JANUARY 21. 2015
Paraguay enacts Law on the Rules of Law applicable to International Contracts

On January 20, 2015, the Paraguayan Executive Branch officially published Law 5393/2015 which addresses the rule of law applicable to international contracts (the "Law"), putting an end to a long-held debate on the subject matter within academic and professional circles on whether or not parties had the power to choose the law that governs their contract.

The Law clearly affords parties to a contract the possibility to choose the law they consider most suitable to govern their international contracts, thus granting greater foreseeability and certainty to their international business.

The Law is largely based on the “Draft Hague Principles on Choice of Law in International Contracts” (the "Hague Principles"), incorporating certain amendments introduced by Congress during the discussions of the bill.

Some salient features of this Law are the following:

  • Certain agreements were carved out from its scope of application, such as, inter alia: arbitration agreements, certain types of business partnerships, commercial agency and international distribution, trusts, etc.
  • Likewise, it contains provisions on the application of mandatory rules and public policy provisions that would normally override the agreement of parties.
  • Recognizes the possibility to agree to the application of “rules of law”, i.e. non-state, soft law rules.
  • Includes a provision on the equitable harmonization of the interests at stake. Perhaps one of the most remarkable differences with the Hague Principles.

This recent regulation vests Paraguay a “pioneering role” – as the Hague Conference on Private International Law reckons – in bringing the Hague Principles into operation. It remains to be seen how its provisions will be interpreted and applied by local courts and arbitrators.


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