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Legal Loopholes

In contracts where two or more parties are from different jurisdictions, there usually is a choice of law stipulating which country’s laws will govern the contractual relationship.

This practice is founded upon the widely recognised doctrine of party autonomy in contract law. National courts do not generally go against the wishes of the parties.

There may however be instances where a court will not uphold a choice of law clause, a classic example being where the law as it applies to issues at hand is likely to yield results which are contrary to the policies of the country wherein the court sits.

In an era where legal frameworks in many jurisdictions are being reformed to address environmental degradation and climate change, courts must scrutinise choice of law clauses and refuse to give effect to them where such clause is clearly being used to evade environmental law obligations.

A choice of law may particularly be abused by a party with resources when contracting with a party of lesser means. It is therefore important that the court exercise due caution when confronted with a choice of law clause which if given effect may undermine international environmental obligations of the country in which it sits.

Courts are (or at least should be) aware of certain loopholes that exist in the laws of all countries. Such loopholes can sometimes be used to avoid environmental obligations, or evade laws which provide for high standards of care where the environment is concerned.

If courts are willing to pierce the corporate veil, and where necessary give consideration to substance over form, they should be able to give nil recognition to choice of law clauses designed to evade environmental laws.

Legal loopholes

Image source: www.environmentalism.in

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