Today I bring you the second post in our series comparing the new Hague Principles on Choice of Law and the Restatement (Second) of Conflict of Laws. I say “I,” but I mean “we.” Jonathan Levin, who interned this summer at the Permanent Bureau of the Hague Conference, is a co-author of these posts.

In the first post in the series, we looked at the scope of the two texts, asking, “to which contracts does each apply?” In today’s post, we ask about the scope of the freedom of choice each text provides.

The Restatement

Section 187 of the Restatement provides that

The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue.

Even if the particular issue is not one that the parties could have resolved by explicit agreement, the law of the state they choose will govern unless “the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice,” or “application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which … would be the state of the applicable law in the absence of an effective choice of law by the parties.”

The key word in these provisions in the Restatement is “state.” The Restatement does not expressly contemplate the possibility that the parties could choose a law other than the law of a particular state. No doubt this is due in part to the age of the Restatement. But it may also be due to a reluctance to adopt the idea of transnational rules of law. At least from an American perspective, it isn’t necessary to choose transnational rules of law if you want, for example, to ensure applicability of a treaty such as the CISG, since the CISG is part of the law of the United States and, by virtue of the Supremacy Clause, of each of the states of the United States. On the other hand, parties that want the UNIDROIT Principles to govern will want to choose non-national rules of law.

The Restatement lacks the clarity found in the Principles about dépeçage, the ability of the parties to choose different laws to govern different aspects of their contract. It’s not that the Restatement forbids dépeçage, it’s just not clear about it. (Perhaps the reference to “particular issues” is an implicit reference to issue-by-issue choices of law?) It also lacks the clarity of the Principles on some subsidiary issues such as when the parties can modify their choice of law.

The last point about the Restatement that I want to emphasize is that its underlying philosophy is much more orthodox than the philosophy of the Principles. According to the Restatement:

The law of the state chosen by the parties is applied, not because the parties themselves are legislators, but simply because this is the result demanded by the choice-of-law rule of the forum.

Restatement § 187 cmt. e. Now, as we will see, the Principles also preserve the idea the mandatory rules of law can override the parties’ choice of law, but the Principles suggest this is an exception to the ordinary rule of party autonomy, whereas the Restatement seems to regard choice of law as a mere instance of the application of the forum’s conflict of laws rules. Following this any further could take us very deep indeed into the philosophy of law. But it seems to me that the Restatement approach will resonate strongly with those who were educated by legal realists or lawyers of various schools who reacted to the realists. I assume that means, in general, American lawyers at least through the turn of the century. Readers, please chime in with your thoughts on this, particularly if you are a more recent graduate of a US law school or a graduate of a European law school.

The Principles

The discussion of the Restatement anticipated much of what we have to say about the Principles. The principles expressly provide that “the parties may choose—(a) the law applicable to the whole contract or to only part of it; and (b) different laws for different parts of the contract.” They expressly provide that the choice “may be made or modified at any time,” subject to rules for avoiding prejudice to the formal validity of the contract or the rights of third parties. And the Principles provide for the freedom of the parties to choose “rules of law” other than a national law, subject to “overriding mandatory rules and public policy.”

The Principles provide more explicit guidance on a number of issues than the Restatement, and that of course is a strength of the Principles, since explicitness helps the parties to make informed decisions about their choice of law. The principles also go further in distinguishing choice of law from choice of forum, since as we have seen the law of the forum seems to play a stronger conceptual role under the Restatement. There may be little difference in practice between saying that the basic rule is party autonomy subject to mandatory rules of law and saying that the basic rule is that the parties can choose the applicable law if the law of the forum applies the parties’ choice of law to their contracts. But clearly this distinction reflects different orientations toward the main issues, and it’s not surprising that the Principles, with their focus on party autonomy, should expressly contemplate the use of non-national rules of law, while the Restatement does not.

I expect to publish one last post tying up a few loose ends and also presenting Jonathan’s helpful table comparing the two texts, with excerpted quotes from the texts and Jonathan’s commentary.