We conclude a lot of contracts every day, even if sometimes we don’t realize it. Often these situations involve people who live and work in the same country, their legal relationships being governed by the legal system of that country. However, there are cases where one of them will be from another country.
Let’s take an example:
X, a Romanian citizen, wants to buy a unique collector’s item that is not found in Romania. X, searching the internet, finds out that Y, an Italian citizen, owns the property he is looking for. A sales contract is to be concluded between the two.
So far, so good. We also have 2 parties and the same object (selling the good in exchange for a sum of money). What is the problem?
Considering that the two parties are of different nationalities, and that the good to be sold is not situated on the territory of Romania, it means that the legal relationship born between them includes an international element.
International element = the foreign element of the legal relationship or under the influence of a foreign law.
The existence of the international element attracts the applicability of the norms of private international law, ie of the conflict norms. The purpose of these rules is to show which law will be applied. In the example above, X and Y will want to know at the time of concluding the sales contract, which law will govern this contract: the Romanian or the Italian one.
Why is it important for the parties to know?
First, to have a clear representation of the rights and obligations arising from the contract.
Secondly, in case of dispute, the court that will be seised must know the legal system which governs the contract.
What are the parties supposed to do?
In contractual matters, the parties are free to choose by mutual agreement the law applicable to their contractual relationship. This right of choice is provided by Regulation (EC) no. 593/2008, also called Rome I.
Art. 3 Freedom of choice
(1) The contract is governed by the law chosen by the parties. This choice must be made expressly, or with reasonable certainty, in the terms of the contract or in the circumstances of the case. By their choice, the parties may designate the law applicable to the whole contract or only to a part of it
This freedom of choice is embodied in a clause called the choice of law clause (the electio juris clause). This clause makes it easier for the parties to understand the effects of the contract they are concluding.
According to art. 12 of the Regulation, the law applicable to the contract regulates in particular:
a) interpretation of the contract;
b) the execution of the obligations arising from the contract;
c) within the limits of the competence conferred on the court notified by its procedural law, the consequences of the total or partial non-execution of the obligations, including the evaluation of the damage insofar as it is regulated by legal norms;
d) the different ways of settling the obligations, as well as the prescription and the forfeiture of rights;
e) the effects of the nullity of the contract.
Therefore, if X and Y agree the law governing their contract should be the Romanian law, in the event of a dispute, whatever the court seised (Romanian or Italian), it will have to comply with the choice of law clause and apply the norms belonging to the Romanian legal system. Also, if the applicable law is the Italian one, even if the court is a Romanian one, provisions of the Italian legal system shall apply.
NB! The law chosen to be applicable does not necessarily have to be the law of one of the states one of the parties is a citizen of. They have the possibility to choose according to what they consider more useful and safer for them. So, in our example, if X and Y would want the applicable law to the sale between them to be Norwegian or American, they are free to choose it.
Examples from reality can be found on various sites / platforms that we frequently access, such as social media, online retail, gaming, etc. These regularly have in their terms and conditions section a choice of law clause for the legal relationship between users and them, usually under the heading “Governing law”.
,,If a claim or dispute arises between us that relates to use of the Service in any other capacity, including, but not limited to, access or use of the Service for a business or commercial purpose, you agree that any such claim or dispute must be resolved in a competent court in Ireland and that Irish law will apply without regard to conflict of law provisions. ”
The rules contained in the Rome I Regulation are intended to offer the parties concluding contracts with an international element:
- Predictability – you know your rights and obligations under the contract and the possible consequences that may arise due to non-compliance;
- Security – of the two or more legal systems that can be applied to the contractual relationship, you know for sure that only one will be the one who will ultimately govern your contract, thus reaching a conciliation between the regulatory differences that may exist between different laws.
The freedom of parties to choose the applicable law is granted precisely because it is assumed that those who wish to conclude a contract know best the law of which state best suits their partnership.
Junior Lawyer R&R Partners Bucharest
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