Which law applies to an international contract
The parties' freedom of choice
Art. 116 PILA allows parties to an international contract to freely choose the law applicable to their contractual relationship, whether or not that law has an objective connection to the contract. This choice can be express or result clearly from the terms of the contract or the circumstances.
Connection absent a choice
Absent a choice by the parties, art. 117 PILA subjects the contract to the law of the state with which it has the closest connection, presumed to be that of the habitual residence or place of business of the party who must provide the performance characteristic of the contract (for example, the seller in a sales contract, or the service provider in a service contract).
Limits on freedom of choice
This freedom of choice is not unlimited: certain mandatory provisions of Swiss law or the law of another state may apply despite the parties' choice, particularly in areas protecting a party considered weaker (consumer contracts, employment contracts), according to the specific rules the PILA provides for these categories of contract.
The forum
The law applicable to the contract is a separate question from that of the court with jurisdiction in the event of a dispute: the parties can, within certain limits, also agree on a choice-of-forum clause, designating the courts with jurisdiction in the event of a dispute, independently of the substantive law chosen to govern the content of the contract.
Frequently asked questions
Can the parties choose any law for their international contract?
In principle yes, art. 116 PILA allows broad freedom of choice, even without an objective connection between the chosen law and the contract, subject to certain mandatory provisions protecting a weaker party in certain types of contracts.
What law applies if the contract contains no choice-of-law clause?
The law of the state with which the contract has the closest connection, presumed to be that of the party providing the performance characteristic of the contract, under art. 117 PILA.
Does the choice of applicable law also determine the competent court?
No, these are two separate questions: the applicable law governs the substance of the dispute, while court jurisdiction depends on its own rules, possibly specified by a separate choice-of-forum clause in the contract.