Legal Memorandum: Choice of Governing Law

Issue: What principle should apply when an agreement does not include a choice of governing law?

Area of Law: Business Organizations & Contracts, International Law & Global Trade
Keywords: Choice of governing law; Principle applicable; China
Jurisdiction: China, International
Cited Cases: 29 F. Supp. 2d 1168
Cited Statutes: UNIDROIT Article 1.9
Date: 05/01/2008

The UNIDROIT Principles of International Commercial Contracts “are intended to provide a solution to an issue raised when it proves impossible to establish the relevant rule of the applicable law.”*FN1  See Mo Zhang, Party Autonomy and Beyond: An International Perspective of Contractual Choice of Law, 20 Emory Int’l L. Rev. 511, 551 n.261 (Fall 2006); see also UNIDROIT Principles of International Commercial Transactions, Preamble (stating that “[t]hese principles set forth general rules for international commercial contracts” and “may be applied when the parties have not chosen any law to govern their contract”).  In drafting its current contract law, Chinese legislators referred extensively to the UNIDROIT Principles.  See John H. Matheson, Convergence, Culture and Contract Law in China, 15 Minn. J. Int’l L. 329, 339 (Winter 2007).  Importantly, UNIDROIT Article 1.9 states that the parties “are bound by any usage to which they have agreed and by any practices which they have established between themselves,” as well as “by a usage that is widely known to and regularly observed in international trade by parties in the particular trade concerned.”

Even if a loan agreement is deemed to fall short of the Chinese Lending Law requirements, established international principles dictate that the custom and practice of the industry must be considered in determining enforceability.  See also Allman v. Winkelman (9th Cir. 1939) 106 F.2d 663, 664 (explaining that the enforceability of a contract made and to be performed in China “must be considered in […]

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