Tacit choice of law in the Hague Principles on Choice of Law in International Contracts

Jan L Neels*
BCom LLM Dr Jur
Professor of Private International Law, University of Johannesburg Eesa A Fredericks
BA LLM
Senior lecturer in the Department of Mercantile Law, University of Johannesburg

OPSOMMING
Stilswyende Regskeuse in die "Hague Principles on Choice of Law in International Contracts"
Die onderhawige artikel bevat die voorlegging wat insake stilswyende regskeuse aan die werkgroep gemoeid met die opstel van die Hague Principles on Choice of Law in International Contracts gemaak is. Aandag word aan die verskillende kriteria vir stilwyende regskeuse in verskeie internasionale instrumente en nasionale regstelsels bestee. Daar word aangevoer dat relatief streng vereistes vir 'n stilwyende regskeuse gestel moet word om regsonsekerheid en die omseiling van die objektiewe internasionaal-privaatregtelike norme te voorkom. Die prosedurele element wat in hierdie verband in sekere kodes gevind word, moet vermy word in die tersaaklike aanwysingsregtelike konteks. Die moontlike bronne vir 'n stilswyende regskeuse word bespreek en dit blyk dat die kontraktuele bedinge asook die omstandighede van die geval in hierdie verband 'n rol mag speel. Die outeurs doen aan die hand dat die keuse van 'n forum nie as sodanig 'n stilwyende regskeuse daarstel nie. Met inagneming van die voorafgaande ontleding, is sekere voorstelle oor 'n juiste formulering van die toets vir 'n stilwyende regskeuse gemaak. Daar word aangedui welke wysigings deur die werksgroep aangebring en op welke formulering voorlopig ooreengekom is. Die voorgestelde reel kan soos volg vertaal word: "'n Kontrak word beheers deur die regstelsel of regsreels wat deur die partye gekies is. Die keuse of enige wysiging daarvan moet uitdruklik gemaak word of duidelik blyk uit die bedinge van die kontrak of uit die omstandighede. 'n Ooreenkoms tussen die partye om jurisdiksie aan 'n hof of arbitrasietribunaal in 'n sekere staat te verleen, kom nie as sodanig op 'n keuse van die reg van daardie staat neer nie."

l lntroduction
During 2009, the Hague Conference on Private International Law appointed a working group to draft the provisionally so-called Hague Principles on Choice of Law in international Contracts' The working group met twice, during January and November 2010, and has conditionally agreed on some of the provisions of the future instrument.
The purpose of the Hague Principles may be understood from the proposed preamble, which is partially inspired by the preamble to the UNIDROIT Principles of international Commercial Contracts of 2004. In terms of the proposed preamble, the Hague Principles "may be applied by the courts in disputes involving international commercial contracts and by arbitral tribunals in international commercial arbitration". They may also be used "as a model for national, regional, supranational and international instruments", "to interpret and supplement domestic private international law rules, as well as regional, supranational and international instruments" and, finally, "in the development of private international law rules by the courts and arbitral tribunals".
The current article contains, in paragraphs 2-9, the proposals made tothe working group in respect of tacit choice of law by the parties. Paragraph 10 concludes the article with the commentary and the provisional formulation accepted by the working group.

2 General Principle of Party Autonomy; Express Choice of Law
The articulation of a test for a tacit choice of law depends on the accompanying formulation of the general principle of party autonomy and the specific rule for an express choice of law.
The first part of article 3(1) of the Rome I Regulation of 2008 reads: "A contract shall be governed by the law chosen by the parties." There seems to be no reason for the imperative form here. The Hague Principles should read in its corresponding provision: "A contract is governed by the law chosen by the parties." If this formulation is accepted, the express choice of law may be referred to as follows: "The choice must be made expressly ..."n
Instead of "must be made expressly", one could use "must be express" or "must be expressed", but "must be made expressly" isclearly the more elegant variation. Of course, if "shall" is used in the provision corresponding to the first part of article 3(1) of the Rome I Regulation, the word "shall" must also be employed in the reference to an express choice of law.
One should not refer to "an express clause" in this regard, as the Convention sur la loi applicable aux ventes a caractere international d'objets mobiliers corporels does, as this implies the existence of a written contract and there is no reason why the Hague Principles should be limited to written contracts only.
3	No Explicit Reference to Tacit or Implied Choice of Law
A true or real choice of law which is not made expressly, is in some legal systems referred to as a tacit choice of law and in others as an implied choice of law. An explicit reference to implied or tacit choice should therefore be avoided.

4	Level of Strictness of Criteria for a Tacit / Implied Choice of Law
The Rome Convention of 1980 requires the tacit or implied choice to be "demonstrated with reasonable certainty". The Turkish Private International Law Act of2007also uses the phrase "reasonable certainty" in this regard. However, the Hague Convention on the Law Applicable to Contracts for the International Sale of Goods of 1986 requires the tacit or implied choice to be "clearly demonstrated". This much stricter test is also used in the Oregon Conflicts Law Applicable to Contracts of 2001, the Puerto Rico Projet and the Rome I Regulation. Similar terminology is used in the Russian Civil Code of 2001. The 1994 Mexico City Convention's provision that the tacit or implied agreement must be "evident" and the provision in the International Chamber of Commerce's Draft Recommendations on  the Law Applicable  to
International Contractsof 1981 that the tacit or implied agreement "must appear clearly",26 have approximately the same meaning. Alternatives on the same level would be "demonstrated with substantial certainty" or "demonstrated with considerable certainty".
A strict test for the existence of tacit or implied agreements is supported - to allow readily deduced tacit or implied agreements leads to unpredictability of decision and legal uncertainty and undermines the conflicts rule that applies in the absence of a choice of law.27 It may therefore be considered to use an even stricter formulation than these in the examples cited, namely that the tacit or implied agreement must be "manifestly clear".

5 Procedural Element
The word "demonstrated" is used in various codes in formulating the criterion for a tacit or an implied choice. These include the Rome Convention,28 the 1986 Hague Convention,29 the Oregon Conflicts Law Applicable to Contracts,30 the Puerto Rico Projet31 and the Rome I Regulation.32 However, the word "demonstrated" has a procedural connotation which does not seem warranted in a choice-of-law context. It is therefore suggested that the word "demonstrated" be avoided. One should rather use the phrases "evident from", "appear clearly from" or "manifestly clear from".

6 Indiciae of a Tacit / Implied Choice of Law
The existence of a tacit or an implied agreement may be inferred from various sources.33 Some codes refer here to the provisions of the contract only.34 Some refer to both the provisions (terms) of the contract35 and the conduct or behaviour of the parties.36 Some refer to the provisions of the contract and the circumstances (of the case). There seems to be no reason to limit the source of a tacit or an implied choice of law to the provisions of the relevant contract without taking note of the circumstances of the case. The conduct of the parties is included in the phrase "the circumstances of the case". The reference should therefore be to both the provisions of the contract and the circumstances of the case.
The word "or" should be used to link the reference to the contractual provisions and the circumstances of the case in order to make it clear that a tacit or an implied choice may be inferred from either the contract or the specific circumstances. For the same reason, phrases as "viewed in their entirety" and "considered as a whole" should be avoided.

7 Forum Selection
As courts and arbitral tribunals sometimes confuse choice of forum and choice of law, it may be useful to add a provision addressing the role of forum selection in determining a tacit or an implied choice of law.
According to the Mexico City Convention, "[s]election of a certain forum by the parties does not necessarily entail selection of the applicable law". According to the Convention, forum selection on its own maytherefore, depending on the particular circumstances, indicate a tacit or an implied choice of law.
According to recital 12 of the Rome I Regulation, [a]n agreement between the parties to confer on one or more courts or tribunals of a Member State exclusive jurisdiction to determine disputes under the contract should be one of the factors to be taken into account in determining whether a choice of law has been clearly demonstrated.
The reference to a member state is unexpected as Rome I also determines that a law specified by the Regulation shall be applied whether or not it is the law of a member state. The recital, also unexpectedly, only refers to conferring exclusive jurisdiction as one of the relevant factors.
Choice of forum and choice of law are, in principle, separate issues. A forum may be chosen, for instance, for its neutrality or expertise and notfor its domestic law. The authors therefore agree with GEDIP that a choice of forum should not on its own indicate the existence of a tacit or an implied choice of law. Of course, conferring either exclusive or nonexclusive jurisdiction on a court or an arbitral tribunal may nevertheless be one of the factors to be taken into account to determine the existence of a tacit or an implied choice of law.

8 Consumer Protection and Renvoi
As the Hague Principleswill deal with international commercial contracts only, the consumer protection provision in the Oregon Conflicts Law Applicable to Contractsdoes not seem to be necessary. If renvoi is excluded by a general provision, exclusion in this particular context, as was done in the 1955 Hague Convention, is also superfluous.

9 Proposals
Taking all the above considerations into account, the following formulations, in order of preference, were proposed:
a.	A contract is governed by the law chosen by the parties. The choicemust be made expressly or be manifestly clear from the provisions of the contract or the circumstances of the case. An agreement between the parties to confer jurisdiction on a court or an arbitral tribunal in a given state to determine disputes under the contract, is not in itself equivalent to a choice of the law of that state.
b.	A contract is governed by the law chosen by the parties. The choice must be made expressly or appear clearly from the provisions of the contract or the circumstances of the case. An agreement between the parties to confer jurisdiction on a court or an arbitral tribunal in a given state to determine disputes under the contract, is not in itself equivalent to a choice of the law of that state.
c.	A contract is governed by the law chosen by the parties. The choice must be made expressly or be evident from the provisions of the contract or the circumstances of the case. An agreement between the parties to confer jurisdiction on a court or an arbitral tribunal in a given state to determine disputes under the contract, is not in itself equivalent to a choice of the law of that state.
d.	A contract is governed by the law chosen by the parties. The choice must be made expressly or be clearly demonstrated by the provisions of the contract or the circumstances of the case. An agreement between the parties to confer jurisdiction on a court or an arbitral tribunal in a given state to determine disputes under the contract, is not in itself equivalent to a choice of the law of that state.

10 Decisions of the Working Group
At the commencement of the discussion on the formulation of a criterion for implied or tacit choice of law, the following formulation of the principle of party autonomy had provisionally been agreed upon: "A contract is governed by the law chosen by the parties."
The working group was of the opinion that the formulation in paragraph 9.1 above (using the phrase "manifestly clear") is too strict. Members agreed that the word "demonstrated" in paragraph 9.4 has an inappropriate procedural connotation but argued that the same applies to "evident" in paragraph 9.3. Paragraph 9.2 was accordingly used as point of departure.

The working group deleted the words "of the case" to avoid the phrase being interpreted as referring to the specific dispute before the court or arbitral tribunal. The words "or any modification of the choice" were added after discussion of a related issue. The working group also added the phrase "or rules of law" after the almost unanimous decision that parties must be able to directly choose non-state law to govern their contract, for example the UNIDROIT Principles of International Commercial Contracts. The principle in the last sentence of the proposed formulations was virtually undisputed.

The following rule was accordingly provisionally accepted to become part of the Hague Principles:
A contract is governed by the law or rules of law chosen by the parties. The choice or any modification thereof must be made expressly or appear clearly from the provisions of the contract or the circumstances. An agreement between the parties to confer jurisdiction on a court or an arbitral tribunal ina given state to determine disputes under the contract, is not in itself equivalent to a choice of the law of that state.