THE ROME 1 REGULATION PART 1

INTRODUCTION

A) The nature of the problem

Problem of ascertaining the applicable law :- Diversity of connecting factors that can be raised by the facts of the case

o The place where the contract is madeo The domicileo Nationality or place of businesso The situation of the subject matter

- Contracts are planned transactions and the parties may consider the applicable law, through a clause

- Should there be only one law governing the contract since there is a wide variety of contractual issues (formal validity, its interpretation, whether its been discharged, etc..) and types of contract

B) Various solutions to the problem

- Prevalence of the doctrine of autonomy in Continental European countries, though divergence as to the extent of their freedom

- In the absence of choice, flexible approach, leaving the judge to select the decisive connecting factors from the various elements of the contract and circumstances of the case

English law: proper law of the contract until recently:- Choice of law: subjective- Absence of choice: law most closely connected to the case

Now this CL has been replaced by the Rome 1 Reg, itself partly replacing the Rome 1 Convention of 1980.

I) THE ROME 1 REGULATION

A) PRELIMINARY REMARKS

1) HISTORY OF R1

Replacing the Rome 1 convention by a reg was deemed necessary to promote the proper functioning of the common market by helping to facilitate the mutual recognition of judgments, this passing by a harmonization of conflict of law rules. A harmonization sought also by the transformation of other conventions into regs(B1, B2bis, R2)

- Adopted on 6th June 2008- Contracts conluded after Entry into force 17th December 2009 (BEWARE RATIONE TEMPORI)- Seing dangers by MS having to give effect to overriding mandatory provisions of foreign

courts (Application des lois de police étrangères)

2) INTERPRETATION

- referral of interpretation to the ECJ (second protocol to the convention: limitations of the national court request: - Principal of uniform interpretation (article 18 of the C ) - Aids to interpretation: the Giulano and Lagarde Report - decisions of other national courts - the same applies to R1

B) SCOPE OF APPLICATION

Article 1 is headed material scope and provides that “this regulation shall apply, in situations involving a conflict of laws, to contractual obligations in civil and commercial matters. It shall not apply , in particular, to revenue, customs or administrative matters”EUROCONTROL TEST? (RATIONE PERSONAE?)

1) EXCLUSIONS (RATIONE MATERIAE)

Article 2 excludes a wide variety of matters from the scope of the REG.- Questions involving the status or legal capacity of natural persons without prejudice to article 13

o This is important in regard to the capacity to contract: it is to be regarded as a matter relating to status domestic PIL applies

- Contractual obligations relating to:o Wills and successions

Even where contractual matters arise, the R will not applyo Rights in property arising out of matrimony (see Hague, regime mat)o Obligations arising out of family relationships and relationships deemed by the law applicable

to such relationships to have comparable effects, including maintenance obligations; (slightly different from convention but in line with R2)

- Obligations arising out of matrimonial property regimes, property regimes of relationships deemed by the law applicable to such relationships to have comparable effects to marriage, and wills and succession;

- obligations arising under bills of exchange, cheques and promissory notes and other negotiable instruments to the extent that the obligations under such other negotiable instruments arise out of their negotiable character; NB; it is for the law of the state to determine whether negociable character. It covers as well “B/L to the extent that the obligations under the B/L arise out of of its negociable character”

- Arbitration agreements and agreements on the choice of court: the the remaining clauses will be within the scope

- questions governed by the law of companies and other bodies, corporate or unincorporated, such as the creation, by registration or otherwise, legal capacity, internal organisation or winding-up of companies and other bodies, corporate or unincorporated, and the personal liability of officers and members as such for the obligations of the company or body;

- The question whether an agent is able to bind a principal, or an organ to bind a company or other body corporate or unincorporated, in relation to a third party;

- The constitution of trusts and the relationship between settlors, trustees and beneficiaries; (because the relationship is not based on contract)

- (i) obligations arising out of dealings prior to the conclusion of a contract;

- (j) insurance contracts arising out of operations carried out by organisations other than undertakings referred to in Article 2 of Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance [14] the object of which is to provide benefits for employed or self-employed persons belonging to an undertaking or group of undertakings, or to a trade or group of trades, in the event of death or survival or of discontinuance or curtailment of activity, or of sickness related to work or accidents at work.

- This Regulation shall not apply to evidence and procedure, without prejudice to Article 18

2) UNIVERSAL SCOPE OF THE REGULATION (RATIONE LOCI)

Article 2: The regulation is intended to be of universal or wolrd wide application, regardless of whether the contract has any connection with a MS

- No need for domicile or nationality- The only requirement is that the dispute is tried in a MS- The judge may apply non MS substantive law (but it must be a state law as under art 22(1)- Halpern v Halpern (2008) (jewish law is applicable)

C) THE APPLICABLE LAW

- As said previously: the main distinction is between choice of law or absence of choice- NB: the applicable law under the Reg whether chosen or not, refers to the domestic

substantive law, thus there is no place for the doctrine of RENVOIi. - Article 12: interpretation, performance, etc…

1) THE LAW CHOSEN BY THE PARTIES

a) Freedom of choice

i) The basic principle

Article 3(1): “a contract shall be governed by the law chosen by the partiesThe explanation for this can be found: party autonomy provides the certainty and predictability which are essential in commercial matters

- Clear consensus of the parties: Samcrete Egypt Engineers and Conractors SAEii) Depecage

Article 3(1): “By their choice the parties can select the law applicable to the whole or part only of the contract”.

- The parties can pick and choose the applicable law and thereby sever the contract:o Choose different laws for different parts of the contracto Limit: their choice must be logically consistent, i.e “they must relate to elements in

the contract which can be governed by different laws without giving rise to contradiction” (Giuliano Report)

If the chosen laws cannot be reconciled, the rules on absence of law must apply

The general obligation under a contract can only be governed by one law (Centrax v Citibank NA (1999). Different laws may apply to different groups of obligations

It is however for obligations closely linked to the general obligations to be under different laws (such as the law applicable to payment instruments for the general obligation of payment)

If the law is chosen for one part of the contract, the rest must be subject to the rules in absence of choice (Guiliano report p 17)

Compagnie d’Armement maritime SA v Compagnie Tunisienne de Navigation SA: contract for the transport of specified quantities of crude oil from one tunisian port to another (tonnage contract): laws of the flag of the vessel carrying the goods

- What is meant by “part “ of the contract?o One clause can sufficeo A particular issue (interpretation for eg)o But not a single issue (such as repudiation , but one law for each party’s rights)

iii) Timing of choice

Article 3(2): The parties may at any time agree to subject the contract to a law other than that which previously governed it, whether as a result of an earlier choice made under this Article or of other provisions of this Regulation.

- Policy: maximum freedom- If the parties choice is made for the first time after the contract is concluded, then

the applicable law at the time of the conclusion is that of absence of choice until they exercised their choice

iv) Variation of choice

Article 3(2): The parties may at any time agree to subject the contract to a law other than that which previously governed it, whether as a result of an earlier choice made under this Article or of other provisions of this Regulation. Any change in the law to be applied that is made after the conclusion of the contract shall not prejudice its formal validity under Article 11 or adversely affect the rights of third parties.

Two potential dangers that can arise from the parties variation of the applicable law:- Evade mandatory rules of the country whose law was orignialy applicable: howver

the limitations of first choice will apply to subsequent choice- The P might choose a law which invalidates the contract: Logically the contract

appears invalid and supposes that the new law is itself valid. This is a matter for the new that has been chosen

- Not room of implication for change of law: law of contract B changed, does not change law of contract A.: The Aeolian

v) Choice and the English Rules on Pleading and Proof of Foreign Law

If Parties fail to prove and plead foreign law: English courts will be likely to apply English law under the English procedural rule (Art 1(2)(h))The law is unsure on this topic!

b) Limitations on choice

Article 3(3) Where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement.

- Consider “provisions of the law of that other…” as equal to mandatory rules- This provision is concerned with the situation where there is an essentially domestic

contract turned into a PIL by virtue of the applicable lawo Limited only to the extent of protecting mandatory rules or rules which

cannot be derogated by contract (or def unde reg) o Stop lex shopping

- Requirements:o The law must be foreign to the parties and contract but not obviously to the

forumo “all the other elements relevant to the situation” be located in the same

country in order that its mandatory rules apply But when is an element relevant? Golden Acres Ltd v Queenland

Estates Pty Ltd: place of incorporation relevant? Caterpillar Financial Services Corp v SNC Passion (2004): article 3(3): all

elements in France but one or two connections withs Delaware and Singapore

o Look to the law of the country with which there are all the other relevant connections to see whether under that C’s law the domestic rule is one which cannot be derogated by contract.

o The mandatory rules only override the parties choice of law but do not destroy it, so the choice of law will govern other matters not covered by the mandatory law

This goes to show that the parties may still choose a law without connection to the contract!!!

- Meaningless choice of law will be ignored: Shamil Bank of Bahrain v Bemxico Pharmaceuticals (2004): contract governed by English law subject to the principals of Sharia law chosen not accepted by English forum.

- Choice of the law of a country: normally this would be the case but the regulation gave a boost to freedom of choice: parties can incorporate in the contract by reference a non state law or international convention

- A floating applicable law: The parties cannot choose: the law must exist and be identifiable at the time the contract was made

c) An express choice

- Express simply by inclusion of a choice of law clause in the contract so as to avoid uncertainty

- The express selection of the proper law must be distinguished from the quite different process of incorporation in the contract of certain domestic provisions of a foreign law, which thereupon become terms of the contract (Shamil Bank case)

- This incorporation only functions if sufficiently identified specific balck letter provisions of the foreign law or code

Article 3(4): mandatory rules of community law if all other elements relevant to the situations at the time of the choice are located in one or more MS

d) An inferred choice

Article 3(1) provides, “A contract shall be governed by the law chosen by the parties. The choice shall be made expressly or clearly demonstrated (as opposed with reasonable certainty) by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or to part only of the contract”as alternative to express choice, that there can be a choice “clearly demonstrated”

- This provision is concerned with the real intentions of the parties, the courts inferring the intentions: implied choice

i) Drawing the inference

- FROM THE TERMS OF THE CONTRACT: when the contract is a standard form (Lloyd’s marine insurance for eg):

o Lord Diplock in Amin Rasheed Shipping Corpn v Kuweit Insurance Co said that the terms of a standard Lloyd’s SG form of policy showed by necessary implication that the parties intended that the English law of MI should apply

o In Egon Oldendorff v Liberia Corpn (1996), an arbitration clause for arbitration in London implied E law applicable

o Jurisdiction clauses (recital 12)The Komminos (1991)o Lagarde report

- CIRCUMSTANCES OF THE CASE: o For eg express clause in related transactiono The Aeoliano It may be inferred intent from connecting factors such as domicile (Jacobs v

Crédit Lyonnais (1884) or nature and location of the subject of the contract (Lloyd v Guibert (1865). But not really consistent with the convention and old cases

o References to specific provisionso Previous course of dealing, choice of law in related circumstances

ii) Conflicting inferences- If there any, it cannot be shown that the choice was clearly demonstrated, and article

3(1) does not permit the court to infer a choice of law that the parties might have made if they had no clear intention of making a choice

- What about the case of objective connections the contract has with different countries and the inference drawn from the terms or the circumstances of the case?

o Under the reg, there is a clear separation between intention and objective connecting factors

o But there is a possibility that the real intention can be that of objective connections, evidence taken from the factual connections

o Egon Case per Mance J

e) Consent to choice

Article 3(5): The existence and validity of the consent of the parties as to the choice of the applicable law shall be determined in accordance with the provisions of Articles 10, 11 and 13.

2) The applicable Law in the absence of choice

Article 4: Applicable law in the absence of choice

1. To the extent that the law applicable to the contract has not been chosen in accordance with Article 3 and without prejudice to Articles 5 to 8, the law governing the contract shall be determined as follows:

(a) a contract for the sale of goods shall be governed by the law of the country where the seller has his habitual residence;

(b) a contract for the provision of services shall be governed by the law of the country where the service provider has his habitual residence;

(c) a contract relating to a right in rem in immovable property or to a tenancy of immovable property shall be governed by the law of the country where the property is situated;

(d) notwithstanding point (c), a tenancy of immovable property concluded for temporary private use for a period of no more than six consecutive months shall be governed by the law of the country where the landlord has his habitual residence, provided that the tenant is a natural person and has his habitual residence in the same country;

(e) a franchise contract shall be governed by the law of the country where the franchisee has his habitual residence;

(f) a distribution contract shall be governed by the law of the country where the distributor has his habitual residence;

(g) a contract for the sale of goods by auction shall be governed by the law of the country where the auction takes place, if such a place can be determined;

(h) a contract concluded within a multilateral system which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments, as defined by Article 4(1), point (17) of Directive 2004/39/EC, in accordance with non-discretionary rules and governed by a single law, shall be governed by that law.

2. Where the contract is not covered by paragraph 1 or where the elements of the contract would be covered by more than one of points (a) to (h) of paragraph 1, the contract shall be governed by the law of the country where the party required to effect the characteristic performance of the contract has his habitual residence.

3. Where it is clear from all the circumstances of the case that the contract is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply.

4. Where the law applicable cannot be determined pursuant to paragraphs 1 or 2, the contract shall be governed by the law of the country with which it is most closely connected.

Under most of these rules, the result is the same as that obtained applying the characteristic performance presumptions under 4(2) and 4(3) of the convention.

But under 4(1) fixed rules in reference generally to the habitual residence

Article 4(2) deals with two situations:- Where the contract is not covered by article 4(1)- Where the elements of the contract would be covered by more than one of the fixed

rules in article 4(1): two performances involving payment ogf money: bigger amount- The applicable law is that where the party required to effect the characteristic

performance has his habitual residenceo Habitual residence for purposes of 4(2) and 4(1): article 19 introduces the

definition for legal companies (place of central administration), if for branch and agency and other…the place where it is located

o There is no definition of a natural person except for the situation where that person is acting in the course of his business activity: principal place of business

o The relevant point in time for determining habitual residence: at the conclusion of the contract (art 19(3)

Article 4(3): flexible let out of the preceding provisions. Definitely Maybe (Touring) Ltd. v. Marek Lieberberg Konzertagentur G.M.B.H. [2001] 2 Lloyd's Rep. 455 (QBD) manifestlyOasis: performance of concerts was Germany. The centre of gravity was

Article 4(4): if (2) and (1) cannot apply, the country that has the closest links:

Recital 21: (21) In the absence of choice, where the applicable law cannot be determined either on the basis of the fact that the contract can be categorised as one of the specified types or as being the law of the country of habitual residence of the party required to effect the characteristic performance of the contract, the contract should be governed by the law of the country with which it is most closely connected. In order to determine that country, account should be taken, inter alia, of whether the contract in question has a very close relationship with another contract or contracts.

Recital 19: centre of gravity

-NB:

- Comparison with Convention

D) Special Contracts

Article 5: special rules for the carriage of goods and for carriage of passerngers:

Recital (22) As regards the interpretation of contracts for the carriage of goods, no change in substance is intended with respect to Article 4(4), third sentence, of the Rome Convention. Consequently, single-voyage charter parties and other contracts the main purpose of which is the carriage of goods should be treated as contracts for the carriage of goods. For the purposes of this Regulation, the term "consignor" should refer to

any person who enters into a contract of carriage with the carrier and the term "the carrier" should refer to the party to the contract who undertakes to carry the goods, whether or not he performs the carriage himself.

Law of the country of habitual residence of carrier

Passengers (art5): limiting of choice of law (what is passenger?)

E) LIMITATIONS ON THE DOMINANCE OF THE APPLICABLE LAW

1) Mandatory rules

Article 9: harmonization with rome 2 and article 3(3) of the Reg.- A definition: Arblade: “provisions the respect for which is regarded as crucial by a

country for safeguarding its public interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation”

- Exclusions of provisions which aim to protect purely private interests- Overriding nature

Mandatory rules:

Overriding mandatory perfor

Public policy of the forum: the application of the English law: fundamental ideas of justice or morality. Kaufnan v Gerson

i