Golden principles for handling conflict of laws

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What is the conflict of laws?

Conflict of laws is a difference between the laws of two or more jurisdictions that apply to the same dispute being resolved. The outcome of the case will depend on the choice of law to resolve the dispute. Conflicts can arise between the laws of one country and another, or sometimes between countries and regulations of international associations such as FIDIC.

The main question to be asked when conflict arises is: “which law should be applied to this case”? Courts will follow a certain process to determine what law to apply. In the law community, this process is referred to as characterization or classification.

Usually when entering into contracts, the parties can choose one of three options according to legal precedents when deciding what law to be applied in the case of a conflict:

  • The law of the jurisdiction: When the conflict of laws is related to a procedural matter, court most likely go by the law of the jurisdiction.
  • The law of the place where the cause of action arises: When the conflict is related to a substantive matter, courts most likely goes by the law of the place where the cause of action arises.
  • As agreed by the participants: Legal persons to a contract can choose the preferred law as well as the preferred jurisdiction. On such basis courts or arbitrators will choose what law to apply to arbitration.

For example, in the United States, Federal courts have different rules from those of state courts because the jurisdiction of federal courts is limited by the constitution. Federal courts must follow a complex set of rules to determine the right law to apply in a case where conflicting laws arises.

Legal professionals and scholars in civil law call the “conflict of laws” “private international law”. This law is applied to legal disputes having foreign elements.

The principles of conflict of laws are all the more urgent in the context of rapid globalization. It is becoming common for a construction corporation from one country to participate in construction projects in others. For such legal cases, the parties often choose FDIC provisions as the basis for governing and the International Court of Arbitration will arbitrate.

Conflict of laws provisions

If you look at business contracts, you’ll find that most of them contain a “Miscellaneous” clause, which specifies or clarifies the conflict of laws principles to govern the contract. This provision is usually made to interpret the agreement outside the place where the cause of action occurs.

For example, assume you have made an agreement with a company in China. This may give rise to a cause of action in China. However, you want to apply the laws of Vietnam to your contract and thus clearly specify that the contract would be governed by the laws of Vietnam.

In practice in Vietnam, international contracts often choose the International Arbitration Court to arbitrate. Applicable laws and languages will also be specified in the contracts. In case that is not specified in the contracts, international practice will be applied. In such case, the laws of Vietnam will mostly be applied, potentially to the disadvantage of international contractors.

Countries now all have laws saying that the place of the cause of action will have a jurisdiction over the dispute. Because of this, a contract may be governed by the law of the jurisdiction of the country where the cause of action arises despite your intention to the contrary. To avoid such unwelcome hassle, contracts usually contain an exclusion clause to expressly clarify the provisions of conflict of laws.

Conflict of laws foundation

The conflict of laws is based on the principle of choosing the most suitable law to apply in a given case to achieve a fair result. This principle is known by different names, but none of them are accurate.

In an international law system, conflicts mostly arise between what is governed by the laws of countries and by international laws. The term “conflict of laws” is more commonly used since such laws are rarely applied to international issues. However, it is still a general term also applying to international disputes. Many criticize this term as being potentially misleading because the object of these provisions is to resolve conflicts between different legal provisions rather than the dispute itself.