Free Will and Choice of Law Provisions
by Marcela Hughes

1. Uruguayan Private International Law
Under Uruguayan law, according to Section 2403 of the Appendix of the Civil Code, parties cannot modify the rules that determine applicable law and jurisdiction in international cases.

Consequently, in principle, free will regarding the choice of applicable law to the contract and of jurisdiction is not admitted. Notwithstanding, there are some exceptions to this principle in which choice of law and jurisdiction provisions are valid.

a) Applicable Law

Regarding applicable law, Section 2399 of the Appendix of the Civil Code establishes that contracts are ruled by the law of the State where they will display its characteristic effects. This rule applies to all contracts, with the exception of the International Sale of Goods, as Uruguay is part of the United Nations Convention on Contracts for the International Sale of Goods of 1980.

This Convention authorizes the parties to a contract to exclude the application of the Convention to the contract, and therefore the parties would be able to determine applicable law.

There is another exception to the general rule that bides the free will regarding applicable law. Under Act. 16.749, that refers to stock market, the issuance entity may determine the applicable law to the issuance of securities for international public offer and choose the jurisdiction.

b) Jurisdiction

With respect to this matter, the prohibition of the free will is not absolute, as arbitration is admitted under Uruguayan Law. In this respect, our country is a party to the Inter-American Convention of International Commercial Arbitration and to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

The above referred Conventions recognize the validity of the agreements under which the parties undertake to submit to arbitration any difference that may arise or has arisen between them and establish the conditions a foreign arbitral award must accomplish in order to have extraterritorial validity and therefore be recognized and enforced in foreign countries.

The jurisdiction can also be determined by the parties in the case of issuance of securities for international public offer, as mentioned above.

2. Jurisprudence
The Jurisprudence in our country in most cases has not admitted free will and consequently has considered that choice of law provisions are not valid, as our law is clear in this respect.

3. Doctrine
Doctrine agrees that according to Uruguayan Law, it is not possible to admit the validity of applicable law clauses, although most of the authors understand that due to the development of international commerce, a change regarding this matter is necessary.

4. Arbitration and applicable law
As mentioned above, our country admits the possibility that the parties submit their conflicts to arbitration.

According to Article 3 of the Inter American Convention on International Commercial Arbitration, "in absence of an express agreement between the parties, the arbitration shall be conducted in accordance with the rule of procedure of the Inter American Commercial Arbitration Commission."

The Rules of Procedure of the Inter American Commercial Arbitration Commission expressly establish in Article 33 that the arbitral tribunal shall apply the law designated by the parties as applicable to the substance of the dispute.

Consequently, if the parties to a commercial contract include an applicable law clause, submit to arbitration any difference that may arise between them and do not establish the arbitral procedure, in accordance with the Rules of Procedure of the Inter American Commercial Arbitration Commission, the applicable law clause would be valid.

This would be a legitimate way of choosing the applicable law to the contract and of making this choice enforceable.

5. New tendency
Uruguay has subscribed the Inter - American Convention on the Law Applicable to International Contracts.

The said Convention expressly admits the right of the parties to choose the law applicable to the contract, recognizing the validity of free will. In case parties have not chosen applicable law, the Court must select the law with which the contract has closest ties and also take into account the general principles of international commercial law recognized by international organizations.

Uruguay has still not ratified this Convention and therefore the same is not in force in our country yet.

Regarding election of jurisdiction Uruguay has signed the "Protocolo sobre Jurisdicción en materia contractual" of the Mercosur, signed in Buenos Aires on August 5th 1994, which establishes that the parties have the right to choose the jurisdiction in their civil or commercial contracts. This treaty is in force between Argentina, Brazil and Paraguay but Uruguay has not ratified it yet.

6. Conclusions
Uruguayan law does not in principle admit free will and consequently choice of law provisions are not valid. This tendency has been sustained by Jurisprudence and part of the Doctrine.

Notwithstanding, our country has subscribed the Inter - American Convention on the Law Applicable to International Contracts and the "Protocolo sobre Jurisdicción en materia contractual", which expressly admit free will. Although the same have not been ratified yet, this can be seen has a possibility of change in Uruguayan's position regarding this matter in the near future.