The law applicable to the contract in international trade
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The law applicable to the contract in international trade

by Piotr Kopec

Nowadays many trade contracts are international in nature – for example the Parties of the contract come from different countries, the product is imported from abroad or the services are performed outside the country in which the entrepreneur has its registered seat. Such situations raise the question concerning the law applicable to such a contract.

The law applicable to the contract should be determined by the Parties in the contract. It should be noted, however, that the power of the Parties to choose the law applicable to the contract is based on freedom, but this freedom is not unlimited. Namely the law applicable to the contract that was selected by the Parties should be connected with a specific legal relationship. For example the Parties should choose the law of the country in which the contract is concluded, the law of the country of performance of the contract or the law of the place of habitual residence of one of the contractual Party.

The choice of applicable law may made expressly by inserting a clause to the contract (choice-of-law clause in the contract). On the other hand, the choice of applicable law may made implicitly by expressing the will of the Parties by activities indicating that the Parties want to select a specific law (for example a choice of court in a given country as a court competent for contractual disputes is a circumstantial choice of substantive law of the country).

If the Parties failed to insert appropriate provisions to the contract that determine the applicable law and there is no basis for the adoption of an implicit choice applicable law, there is a need to determine the applicable law based on the common appropriate regulations. The issue of the law applicable to contractual obligations is regulated primarily in Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I), to which expressly refers Polish Private international law.

To the extent that the law applicable to the contract has not been chosen by the Parties, according to the provisions of Regulation Rome I, the law governing the contract shall be determined as follows:

– contract for the sale of goods shall be governed by the law of the country where the seller has his habitual residence;

– contract for the provision of services shall be governed by the law of the country where the service provider has his habitual residence;

– contract relating to a right in rem in immovable property or to a tenancy of immovable property shall be governed by the law of the country where the property is situated;

– tenancy of immovable property concluded for temporary private use for a period of no more than six consecutive months shall be governed by the law of the country where the landlord has his habitual residence, provided that the tenant is a natural person and has his habitual residence in the same country;

– franchise contract shall be governed by the law of the country where the franchisee has his habitual residence;

– distribution contract shall be governed by the law of the country where the distributor has his habitual residence;

– contract for the sale of goods by auction shall be governed by the law of the country where the auction takes place, if such a place can be determined.

To sum up, we should pay special attention to the choice of law applicable to the contract when we conclude contracts with foreign element. The law chosen as the applicable to the contract has significance to the form of contract, method of performance of the contract, the period for payment, liability or the possibility of termination the contract.

Piotr Kopec
Licensed Legal Advisor specializing in advisory for entrepreneurs. Good English-speaker who previously worked for European Commission. Fun of sport and good literature.