The possibility of choosing the governing law in a contract in the absence of any element of foreignness
Authors: Razvan Vlad, Daria Anghel
The autonomy of will is recognized as a fundamental principle of Romanian civil law, allowing the parties to freely determine the content of their contracts, within the limits imposed by law, public order and good morals. In private international law, this autonomy acquires a specific dimension, manifested in the parties’ freedom to designate the law governing the contract. However, when considered in relation to its specific meaning in private international law, this autonomy of will raises an important question: can the parties choose a foreign law to govern the contract even when there is no element of foreignness in the contract?
This possibility of choosing the governing law of a contract is based on Regulation (EC) No. 593/2008 on the law applicable to contractual obligations (“Rome I Regulation”), as the Civil Code does not explicitly provide for such freedom in purely domestic contracts that do not involve any element of foreignness, thereby opening the framework for a comparative analysis between European and domestic rules.
Thus, the Rome I Regulation establishes the principle of freedom to choose the governing law in Article 3: “A contract shall be governed by the law chosen by the parties.”
Although the Rome I Regulation does not explicitly condition the parties’ freedom to choose the governing law on the existence of an element of foreignness in the contract, it can be argued that the very scope of the Regulation is limited to situations where the contract presents such an element, since, according to Article 1 para. 1, the Regulation applies exclusively “to situations involving a conflict of laws”. Such wording may be construed to mean that, strictly within the framework of the Regulation, the choice of a foreign law cannot produce legal effects in purely domestic contracts, as no conflict of laws arises in these cases, and the parties’ ability to designate the applicable law is therefore not expressly regulated.
At a national level, the Civil Code recognizes the autonomy of will (Article 1,169), establishing that “the parties are free to conclude any contracts and to determine their content, within the limits imposed by law, public order, and good morals”. It can be argued that lato sensu the parties’ freedom to determine the content of the contract may also encompass the freedom to choose the applicable law. Accordingly, it has been stated in doctrine that the parties are free “to introduce all kinds of clauses, even those not provided for by law, for the type of contract concluded,” since “by virtue of contractual freedom, the parties may conclude any agreement provided that it does not contravene mandatory rules or aspects relating to public order or good morals.”[1]
However, the provisions of Romanian private international law that expressly regulate the parties’ ability to choose the applicable law are included in a separate section of the Civil Code (Articles 2,637–2,667) and, just like the Regulation, apply exclusively where the contract includes an element of foreignness. This formal limitation highlights that, in purely domestic contracts, the parties’ autonomy to designate the applicable law is not expressly regulated, raising the question of whether the principle of autonomy of will could justify the recognition of such freedom even in the absence of an element of foreignness.
On the one hand, it can be argued that contractual freedom, as an expression of the autonomy of will regulated by Article 1,169 of the Civil Code, could allow the parties to designate the governing law of the contract, in the absence of legal provisions expressly prohibiting such conduct. Although the Romanian legislator does not explicitly regulate this possibility in the context of purely domestic contracts, and the Rome I Regulation limits its application to situations involving a conflict of laws, it can be argued that the absence of an express prohibition should not be interpreted as a restriction on the autonomy of will. In this regard, the parties’ freedom to determine the content of the contract, lato sensu, could be extended to include the possibility of choosing the applicable law, provided that such an option does not contravene rules of public order.
From this perspective, within the realm of private law, the choice of a foreign law would constitute a legitimate expression of contractual freedom, and any restriction on it should be justified only exceptionally. The parties may have a reasonable interest in subjecting the contract to a legal system perceived as more coherent, more predictable, or better suited to the legal institutions specific to the transaction, even in the context of the contract lacking an element of foreignness. Consequently, the possibility remains open to interpret that such a clause could be valid and produce legal effects, provided that it does not contravene mandatory provisions of Romanian law or domestic public order.
On the other hand, it can be argued that such an extension of the autonomy of will exceeds the scope of the national and European regulations. In this regard, the choice of the governing law of a contract constitutes, under Romanian law, a specific institution belonging to private international law, expressly and restrictively regulated. It can thus be argued that the provisions allowing the parties to choose the law governing the contract apply exclusively to situations where the contract includes an element of foreignness. In the absence of such an element, no conflict of laws would arise, and in the absence of a conflict, the rules for determining the governing law – including the freedom of choice of the governing law – would not be applicable.
Furthermore, the characterization of a choice-of-law clause as part of the “content of the contract” is debatable. In doctrine, the notion of “content of the contract” has been defined as encompassing the entirety of the parties’ rights and obligations, whereas the choice of the applicable law establishes the very legal framework that will govern the formation, interpretation, and effects of the contract. In this context, considering that the national legislator has placed this matter in a separate section dedicated to conflicts of laws, and the European legislator has limited the application of the Rome I Regulation to situations involving an element of foreignness, it is equally reasonable to conclude that the parties to a purely domestic contract could not validly designate a foreign law as the governing law, unless such a possibility were expressly provided by law. A choice-of-law clause inserted in such a contract could therefore be interpreted by the courts as having no legal effect.
In light of the foregoing, it can be concluded that the issue of choosing the governing law in a purely domestic contract lies within a zone of legal uncertainty. On the one hand, the principle of autonomy of will suggests that the parties could benefit from the possibility of designating the applicable law, even in the absence of an element of foreignness in the contract. On the other hand, the national and European legal framework appears to limit this possibility to situations involving a conflict of laws, which may be interpreted as restricting the applicability of choice-of-law clauses to contracts that involve an element of foreignness. Consequently, the validity of such a clause in a purely domestic contract remains debatable and may be interpreted differently by courts, depending on their understanding of the principle of autonomy of will and the limits of the current legal framework, until this issue is clarified through a future possible legislative intervention.
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[1] Fl. A. Baias, E. Chelaru, R. Constantinovici, I. Macovei (coord.), The New Civil Code. Commentary on the Articles, C.H. Beck, 2012.
