Choice of Law in International Contracts

In international contracts, the applicable law is the law that the parties to the contract will use to resolve disputes regarding the content and interpretation of the contract. The determination of this law may vary depending on factors such as the parties to the contract, the place where the contract was made, the subject matter of the contract, and the nationality of the parties.

One of the factors that plays an important role in determining the applicable law in international contracts is Article 24 of the Turkish Code of Private International Law and Procedure (MÖHUK).

Article 24 of Private International Law and Procedure

Article 24 of MÖHUK is a provision in Turkish law that governs the determination of the applicable law in international contracts. According to this article, the parties may explicitly choose the law applicable to the contract. This choice may be specified in the written text of the contract or by the express declarations of the parties. For example, the contract may include a provision stating that “This contract shall be governed by Swiss law.”

The following conditions must be met for Article 24 of MÖHUK to be applied:

  • The contract must have a foreign element: At least one of the parties to the contract must be foreign.
  • The chosen law must be specific: The chosen law must be determined explicitly or implicitly.
  • The chosen law must not be contrary to the mandatory provisions of the chosen law: The chosen law cannot be contrary to the mandatory provisions of the contract.

if the parties have not explicitly chosen a law, the second paragraph of Article 24 of MÖHUK applies. This paragraph is referred to as the implied choice of law. In implied choice of law, a conclusion can be reached without any doubt as to which law will apply based on the provisions of the contract or the circumstances of the case. For example, if all parties to the contract are Turkish citizens and the contract is signed in Turkey, it can be concluded that Turkish law will apply to the contract.

Limitation of Choice of Law in Contracts with Foreign Elements

The increase in international trade and cooperation has led to an increase in the number of contracts concluded between parties from different countries. In such contracts, the limitation of the law chosen by the parties is important for legal certainty and predictability. The freedom of choice of law allows the parties to choose the law applicable to their contracts. However, this freedom is not absolute. In some cases, it may be restricted for reasons such as public policy or the protection of the weaker party.

Areas of Limitation:

Socially Oriented Contracts:

In cases where one of the parties is economically and socially weaker, special regulations have been introduced by the legislator to protect the weaker party. In such contracts, the law chosen by the parties cannot restrict the mandatory provisions in favor of the weaker party.

Socially Oriented Contracts Regulated in MÖHUK:

  1. According to Article 27 of the MÖHUK, the law chosen by the parties applies to employment contracts. However, the minimum protection that the employee would have under the mandatory provisions of the law of the habitual workplace is reserved. This regulation represents a minimum limit set by the legislator for the protection of the employee.
  1. Article 26 of the MÖHUK regulates the choice of law in consumer contracts. Accordingly, the law chosen by the parties applies, provided that the minimum protection that the consumer would have under the mandatory provisions of the law of the habitual residence is reserved. This regulation can be applied if the chosen law, within the framework of the conflict of laws rules, is in favor of the consumer. Otherwise, the law of the habitual residence constitutes the minimum limit for the protection of the consumer.

Mechanisms Limiting Choice of Law:

There are two main mechanisms that limit the law chosen by the parties:

1.Public Policy:

Public policy refers to the rules that concern the fundamental political, social, economic, and legal structure and fundamental interests of a society. According to Article 5 of MÖHUK, if the provision of the competent foreign law applied to a particular event is clearly contrary to Turkish public policy, that provision shall not be applied and Turkish law shall be applied if necessary.

2.Directly Applicable Rules:

Directly applicable rules are legal norms that emerge as a result of social and economic tasks being undertaken and public interests being taken into account. These rules are determined as mandatory provisions that are effective in private law relations and that take public interest into account. Examples of such rules include import-export bans and bans in the foreign exchange and foreign trade law.

Conclusion

In contracts with international elements, the parties’ choice of which law to apply should be made by considering the balance between the principle of autonomy of will and the limits of legislation. This balance ensures legal stability, legal certainty and predictability, preventing possible disputes in contractual disputes and contributing to the development of international trade and cooperation.