Rapid globalisation of the economy contributed to the tremendous cross-border commercial transactions and trade. However, with this influx, many challenges related to the realm of conflict of laws originated,[1] as it's there was no uniformity in practice. Therefore, by allowing the parties to the contract to choose their governing law,[2] becomes a useful tool to tackle this difficulty. A major part of this is party autonomy which has been widely explored by academics all around the globe,[3] as we would be further exploring in this paper. Party autonomy is one of the pillars of international commercial litigation which represents a very central element of international commerce.[4]

During the course of this research, we would be responding to the comparative analysis of how countries like Europe have adapted this principle and have evolved with the changing times. Thereby, this paper would be throwing light on the principle of transatlantic convergence, and the reasons behind it. This paper also aims to respond to the views made regarding economic efficiency.

Party Autonomy - History and its Scope

This principle helps in the proliferation of transboundary contracts, and in any dispute arising out of it.[5] This doctrine is of utmost importance as it not only provides the parties with free will, however it provides them with legal backing, and with predictability.[6] Even though, during the course of this paper we would be discussing the economic efficiency in relation with party autonomy, however it's important to note that party autonomy has a sociological connotation to it as well.

For example, in England there's so much weightage given to 'freedom of contract', without any interference from the state. Moreover, this principle has significantly evolved over the years, thereby making several jurisdictions of the world to add this doctrine in their legal system through various amendments, and ratification to several international conventions. For example, through Rome 1 Regulation,[7] the United Kingdom, and many European States have embedded a subjective interpretation of party autonomy.[8]

Comparative Analysis
All around the globe, countries use this principle, however their applicability differ with respect to the extent to which this principle can be used. Some countries like India did not have a systematised set of private international laws, and therefore, were strongly dependent on the judges for its interpretation. To understand this in depth, we would be taking the example of Europe, to show how they have recognised this principle of party autonomy.

Europe: Earlier in Europe there was a divergence of sorts in relation to the principle of party autonomy.[9] Some researchers and judges saw party autonomy as a threat, and this was based on the notion that law is above the people. However, due to international trade, and opening up of borders people grew in favor of party autonomy.

The principle of party autonomy is defined under Article 3(1) of the Rome Convention.[10] In Europe, the limitations are also clearly laid down in the Rome Convention, wherein it expressly states that the law will restrict the choice of law clauses if one party is at a much weaker position, therefore at a loss. For example, relationships between consumer and buyer, insurance contracts, employment contracts etc.

In the EU, there's no principle of substantial need to justify a relationship between the contract, which is the case in The United States of America. Therefore, through this, an inference can be made that the Rome Convention has less strict conditions when it comes to this principle.[11]

I strongly believe that the reason for this is as they believe in providing their parties with flexibility while contracting. Moreover, there have been many studies to substantiate that England has been the choice of the people regarding which court to choose for disputes.[12] On the basis of my understanding, a major reason behind this is also the predictability which comes with Rome Convention, and the parties who are aware of its provisions can gain an advantage by choosing their laws to govern their contracts.

Convergence: An Economic Justification

From an economic point of view, party autonomy is considered to increase efficiency. This is based on the principle that parties which have multiple options, are at a better position to be able to make an informed decision and allocate their resources in such a way which would be profitable for them.19 Some scholars are of the opinion that people shouldn't be allowed to choose their governing law, however some are of the opinion that such clauses should be open to the contracting parties to decide on.

With every legislation, there exists certain economical costs and benefits. The main reason behind giving parties their freedom to choose their choice of law is as, people are known to be the best judge to maximize their profit. As we have discussed before in this paper, the main reason why people choose Europe as their court of dispute resolution is mainly cause of this reason as well. This principle is based on the rationale that people entering into a contract know what options regarding the choice of law will benefit them, and what won't.

Another reason to this can be that the chosen law might be custom-made for what the contract desires. However, a limitation to the economic efficiency would be the principle of a weaker party, meaning that it can only be counted under the ambit of economic efficiency if it doesn't reduce the welfare of a third party, as that would be in contravention to the public policy. Economic theory can be used to explain the judicial trends in private international law, and this is happening as there's an increase in openness to choose non-state laws on both side of the Atlantic.

End Notes:

1. Mathias Reiman, 'Savigny's Triumph? Choice of Law in Contracts Cases at the close of the Twentieth Century' (1999) 39 Va. J. Int'l L. 571, 589.
2. Adrian Briggs, 'Agreements on Jurisdiction and Choice of Law' (2008) Oxford University Press.
3. Saloni Khanderia, 'Indian Private international law vis-à-vis party autonomy in the choice of law' (2018) Oxford University Commonwealth Law Journal.
4. Jolly Stellina and Saloni Khanderia, Indian Private International Law (Oxford Hart Publishing, 2021).
5. Zhaohua Meng, 'Party Autonomy, Private Autonomy, and Freedom of Contract' (2014), 215.
6. The Law of Open Societies Private O E, 'Theory of Choice of Law and Party Autonomy' [2015] The Law of Open Societies 115.
7. Recital (11) Rome 1.
8. Regulation (EC) No 593/2008 of the European Parliament and of the Council on the law applicable to contractual obligations (Rome I) [2008] OJ L 177/6, Recital 11.
9. Giesela Ruhl, 'Party Autonomy in the Private International Law of Contracts: Transatlantic Convergence and Economic Efficiency', (2007), CLPE Research Paper No. 4/2007.
10. Jonathan Hill, 'Choice of Law in Contract under the Rome Convention: The Approach of the UK Courts' (2004) The International and Comparative Law Quarterly, 53(2) 325, 350.
11. H.L.E Verhagen, 'The Tension between Party Autonomy and European Union Law: Some Observations on Ingmar GB Ltd v Eaton Leonard Technologies Inc' (2002) The International and Comparative Law Quarterly 51(1) 135, 154.
12. Z.S Tang, 'Conflicts of Jurisdiction and Party Autonomy in Europe' (2012) 59 Netherlands International Law Review 321, 359.