, for example, the forum state is State C itself, then the clause will be enforceable because − one suspects − that is the very reason the franchisor imposed that clause on the franchisee. State C could become the forum state if, assuming jurisdiction, the franchisor sues there; or if the contract contains a forum-selection clause, also imposed by the franchisor, conferring exclusive jurisdiction on the courts of State C. Suppose, for example, that in the latter case, all three states are parties to the 2005 Hague Choice of Court Convention. Under the Convention, the courts of State C “shall have jurisdiction” unless the forum selection clause “is null and void under the law of that State.”Footnote 168 At the same time, the courts of States A and B “shall suspend or dismiss” any proceedings involving this dispute unless the clause “is null and void under the law of the State of the chosen court.”Footnote 169 According to the Explanatory Report, the word “law” includes the choice of law rules of the chosen state.Footnote 170 If those rules point to the substantive law of State C, the courts of States A and B would be obligated to dismiss the case. The franchisee’s only hope would be to carry the heavy burden of persuading the court that such a dismissal “would lead to a manifest injustice or would be manifestly contrary to the public policy of the State of the court seised….”Footnote 171
2. The Thresholds for Employing the Limitations to Party Autonomy
Another disagreement among various legal systems is in defining the threshold above which the parties’ choice will be held unenforceable. If any difference between the lex limitativa and the chosen law would defeat the parties’ choice, then party autonomy would become a specious gift. As one court noted: “The result would be that parties would have the right to choose the application of another state’s law only when that state’s law is identical to [the lex causae]. Such an approach would be ridiculous.”Footnote 172
Accepting the old distinction between ordre public interne and ordre public international, most systems agree on the need for a higher level or threshold of public policy for multistate contracts than for domestic contracts. This fine conceptual distinction suggests that courts should be more tolerant toward private volition in multistate contracts than in domestic contracts. But there is much less of a consensus in precisely defining this threshold and especially applying it in practice. Emphatic but unquantifiable adjectives such as “fundamental” public policyFootnote 173 or “overriding” mandatory rulesFootnote 174 reflect some of those differences.
2.1. The Ordre Public of the Lex Fori
At least theoretically, the highest threshold is the one posed by the forum state’s ordre public, when properly applied. The international literature has developed a consensus, which is reflected in many recent codifications, that a proper application of this exception must be based on the following elements.
First, as noted above, ordre public in this context refers to the “international” or “external” public policy, rather than the forum’s “internal” public policy. The idea is that multistate contracts are entitled to more tolerant treatment than domestic contracts. The codifications of Peru, Portugal, and Uruguay express this concept by specifically referring to the “international” public policy of the forum state;Footnote 175 the Quebec codification refers to ordre public “as understood in international relations;”Footnote 176 and the Tunisian and Romanian codifications refer to the ordre public “in the sense of private international law.”Footnote 177
Second, ordre public in this context contemplates a strongly held public policy. Some codifications express this notion by referring to “fundamental principles,”Footnote 178 “fundamental values,”Footnote 179 “basic principles of social organization laid down by the Constitution”Footnote 180 or “those principles of the social and governmental system of the [forum state] and its law, whose observance must be required without exception.”Footnote 181
Third, what is to be compared is the “effect,” “result,” or “consequences” of the application of the chosen law in the particular case—rather than the chosen law in the abstract—with the public policy of the forum state.Footnote 182
Fourth, the application of the chosen law must produce a result that is clearly or “manifestly” incompatible with the forum’s public policy.Footnote 183
2.2. The “Overriding” Mandatory Rules of the Lex Fori
Rome I distinguishes between “overriding” and “simple” mandatory rules. It defines the latter as rules that “cannot be derogated from by agreement,”Footnote 184 and the former as rules that the enacting state regards as “crucial…for safeguarding its public interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable.”Footnote 185 Obviously, the two definitions contemplate a much higher threshold for applying the “overriding” than the “simple” mandatory rules.Footnote 186 Rome I ensures that the chosen law may not violate the overriding mandatory rules of the lex fori by providing that: “Nothing in this Regulation shall restrict the application of the overriding mandatory provisions of the law of the forum.”Footnote 187
Twenty four codifications outside the EU and four conventions expressly authorize the application of the overriding mandatory rules of the forum state. Although some of these codifications do not use the word “overriding,” they use phraseology that contemplates an equally high threshold as that of Rome I. They provide that these mandatory rules apply “directly”Footnote 188 and “irrespective of,”Footnote 189 “regardless of”Footnote 190 or “notwithstanding”Footnote 191 the law designated by the codification’s choice of law rules, including the rules that allow a contractual choice of law.
Eighteen codifications outside the EU also authorize the application of the overriding mandatory rules of a “third” state that has a “close”—but not necessarily a closer or the closest—connection with the case.Footnote 192 In this context, the “third” state is a state other than the forum state or the chosen state. More likely, it will be the state of the lex causae; but it can also be another state—that is, a fourth state. Although the overriding mandatory rules of that state must embody at least the same high level of public policy as those of the forum state, their application is not assured. While the forum’s mandatory rules apply automatically, the application of foreign mandatory rules is always discretionary: The court “may” apply or “take into account” the mandatory rules of the third state after considering the “nature” and “purpose” of those rules and the “consequences of their application or non-application.”Footnote 193
2.3. The Public Policy of the Lex Causae
The systems belonging to Group 2, which use the public policy of the lex causae as the lex limitativa, also contemplate a high-level policy. The Louisiana codification conveys this notion by referring to “strongly held”Footnote 194 policies of the lex causae; the Restatement (Second) uses the qualifier “fundamental;”Footnote 195 and the Oregon codification speaks of an “established fundamental” policy.Footnote 196
However, although the word “fundamental” suggests a fairly high threshold, the examples the Restatement provides about rules that embody a fundamental policy—statutes that make certain contracts illegal and statutes intended to protect one party from “the oppressive use of superior bargaining power”Footnote 197 —suggest a much lower threshold than that of the classic ordre public. The same is true of the Oregon codification, which defines a fundamental policy as a policy that “reflects objectives or gives effect to essential public or societal institutions beyond the allocation of rights and obligations of parties to a contract at issue.”Footnote 198 Moreover, as noted earlier, the Restatement states that this public policy “need not be as strong” as that contemplated by the traditional ordre public exception.Footnote 199 Indeed, under the classic American test articulated by Judge Cardozo, the ordre public exception should be employed only in exceptional cases in which the applicable foreign law is “shock[ing]” to the forum’s sense of justice and fairness.Footnote 200
2.4. The “Simple” Mandatory Rules
Finally, the lowest threshold for defeating party autonomy is that posed by the “simple” mandatory rules—namely rules that, in the words of Rome I, “cannot be derogated from by agreement.”Footnote 201 As noted earlier, Rome I employs this threshold in two categories of contracts: (1) Contracts in which “all other elements” other than the parties’ choice are “located in a country other than the country whose law has been chosen.”Footnote 202 In these contracts, the parties’ choice “shall not prejudice” the simple mandatory rules of that other country;Footnote 203 and (2) consumer or employment contracts in which the parties have chosen the law of a state other than the state of the lex causae. In these contracts, the parties’ choice of another law may not deprive the consumer or the employee of the protection of the simple mandatory rules of the lex causae.Footnote 204
Through the latter rules, Rome I essentially allows for the possibility of “double protection” —that is, under both the chosen law and the lex causae. The consumer or employee may invoke whichever of the two laws is more protective and, in some instances, the protection of both laws for different aspects of the contract. This may appear too generous to the consumer or employee; but the other contracting party may easily avoid this generosity simply by not deviating from the lex causae. Moreover, Rome I may be a bit too generous to passive consumers and to employees by guaranteeing the protection of all mandatory rules of the lex causae without requiring that those rules embody a strong public policy. This, however, is the policy choice made by the drafters of Rome I. One reason for respecting this policy is that, as a general proposition, it is better to err on the side of over-protecting, rather than under-protecting, weak parties such as consumers or employees.
Unfortunately, Rome I compensates for this generosity toward consumers and employees by providing little or ineffective protection to other presumptively weak parties. For example, Rome I attempts to protect passengers and certain insureds by geographically limiting the laws that the parties may choose.Footnote 205 However, as discussed in detail elsewhere, these geographical limitations do not always work because they allow the contractual choice of a law that deprives the passenger or insured of the protection provided by the mandatory rules of the lex causae.Footnote 206 In a similar fashion, Rome I denies any special protection to other presumptively weak parties, such as franchisees.Footnote 207
The possibility that the above problems can be cured through the application of some other Regulation or Directive among the myriad that the European Union produces every year does not convert the shortcomings of the existing regime into virtues. Be that as it may, one could credibly argue that, in the grand scheme of things, these are minor shortcomings. If nothing else, the drafters of Rome I deserve praise for having the political courage and legal acumen to devise a series of specific rules explicitly designed to protect some weak parties. These rules work quite well for consumers and employees, but not so well for passengers, insureds and franchisees. Even so, it is preferable to have rules protecting weak parties in most cases—even if those rules do not work well in some cases—rather than having no such rules.
2.5. No Threshold
At the opposite end of the spectrum, some states have enacted statutes that uphold inbound choice of law clauses without examining whether they conflict with the public policy of any other state. In the United States, the first and most notorious statute to this effect was § 5-1401 of New York’s General Obligations Law. It provides that New York choice of law clauses in contracts “covering in the aggregate not less than two hundred fifty thousand dollars” are enforceable in New York, “whether or not” the contract “bears a reasonable relation to [New York],” and regardless of whether the enforcement of the clause would conflict with the public policy of another state.Footnote 208 The statute exempts from its scope employment and consumer contracts, and certain contracts for which the UCC does not allow choice of law clauses.Footnote 209 A companion statute provides for the enforcement of inbound forum selection clauses in contracts covering not less than one million dollars.Footnote 210
In an effort to compete with New York in this race to the bottom, other states have enacted similar statutes ensuring the enforcement of inbound choice of law and forum selection clauses. California, Delaware, Florida, Illinois, and Texas are among those states.Footnote 211 Obviously, these statutes are “statutory directives” in the sense of Restatement (Second) § 6(1), and thus displace § 187 of the Restatement.
D. A Brief Excursus on Choice-of-Court Agreement—Downstream, Or Downhill, with The Bremen
Finally, because this conference is taking place in Bremen, a few words are in order regarding the connection between a ship bearing the city’s name and a landmark 1972 party-autonomy case—M/S Bremen v. Zapata Off-Shore Co.Footnote 212 In this case, the United States Supreme Court opened a wide door to exclusive choice-of-court agreements,Footnote 213 which until then were disfavored by lower courts on the ground that they illegally “ousted” a court’s jurisdiction.Footnote 214
Zapata, a Texas corporation, contracted with Unterweser, a German corporation, to tow Zapata’s ocean-going drilling rig from Louisiana to the Adriatic Sea with Unterweser’s ship named The Bremen. The contract contained a poorly drafted choice-of-court clause stating that “Any dispute arising must be treated before the London Court of Justice,” as well as exculpatory clauses that were invalid under U.S. law.Footnote 215 The Bremen encountered a severe storm in the Gulf of Mexico and was forced to seek refuge at a Florida port, where Zapata sued Unterweser for the damage to the rig. Unterweser invoked the English choice-of-court clause but both lower courts held the clause unenforceable both under a forum non conveniens analysis and on public policy grounds, reasoning that the English court, which would have applied English law would have upheld the exculpatory clauses which were invalid under U.S. law. The Supreme Court reversed, holding that a “freely negotiated”Footnote 216 choice-of-court clause is “prima facie valid and should be enforced,”Footnote 217 unless the resisting party makes a “strong showing that it should be set aside.”Footnote 218 To do so, the resisting party must demonstrate: (1) That the clause is “[]affected by fraud, undue influence, or overweening bargaining power”;Footnote 219 or (2) that its enforcement (a) “would contravene a strong public policy of the forum in which suit is brought,”Footnote 220 or (b) would be “‘unreasonable’ under the circumstances.”Footnote 221
Two decades later, in Carnival Cruise Lines, Inc. v. Shute, the Court moved to the farthest possible extreme by upholding an exclusive Florida choice-of-court clause printed in small print on the back of a cruise passenger ticket for a voyage in the Pacific Ocean.Footnote 222 The Court was unmoved by the fact that this clause was part of a consumer contract in which the parties’ bargaining power was clearly unequal, the clause was not bargained for, and Florida was quite remote from the passenger’s home state of Washington.Footnote 223 The Court decided to “refine the analysis of The Bremen to account for the realities of form passage contracts,”Footnote 224 but, instead of refining, the Court simply extended that analysis to consumer contracts. It “appl[ied] the same principles to cases involving uninformed and unsophisticated consumers as to cases involving sophisticated business entities on both sides of a contract.”Footnote 225
This extension, which one author has characterized as “misguided, unprincipled, and ultimately unfair,”Footnote 226 launched American law in a strident laissez-faire direction. In the Carnival Cruise case, it resulted in rejecting the lower court’s position that “a nonnegotiated forum-selection clause in a form ticket contract is never enforceable simply because it is not the subject of bargaining,”Footnote 227 as well as its conclusion that the clause was unreasonable because the consumer was “‘physically and financially incapable of pursuing this litigation in [the designated forum].’”Footnote 228 In fact, the Supreme Court opined that “passengers who purchase tickets containing a forum clause like that at issue in this case benefit in the form of reduced fares reflecting the savings that the cruise line enjoys by limiting the fora in which it may be sued.”Footnote 229
Although universally criticized by commentators,Footnote 230 Carnival Cruise illustrates the dramatic move of American courts from initial hostility to enthusiastic, and often uncritical, acceptance of choice-of-court clauses. Beginning with Carnival Cruise, “what originated as a doctrine in the context of admiralty law in a dispute arising between sophisticated international businesspersons has been transmuted…into a narrowly restrictive doctrine of presumptive validity of forum-selection…clauses in consumer and nonconsumer contracts.”Footnote 231 After Carnival Cruise, nothing is extreme. Since then, “the tentacles of forum-selection clause doctrine have reached further and further…and eventually ensnared domestic commercial agreements, ordinary consumer contracts, employment agreements, brokerage agreements, and basically any arrangement governed by contract.”Footnote 232
Both The Bremen and Carnival Cruise are admiralty cases and thus they are binding authority only in admiralty cases. In the meantime, the Court has also upheld exclusive choice-of-court clauses in other federal-question cases, such as securitiesFootnote 233 and antitrust cases.Footnote 234 Technically, these authorities are not binding when the federal court’s jurisdiction is based solely on diversity, because in these cases state rather than federal law governs substantive legal questions. In Stewart Org. v. Ricoh Corp., the first diversity case to reach the Supreme Court in which enforcement of an exclusive choice-of-court clause was a key issue, the Court upheld the clause and rejected the argument that state law, under which the clause was unenforceable, should govern.Footnote 235 However, Stewart was decided in the special context of a federal statute that allows the transfer of cases between federal district courts.Footnote 236 Thus, Stewart did not address the question of whether state or federal law governs the enforceability of exclusive choice-of-court clauses when this statute is inapplicable, such as when the clause designates a state court or a foreign court. In Atlantic Marine Const. Co. v. U.S. District Court for the Western District of Texas, the last Supreme Court case involving a choice-of-court clause, the Court did not expressly answer this question, but knowledgeable observers have inferred an implicit answer in favor of federal law.Footnote 237 In the meantime, several lower courts have also applied federal law in deciding diversity cases involving choice-of-court clauses.Footnote 238
On the whole, it is safe to say that federal courts are more deferential to choice-of-court clauses than the Brussels I Regulation. For example, while Brussels I does not allow pre-dispute choice-of-court clauses disfavoring consumers or employees,Footnote 239 federal courts usually enforce such clauses with little hesitation, at least in states that have not enacted statutes invalidating these clauses in consumer, employment, and insurance contracts, under certain conditions. In fact, it may well be that American courts are the most liberal in the world with respect to enforcing choice-of-court clauses. As one astute observer noted:
If one sifts through the thousands of reported federal forum-selection clause decisions since Zapata—and there are thousands of such decisions—one cannot help but be struck by the following fact: [I]n virtually every case the party seeking enforcement of the clause wins, and the party seeking to invalidate the clause loses.Footnote 240
Perhaps the numbers are not quite as bleak, but there is no question that the challengers of choice-of-court clauses face extremely difficult odds.
The Bremen and other aforementioned federal cases are not binding on state courts in deciding questions of state law. Nevertheless, most state courts have chosen to adopt The Bremen’s reasoning and philosophy, and have overcome their initial hostility toward exclusive choice-of-court clauses, even if some of those courts probably would not go to the extreme of enforcing Carnival Cruise-type clauses.Footnote 241 Although the treatment of choice-of-court clauses varies from state to state and from subject to subject, it is safe to say that, generally speaking, state courts are slightly less deferential to -FS- clauses than are federal courts, and more deferential than -EU- courts under the Brussels I Regulation.
All of the above, however, depends on whether the particular state has enacted a statute dealing with choice-of-court clauses. Many states have done so. State statutes vary in their details, but they can be grouped into three categories: (1) Statutes dealing with all choice-of-court clauses, both inbound, that is, clauses choosing a court of the enacting state, and outbound clauses, that is, clauses choosing a court in another state; (2) statutes inviting inbound clauses in certain high value commercial contracts; and (3) statutes prohibiting outbound clauses in certain types of contracts, such as consumer, employment, or franchise contracts. These statutes are discussed in detail elsewhere.Footnote 242
E. Conclusion
The fact that today party autonomy enjoys the status of a self-evident proposition makes it hard to believe that this great idea took such a long time to receive the sanction of positive law. Yet, as Part A documents, aside from the isolated example of the Ptolemaic decree, the principle of party autonomy is of relatively recent vintage.
At the same time, the universal acceptance of this principle today as a general proposition may give the misleading impression that the various legal systems tend to agree on its scope, parameters, modalities, and limitations. As the discussion in Part B illustrates, this is not necessarily true. Important differences remain, especially with regard to scope and limitations, thus allowing if not generating different types of conflicts.
Finally, as cases like Carnival Cruise illustrate, this otherwise great idea can degenerate into a euphemism for exploiting weak, unsophisticated parties. But party autonomy presupposes the free will of both parties freely expressed. Although this is a truism, it is often forgotten amidst the euphoria generated by eloquent rhetoric about individual and contractual freedom, and other majestic generalities. The challenge of a legal system is to not only facilitate the unimpeded operation of this principle, but also to ensure the protection of those contracting parties who are least able to take advantage of it.
The drafters of Rome I and Brussels I deserve praise for having the political courage and legal acumen to devise a series of specific rules explicitly designed to protect weak parties. Rome I is a detailed, sophisticated system employing multiple layers of substantive restrictions on party autonomy and differentiating among three types of contracts: (a) Consumer and employment contracts; (b) passenger and insurance contracts; and (c) all other contracts. In the abstract, the Rome I scheme seems perfectly logical, indeed brilliant, because there is every good reason for a liberal treatment of contracts that do not involve weak parties. However, despite its structural and conceptual perfection, this scheme may well be flawed in significant respects. It overprotects consumers and employees and underprotects passengers, insureds, and small commercial actors, such as franchisees.
Even so, it is preferable to have rules protecting weak parties in most cases—even if they do not work well in some cases—rather than to not have any such rules. One hopes that someday American drafters will muster the courage to draft similar rules for the US. Unfortunately, the 2001 failure to amend the UCC, coupled with the pro-business tilt of American law in general, suggests that this day is not likely to come soon. Fortunately, American judges can do what legislatures cannot: My own study of the myriad American cases involving choice-of-law clauses in consumer, employment, insurance, and franchise contracts reveals that—except for U.S. Supreme Court—judges, with their innate sense of justice, do a commendable job in protecting the weak parties in these contracts.
In the final analysis, each system plays to its own strengths. The American strength is a strong tradition of judicial independence and creativity. The European strength is a rich tradition in statutory rule crafting. Unfortunately, one rarely finds both of these strengths in the same system.
Acknowledgments
The author acknowledges the invitation of Prof. Dr. Gralf-Peter Calliess and Dr. Nicholas Mouttotos of the University of Bremen for hosting the conference on “Informed Consent to Dispute Resolution Agreements,” which served as the occasion for writing this Article.
Competing Interests
The author declares none.
Funding Statement
No specific funding has been declared in association with this Article.
Author Biographical Info
Alex L. Parks Distinguished Chair in Law and Dean Emeritus, Willamette University; LL.B. (Priv. L.), LL.B. (Public L.), LL.M., S.J.D., LL.D.h.c.mult., Ph.D.h.c., Member, Academia Europaea.
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