6 Insulation of Contract from Foreign Laws

Subject(s):

Contract — Insolvency clauses and damages

This chapter reviews the insulation or immunisation or protection of contracts from foreign laws, such as a moratorium, by the choice of an external governing law as opposed to the law of the debtor’s country. It surveys article VIII 2b of the IMF Agreement, which can override the external governing law in the case of exchange control regulations and identifies the countries which do or do not permit this override. It also discusses the impact on insulation of local insolvency proceedings or illegality at the place of performance. It concludes that the IMF article can in some jurisdictions allow sovereign states to change their obligations unilaterally, explains that sovereign states already enjoy privileges when they are insolvent which are not enjoyed by ordinary corporations or individuals, that the external assets of sovereign states are often de facto immune because their sovereign assets are held by separate state entities, and proposes that the article should be abolished.