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

Delta Co and Echo Co agree that their contract is governed by the law of Country M. Country M law permits a term that the courts of the forum, Country N, regard as contrary to a fundamental mandatory rule protecting its public interest. Delta Co sues in Country N to enforce the term. What is the most likely outcome?

The Country N court may refuse to apply the term on public policy grounds. Choice of governing law is respected but limited by the forum's mandatory rules and public policy, and it does not oust the court's jurisdiction or void the contract everywhere.

  1. AThe Country N court must enforce the term because the chosen governing law always overrides the forum's rules
  2. BThe Country N court must transfer the case to Country M, since a governing law clause removes jurisdiction
  3. CThe Country N court may refuse to apply the term on public policy grounds, even though Country M law governs the contractCorrect
  4. DThe whole contract becomes void in every country because of the conflict

Explanation

Party autonomy is limited by the forum's public policy and overriding mandatory rules. A governing law clause selects the law but does not remove the forum's jurisdiction, and refusal to enforce one term does not void the contract worldwide.

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