A choice-of-law clause is a contractual provision in which parties specify which national law governs their agreement. For exporters, this is the most underestimated provision of the entire contract. In our practice, we see disputes in which the absence of a choice of law completely shifts the outcome. Litigating under unknown law not only costs money, but it fundamentally undermines your legal position. A good choice of law in 20 words often saves hundreds of thousands of euros.
What is the legal problem?
Without a choice of law, it must first be determined which law applies in the event of a dispute. Within the EU, this is done via the Rome I Regulation; outside the EU, via local international private law. The result is unpredictable and often unfavorable for the exporter. Liability, complaint periods, limitation periods, and limitation of liability play out differently in foreign legal systems. Anyone who only discovers their legal framework during a dispute is already at a disadvantage.
What does the law say?
Article 3(1) of Rome I (Regulation (EC) 593/2008) grants parties free choice of law. The choice must be express or clearly evident from the provisions. A reference in general terms and conditions is sufficient only for valid entry into force. Article 9 of Rome I preserves the precedence of provisions of particularly mandatory law in the country of the forum. In addition, for the sale of movable goods between contracting states, the Vienna Sales Convention applies, which must be expressly excluded under Article 6 CISG if you so wish.
Under Dutch law, Article 6:248 of the Civil Code gives the judge discretion to assess contractual outcomes against reasonableness and fairness — a correction that foreign legal systems do not provide.
What risks do companies face?
Under foreign law, limitations of liability can be moderated or declared void. Under German AGB law (Section 305 et seq. BGB), far-reaching exonerations in general terms and conditions are often invalid. Under French law, Article 1170 of the Code Civil restricts exclusions of liability that affect the essence of the obligation. Limitation periods can be unexpectedly longer. For SME exporters, that makes the difference between a claim of 50,000 euros and a claim of 500,000 euros.
Practical example from our practice
A Dutch exporter of technical parts supplied a Spanish customer under general terms and conditions without a choice of law clause in the order confirmation. In the event of a dispute, the Spanish court ruled that Spanish law applied under Article 4 of Rome I, because the general terms and conditions had not been sufficiently accepted. The Spanish court reduced the limitation of liability and awarded damages of 720,000 euros. With an explicit choice of law for Dutch law in the main contract — not in the general terms and conditions — liability would have remained limited to 50,000 euros.
What can you do?
Include an explicit choice-of-law clause in every export contract, in the main contract itself. Determine whether you wish to include or exclude CISG and do so explicitly. Combine this with a choice of forum for the Dutch courts or arbitration under NAI or ICC Rules. Align the choice of law, choice of forum, and general terms and conditions. Periodically assess whether Dutch law is the right choice for your type of contract and market. See also our article on How to negotiate a favorable choice of forum.