Which law applies to your international contract?

Applicable law is the national legal system that governs the content and interpretation of your contract. For international contracts, this is rarely self-evident. In our practice, we see Dutch entrepreneurs who only discover during a dispute that their contract falls under Italian or German law. At that point, it is too late to choose. Anyone contracting internationally must know in advance which law applies — and make a conscious choice.

What is the legal problem?

In international contracts, multiple legal systems may be relevant: the law of the seller, the buyer, or the country of performance. Without clear agreements, the European conflict-of-laws rule determines which law applies. The outcome directly affects liability, limitation periods, warranties, and compensation. An unintended application of law can render your exemption clause void or cause your claim to become time-barred at a time when you do not expect it.

What does the law say?

Within the European Union, the Rome I Regulation (Regulation (EC) 593/2008) governs the applicable law to contractual obligations. Article 3 of Rome I guarantees party autonomy: parties are free to choose their own law. Without a choice of law, Article 4 of Rome I applies: in the case of sales, the law of the seller; in the case of services, the law of the service provider. For insurance and consumer contracts, special mandatory rules apply in Articles 6 and 7 of Rome I.

In addition, for international sales between Contracting States, the Vienna Sales Convention (CISG, 1980) almost always applies. Article 1 of the CISG provides for automatic applicability. Article 6 of the CISG permits exclusion, but only with an express clause. Under Dutch law, Article 6:248 of the Civil Code (reasonableness and fairness) supplements the contract where it is silent.

What risks do companies face?

Without a well-considered choice of law, you may unexpectedly find yourself subject to foreign consumer law, mandatory local rules, or the Vienna Sales Convention. Litigating in an unfamiliar legal system is costly. Limitations of liability valid under Dutch law may prove void in France or Italy. Limitation periods differ significantly: three years in Germany (Section 195 BGB), five years in the Netherlands (Article 3:307 of the Civil Code), and ten years in Italy.

Practical example from our practice

We advised a Dutch machine manufacturer supplying installations to an Italian customer. The contract contained no choice of law. When a defect occurred after four years, the purchaser invoked the Vienna Sales Convention, which provides for a four-year limitation period under Article 8 of the New York Limitation Convention. Under the exclusion of CISG applied and the express choice of Dutch law, the claim would have lapsed two years earlier in accordance with Article 7:23 paragraph 2 of the Dutch Civil Code. This simple point saved the client approximately 480,000 euros.

What can you do?

Explicitly stipulate which law applies in every cross-border contract. Assess whether CISG is favorable to you and explicitly exclude it if necessary (for example: "Dutch law applies, excluding the Vienna Sales Convention"). Always combine a choice of law clause with a choice of forum or arbitration clause. Align your general terms and conditions with the chosen choice of law. Have model contracts periodically reviewed by an international commercial law attorney. See also our article on Why a choice-of-law clause is essential for export.