Party Autonomy – A New Paradigm without a Foundation?
Ralf Michaels, Duke University School of Law
Japanese Association of Private International Law
June 2, 2013

I.

I. INTRODUCTIONA.

PARTY AUTONOMY – THE NEW PARADIGM OF PRIVATE INTERNATIONAL LAW?

B.

THE INCOMPATILITY WITH TRADITIONAL METHODSC.

THE POVERTY OF THEORETICAL DISCUSSIONSII.

TWO PARADIGMSA.

THE EXISTING PARADIGM: PARTY AUTONOMY AS A QUASI-CONNECTING FACTOR
1.

Rule and Exception2.

Selection and Deselection

B.

PARTY AUTONOMY AS FREEDOM OF CONTRACT AND ITS EXTENSION
1.

Rule and Exceptions

2.

Selection and Deselection

C.
III.

SHORTCOMINGSSTRUCTURE OF A NEW THEORYA.

TOWARDS A TRANSNATIONALIST PARADIGM

B.

STARTING POINT: MANDATORY RULES AS THE FIELD OF CONTENTION.

C.

SELECTION AND DESELECTION
1.

Selection

2.

DeselectionD.

IMPLICATIONS FOR THE CHOICE OF NON-STATE LAW

E.

TOWARDS A THEORY?

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I.

I. Introduction
A.

Party Autonomy – The New Paradigm of Private International

Law?
The rise of party autonomy in choice of law has been swift and massive. Party
autonomy has become the unquestioned primary tool to determine the applicablelaw in contract law. The new Japanese Private international law Act is only one ofmany examples. Party autonomy is being used more and more in other areas ofprivate law like tort, family, succession. Its principal justification is no longer
questioned.
And some scholars and regulators want to go even further. Some scholars of
regulatory law suggest party autonomy as a helpful tool for areas like bankruptcy
or securities law. Law and economics scholars even suggest that party
determination should be the starting point for the determination of the applicablelaw in every area of the law where this is possible. Scholars of contract law suggestthat non-state law like the UNIDROIT Princples of International Commercial
Contracts should qualify as a law that parties can choose. European law scholars
suggest that party autonomy is required by EU law. Others even propose a humanright to one’s own choice of a legal order.

B.

The Incompatility with Traditional Methods

All of this is somewhat surprising given that party autonomy does not fit well within
traditional methods of private international law. Party autonomy cannot be justified
in a statutist theory because party autonomy cares little about a law’s own intended
scope of application. It cannot be justified in a theory of acquired or vested rights,
because when and whether rights are acquired is, in this theory, determined bystates, not by the parties. Importantly, party autonomy runs counter to a theory ofclosest relationship, because parties are free to designate a law largely irrespectiveof such a relationship. And it is incompatible with a focus on governmental interests,

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because governmental interests cannot be determined by private parties. In short,party autonomy is nothing less than a new paradigm of private international law.
This leaves only two possibilities. Either, party autonomy is a makeshift solution to
an insoluble problem—Kegel’s famous suggestion that has not found much support.
Or, it is a new paradigm. As such, then, it requires a foundation.

C.

The Poverty of Theoretical Discussions

Given the radical character of party autonomy, it is surprising how little theoretical
discussion there is on its theoretical foundations. Jürgen Basedow has recently
pointed out that we rarely find more theoretical discussion than vague references tofreedom. Horatia Muir Watt even speaks of party autonomy as the “foundational
myth of private economic law.” Indeed, most presentations suggest that it does notmatter that we have no justifying theory for party autonomy, because party
autonomy has become so important that we must deal with it anyway. And it does
not matter how we justify limitations to party autonomy, because those are within
the realm of each state. But that must be wrong. If we want to understand the role ofparty autonomy, we need to develop a theory that underlies it. Moreover, if we want
to determine the scope that party autonomy should have, we cannot do so without atheory.
Today I want to suggest that we do not have such a theory. Instead, we have twoparadigms—and internationalist one, and a substantive law one—and no basis onwhich to choose between the two. My suggestion is that we should not choose
between the two, but instead develop a different paradigm that I call atransnationalist one. Today, in the brief time I have, I can offer no more thanpreliminary thoughts towards such a paradigm. And I leave for another day
development of the underlying theory of transnational law.

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II.

Two Paradigms
A.

The existing paradigm: party Autonomy as a quasi-connecting

FactorPresentations of party autonomy in recent textbooks typically proceed in two steps.
The first of these is to present party autonomy—that is, party designation of theapplicable law—as a quasi-connecting factor, and to discuss in what areas of the law
party autonomy is available. In the second step, the, so-called limits to party
autonomy are discussed. Such limits can concern the types of contracts, for example
employment contracts. They can concern the legal systems that can be chosen, forexample non-state laws. And they can concern the types of rules that remain
applicable despite a choice of law by the parties, in particular so-called mandatory
laws.
This structure is reflected in most codifications of private international law. For
example, in the regulations on “juridical acts” in the new Japanese Act, party
autonomy is presented as the starting point in Article 7; Article 8 provides for an
exception for situations in which no party determination has taken place. These
rules are then followed by the exceptions for specific contracts (consumer contracts(Art. 11 paras. 1, 4), labor contracts (Art. 12 para. 1). Further restrictions throughinternationally mandatory norms are not even mentioned, though it is understoodthat they remain applicable at least when they are Japanese.
With this structure, party autonomy is placed squarely within an internationalist
paradigm. Here, party choice functions just like any other connecting factor—it
designates an applicable law at large.
1.

Rule and Exception

We should note from the start that this presentation implies certain biases. The firstof these is that of rule over exception. In the classical presentation, party
determination of the applicable law is the rule, limitations are the exceptions. In thisscheme, once party autonomy has in principle been established, the burden of4

argument lies with those who suggest limitations. This is how the debate is usuallypresented.
But it is not at all clear why this relation between rule and exception should always
be the case. To take just one example, why should the impossibility to choose nonstate law be viewed as a limitation to party autonomy in need of justification? Theremay of course be good arguments in favor of such a choice. But it seems that theburden of argument should lie with those who favor it, not those who oppose it. If
party autonomy serves as just another connecting factor, it would be prima facie
surprising if it could designate a law as applicable that cannot be applicable on thebasis of any objective connecting factor. This suggests that the choice of non-state
law is a matter of scope, not of limitations. And this suggests, further, that therule/exception relation more generaly needs to be questioned.
2.

Selection and Deselection

A second bias implied is that of selection over deselection. We often overlook thatparty choice does two things simultaneously: it designates a law as applicable thatwould normally be inapplicable, and it designates a law as inapplicable that would
normally (that is: absent party determination) be applicable. This latter part,deselection is, for some purposes, even more important than selection. After all,what mainly distinguishes party autonomy from mere freedom of contract is theability of parties to deselect laws that are, in substantive law, mandatory and could
therefore not be derogated through freedom of contract. Nonetheless, we rarely
speak, normally, of deselection of applicable law (or Rechtsabwahl). But arguably,
what is in need of justification is not the ability to select a law, but the ability todeselect a law that would normally be applicable.

B.

Party Autonomy as Freedom of Contract and its Extension

It is worth remembering that this internationalist paradigm of party autonomy as aquasi-connecting factor is an accident of history. When party autonomy was first5

proposed in the 19th century it was viewed, in principle, as a mere extension ofcontractual freedom. (Of course, contractual freedom was by then a relatively recent
invention, too.) Parties could choose a foreign law on the basis of, and in principle
within the limits of, party autonomy as granted by the objectively applicable law.
Such party autonomy was confined by the ordre public, but what exactly this wasand how it differed from mandatory rules was not clear.
1.

Rule and Exceptions

Viewing party autonomy as an extension of freedom of contract also creates biases.
Remarkably, these are opposites of the internationalist model. The first bias
concerns, again, rule and exception. Now, however, the rule is that party autonomy
remains within the limits of freedom of contract under domestic law. That amandatory law of domestic law should be inapplicable because of the international
fact pattern is the exception. This means that now the burden of argument lies withthose who argue for the inapplicability of a mandatory rule in the international
context.
2.

Selection and Deselection

And a second bias concerns again the relation between selection and deselection. In
this paradigm, however, the whole emphasis is on deselection—the question towhat extent freedom of contract allows the parties to avoid mandatory laws. This isso because domestic law serves as the starting point. Selection, by contrast, islargely ignored in this paradigm. This is so because, when foreign law applies
merely on the basis of freedom of contracts, its selection is no different from theincorporation of any random set of rules. As concerns selection, in other words,
there is no difference between law and non-law. In other words, it is not clear inwhat way selection is something other than mere contractual freedom, or: in what
way what is selected is actually a law, and not just a number of rules.

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C.

Shortcomings

We can see, I think, that both paradigms have mutual blind spots. What is the rulefor one is the exception for the other, and vice versal. Where one of them focuses on
selection and ignores deselection, the other focuses on deselection and has no clear
understanding of selection.
But both paradigms also suffer from common shortcomings, and these are perhaps
more important. Most importantly, both paradigms rest within the methodologicalnationalism that defines, in general, the dualism of private international law andsubstantive law. Substantive law remains nationalist insofar as it treats party choiceof law as though it were just another example of domestic contract making. Privateinternational law by conrtast locates facts within one legal order, and thus
domesticates them. Together, they suggest that one legal order alone can apply.
Now, already in cases of freedom of contract, we never have only one law thatapplies. We always deal with a combination of at least two laws. These are theofficial law of the state, and the privately made law of the parties—regardless ofwhether we consider the contract as law (as does, famously, the French Code civil in
its Article 1134), or not.
What gets interesting in the private international law realm is how the relation
between law and contract plays out. In the domestic realm, the contract is clearly
subordinate to the law. That is, freedom of contract is granted by the state, and at
the same time exists only within the limits given by the state.
Arguably, for international transactions, party autonomy reverses this order. Now,
the state’s law is subordinate to the contract. This is so because state law applies
only due to a grant by the parties, and at the same time only within the limits of theparties’ choice of law clause.
Where we have actual theories of party autonomies, this reversal of hiearchies is
openly acknowledged. One example can be found in the literature on regulatorycompetition, or on “law as a product.” Here, the idea is that lawmakers compete, in a“law market”, for attention by parties. Parties, like consumers, pick the law that they7like best. There are many problems with the idea of regulatory competition, but one
is especially relevant here: Markets (insofar like contracts) require a framework
within which they can function. Typically, this framework is provided by the state.
But obviously, when states are market participants they cannot, at the same time, be
the ones to provide the framework.
Another example of such subordination has recently been proposed by Basedow. He
suggests that party autonomy follows from the principle of personal freedom, which,as a human right, is prior to the state. And he strengthens this argument with hissuggestion that even sovereignty itself is based in autonomy, namely in a social
contract. Again, there are several problems with this argument. The most important
one for this context, however, may be that it is unclear why such a choice by theparties should be binding—not just states and adjudicators, but even the parties
themselves. Basedow suggests that, whereas natural freedom cannot justify abinding force of a contract for a future, it can justify the effectively dispositive
character of the choice of law. Yet what is at stake, in party choice of law, is noteffective (physical) disposition but rather its legal recognition, and here the sameproblem emerges for dispositions as does for obligations.

III.

Structure of a new theory
A.

Towards a transnationalist paradigm

If we want to develop a theory of party autonomy, we should, I believe, first reassess
the hierarchical relation between state and parties. I want to suggest that ahierarchical relation does not grasp the complexity of this relation. Take theexample of commercial agency law in the European Union. Parties tried to avoid its
application through a choice-of-law clause choosing Californian law. The state
responded by declaring the internationally mandatory character of EU law. Parties
in turn tried to avoid this through choice-of-court agreements, but the state again
responded by refusing to enforce such agreements. When parties tried to avoid state8

courts altogether by going to arbitration (which might ignore those mandatory
rules), the state responded by denying validity to arbitration agreements, too.
We could read this story as one in which parties always manage to find new ways toescape the regulatory scope of the state. Or we can read it as a story in which thestate retains its dominance, by enforcing its mandatory rules ever more aggressively.
But neither does not seem to grasp the back and forth involved in this story. In
reality, parties can set themselves above the state through choosing the applicable
law; states, by contrast, can set themselves above the parties through determining
the scope of party autonomy. It seems more fruitful to see both, prima facie, on an
equal level—if only, at first, for hermeneutical purposes, to avoid the respective
biases discussed before.
If we take seriously this hypothesis that state and parties are coequals, what
follows? We find, then, a different kind of relation between contract and state. The
contract, on the one hand, is truly transnationalized; it exists detached from thestate. This is true for both its substantive part and its choice-of-law part. However,in order to achieve meaning and enforceability, it requires linking to one state order.
We should not understand this linking as a relation of subordination, however:neither is the state subordinate to the parties, nor vice versa are the parties
subordinate to the state. Or: each is both at the same time, dominant andsubordinate.

B.

Starting point: mandatory rules as the field of contention.

What are consequences of these findings for a theory of party autonomy? First, we
see that what makes party autonomy contentious is not the ability for parties todetermine what rules apply in their relation. This is a freedom they already haveunder freedom of contract. This implies that the scope of party autonomy can never
be narrower than that of freedom of contract under the applicable law. Whatchanges is merely the nature of this contractual freedom which has now become
transnational: it is no longer freedom of contract as granted by one state law or

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another (and thus tied to a legal order) but instead one of transnational freedom ofcontract.
Nor is an issue contentious that has occupied private international lawyers forconsiderable time, namely the issue of so-called internationally mandatory rules.
Although this is an issue for private international law theory in general, it is not a
problem for the paradigm of party autonomy. This is so because these rules apply
regardless of whether we follow an internationalist or a freedom of contract
paradigm. In fact, this is again an area well-known from state law, namely state
regulation. Again, regulation changes its nature once it becomes transnational. Here,through internationally mandatory rules, the state actively regulates and designates
the outer boundaries of freedom of contract. This regulation is transnational, too—itconsists of the sum of such mandatory rules from all interested states.
What is contentious is merely whether, and to what extent, party autonomy can go
further than freedom of contract. This is the third space of transnational contracts, aspace that does not exist in domestic law. Notably, the boundaries of this space arealways contested: parties try to extend it, states try to limit it. This is the space thatneeds to be explained by a theory. In other words, we need not explain freedom assuch; we need to explain the existence of a space between domestic andtransnational freedom.
This is a central insight. It is of course not a new insight, but it is quite important.
Many theorists suggest that party autonomy follows, somehow, from individual
freedom. They invoke liberal philosophers like Kant, Hayek, Rawls and Nozick (andignore, conveniently, others like Hegel.) But now we see clearly that it is not enoughto show that these philosophers can support freedom of contract. Nor would it
suffice, even, to demonstrate that a certain philosophy, like libertarianism, could
support unlimited freedom of contract. Instead, what we would need is a conceptionof personal freedom that supports a difference beweetn freedom of contract within
the state and freedom to choose the applicable law in transnational contracts. Noneof the philosophers usually cited has such a theory.

10Note, however, that this third space is not a constant. Without being able to prove it
I think we can see it becoming smaller and smaller. On the one hand, a general trend
towards liberalization means that contractual freedom is on the rise. On the other
hand, we see that more and more rules that used to be mandatory merely in adomestic sense are now becoming internationally mandatory. Instead of a constantspace, then, we have a dynamic contention of both boundaries of this third space.

C.

Selection and Deselection

We can look at this space more specifically. Instead of treating party autonomy as awhole, we should focus on its two aspects separately—that of selection, and that ofdeselection.
1.

Selection

Selection is the simpler part. By and large, we need no new theory to explain why
parties can choose rules that apply to them. We can derive such a theory fromgeneral theories of freedom of contract. The only thing that we need to explain iswhether parties are bound by the mandatory rules of the law they choose, orwhether they can deviate from it. In freedom of contract, such binding force is quite
limited. Of course, parties can lay down meta-rules that limit the ways in which
future contract changes can happen, but any such meta-rules can of course be
ultimately overcome by contractual agreement.
For party autonomy, the question is trickier. If party autonomy functioned like anordinary choice of law rule, it would designate a governing contract law, together
with its binding rules. In principle, that is what the doctrine requires, but of course
this result is somewhat strange: Although applicability of that law would follow
from the parties’ choice alone, that law would nonetheless limit the parties’ freedom.
Indeed, some have suggested to ignore a party choice if it leads to a law that would
invalidate the contract. Such a result seems to strengthen autonomy, but in someways it weakens it: it means that parties are unable to choose a law completely,
including its binding rules.

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2.

Deselection

I want to leave this open for now because I want to focus on the more important
aspect—deselection. The crucial question is why parties should be able to deselectlaws that would normally be applicable. Of course, putting it like this is somehow
question-begging: if the applicable law is determined by party choice, there is noother applicable law whose rules would need to be deselected in the first place.
Let me start, first, with what is relatively unproblematic. What is unproblematic are
the negative ordre public, and so-called internationally mandatory rules. Althoughboth of these issues are often discussed as limits to party autonomy, both are reallygeneral problems of private international law—both determine the applicability ofcertain rules regardless of the normally applicable law.
The most interesting area is the are of ordinary mandatory rules—the rules that arebinding in domestic contract law but can be deselected through a choice of law.
Sometimes it is argued that such deselection is unproblematic because it merely
leads to another set of applicable mandatory rules, those of the chosen law. But thisis unconvincing for two reasons. First, as we have seen, it is not always clear that therules of the chosen law are actually mandatory in fact. Second, the argument
assumes the equivalence of legal orders. Such equivalence may or may not be anaxiom of traditional private international law. But it cannot apply to party autonomy,
where parties can choose the applicable law based on the precise content of themandatory rules. This is so especially where parties can select different laws ract fordifferent parts of their contract.
How can we justify the deselection of rules that would otherwise be applicable?
Maybe the best way is to start from the situations in which such deselection is
impossible. This is so in two cases. The first is that of so-called internationallymandatory rules—rules, in other words, that are considered especially important.
This suggests that other mandatory rules are considered less important the moreinternational the contract in question is. In this sense, freedom of contract becomesbigger the more the contract is detached from a legal system.

12

The second is in special types of contract, like consumer or employment contracts.
In these areas, boundaries of substantive contractual freedom are effectively
expanded into private international law. Effectively, consumer contracts andemployment contracts are governed by (at least) two sets of legal rules: those of thechosen law, and those of the law determined by objective criteria. But the scope ofthe chosen law does not go beyond that of freedom of contract.

D.

Implications for the choice of non-state law(If time allows) Let me discuss some implications for the choice of non-state law,though I suppose these are quite obvious by now. First, the problem with suchchoice is largely not selection but deselection. Much ink has been wasted on thisobvious point. In other words, it is uncontentiosus that the UNIDROIT Principles canbe chosen. What is problematic perhaps is whether the parties can derogate fromthe Principles’ own mandatory rules (Art. 1.5). But this may be a more theoreticalproblem. What the Principles declare mandatory is, essentially, a principle of goodfaith. Such a principle permeates the whole text. Parties unwilling to submit theircontract to such a principle are unlikely to find the UNIDROIT Principles to be an
attractive law anyway, regardless of whether some of their rules are mandatory or
not.
The other question is whether, and to what extent, such choice leads to thedeselection of state laws that would otherwise apply. The Principles themselves arefamously unclear on this point. Their Art. 1.4 suggests that mandatory rules remain
applicable and leaves open, deliberately, the question whether this meansinternationally mandatory rules or any rules. The question has also not been ofmuch practical relevance.
So far, the UNIDROIT Principles are rarely chosen in practice, although such a choice
would be possible in practice. This could change with the new Hague Principles, on
which Prof. Nishitani will report, but I doubt it. The Hague Principles strike me as
unclear on this point. On the one hand they suggest that non-state law like the
UNIDROIT Principles can be chosen instead of state laws. On the other hand, the13very fact that they are referred to as “rules of law” seems to imply that what is atstake is more the selection aspect than the deselection aspect. In the end, theimportant problems are not resolved.
As a doctrinal matter, the issue is unproblematic: although states have traditionallyallowed only state law to be eligible by the parties, there is no reason why theyshould not extend electibility to non-state laws (as the Rome I Regulation in its draft
version did.) As a theoretical matter, selection of the Principles is unproblematic.
Deselection of otherwise applicable law, by contrast, seems unwarranted. If the
UNIDROIT Principles explicitly present themselves as an expression of contractual
freedom, then no reason is apparent why countervailing regulatory interests shouldbe less relevant.

E.

Towards a Theory?

As I said in the beginning, I cannot develop a full theory of party autonomy here. But
I can, in lieu of a summary, at least sketch its conditions.
-

A theory of party autonomy need not explain freedom of contract at large.
Instead, it needs to explain why there exists a difference between substantive
freedom of contract and party autonomy. In other words, a theory of party
autonomy needs to be, first and foremost, a theory of rules that aremandatory domestically but can be deselected through a choice of law clause.

-

A theory of party autonomy is not a theory merely of selection but also ofdeselection. It must therefore, in the first place, be a theory not merely of achosen law, but of the relation between the chosen law and the law thatapplies in the absence of a choice.

-In view of the practive of party autonomy, we can see two coordinates of thescope of party autonomy for international contracts. The fist concerns theirinternational character: the more international, detached from states, acontract is, the more justification there is for deselection. The second
concerns their contractual character: the more a contract results from free14and equal bargaining (as opposed to a consumer of employee contract), themore justification there is for deselection.
-

Finally, the ongoing transnational competition between parties and statesmeans that a theory cannot be static but must be dynamic. It must account, inparticular, for the shift of rules between a domestically mandatory and aninternationally mandatory character.

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