CHOICE OF LAW IN INTERNATIONAL CONTRACTS IN LATIN AMERICAN LEGAL SYSTEMS

CHOICE OF LAW IN INTERNATIONAL CONTRACTS IN LATIN AMERICAN LEGAL SYSTEMS

MARIA MERCEDES ALBORNOZ

A. INTRODUCTION

Nowadays, the principle of party autonomy allowing companies or individu¬als that enter into international contracts to choose the law applicable to them is commonly accepted worldwide.1 In Latin America, however, there are still some countries which do not accept it. Unfortunately, there is no international convention unifying the determination of the law of international contracts in force in all Latin American states. Although some of the treaties ratified by these states allow for the parties’ right to select the lex contractus, the terms and scope of such acknowledgement may vary from treaty to treaty. Furthermore, at the level of national sources of law, while some countries have legislation or case-law that expressly allows party autonomy, others are still reluctant to accept the idea of letting the parties choose the law that will govern their inter¬national contracts.

The traditional territorialism of Latin America has caused the acceptance of party autonomy to be very slow. Nevertheless, in recent years, a remarkable phenomenon has taken place: even the most reticent states, clearly compelled by the pressures of international trade and by the need for regional integration, have signed treaties on international arbitration, where the choice of the law applicable to the substance of the controversy is expressly accepted. Although these treaties only apply to international contracts subject to arbitration pro¬ceedings, they are helping to, gradually, reduce the states’ resistance to party autonomy. It is, however, necessary to recognise that the change in mentality needed for legislators and judges to fully accept choice of law in international contracts could still take some years. In the meantime, what happens in day- to-day practice? Is there any alternative for the parties who desire to exercise their autonomy by selecting their contract’s law? This might be important both for a foreign party (used to choosing the law of its international contracts) and for a party established in a Latin American country where no choice of law is permitted or where the choice is subject to important restrictions.

Taking into account the leeway that legal systems grant to companies and individuals in the field of international contracts, allowing the parties to agree on the terms and conditions of their business arrangements, it is possible to distinguish between different manifestations of party autonomy, depending on the extent affored to the freedom to negotiate. This can help understand some positive solutions in the legal systems of the region.

As any international contractual relationship requires a subsidiary legal order (for filling voids and incongruities in the parties’ agreement), many of them grant, whether implicitly or explicitly, the right to designate a national law applicable to the contract, setting aside the law indicated by the conflict- of-laws rule. In this manner, the legal order chosen by the legislatures - or by the states in the case of an international treaty - is replaced in integrum by the one chosen by the parties, including all of its mandatory and non-mandatory rules applicable to national cases. Consequently, the case should be treated as a domestic case of the country whose law has been chosen. It can be said that by choosing the applicable law, the parties create their own conflict-of-laws rule; so, it is suitable to identify this autonomy as conflict-of-laws autonomy

In the clauses of their contract, however, the parties can also incorporate provisions that go against the internally mandatory rules of the applicable law (whether it be applicable by the parties’ own choice or by choice of a national or international conflict-of-laws rule). Should a difference in the content arise, the party-tailored material rules prevail over the provisions of those internally mandatory rules. This material autonomy, by virtue of which the parties to an international contract create its substantive content, is implicitly founded on conflict-of-laws autonomy: if on the grounds of the latter the parties can inte¬grally substitute the law designated by the official conflict of laws rule, a maiore ad minus, they can disregard some national rules of that law by means of con¬tractual clauses. “He who can do more, can do less.”

The material autonomy of private international law must be distinguished from the material autonomy of private law. This material law autonomy consists in the parties’ freedom, in the domestic order, to enter into national contracts and build their content, always complying with the authority of internally man¬datory rules that they cannot disregard. In international cases, those mandatory rules that are exclusively assigned to domestic cases become non-mandatory rules, in the sense that they can be disregarded through material autonomy.

In international contracts, party autonomy also extends its influence over the question of jurisdiction, through the legal concept of choice-of-court agree¬ments, by which the parties are granted the possibility of agreeing on the court that will have jurisdiction to solve their disputes or even of selecting an alterna¬tive dispute-resolution method such as arbitration. In both cases, the national courts that would have jurisdiction if the choice-of-forum agreement did not exist are displaced by the foreign chosen court or by the arbitral tribunal.

Nevertheless, none of these manifestations of party autonomy is unlimited. Conflict-of-laws autonomy and private international law material autonomy cannot be exercised in matters in which the law of the forum or the legal systems closely connected to the case have mandatory rules (lois d’application immediatee) applicable regardless of which the law of the contract may be. It is also impossible, by means of party autonomy, to apply rules the imple¬mentation of which leads to results that contradict the forum’s public policy principles. Besides, choice-of-court agreements are forbidden in different legal systems in cases where prohibitive norms exist or where certain restrictive con¬ditions on this matter are set. And material-law autonomy cannot go against internally mandatory rules. For the purpose of this paper, any mention of “party autonomy” in the absence of any further qualification refers to conflict- of-laws autonomy.

This paper presents the Latin American map of choice of law in inter¬national contracts (section B), analyses some countries’ resistance to party autonomy (section C) and proposes different ways to look for legal certainty in this field (section D), before drawing a conclusion (section E).

B. THE LATIN AMERICAN MAP OF CHOICE OF LAW IN INTERNATIONAL CONTRACTS

The subject of the law

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