Entering into a banking contract at the international level raises a fundamental question: which law will apply in the event of a dispute? The answer determines the interpretation of clauses, the extent of obligations, and the outcome of potential litigation. In this area, European law enshrines a cardinal principle that gives considerable power to the parties: party autonomy (autonomie de la volonte). Understanding this mechanism is essential for any business leader or individual entering into cross-border financial relationships. This article analyses this principle and its limits, which shape the central role of party autonomy in the broader landscape of international banking conflicts of laws.

The principle of party autonomy in international banking law

At the heart of international contract law, and particularly in banking matters, lies the freedom for contracting parties to choose the law that will govern their agreement. This principle, known as the « law of autonomy » (loi d’autonomie), is enshrined in European legislation, notably Regulation (EC) No 593/2008, known as « Rome I, » which replaced the 1980 Rome Convention for contracts concluded after 17 December 2009. Article 3 of this Regulation is unequivocal: « A contract shall be governed by the law chosen by the parties. »

This freedom of choice is a cornerstone of legal certainty in international trade. It allows businesses and banks to select a legal framework they are familiar with, one deemed neutral or particularly suited to the nature of their transaction (credit, swap, guarantee, etc.). The choice may fall on the law of an EU Member State or that of a third country, such as Swiss law or the law of the State of New York – both highly prized in international finance. This rule has « universal » character, meaning that a French court will apply the law designated by the parties, even if that law is not that of a Member State.

Express or implied choice of law

The designation of the applicable law can manifest in two ways. The simplest and safest is an express choice. It takes the form of a « governing law clause » (clause de loi applicable) clearly inserted in the contract. For example: « This contract shall be governed by and construed in accordance with French law. » Such a clause removes any ambiguity.

However, the Rome I Regulation also admits an implied, or tacit, choice. In this case, the intention of the parties must be « clearly demonstrated » by the terms of the contract or the circumstances of the case. How does this intention manifest? Case law, particularly English case law, has identified several indicators. Repeated references to specific statutory provisions of a country, the use of a standard-form contract known to be governed by a particular law (such as ISDA master agreements, often subject to English law), or a jurisdiction clause in favour of the courts of a given State may constitute clusters of evidence. However, these elements must demonstrate a common and unequivocal intention. A single isolated reference is generally insufficient to establish a tacit choice.

The « depecage » clause: choosing multiple laws

The parties’ freedom goes even further. The Rome I Regulation allows them to « split » (depecer) the contract. In practice, this means they can subject different parts of their agreement to different laws. For example, in a complex project finance deal, the clauses relating to loan repayment could be subject to English law, while the real property security interests attached could be governed by the law of the place where the property is situated (lex rei sitae).

This mechanism offers great flexibility but must be handled with care. The « split » must not lead to contradictions or undermine the overall coherence of the contract. If the parties choose to subject the definition of a payment default to French law and the consequences of that same default to German law, they must ensure that the two systems can be logically articulated. The objective is to build a functional legal structure, not an assembly of incompatible rules that would create more uncertainty than it resolves.

« Internal » contracts subject to a foreign law

A particular situation deserves attention: one where a contract, all elements of which are located in a single country, is subjected by the parties to a foreign law. Imagine a French SME taking out a loan from a French bank to finance an asset in France, but both parties decide to subject their contract to Luxembourg law. Is this possible? Yes, the principle of party autonomy allows it. However, this freedom is not absolute.

Article 3(3) of the Rome I Regulation provides a significant limitation. The choice of a foreign law cannot deprive one of the parties, generally the weaker one, of the protection afforded by the « mandatory provisions » (dispositions imperatives) of the law of the country with which the contract has all its connections. In other words, in our example, the mandatory provisions of French law, which cannot be derogated from by contract, will continue to apply. This aims to prevent the choice of a foreign law from becoming a strategy for circumventing the fundamental protections provided by the contract’s natural legal order. These provisions include many protective rules, such as those on consumer protection or overriding mandatory provisions (lois de police), which embody the requirements deemed essential by a State for the safeguarding of its public interests.

The case of « intra-Community » contracts

The Rome I Regulation introduced another specific protection for contracts concluded within the European Union. When all elements of the situation are located in one or more Member States, but the parties choose the law of a third country (for example, Swiss law), this choice must not undermine the mandatory rules of EU law.

This provision, derived from the case law of the Court of Justice of the European Union (notably the Ingmar judgment), aims to preserve the integrity of the internal market. The parties cannot use the choice of a law external to the EU as a means of circumventing harmonised European directives that establish a body of common rules, particularly in consumer protection matters. For example, the provisions of a directive on consumer credit, as transposed in the Member State of the forum, will apply even if the contract is governed by a non-European law. This guarantees a minimum and uniform level of protection within the Union, strengthening confidence in cross-border transactions.

The exclusion and consideration of non-State rules

Does party autonomy allow the choice of a non-State system of rules, such as the lex mercatoria (customs of international trade) or the principles of Sharia to govern an Islamic finance contract? The answer provided by the Rome I Regulation is negative. The choice must be directed to the « law of a country. » A set of religious rules or transnational principles, however structured, does not constitute a State legal system within the meaning of the Regulation.

Case law, notably English case law in the famous Shamil Bank of Bahrain case, confirmed this position. A contract cannot be directly subject to Sharia. This does not mean, however, that such principles are ignored. Recital 13 of the Regulation specifies that the parties may « incorporate by reference » into their contract a non-State body of law. The distinction is crucial: the contract remains governed by a State law (for example, English law), but it incorporates clauses that reflect the principles of Sharia. The validity and interpretation of these clauses will then be assessed under the chosen State law. That State law, through its own public policy rules, may moreover limit the effect of certain principles thus incorporated, acting as a compatibility filter.

Navigating between the freedom to choose the applicable law and the multiple limitations imposed by international and European law requires precise expertise. A poorly drafted choice-of-law clause or an unsuitable choice can have significant financial and legal consequences. To secure your international banking contracts and benefit from strategic advice on the most appropriate law for your situation, our firm assists you in the drafting and negotiation of your agreements.

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