Choice of Law in Contract and Thai Private International Law:

A Comparative Study

By Prasit Pivavatnapanich

Apart from the European hemisphere, this principle is also manifestly embodied in private international law in several non European countries, for example some eastern nations, i.e., China (20) Japan (21) and in Latin American e.g. Chile (22), Argentina (23).
Like other countries, Thailand, or Siam as it was called at the time of the drafting of the Act on Conflict of Laws B.E. 2481, accepted this principle markedly prescribed in article 13 paragraph one (24). The principle of private autonomy or the freedom to select foreign private laws is not exclusively applied to the law of contract but is also extended to other branches of legal transactions, such as matrimonial regimes between spouses, tort law (25) and law on will. The principle of those areas, however, falls outside of the scope of this present paper.

There is a caveat. Although both common law and continental law system, in principle, markedly acknowledge the principle, of freedom of contract, such a principle is not absolute(26). There are, basically, divergences in doctrinal views on the principle of limitation of the autonomy of contracting parties. The former approach espoused by a group of common law countries, save for the United States and Australia(27), i.e., England (28), Canada (29) and the Benelux Convention on Private International Law(30) take the view that the parties are overwhelmingly entitled to choose and pick any law in the world in spite of having no connection with the juridical relation of such a contract(31). This means that, obviously, the freedom of selecting applicable law by the parties is unlimited. The landmark of this traditional approach was Vita Food Products Inc. v. Unus Shipping Co. in 1939 decided by Lord Wright (32). In this case, the learned judge Lord Wright, however, also imposed three conditions on the limitations of party autonomy. The well known phrases rendered by Lord Wright, that most writers usually quote him as saying are: the intention express is bona fide, and legal. and [Sic] provided there is no reason for avoiding the choice on the ground of public policy.
It is necessary to observe that most writers perceive the Such statement as the rule of a lack of restriction on parties' autonomy, permitting the contracting parties to freely choose any law applicable to their contracts, regardless of its real relationship with the contract. But, according to Prof. Nygh's view, the statement is vague(33). Also, the concept of bona fide was construed as the limitation of party autonomy by the Queensland Supreme Court. In this case(34), although the parties made an expression of choice of law, namely, the law of Hong Kong, the Court, after paying heed to all relevant facts, went on to reach the conclusion that the selection of the law of Hong Kong, as a proper law of contract, was mala fide. Accordingly, the Court refused to applied the law of Hong Kong to the contract and, instead, employed Queensland law.
In contrary to the former view, the restricted view upheld by Germany academia(35), French jurisprudence(36), the scandinavian commentators(37), the Czechoslovakian statute(38), the Polish private international law(39), the American conflict of laws(40) and the Argentine Draft Code of Private International Law(41) accepted the view that the freedom of tile contracting parties is restricted to the closed legal relation relating to the TRANSACTION, i.e., the common nationality of the parties, the domicile of the parties or the place of specific performance etc. On the one hand, the chosen law might be "invalid" or "ineffective" if such law is devoid of a substantial relationship to the contracting parties or the juristic act. The professio juris, who are regarded as the champions of this approach, are Savigny Yntema(42) and Cheshire(43).
In addition, some countries like Austria impose a limitation of applying foreign law on foreigners who conclude a contract with an Austrian national or an Austrian subject who concludes a contract with an Austrian national in Austria. Such cases are subject to the Austrian Civil Code(44). Apart from Austria, limitations of party autonomy can be found in some Latin America countries like Chile, Mexico(45), and Argentina.
The autonomy doctrine, as we have seen, can be usually found in private international law of most capitalist countries. Not surprisingly, a communist state like Russia, however, opposes the freedom of contracting to choose a foreign substantive law as an applicable law because international transactions are conducted and controlled by a governmental agency, such as a foreign trade representation or consulates, instead of private enterprises so it is impossible for these organs of sovereign state to be subject to foreign jurisdiction and law unless the government waives state immunity(46). This is in contrast to Hungary(47) and Poland(48), where in spite of being former communist states, their private international law recognizes me party autonomy theory, allowing a private individual to freely select rules of foreign law applicable to a contract.

Thai Practice Relating to the Party Autonomy
Like rules of private international law in other countries, Thai conflict of laws B.E. 2481 (1939) recognizes the principle of party autonomy clearly embodied in article 13 paragraph one. It stipulates that: "The question as to what law is applicable in regard to the essential elements or effects of a contract is determines by the intention of the parties thereof." The Thai conflict of laws acknowledges both expressed and inferred choice of law. It should be added that the process of ascertaining inferred choice of law is very difficult, requiring a judge to carefully consider, in addition to intrinsic statement or legal terms contained in the agreement, other relevant circumstances viz. An arbitration clause, the language, the standard form of the contract, the habitual residence of the parties and so forth. If a judge does not scrupulously scrutinize other pertinent circumstances, tie outcome of the decision might be deemed to be unfair, illogical, or even absurd. A careful analysis of a judgment is very helpful.
In B.E. 2525, the Thai Labor Court and the Thai Supreme Court had an opportunity to employ the Act On Conflict of Laws B.E. 2481(49). The case concerned inferred choice of law. In such a case, the contracting parties have the same nationality, in this case, American. The contract was concluded in Singapore and was infringed in Thailand. Then, the plaintiff sued the defendant before the Thai Labor courts, claiming compensation for breach of contract. The Thai ruled ruled that, in the absence of any expressed choice of law, the contract was made Singapore. Therefore, the Court went on to arrive at the conclusion that the implied choice can be deduced from the place where the contract was made. Hence, the applicable law was the Singaporean law conceived as lex loci contractus. The Thai Supreme Court reviewed this case and decided that no circumstances indicated both the expressed and implied choice of law, so the law applicable was, according to article 13 paragraph one, the law common to the parties when they are of the same nationality. The governing law was, thus, the American law. However, in this case, the litigant failed to prove the content of the American law, thereby the Thai Court refused to apply such law to the case in question. Instead, the Court applied the Thai law to this case on the grounds that the parties failed to prove the foreign law before the Court.
Some remarks on the resorting to Thai private international law by the Thai Supreme Court should be mentioned. First, and perhaps most significant of all, the Thai Labor Court confused the inferred choice of law with lex loci contractus which functions as a connecting factor separate from the inferred choice of law. If we look at article 13 paragraph one, the following points of contact are: the intention of the parties, either express or implied, the common nationality of tie parties and the law of the place where the contract was concluded, respectively. Obviously, the court resorts to lex loci contractus as a last connecting factor, after a determination of such two points of contact have failed. In this case, the Court considered the place where the contract was made as the inferred choice of law although such place per se is viewed as another connecting factor.

Part 3

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(20) See article 145 of the General Principles of the Civil Law of the People's epublic of China 1987. It states that "the parties to a contract involving forest interest may choose the law application to settlement of their contract disputes, except as other stipulated by law". The following work is worth reading for those who need to know about party autonomy in the Chinese conflict of laws. See Luo Junming Choice of Law for Contracts in China: A proposal for the Objectivization of Standards and Their Use in conflict of Laws, Indiana International and Comparative Law Review 439 et seq (1996).

(21) It should be noted that Japan enacted three statutes relating to private international law (Law on the Application of Laws (Horei). The first was enacted in 1890, but was never employed. The second was promulgated in 1898. And a new one was amended in 1989 and entered into force in 1990. See HIROSHI ODA (ed), BASIC JAPANESE LAWS 443 (1997). Both old and new private international law acknowledged the intention of contracting parties. Under article 7 (1) of Law On The Application of Laws (1898), it provides that: "As regards the formation and effect of a juristic act, the question as to which is the governing law is determined by the intention of the parties".; See also Article 7 of the Japanese Private International Law 1990. See also Chim Kim, New Japanese Private International Law: The 1990 Horei, 40 The American Journal of Comparative Law 1, 6-7, (1992); J.E. de BECKER, INTERNATIONAL PRIVATE LAW OF JAPAN 95-96 (1919).

(22) See ALFREDO ETCHEBERRY O, AMERICAN-CHILEAN PRIVATE INTERNATIONAL 58-59 (1960).

(23) See Draft Code of Private International Law article 35. The text can be found at 24 International Legal Material 272 (1985).

(24) Article 13 reads that "The question as to what law is applicable in regard to the essential or effects of a contract are determined by the intention of the parties thereto".

(25) See Peter E. Nygh, The Reasonable Expectations of the Parties As A Guide to the Choice of Law in Contract And In Tort, 251 Recueil Des Cours (1995), at 294-295 Frank Vischer, supra note 11, at 123.

(26) See Beda Eortmann, Choice of Law by Arbitrators: The Applicable Conflict of Law System, 14 Arbitration International volume 98 (1998).

(27) In Australia, the question is whether contracting parties are able to absolutely freely select any system of law in the world. On this point, the practices of Australia are not consistent. There were several cases confirming the principle of restriction of an expression of choice of law. Nonetheless, an Australian court ruled that although the New York Law did not directly connect to the contract at all, shch law can be applied to the contract. The following cases were in favor of the limitation of party autonomy: Re Helbert Wagg & Co [1956] Ch 323 at 341; Kay's easing Corpn v Fletcher (1964) 64 SR (NSW) 195 AT 205 per Walsh J. These cases cited by P.E. Nygh in CONFLICT OF LAWS IN AUSTRIA 215 (1976). The following cases were opposes to the limitation of chosen law: B.H.P. Petroleum Pty. V. Oil Basins Ltd. [1985] V.R. 725, 747; Kutchera v. Buckingham International Holding Ltd [1988] I.R. 61,68; John Kaldor Fabricmaker Pty Ltd v Michell Cotts Freigh (Australia) Pty Ltd (1989) N.S.W.L.R. 172, 185. The case previously mentioned can be found is PETER NORTH, PRIVATE INTERNATIONAL LAW PROBLEMS IN COMMON LAW JURISDICTIONS 114 (1993).

(28) See PETER NORTH, supra note 27, at 114-115

(29) See JEAN-GABRIEL CASTEL, INTRODUCTION TO CONFLICT OF LAWS 165 (1978); Like British Court, Canadian Courts adopted a concept of bona fide applicable to the chosen law, albeit lacking real connection with the contract. See also JEAN-GABRIEL CASTEL, PRIVATE INTERNATIONAL LAW: A COMPARATIVE STUDY OF RULES PREVAILING CANADA AND THE UNITED STATES 200 (1960).

(30) See E.M.Meilers, The Benelux Convention on private International Law, 2 The American Journal of Comparative Law 1,8 (1953).

(31) MARTIN WOLFF, supra note 2, at 418; JOHN O'BRIEN, CONFLICT OF LAWS 329 (1999).

(32) Cited by JOHN O'BRIEN, supra note 31, at 310.

(33) See P.E. NYGH, CONFLICT OF LAWS IN AUSTRALIA 216 (1976).

(34) Golden Acres Ltd v Queensland Estates Pty Ltd [1969] Qd 378 quoted by P.E. NYGH, supra note, at 216.

(35) MARTIN WOLFF, supra note 1, at 417. Nonetheleaa, Professor Drobnig took the different position that the parties are able to choose any law applied to the contract. See ULRICH DROBNIG, supra note 14, at

(36) See GEORGES R. DELAUME, AMERICAN-FRENCH PRIVATE INTERNATIONAL LAW 120 (1961).

(37) See Ole lando, supra note 4, at 5.

(38) See Hessel E. Yntema, "Autonomy" in choice of Law, 1 The American Journal of Comparative Law 341, 350. (1954).

(39) See K.GRZYBOWSKI (et al), STUDIES IN POLISH LAW 154 (1962).

(40) See RUSSELL J. WEINTRAUB, COMMENTARY ON THE CONFLICT OF LAWS 376-377 (1986).

(41) Article 35 states that "…choice of law must not favor a dishonest interest of the parties; Such never occurs where there is, in the scope of private international law, a reasonable connection between the contract and the country whose law applies". The Text can be found in 24 International Legal Material 272 ff (1985).

(42) Id. At 357

(43) CHESHIRE AND NORTH PRIVATE INTERNATIONAL LAW, P.M. NORTH (ed.) 199-202 (1985).

(44) According to article 36 of the Austrian Civil Code: "If a foreigner in this country enters into a bilaterally obligatory transation with a national, it shall be governed by this Code Without exception…"

(45) See ERNST RABEL, THE CONFLICT OF LAWS: A COMPARATIVE SYUDY volume two 370-371 (1947).

(46) See FERENC MADL, THE LAW OF TRANSACTIONS 74-75 (1982).

(47) Id at 75.

(48) See K. GRZYBOWSKI (et al), supra note 39, at 153-154

(49) See The Judgment of Supreme Court No. 3223/2525.

Originally Published in the Law Journal of Thailand Bar Society On December, 2002