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ACCA Applied Skills · Corporate and Business Law (Global) · International trade, international legal regulation and conflict of laws

Alvar Ltd, based in Country A, and Brevik SA, based in Country B, sign a supply contract. A clause states that the contract is governed by the law of Country C, with which neither party has any connection. Neither party disputes the clause's validity. Which statement best describes the effect of this clause under the general approach of private international law?

The clause is generally respected. Private international law recognises party autonomy in commercial contracts, so the parties may choose a neutral governing law even if it has no connection to them. No home-country link, performance location or matching forum is normally required.

  1. AIt is generally respected, because parties to a commercial contract are usually free to choose the governing lawCorrect
  2. BIt is void, because the chosen law must be the law of one of the parties' home countries
  3. CIt is effective only if the contract is performed in Country C
  4. DIt is effective only if a court in Country C is also chosen as the forum

Explanation

Party autonomy is the general principle in international commercial contracts: parties may choose the governing law. There is no general requirement that the chosen law be connected to the parties or that the forum match it, so the options requiring a home-country link, performance, or a matching court are wrong.

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