1.          Relationship to the PICC

C1        Article 1.1.1 is modelled on the second paragraph of the Preamble to the Unidroit Principles of International Commercial Contracts (PICC). According to the second paragraph, the PICC “shall be applied when the parties have agreed that their contract be governed by them.” The same rule is set out in Article 1.1.1 in relation to contracts of reinsurance.

C2        The third to seventh paragraphs of the Preamble to the PICC, which list the other forms of applying or using the PICC, have not been adopted by the PRICL. This underscores the fact that the PRICL primarily provides the parties with an option, the exercise of which is at their discretion. This emphasis on an opting-in by the parties does not, however, prevent the parties involved from applying or considering the PRICL in their performance of a contract of reinsurance.

C3        In the third paragraph of the Preamble, for example, the PICC are declared applicable even if the parties have subjected their contract to general principles of law, the lex mercatoria or the like. The PICC can be regarded as a codification of these general principles of law, the lex mercatoria or the like. This is also likely to apply, at least to a certain degree, to the PRICL. Where this is the case, a court or arbitral tribunal may also have recourse to the PRICL if the parties have agreed to the application of general principles or the lex mercatoria. The situation is similar in respect of the fourth paragraph of the Preamble to the PICC, pursuant to which the PICC may even be applied in cases where the parties have not made such a choice, provided that they have also not chosen any other law. Insofar as the PRICL restates reinsurance customs, it can be referred to as part of the law applicable. In this context, the PRICL may also be taken into account in interpreting and supplementing domestic reinsurance contract law, in a manner similar to the PICC pursuant to the sixth paragraph of the Preamble to the PICC. The options provided in the fifth (interpretation and supplementation of uniform law) and seventh paragraphs  (model law character of the PICC) are unlikely to play a role in relation to the scope of the PRICL. There is no international uniform law governing contracts of reinsurance. Legislation at a national, international or supranational level is not expected.

2.          Scope of application

C4        In Article 1.1.1, the scope of application of the PRICL is limited to “contracts of reinsurance”. These contracts are described in Article 1.2.1.

C5        Unlike the first paragraph of the Preamble to the PICC, the scope of application of the PRICL is not limited to “international” contracts of reinsurance. Such limitation did not appear to be necessary. Contracts of reinsurance are, in fact, frequently international contracts. Even when this is not the case, however, parties enjoy a high degree of freedom of contract under national reinsurance law and, thus, may largely incorporate the PRICL into their contract in substitution for domestic legal rules. Moreover, a national contract of reinsurance will, at times, form an integral part of an international reinsurance scheme. It is in such situations in particular that the PRICL must also apply to domestic contracts of reinsurance.

3.          Application by choice of law

a.          General remarks on the effects of a choice of law

C6        Pursuant to the rules of private international law, an agreement between the parties to a contract of reinsurance declaring the PRICL as applicable thereto usually represents a choice in favour of soft law and consequently of a non-State body of law. The effects of such a choice are determined by the private international law applicable.

b.          Option 1: Choosing the PRICL is equivalent to a choice of national law

C7        Insofar as a choice in favour of the PRICL is treated as equivalent to a choice of a national law under the private international law applicable, the PRICL and with it the PICC replace the national law which would apply in the absence of a choice of law. This replacement is generally comprehensive; it also affects provisions in domestic law from which the parties are unable to derogate contractually (mandatory provisions). The only exemption is made in relation to violations of public policy and the enforcement of so-called overriding mandatory rules (dealt with separately in Article 1.1.5).

Illustrations

I1.         Reinsurer B and Reinsured A enter into a contract of reinsurance containing a choice of law clause in favour of the PRICL. The parties later dispute whether the shortening of the prescription periods by contractual agreement is effective. While the agreement fulfils the requirements set out in Article 10.3 PICC, it contradicts the mandatory prescription periods prescribed by the law in Country X, which would apply to the reinsurance in the absence of a choice of law. As a choice in favour of the PRICL has the same effect as a choice of national law, the mandatory prescription periods prescribed by the law of Country X do not apply. Prescription periods, in general, do not constitute “overriding mandatory rules” nor does the shortening of the prescription periods violate public policy.

I2.         Same facts as in the previous Illustration, but the parties later dispute whether the contract of reinsurance is void because it breaches international sanctions supported by the country in which Reinsurer B is seated. As international sanctions frequently constitute “overriding mandatory rules”, they will be imposed despite the fact that a choice in favour of the PRICL is equivalent to a choice of national law.

C8        A choice of soft law and a choice of a domestic law are predominantly treated in an equivalent manner where contracts containing an arbitration clause are concerned. In respect of choice of law, numerous national arbitration laws emulate the UNCITRAL Model Law on International Commercial Arbitration 1985/2006. Under Article 28(1), parties may choose “rules of law” as the law governing the contract. Since the term “rules of law” in Article 28(1) UNCITRAL Model Law also encompasses non-State law (Explanatory Note to the UNCITRAL Model Law, para. 39), the PRICL will qualify as a set of rules which may be chosen by the parties. Consequently, by virtue of such a choice, the PRICL together with the PICC will take precedence over the law otherwise applicable with the exception of its public policy and the enforcement of its so-called overriding mandatory rules.

c.          Option 2: Choosing the PRICL is equivalent to an incorporation of its provisions into the contract

C9        Insofar as a choice in favour of the PRICL is not treated as equivalent to a choice of a national law under the private international law applicable, the PRICL and by virtue of its application the PICC cannot completely prevail over the national law which would apply in the absence of a choice of law. A choice by the parties will therefore merely represent an incorporation of the PRICL into the contract, such that the PRICL provisions will only substitute the default rules of national law. Any provisions from which contractual derogation is not permitted under the substantive contract law applicable will take precedence over the PRICL.

C10     Such difference in treatment between a choice of soft law and a choice of a national law occurs pursuant to the rules of private international law in cases where contracts do not contain an arbitration clause and disputes are consequently heard by domestic courts. For instance, EU rules of conflict of laws, i.e. the Rome I Regulation (Regulation (EC) 593/2008), do not permit a choice in favour of a non-State body of law. With a view to such a choice, Recital 13 of the Rome I Regulation indicates: “This Regulation does not preclude parties from incorporating by reference into their contract a non-State body of law or an international convention.” Under this concept, the PRICL will be construed as contract terms. Where rules in the PRICL are inconsistent with mandatory provisions of the governing law, the latter will prevail.

Illustration

I3.         Reinsurer B and Reinsured A enter into a contract of reinsurance which incorporates the PRICL by reference. The parties later dispute whether the shortening of the prescription periods by contractual agreement is effective. While the agreement satisfies the requirements set out in Article 10.3 PICC, it contradicts the mandatory prescription periods prescribed by the law in Country X, which is the law governing the contract of reinsurance. As the PRICL operates as contract terms, they will be superseded by the mandatory prescription periods of the law of Country X.

C11     At first sight, the Hague Principles on Choice of Law in International Commercial Contracts appear to be more liberal and permit a choice in favour of non-State bodies of law. Article 3 states “the law chosen by the parties may be rules of law that are generally accepted on an international, supranational or regional level as a neutral and balanced set of rules”. The provision nevertheless ultimately gives precedence to any restrictions imposed by national rules of conflict of laws, which will lead to a limited choice of non-State bodies of law only.

C12     In respect of reinsurance and general commercial contract law, however, most national jurisdictions have very few mandatory contract law provisions. Therefore, the PRICL and the PICC largely take precedence over the law applicable, even if they have only been incorporated into the contract.

4.          Regulatory constraints

C13     Restrictions on the choice of law may also be imposed by national supervisory law. Such laws may oblige direct insurers to enter into their contract of reinsurance in accordance with national law. Sometimes, supervisory rules do not directly prohibit a choice in favour of foreign law but make such a choice unattractive by attaching economically disadvantageous legal consequences to it.

C14     An example of both types of restriction is provided by Australian law. Under paragraph 34 of the General Insurance Prudential Standard GPS 230, laid down by the Australian Prudential Regulation Authority (APRA), parties to a contract of reinsurance in the Australian non-life insurance sector must make Australian law applicable. This compulsory requirement does not directly apply to life insurance; by virtue of the solvency rules, it does however indirectly force reinsurance to be taken out with reinsurers licensed in Australia. This also leads, as a general rule, to the application of Australian law.

C15     In a similar vein, Article 38 of Resolution 168/07 of the Brazilian National Council of Private Insurance (Conselho Nacional de Seguros Privados (CNSP)) requires contracts of reinsurance covering risks situated in Brazil to include a choice of law clause in favour of Brazilian law.

C16     Clearly, the PRICL may also be declared applicable by the parties in such cases. A choice in its favour would however have to take place by virtue of its incorporation into the contract of reinsurance in accordance with the respective substantive contract law. In light of the largely unrestricted right to freedom of contract, this appears to be readily possible.

5.          The choice: Express or implied

C17     In general, the parties will make an express choice in favour of the PRICL and document the choice in the contract of reinsurance. It is, however, also possible for a choice in favour of the PRICL to be made implicitly. This will be the case when the contract does not contain an express choice of law in favour of the PRICL, but a perusal of the agreement in its entirety leaves no serious doubt that the parties wished to invoke the application of the PRICL. The will of the parties to this effect would, for example, be assumed when the contract repeatedly refers to the PRICL, so that its provisions are established on the basis of the PRICL.

6.          Model Clauses for a choice of the PRICL

C18     To facilitate a choice of the PICC, Unidroit has drafted and published Model Clauses in various versions (see the Unidroit website). Some of these Unidroit Model Clauses may be used mutatis mutandis in respect of a choice of the PRICL, which also encompasses a choice of the PICC pursuant to Article 1.1.2 PRICL. Doing so results primarily in the following two versions.

Illustrations

I4.         Conflict-of-laws choice of law in favour of the PRICL

Base clause

This contract shall be governed by the Principles of Reinsurance Contract Law (2025).

Base clause with an addition for gap-filling

(a) This contract shall be governed by the Principles of Reinsurance Contract Law (2025) and, with respect to issues covered neither by such Principles nor by the Unidroit Principles of International Commercial Contracts (2016), by generally accepted principles of international commercial law.

(b) This contract shall be governed by the Principles of Reinsurance Contract Law (2025) and, with respect to issues covered neither by such Principles nor by the Unidroit Principles of International Commercial Contracts, by the law of [State X].

I5.         Incorporation of the PRICL into the contract

Base clause

The Principles of Reinsurance Contract Law (2025) are incorporated into this contract to the extent that they are not inconsistent with the other terms of the contract.

Base clause together with a choice of law clause in favour of domestic law

This contract is governed by the law of [State X]. The Principles of Reinsurance Contract Law (2025) are incorporated into this contract to the extent that they are not inconsistent with the other terms of the contract.