CEAC Chinese European Arbitration Center Chinese European Arbitration Centre

Choice of Law Clause

The Choice of Law Clause offers the possibility to clarify the applicable substantial law to a dispute. This might be a national law or a neutral set of rules.

Model clause

The following choice of law clause is provided in Article 35 of the CEAC Rules.

The contract shall be governed by

a) the law of the jurisdiction of _______________ [country to be supplemented], or

b) the United Nations Convention on Contracts for the International Sale of Goods of 1980 (CISG) without regard to any national reservation, supplemented for matters which are not governed by the CISG, by the UNIDROIT Principles of International Commercial Contracts and these supplemented by the otherwise applicable national law, or

c) the UNIDROIT Principles of International Commercial Contracts supplemented by the otherwise applicable law.

Explanatory comments

  • Introduction

    If parties do not agree on a choice of law clause, any dispute about the contract will start by determining the applicable law. In the absence of a choice of law clause, the CEAC Rules point out that the arbitral tribunal shall apply the rules of law which it determines to be appropriate. As a result, the parties are free to leave the decision of the applicable law to the arbitral tribunal.

    However, it makes sense to have a clear joint mind on the applicable law and/ or the applicable rules of law. For that purpose, it does make sense for parties to agree already at the negotiation process of the contract on the applicable law and/or rules of law.

    The Model Choice of Law Clause contains both, the freedom to agree on a certain national law as well as the option to agree on a neutral set of rules.

    The model clause is provided in Art. 35 CEAC Rules.

  • Option A

    a) the law of the jurisdiction of _______________ [country to be supplemented],

    Option A of the model choice of law clause proposes the classical choice of a national law. Sometimes parties have difficulties to agree on one specific national law as no party prevails by imposing its own domestic law or because the costs of research of a neutral law are perceived as too expensive. For such cases Options B and C indicate a possible way out.

  • Option B

    b) the United Nations Convention on Contracts for the International Sale of Goods of 1980 (CISG) without regard to any national reservation, supplemented for matters which are not governed by the CISG, by the UNIDROIT Principles of International Commercial Contracts and these supplemented by the otherwise applicable national law,

    Option B is a clause for international sales contracts or for mixed contracts with an element of sale. Option B essentially refers to the United Nations Vienna Convention on the International Sale of Goods (CISG). The CISG provides an uniform international sales law, which text and the international jurisdiction are easily accessible. By now, there is also international case law available online.

    Please note that option B in the choice of law clause refers to the CISG "without regard to any national reservation". That excludes the application of national reservations made by the countries where the parties come from. For example that excludes the (outdated) reservation made by the People's Republic of China under Article 96 CISG. The reservation requires written form with respect to the form of a contract and is thereby more rigid than the new Chinese contract law itself.

    As the CISG does not cover all issues, Option B provides that it is supplemented for those issues which it does not cover by the UNIDROIT Principles of International Commercial Contracts.

  • Option C

    c) the UNIDROIT Principles of International Commercial Contracts supplemented by the otherwise applicable law.

    Option C provides for a choice of parties to refer their contract to the UNIDROIT Principles of International Commercial Contracts in total. By now, there is access to over 400 decisions from arbitration tribunals and courts from around the globe.

  • UNIDROIT and the UNIDROIT Principles

    The UNIDROIT Principles of International Commercial Contracts (UNIDROIT Principles) are an innovative approach to the law governing international contracts. They are a non-legislative codification or "restatement" of the general part of the law of international commercial contracts. They have been prepared by a group of independent experts from all the major legal systems and geo-political areas of the world, set up by the International Institute for the Unification of Private Law (UNIDROIT), an intergovernmental organisation composed of 63 member States - including China and most European states.

    First published in 1994, in their present edition of 2010 the UNIDROIT Principles consist of a Preamble and about 200 articles divided into 11 chapters on general provisions, formation and authority of agents, validity, interpretation, content including third party rights and conditions, performance including hardship, non-performance and remedies, set-off, assignment of rights, transfer of obligations and assignment of contracts, limitation periods and plurality of obligors and of obligees. Each article is accompanied by comments and, where appropriate, by factual illustrations intended to explain the reasons for the black letter rule and the different ways in which it may operate in practice.

    The UNIDROIT Principles represent a mixture of both tradition and innovation. In other words, while as a rule preference was given to solutions generally accepted at international level ("common core" approach); exceptionally solutions best suited to the special needs of international trade were preferred even though they represented a minority view at domestic law level ("better rule" approach).

    Defined as "a significant step towards the globalisation of legal thinking" (J.M. Perillo), the UNIDROIT Principles may - and actually do - serve a number of important purposes in practice.

    They have been taken by a number of national legislatures as a source of inspiration for the reform of their domestic contract laws.

    Finally, and most importantly, arbitral tribunals increasingly refer in their decisions to the UNIDROIT Principles. In a number of decisions they have been applied as the rules of law governing the substance of a dispute, either because expressly so requested by the parties or because the contract referred to "general principles of law", "lex mercatoria" or the like. Arbitrators considered the UNIDROIT Principles a particularly authoritative expression of such supra-national or transnational principles and rules of law. In other decisions the UNIDROIT Principles have been used to interpret international uniform law instruments, in particular the CISG. In still other decisions they have been invoked in support of a particular solution adopted under the applicable domestic law or in order to fill gaps in the latter.

    At its 40th Plenary Session in 2007, the United Nations Commission on International Trade Law (UNCITRAL) formally endorsed the UNIDROIT International Commercial Principles and recommended their use by the international business community.