Rethinking Contractual Choice of Law: An Analysis of Relation Syndrome

Abstract

The doctrine of contractual choice of law provides the parties with the power to select the law that governs their business or other private activities crossing jurisdictional boundaries. An issue facing the choice is whether the law chosen by the parties must bear certain relation between the enacting state or country and the parties, transactions or disputes. In the United States, such relation is required in order for the chosen law to become enforceable, but elsewhere in the world, the relation is not essential to the choice of law by the parties. In 2001, as part of their initiative to have a broader reform, the American Law Institute and the National Conference of Commissioner on Uniform State Laws attempted to replace U.C.C. §1-105 with §1-301. The major change was the deletion of the “reasonable relation” requirement for contractual choice of law. The replacement was considered as a necessary step in the reform, and it was also deemed as an effort to align the U.C.C. with the established international commercial practices. Unfortunately, however, the attempt failed. As a result, the contractual choice of law in the United States remains significantly at odds with the international trends. This article argues that it is conceptually problematic to insist on the relation requirement for the contractual choice of law because such requirement is not only rooted in the misunderstanding of the very nature of the parties’ autonomy in choice of law, but also derived from the undue concerns about state interests. Also as a practical matter, the relation requirement often situates American businesses in a dilemma when they deal with their international counterparts on the choice of law. The failure of the U.C.C. §1-301 revision reflects the persisting hostility in the U. S. towards the power of the parties to select governing law, and also evidences the gap between the U.S. and many other countries in the conflict of laws. The article concludes that both the parties and the states involved would be better off without relation requirement in contractual choice of law.