REALWorld Law

Real estate finance


Will a clause in a security document making a foreign law apply be recognized and applied by the local courts? Does local law always apply in certain circumstances?



If it is clear that the parties to the security document have made a bona fide choice of law by which the document will be governed, then generally that law will apply and the courts will apply that law in resolving a dispute. However, local courts will not give effect to a foreign law, even where it is clear from the circumstances that the foreign law is intended to apply, where applying that law would be contrary to public policy. For example, local courts will not apply a foreign law where the choice of that law has been made to engage in a sham, evade a law or where the choice of law is unconnected to the transaction (it will be sufficient, however, that there is a reasonable basis for the choice of law).

Similarly, mandatory rules applying in the local jurisdiction may nullify a choice of law clause or may override it in specific factual conditions. For example, it is mandatory in the Australian state of Queensland for 30 days' notice to be given before a mortgagee can exercise its power of sale. If a foreign law has been chosen to apply to a mortgage of land in Queensland, the mandatory 30 day notice period will not be overridden by the choice of a foreign law.

Although parties can determine the law to be applied to a security document, it would be prudent for the law of the place in which the security is located to apply to the security document. This will avoid problems of inconsistency where mandatory local rules are enforceable.