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Wondering which jurisdiction's law is applicable to a contract applies only to international operations.
An international contract is an instrument that compromises at least the laws of two different States. There are two criteria for an international contract. These instruments could be influenced by the countries where they are addressed.
How is the applicable law determined in an international sales contract?
Different legal systems contemplate norms known as "Private International Law Norms (PILN)" that help to deal with international disputes. Whenever a jurisdiction has to resolve a dispute, it will apply the norms of the PILN of such country. For instance, the Mexican jurisdiction shall apply the Mexican PILN.
There are two kinds of PILN.
The first one is to provide a direct solution to a general international dispute. For instance, For instance, a national law which provided that if the merchandise is not handed to the purchaser, the buyer can claim the costs of the damage.
The second method is "indirect". This means that its objective is to assign the applicable law in an international dispute without directly providing the solution.
One such case would be where the PILN of country A considers that the law of International Contracts is assigned where the seller is established. In this case, the seller is established in country B, therefore the applicable law would be of country B. Therefore, there is no clashing law as the law of Country A sets that the applicable law would be of Country B.
The fact that each country has specific applicability laws brings bout a problem since it forces them to rely on a solution from the country where the enforcing jurisdiction is found.
Let's go back to our example
The competent jurisdiction for a dispute stemming from an International Sale Contract is of Country A. The rules of Country A assign the law of the country where the seller is established (Country B) in order to rule on the contract.
However, if the competent jurisdiction to rule the dispute would be Country C, having as a PILN rule that the applicable law is where the contract was signed (Country E), the solution would've been different.
Harmonization of PILN rules
In order to resolve such problem, the international community created rules, contained in Treaties, concerning the applicable laws to International Contracts.
Just like PILNs, Treaties adopt the direct method or the indirect method. Below, we include an example of how it works in the context of International Sale Contracts.
The Inter-American Convention on the Law Applicable to International Contracts
This Convention was drafted under the scope of the Organization of American States and contemplates an indirect approach. For instance, Article 7, contemplates that the applicable law to a contract is the law assigned by the parties to a contract. Should this be missing, the applicable law is of the State that has the closest bond to the contract.
Unfortunately, this Convention was only ratified by two States, Mexico and Venezuela.
United Nations Convention on Contracts for the International Sale of Goods (Viena, 1980).
This Convention creates material norms that rule directly over contracts.
Aplicability
Materially:
The Vienna Convention is applicable to sales contracts of merchandise. In order for this Convention to be applicable, the contract should be celebrated among two parties that are established in different States.
However, Article 2 excludes some sales, mostly commodities related to personal, familiar, or domestic uses. Furthermore, bidings are excluded.
Similarly, the Vienna Convention rules all aspects of International Sale Contracts of merchandise. It does not rule over the validity of contracts, and the effects that such contracts can have on the property of the sold merchandise.
Territorially :
The Convention shall be applied automatically unless the contract clearly contemplates otherwise:
- Where the contract was celebrated among parties that are placed in any of the Contracting States of the Convention (94 States have ratified the Convention, including Mexico).
- Where the norms of the International Private Law of the competent jurisdiction foresee the application of the law of a Contracting State.
Material Rules of the Vienna Convention
Creation of the contract
The Convention defines the formation of the contract, which results in the agreement between the offer and its acceptance.
Obligations of the parties to the contract:
The seller is obliged for the delivery of the merchandize as agreed in the contract (quality and quantity), the delivery of the merchandise's documentation, and the transfer of the property of the merchandise.
The purchaser is compromised to pay the agreed price and to receive the merchandise.
Moreover, the Convention sets common rules concerning the mechanisms to resolve a conflict in case any of the parties does not fulfill the contract. The harmed party can request the contract's execution, and claim damages related to the unfulfillment of the contract.
Another set of rules contemplates the transferring of the risks, foreseeable unfulfillment, and exemptions of the contractual obligations.
The Convention does not impose any set format of the contract. However, States can present a declaration in order to impose the written form.
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