Norway: Choice Of Law - When Norwegian Law Prevails

Limitations on the applicability of the parties' choice of law under Norwegian conflict-of-laws rules

1. INTRODUCTION

It is common practice for the parties to a contract to agree on the jurisdiction, as well as the law, applicable to that contract. What the parties do not always realize, is the extent to which the first choice (that of jurisdiction) may influence – and limit – the second (choice of applicable law).

When the parties choose Norwegian courts as legal venue, the choice is often based on the parties' connection to Norway and with a view to the practicalities in the event of a dispute. Choosing Norwegian courts as venue also means, however, that the Norwegian rules on conflict-of-laws will apply. Under these rules, Norwegian law will under certain circumstances prevail over the law otherwise applicable. This applies even when the parties have expressly chosen a specific law to govern the relationship between them. The result is that Norwegian law, as the law of the forum (lex fori), to some extent will prevail over the parties' chosen law.

2. THE PARTIES' CHOICE IS RELEVANT ONLY IN CONTRACTUAL MATTERS

The general Norwegian conflict-of-laws rule in contractual matters is that if the parties have agreed on the governing law, then the parties' chosen law shall be applicable to the contract between the parties. In this context, the scope of the applicable law will include the interpretation of the contract, the parties' performance under the contract, the measure of contractual damages, the calculation of interest and the limitation of the parties' claims under the contract.

On the other hand, it should be noted that the parties' choice of governing law will only be decisive in contractual matters. For non-contractual matters, the relevant conflict-of-law rules will determine the applicable law in other ways than through the parties' choice. Such non-contractual matters include, quite obviously, such areas as public law, non-contractual damages, insolvency, third party rights, family issues and inheritance. But such non-contractual matters also include several issues closely related to contract law, such as the capacity of legal entities and persons, company law, and rights in rem. Under the Norwegian conflict-of-law rules, the parties' choice as to the governing law is irrelevant for all these legal matters.

3. THE CHOICE-OF-LAW CLAUSE MUST BE ACCEPTABLE

It is not a condition that the parties' choice of law is made in writing. However, the parties' choice must be explicit. This means that it must be probable that the parties have agreed on the application of the law of a certain state. In most cases the parties' choice of Norway as legal venue will not be enough for the courts to accept that the parties have intended Norwegian law to apply.

The parties are not, however, free to choose whatever kind of legal system as governing the relationship between them. Norwegian courts will for instance not accept a reference to trans-national sources of law, as opposed to states' law, as a valid choice of law. The trans-national rules will hence only be applied substantially and not as a conflict rule, meaning inter alia that the transnational rules will be applied only as long as they are not in conflict with the mandatory rules of the applicable law (lex causae). Note that this is different from arbitration, where the parties often can agree that the award shall be based on such trans-national sources of law (e.g. Unidroit principles), equity etc.

4. PREVAILING RULES OF LEX FORI

As said above, Norwegian courts will normally apply the law chosen by the parties as the governing law in contractual matters. However, the courts do not disregard Norwegian law completely. As long as Norwegian conflict-of-law rules are applicable – and they will be, so long as the venue is Norwegian – some Norwegian rules will prevail over the law otherwise applicable. Hence, by choosing Norwegian courts, you not only choose the application of Norwegian rules on conflict-of-laws, but you also choose some of the substantial Norwegian law.

4.1 Procedural rules

First, a Norwegian court will apply Norwegian procedural rules when hearing a case. In this connection it should be noted that some issues that under other jurisdictions' rules on conflict-of-laws are regarded as procedural, are considered to be substantial rules under Norwegian conflict-of-laws rules. This applies inter alia to limitation of claims, calculation of interests and measure of damages, which – as mentioned above – are governed by the law applicable to the contract (the lex causae).

4.2 Overriding mandatory rules

Second, there are some substantive rules that prevail over the lex causae due to their nature. These rules are so-called overriding mandatory provisions ("Eingriffsnormen"). The (EU) Rome I Regulation defines overriding mandatory rules as rules "which the respect for is regarded as crucial by a country for safeguarding its public interests, such as political, social or economic organisation, and because of this are so important that they always are applicable to situations falling within their scope". Hence, overriding mandatory provisions are provisions of the lex fori which are applicable in addition to and prevailing over the rules under the law otherwise applicable. If the parties for example have agreed that the laws of England shall be the governing law in the relationship between them, there are certain rules under Norwegian law that cannot be disregarded, even when English law is the applicable law.

Some provisions are characterised as overriding mandatory by law. This applies to many weak party-protection provisions, such as most rules on consumer protection, some rules on protection of employees and some on protections of passengers. It also applies to certain rules on insurances. In addition, some rules may be deemed as overriding mandatory due to the interests that they protect, for example public interests covered by the Human Rights conventions. The latter was illustrated by the Norwegian Supreme Court's decision of 2 December 2009, where it was said in an obiter dictum that the provisions on freedom of speech prevailed over Afghan rules on the liability for defamation.

4.3 Ordre public (public policy)

Ordre public-norms are not really "prevailing rules", as opposed to the use of overriding mandatory rules, since the use of ordre public does not imply the use of certain rules in the law of the forum in the place of – or in addition to the legal rules otherwise applicable. Instead, use of ordre public means that something is deleted from the law otherwise applicable: If the application of foreign law gives a result which is in conflict with the ordre public of the forum, the application of these rules are set aside. If needed, the "hole" created by use of the ordre public-reservation could be filled with the appropriate rules of the forum. However, often it is not necessary to fill in anything; for example, if a contract is made under circumstances that would make it void under Norwegian law pursuant to the rules on fraud or decency, the contract may be deemed void even though it would be valid pursuant to the lex causae. In such case, it would not be necessary to fill in any rule: the contract in question is either valid or void.

Whether or not the application of foreign law gives a result in conflict with ordre public, must be assessed in each case. Normally it takes a lot to conclude that there is conflict with ordre public. Correspondingly, in the Rome I Regulation, for the ordre public exception to apply, the application of the foreign provisions must be "manifestly incompatible" with the ordre public of the forum. Within the field of contracts, examples of such "manifestly incompatible" provisions may be provisions entailing corruption, punitive damages and expropriation without compensation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.