Choice of Law in Contract Under Rome Convention

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Background

There are real advantages to legal practitioners if the conflicts of laws and rules are harmonized across the EU. In particular, harmonization of the rules means that members of the EU Bar can advise clients involved in cross-border litigation with more confidence on which Courts within the EU are likely to accept jurisdiction; and what system of law those Courts will apply to resolve their clients’ disputes. This is particularly important in the field of contractual disputes – where cross-border trade may be effected unless that parties can be reasonably confident as to which legal systems govern their contractual relationship; and which Courts will have jurisdiction to resolve a cross-border dispute.

It is therefore important to put in place measures which will help promote that legal certainty: and indeed see the harmonization of contractual choice of law issues as likely to result in more substantial and practical benefits to business users than attempts to harmonize the domestic contractual laws by the introduction of a novel and inherently uncertain European-wide system of contract law (North, 1993). Harmonization of the contractual choice of law issues is best achieved by the adoption of a Community instrument, with the ECJ therefore having jurisdiction to interpret the instrument and ensure uniformity of application across the EU.

Statement of problem

This research paper will explore the issues related to Choice of law in contract under the Rome Convention and particularly article 4 as its main area of concern. The paper aims to achieve this by examining international private law with reference to the Rome Convention, article 4. It will further tackle the issue of harmonization whereby it will evaluate this with respect to the Hague conference on private international law and the United Nations Convention for international sale of goods as well as the UNIDROIT.

This was done through a review of all related material concerning the Rome Convention, article 4. Thorough review of books, journals, articles and related to this issue shall be consulted.

International Private Law

The main concern of this chapter exploring what is the main of the conflict laws, their utilization and how such laws are enforced. This section further discusses the purpose of international private laws, the factors that influence international private laws. Additionally, it covers the means of settling conflicts arising in the in the international business as well as the challenges which arises when addressing such conflicts.

Each nation or territory possesses its own set of laws. This therefore defines and distinguishes certain jurisdictions, especially in terms of how laws apply to certain situations and persons. These laws therefore become the basis of court cases especially when it comes to making decisions in terms of its outcomes. The applicability of certain laws therefore becomes the basis of a legal system and how this can be utilised in the greater complexity of certain involvements and participations.

Although there is indeed the application of certain laws according to jurisdiction and as to who and what the law applies to, it is important to address how certain situations can also include foreign elements. Interestingly, such cases can be deemed common especially when it comes to certain relations involving persons of different nationalities and transactions between and among foreign entities. In this case, the means to unify these potential contradictions is by means of the conflict of laws system or international private law in which the jurisdiction applied becomes the lex causea.

In this case, there is the recognition of the presence of foreign laws that may also create an impact in other national or territorial jurisdictions. What can be confusing, in this case, is the matter of the choice of law (Collier, 2001). Hence, jurisdictional questions may arise. The utilisation of the conflict of laws or international private laws becomes a source or reference point of legal concerns, especially in terms of the working jurisdiction in a specific case. Collier (2001, 4) discusses conflict of laws as follows:

The conflict of laws is concerned with all of the civil and commercial law. (It is not concerned with criminal, constitutional or administrative cases.) It covers the law of obligations, contract and tort, and the law of property both immovable and movable, whether a question of title arises inter vivos or by way of succession. It is concerned also with family law, including marriage and divorce, and guardianship and the relations of parent and child. Recognition or enforcement of a judgment in some civil or commercial matter may be called for whether it was for breach of contract or a tort (delict) or dealt with the ownership of property or concerned status, such as a decree of divorce or nullity of marriage or a custody or adoption order.

The main purpose of the private international law is to resolve any potential conflicts when it comes to any contradictions as to how laws may work in a certain jurisdiction. Basically, it can be said that legal systems are have some universal characteristics, especially in terms of, much of the Western world and its former colonies, whether the system is civil or common law; however, some jurisdictions function by religious laws such as the case in Islamic nations. Potential conflicts, in this regard, can be basically seen in the details of the system, especially in terms of how past cases have influenced certain convictions in a specific legal jurisdiction.

There are therefore a number of factors that can be influenced by conflict of laws although basically they are mainly obligatory in nature. In this regard, such cases demonstrate how certain contracts of varying nature may be deemed effective provided that each component or participating party are protected by their respective laws. In addition to this, it is also important to take note of the applicable law as to where and which the contract is bound. Hence, for example, a potential conflict can be found if participating parties come from different national jurisdictions although the contract is enforced in another jurisdiction.

There are a number of means to settle any conflicts which can be initiated between and among participating parties. It can be observed that these processes are common, from litigation to settlement between the parties involve¹. In any case, there is the intention to implement a process of settlement without having to have the court involved as much as possible given the costs that come with resolving cases in courts come with costs.

Fletcher (1999) mentions that the necessity to come up with an effective system can be pointed out, from a theoretical perspective, the presence of cross-border insolvency. According to the author, insolvency has been a reality and a part of organised human society. Through the evolution and development of nations with the working factors of property, obligation, credit, and commercial exchange, the tendency is that these elements put humans in place when it comes to manipulating their affairs. Hence, the self-interest can be found in their stand in terms of enhancing their sum total of their material well-being.

Hence, with the potential and possibility of an unenviable state of negative net worth, insolvency may arise or as what Fletcher points out to be commonly called as “balance sheet insolvency” (1999). Since a number of factors in the modern world have been based on the valuations of total assets and liabilities, the need to resolve negativity thereby becomes a common issue in disputes.

Such transactions can be therefore found in the increasing activities in trade and other forms of relations across foreign entities. Contractual obligations that are transnational in nature have also reflected the increasing network of international relations at various levels and characteristics. The liberalisation of these relations also reflects how globalisation has been a significant source of influence. In a number of instances, the need to address these concerns has been identified. For example, one of the important issues that still need to be addressed in a definitive manner is the policing and the laws with regards to the Internet. Although the jurisdiction in this venue can be regarded to be difficult considering the web of relations and transactions found in this platform, this example demonstrates how cases with international aspects have become a reality today.

The challenge in addressing cases with international aspects can be found in identifying an agreed system in which the involved parties can be subject to. As North explains the fundamental questions in examining legal issues that may involve different jurisdictions (1993, 171):

First, if the issue were to involve litigation in this country, would our courts have jurisdiction to entertain the proceedings? Second, if the issue has already resulted in litigation in another jurisdiction will the decision of the foreign court be recognized and enforced in this country? Both these questions have an interesting, and narrowing, characteristic. They are concerned with matters which have reached the point of breakdown, i.e. of litigation and judicial decision-making. The third issue is really very different. It is concerned with the law to be applied to a civil legal issue whose circumstances involve factors connected with more than one jurisdiction.

North further brings up that in these circumstances, it can be raised the issue of the choice of law although there is still the concern in terms of the legality and effectiveness of future conduct. For example, the author raised a concern on whether, given that parties may have the option to choose the best dispute resolution process for their situation, if there is a freedom for the parties to choose the law to govern their transnational affairs.

In this regard, the acting principle behind the choice of law can be found in the following thesis²: the principle of party autonomy can be justified entirely by reference to the freedom of disposition the parties enjoy in the corresponding substantive (forum) law. This implies freedom of choice in all areas in which, in principle, the parties are deemed to be equal partners in a legal relationship or where they are allowed, by and large, to be their own master. Generally, these are the areas of substantive law where mandatory rules are scarce as in contracts, torts, matrimonial property or succession.

Based on this statement, another important issue that can be raised is whether a certain system has room for such flexibility especially in terms of autonomy when it comes to the choice of law. An agreement among the parties in terms of the governing law can be regarded to be the simplest way, in addition to having the parties select one or more countries before whose courts any litigation is to take place.

However, North (1993) raises the issue that would be wring to exclude from consideration the element of choice which may be involved indirectly. For example, it is possible that some laws are not applicable in a certain jurisdiction and whether the rules of private international law, with respect to a particular judicial system, have laid down for determining the applicable law. Another instance is the issues as to the freedom to is seen choose the jurisdiction in which to proceed carries with it a determination of the law to be applied. Furthermore, there is also the case in which the choice is exercised through the rules relating to the pleading of foreign law.

In this case, the choice of law can be applied through an indirect or implied choice although this depends on the nature of the case³. In this situation, the parties involved are subject to a common system in which an agreement is usually unilateral. In direct choice, however, it can be observed to include more complex yet direct forms of agreement such as cases involving contracts. This is because the involved parties can initially choose the legal system that would govern its obligations, in addition to the rights of those who are involved. For example, this is clarified in the Rome Convention as stated as follows⁴ A contract shall be governed by the law chosen by the parties. The choice must be express or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case.

However, North (1993) points out that in certain legal systems, there are still the limits in the freedom of choice such as the case of the common law. In the scope of contracts, a potential problem can be found as to how law and contract can be dissociated thereby giving the parties the freedom to make the choice of law. In this regard, in regions where there are a number of transnational transactions involved, it is important to identify a harmonisation process that will reconcile potential conflicts.

Harmonisation

This chapter gives a detailed account of the need to harmonise the international private international laws and the challenges that are faced during the harmonisation process. It also examines the key factors that are necessary in the harmonization process. Additionally it provide a detail discussion of the role of conventions such as the Hague conference on private international law, The United Nations Convention on Contracts for International sale of goods and the UNIDROIT

The harmonisation of these different laws has been therefore addressed through private international law or systems of conflict of laws. The need to harmonise these laws, as previously mentioned, can be cited in the fact that increasing globalisation has led to more international transactions in which the participating parties are also protected by their respective national laws. With the reality of globalization however, it seems that cases that have foreign elements to them would be unavoidable.

To apply one national legal system against another however may not be a completely satisfactory approach. It might be in the parties’ better interest to apply a law that has been conceived precisely with these international realities in mind. There have been various efforts made to come up with a uniform system that can be used to address such cases. Giannuzi (1997) describes an effective set of these frameworks, through Conventions, as follows (991):

In order to succeed, international commercial law must provide a level of predictability and certainty to contractual legal issues, allowing parties to structure their business transactions. Parties may successfully navigate international commercial waters when they are certain that their agreements will be legally binding and they understand how those agreements will be interpreted, if ever challenged. To apply laws in the international business community successfully, laws and rules must be consistently reliable.

However, although there are the initiatives to ensure that these legal frameworks address the current issues faced by the concerned parties, challenge arise when some disputes are hard to resolve. In addition to this, although these Convention provide a set of laws that intend to harmonise the different laws involved in a particular case (as based on the respective laws that protect the rights of the parties involved), the charter of these conventions are still subject to interpretation, in addition to the discretion of the involved parties as to which system their relationship are governed by. In the case of incidences that are not contractual in nature, some conventions were formulated that aim to address which different legal cases that demonstrate an increase dependence on international law for the purpose of finding a means to resolve.

It should be noted that similar to any law, these charters and documents are subject to interpretation. This is to say that these Conventions do not hold the absolute solution to any possibility of conflict or dispute. These documents contain divisions that aim to address relevant issues which are then eventually interpreted depending on the specificities of the case. For example, Gianuzzi (1997) brings up that in CISG (Convention on Contracts for the International Sale of Goods), arguments as the differences between “services” and “goods” have been subject to debate.

There is also the fact that some industries are governed by certain regulations, in addition to the presence of other contract-related directives which can also contribute to the legal conditions of a specific case. Means to clarify the jurisdictions of these laws are initially established as based on the agreement among contracting parties although it is still possible that these contract laws may have to overlap or even contradict with the interests of the parties involved.

In this case, it is important to establish a sense of harmonisation in which not only the convention gets to protect the respective rights of the parties involved, the convention also needs to establish a venue in the contract is going to be protected as well. Hence, a sense of flexibility and defined jurisdictions can be observed as important requirements in order to effectively enforce a legal framework where differences in the legal tradition are acknowledged and addressed. In this regard, the harmonisation process is based on certain principles that can be deemed to work for all parties involved despite the presence and the degree of differences.

In the harmonisation of these laws, an important note that Lowenfeld (1996) points out is the principle of reasonableness that prevails in private international law. This therefore presents the principles from the perspective in the expression of values as practiced in the context of sovereignty; as Lowenfeld further explain (1996, 230):The principle of reasonableness does not deny that different values are reflected in these decisions, and interests of varying strengths. What it calls for is balancing by states, that is by courts and governments, of the respective values and interests of their own and other states particular interests, not abstract ‘sovereign interests’.

A set of agreements can be therefore seen in the attempt to harmonise possible conflicting laws, especially when it comes to creating a venue for negotiations until the participating parties are able to identify what can be deemed reasonable with respect to meeting each other’s interests.

An example pointed out Collier (2001) as the author asked the question the need for private international law which is becomes a basis of harmonisation; he then explained this in the context of the utilisation of foreign laws through private international law in English courts (377):

First, a great injustice might be done to a foreigner, who is abroad and who has not agreed to submit to the English court a dispute arising from a transaction which is unconnected with England, by summoning him before that court and so placing him in the dilemma that either he has to incur the inconvenience and expense of coming here to defend his interests or he has to run the risk of a judgment being given against him in his absence and so putting in peril assets he may posses here. The second is that the assumption of jurisdiction and determination of rights might well be a waste of effort, in particular if it results in making orders affecting property abroad which the court has no means of enforcing.

The harmonisation of these enforced laws can be found in a series of conventions that address these differences, thereby creating a common legal framework when it comes to the practice of law concerning different legal matters. This can be cited in different conventions and treatises in addition to the Rome Convention such as the Hague Conference on Private International Law, the Vienna Convention on the International Sale of Goods, and the UNIDROIT Principles of International Commercial Contracts. It should be noted that not all these conventions are mandatory; this is to say that some contracts are subject to a certain convention according to the agreement between parties; the same way international private law is not necessarily applicable to all unless certain conditions subject cases to a specific international private law.

The Hague Conference on Private International Law

The Hague Conference of Private International Law or HCCH is a global inter-governmental organisation composed of 60 Member States with its work encompassing more than 120 countries all over the world. The role of this convention is to serve as a venue for ‘different legal traditions, it develops and services multilateral legal instruments, which respond to global needs’. The mission of the HCCH is stated as follows (Overview, n.d.):

The statutory mission of the Conference is to work for the “progressive unification” of these rules. This involves finding internationally-agreed approaches to issues such as jurisdiction of the courts, applicable law, and the recognition and enforcement of judgments in a wide range of areas, from commercial law and banking law to international civil procedure and from child protection to matters of marriage and personal status.

Based on this, the extent or coverage of the HCCH is extensive. As a bridge of different legal systems, the HCCH has provided and reinforced legal certainty and security which nations and involved parties can rely on when it comes to its legal issues.

The HCCH is determined by a series of Hague Conventions which have been taking place since 1893. These Conventions address relevant issues that would become a subject in international private law. Hence, according to the HCCH, the following areas have been mostly ratified by the conferences (Overview, n.d.):

• The abolition of legalisation
• Service of process
• Taking of evidence abroad
• Access to justice
• International child abduction
• Intercountry adoption
• Conflicts of laws relating to the form of testamentary dispositions
• Maintenance obligations
• Recognition of divorces

Given that the HCCH is subject to a number of relevant conferences and conventions, especially when it comes to the harmonisation of the different results of these conferences. In addition to this, the HCCH has also managed to address changes as brought by time, especially in terms of the development and evolution of the society. In this case, the HCCH has also identified important issues that would be critical for the information society today; the organisation has identified these issues as follows (Overview, n.d.):

• Electronic commerce
• conflict of jurisdictions
• applicable law and international judicial and administrative co-operation in respect of civil liability for environmental damage
• jurisdiction and recognition and enforcement of decisions in matters of succession upon death and questions of private international law relating to unmarried couples
• the law applicable to unfair competition as well as assessment and analysis of transnational legal issues relating to indirectly held securities and security interests

Based on these different areas of issues, it is evident that the need to harmonise can be found in the increasing relations across borders. This can be also seen in the varying issues that the HCCF covers which are interestingly focused on relations that can be argued to be contractual in nature, in addition to events that may concern cross-border negotiations.

United Nations Convention on Contracts for the International Sale of Goods, 1980 (CISG)

The CISG can be considered as one of the most well-known international private law as recognised by nations and organisations. As Gianuzzi explains (1997, 991):

One reason many consider the CISG a hallmark in international law is its wide acceptance and ratification by countries around the world. The CISG applies to “contracts of sale of goods between parties whose places of business are in different States” and governs issues involving the formation of a contract for the sale of goods and the rights and obligations arising there from. Its provisions address a multitude of issues often raised in international commercial contracts–everything from how an offer or acceptance may be made to how to resolve problems of non-conformity of goods, remedies, and damages for breaches of contracts. It is a self-executing treaty and is therefore part of the domestic law of each Contracting State. Yet, parties may choose to avoid application of the Convention or to vary from any of its provisions in their private contracts.

The CISG evidently represents the business and commercial interests of organisations located in different national jurisdictions. This can be considered critical given the amount of world trade that has been taking place today. The convenience in having CISG as the charter that will govern the contract among these contracting parties is due to its uniformity and global recognition. A number of potential obstacles are also tackled by the CISG charter; this is made possible through the CISG channel in which same rules for sales contracts are created which may also give way to the removal of the barriers in trade legislations (Andersen).

The UNIDROIT

The UNIDROIT is another internationally recognised source when it comes to the principles of international contracts. This body basically offers a set of principles that aim to serve as guidance to the governance of contracts intended at the international legal and business communities. This is done through a “balanced set of rules designed for use throughout the world irrespective of the legal traditions and the economic and political conditions of the countries” (Principles of International Commercial Contracts, 1994 – UNIDROIT, 1993).

The Rome Convention

This chapter give full account of the Rome Convention and the reason for its birth. The chapter covers in details the Scope of the Convention, express selection, implied selection, consumer contracts, and contracts of employment, material validity, formal validity, transfer obligation, ordre public, composite or federal states and the final notes of the Rome convection.

On the 19th of June 1980 in Rome, the European Union, together with some other nations, ratified a unification system for the application of contractual obligations that will be followed for the European Economic Community and its members. The Rome Convention as it became to be known is the Applicable law to Contractual Obligations and was convened to create at least a harmonized, if not a unified, body of law within the scope of the European Union (“Rome convention (contract),” 2007). The text of the convention has a total of 33 articles, excluding the preamble. Although the system was implemented in 1980, it was not until 1 April 1991 that the convention came into force.

Similar to other Conventions, the Rome Convention was also established in order to address specific issues that involve the legal relations among organisations and other parties that are protected by different national laws. The Rome Convention can be considered as a further step in the unification process of the European community.

Article 1

The Scope of the Convention is further defined by the following:

• The Convention applies to contractual obligations that are subject to the involvement of different countries.
• Contractual obligations apply to all contracts except for
  • wills and succession; property rights within the context of matrimony; rights and duties based on family relationship, parentage, marriage or affinity, which can also include obligations towards illegitimate children;
  • Cases that question the status or legal capacity of people
  • Contracts that include obligations towards under bills of exchange, cheques and promissory notes and other negotiable instruments
  • Arbitration agreements and agreements on the choice of court
  • Issues on the law of companies including the creation, incorporation, and personal liability of officers
  • The constitution of trusts and the relationship between settlers, trustees and beneficiaries
  • Evidence and procedure, without prejudice to Article 14
• The Convention does not apply to contracts of insurance and contracts of re-insurance

Article 10

Article 1o of this convection delineates the scope of the convention, which includes all choice of law issues that involve contractual obligations. Under Article 10, it is stated that once this is selected, the lex causae will then govern the following:

1. The interpretation of the case and the law;
2. performance, but in regard to the manner of performance and the steps that must be made in case of ineffective performance, the lex loci solutions (the law of the place in which performance takes place) must be taken into consideration;
3. Within the limits of the powers given to the forum court by its procedural law, the consequences of breach, including the assessment of damages in so far as it is governed by the law;
4. The various ways of extinguishing obligations, and the limitation of actions; and
5. The consequences of the nullity of the contract.

Some issues with a separate characterization were excluded from the scope of the convention. These include, among others:

1. The status or capacity of natural person. Article 11 covers the situation where two people who are physically present in one state make a contract, and both parties are capable under the lex loci contractus. One person cannot suddenly claim incapacity under another law unless the other party was made aware of this incapacity at the time the contract was made or was unaware of this incapacity because of negligence;
2. Contractual obligations relating to succession and all rights claimed in property in a marriage or family relationship, especially where the question of entitlement of an illegitimate child is made;
3. Obligations occurring under negotiable instruments including bills of exchange, cheques and promissory notes and connected to their being negotiable;
4. Arbitration agreements and agreements on the choice of court;
5. Questions that are under the law of the companies and other bodies;
6. The question whether an agent is bale to bind a principal to a third party;
7. The constitution of trusts and the relationship between settlers, trustees and beneficiaries;
8. The evidence and procedures save that, under Article 14, the Applicable Law applies to the extent that it contains, in the law of the contract, rules that raise presumptions of law or determine the burden of proof.
9. The question of whether a contract of insurance covers a risk situated in the territories of one of the Member States is determined under the municipal law of the relevant states. This does not cover contracts of reinsurance however.

Article 15

Reinforcement of the Convention is an important indicator when it comes to the applicability of the relevant laws. In the Société Bachmann c/ Kettner OHG case, contract formation and the reinforcement of the convention came into question especially as to whether the laws of the convention can be applied to the case. The case was about the claims to the payment of work fulfilled which was disputed between a German and a French company. Basically, although this cane be regarded as a situation that can be handled by the Convention, the date of the formation of the contract (September and October 1988) does not make this case included in the Convention which would be only reinforced 1 April 1991.

Recognition of the existence of the Rome Convention is significant. In the Soc. Cameroun shipping line c/ Soc. Bomaco case, the French lower court was seen to have violated articles 3§1 and 10 of the Rome convention since the court only applied French law exclusively in a case where the involved parties and the contract was also covered by the English law. This case also applies in the Uniform Rules of the convention.

Article 3

Article 3 is the first uniform rule under the Rome Convention. Article 3 expresses the general rule that the parties to a contract have the freedom of choice over the Applicable Law. This can be expressed either in words or by the terms of the contract or the circumstances of the case. The choice may apply to the whole or just a part of the contract and the choice can be revoked. The article is then stated as follows:

1. A contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated 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 a part only of the contract.
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 under this Article or of other provisions of this Convention. Any variation by the parties of the law to be applied made after the conclusion of the contract shall not prejudice its formal validity under Article 9 or adversely affect the rights of third parties.
3. The fact that the parties have chosen a foreign law, whether or not accompanied by the choice of a foreign tribunal, shall not, where all the other elements relevant to the situation at the time of the choice are connected with one country only, prejudice the application of rules of the law of that country which cannot be derogated from by contract, hereinafter called “mandatory rules”.
4. 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 8, 9 and 11”

There are a number of cases in which the freedom of choice is applied by contracting parties. As previously mentioned, since these parties are not entirely subject to a particular law as based on their agreements and contracts, they can exercise in identifying which applicable laws would best serve the interests of the contracting parties considering that the applied law applies to either or both parties.

The important aspect in this provision is that the contracting parties can initially clarify the scope and the limitations of the contract within the context of a particular law. The presence of different contracting parties represented by different laws can somehow challenge the stability of the contract especially if the laws of contract of a particular jurisdiction are not as favourable towards the nature of the business and transaction of the contracting parties. In this regard, through express selection, there is an initial agreement as to how the contract generally works within the legal context. The advantage in this is that both parties have established a sense of harmonisation, especially when it comes to referring to a certain set of laws throughout the course of the contract.

An example of this is the case between a German company and a Dutch construction company got into a dispute on the remaining remuneration of a project⁵. In order to resolve the dispute, a solution is to identify which applicable law would serve best the interests of the contracting parties. In the end, both companies agreed to apply the German DIN rules (general standards for construction works) and the German Civil Code. According to the Rome Convention, such exercise is allowed since that both parties agreed as to which jurisdiction would govern the contract and which system would resolve the conflict.

Another example is the case between N-GmbH (limited company) and a Norwegian company on a construction dispute. The root of the problem was defective workmanship as brought by the Norwegian construction company with the buildings built on German soil. The disputes can be seen in the two contracts: contract for the construction and the architecture contract. The choice of law would be eventually expressed by the German court which would deny the international jurisdiction for German courts although the appellate court affirmed the international jurisdiction concerning the construction contract except for the architecture contract.

Based on this, the choice of law is up to the contracting parties. Although there can be some form of influence, the Convention basically demonstrates that contract cases are not automatically subject to a specific set of laws, and that the involved parties have the freedom to choose the jurisdiction that would be most applicable to the case.

Article 4

In implied selection, there is the absence of express choice and the applicable contract is then subject to the laws that are closely associated to the case. Article 4 explains this as follows:

1. To the extent that the law applicable to the contract has not been chosen in accordance with article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a severable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country.
2. Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration. However, if the contract is entered into in the course of that party’s trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated
3. Notwithstanding the provisions of paragraph 2 of this Article, to the extent that the subject matter of the contract is a right in immovable property or a right to use immovable property it shall be presumed that the contract is most closely connected with the country where the immovable property is situated.
4. A contract for the carriage of goods shall not be subject to the presumption in paragraph 2. In such a contract if the country in which, at the time the contract is concluded, the carrier has his principal place of business is also the country in which the place of loading or the place of discharge or the principal place of business of the consignor is situated, it shall be presumed that the contract is most closely connected with that country. In applying this paragraph single voyage charter-parties and other contracts the main purpose of which is the carriage of goods shall be treated as contracts for the carriage of goods.
5. Paragraph 2 shall not apply if the characteristic performance cannot be determined, and the presumptions in paragraphs 2, 3 and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country.”

Since it is possible that contracts are not initially determined by a jurisdiction, the Rome Convention therefore provides provisions on instances in which cases have to identify the governing law for a particular contract. In this case, the Rome Convention also works with the different applicable laws in assessing whether the case should be referred to with respect to a particular law. This also applies if the case uses or refers to other Conventions such as the Brussels Convention.

An example of this case is the Otto Kogler v. Eurogames S.r.l. In this case, the defendant cited that since his case was based on the conditions of the Italian jurisdiction, he pointed out that the contract also had a clause referenced to Austrian law. The decision was based on the nature of the case (paying a certain amount of money to the Italian creditor) but in the end, the case cited the Austrian clause closer to the indictment, hence, the court recognised the clause related to the Austrian reference than the Italian reference.

In Société Fort James France c/ Soc. Fabio Perini et soc. Perini International, the transaction between French and Italian companies would lead to allegations of breach of contract; the case involved the selling of machines to subsidiaries in France. The lack of initial choice of law would lead the case to be tried in French courts as handled under the Brussels Convention, although upon close inspection of the contract, the court had to apply the Romen Convention. The contract then showed that in terms of performance of the contract, the case should be examined with respect to the Italian law. This also works with the rules of the Brussels Convention: ‘the law of the country of the central administration of the party owing this performance governs the issue of the localization of the place of performance of the obligation at dispute under article 5§’.

Article 5: Consumer Contracts

Article 5 of the Rome Convention addresses consumer contracts; it applies to contracts for the supply of goods or services to a consumer for a non-consumer purpose, or to a contract for the provision of credit for that object. This article also takes into consideration the provisions of Articles 3 and 4 in terms of the choice or absence of law. Hence, 2. Notwithstanding the provisions of Article 3, a choice of law made by the parties shall not have the result of depriving the consumer of the protection afforded to him by the mandatory rules of the law of the country in which he has his habitual residence:

• if in that country the conclusion of the contract was preceded by a specific invitation addressed to him or by advertising, and he had taken in that country all the steps necessary on his part for the conclusion of the contract, or
• if the other party or his agent received the consumer’s order in that country, or
• if the contract is for the sale of goods and the consumer travelled from that country to another country and there gave his order, provided that the consumer’s journey was arranged by the seller for the purpose of inducing the consumer to buy.

Notwithstanding the provisions of Article 4, a contract to which this Article applies shall, in the absence of choice in accordance with Article 3, be governed by the law of the country in which the consumer has his habitual residence if it is entered into in the circumstances described in paragraph 2 of this Article.

The Rome Convention also addresses the protection and rights of the consumers. Given that cross-border transactions have increased within the region, the growing need for consumer protection became more evident. Hence, in addition to the regular contractual relations among and between organisations, consumers are also given the opportunity to utilise any applicable laws concerning relevant activities in the supply of goods and services.

It should be noted that these transactions are also addressed with respect to the previous articles on the freedom and the absence of choice. This basically establishes that the Convention also recognise that consumers can face situations in which potential contractual disputes also need to consider the appropriate jurisdiction where the case is to be tried or evaluated.

One example is the Mme Moquin c. Deutsche Bank AG et autre. A French couple who lived in France made transactions with “Deutsche Bank” (plaintiff) and the couple was not able to pay back the loan. The plaintiff then sued the couple in French courts. However, the court needed to determine the appropriate court that would try the case given that the couple would be also subject to the French law on consumer protection. Eventually, the French court determined the applicable law and court.

Another interesting case is the époux ROUSSEAU c/ Commerzbank. This time, a French couple filed a loan from a German bank, with the contract initially establishing that it would refer to German laws. However, the court decided that this situation should not utilise German laws given that the transaction took place within French jurisdiction, in addition to the fact that the consumers are subject to the French consumer law. Although it can be argued that Article 3 allows the freedom of choice in terms of the applicable law according to the Rome Convention, Article 4 actually applied with respect to the principle behind Article 5 in which the consumers are given the right to preserve consumer protection and rights which are usually found in the consumer’s home country. In addition to this, the court also identified the following reasons for overturning the initially exercised right of freedom of choice⁶:

1. Under article 5 of the Rome convention, French law was applicable since the offer of loan was made in France and the steps leading to the conclusion of the contract were accomplished in France, this country being the place of the consumer’s habitual residence.
2. The choice of Germany as the effective place of signature for the loan offer was fraudulent since it intended to avoid the application of a few provisions of French consumer law.
3. Under article 7 of the Rome convention, a compulsory provision of French consumer law was also applicable as a forum’s imperative rule, since the real estate, the purchase of which was the purpose of the loan, was located in France.
4. In incorporating one of the articles of French consumer law in the provisions of the loan, the parties agreed to submit their contract to this provision.
5. Under article 9 of the Rome convention, French law should apply to the form of the contact as the law of the country wherein was located the consumer’s habitual residence.

Based on this, consumer contracts have a greater emphasis on exercising the protection of the consumers provided that the contract formulated acknowledge the applicable rules and laws on consumer protection and rights. Hence, since there is the freedom to select the law that would be applicable to the contract, the based on the convention and the previously cited case, selected laws should not overlook pre-existing consumer laws.

Article 6: Contract of Employment

Under Article 6, the rights of the employees are emphasised. Again, there is the consideration with respect to Articles 3 and 4 in the case the selection of laws becomes an issue. Article 6 is then stated as follows:

• Notwithstanding the provisions of Article 3, in a contract of employment a choice of law made by the parties shall not have the result of depriving the employee of the protection afforded to him by the mandatory rules of the law which would be applicable under paragraph 2 in the absence of choice.
• Notwithstanding the provisions of Article 4, a contract of employment shall, in the absence of choice in accordance with Article 3, be governed:
  • By the law of the country in which the employee habitually carries out his work in performance of the contract, even if he is temporarily employed in another country; or
  • if the employee does not habitually carry out his work in any one country, by the law of the country in which the place of business through which he was engaged is situated; unless it appears from the circumstances as a whole that the contract is more closely connected with another country, in which case the contract shall be governed by the law of that country.

Contracts of employment can be considered to be complicated given that the employee is going to be subject to a set of laws that are among the conditions of the employment yet at the same time there are the rights that come with the employee as protected by the national and international laws. For example, an employee may be accepted for a job in a foreign country, and in order to make the acceptance of employment less complicated, conditions of the employer may include the concession to certain laws from the jurisdiction of the employer. At the same time, the employee may also carry basic employment rights guaranteed through his citizenship and at the same time, international and regional employment laws may be applied. An example is the applicable directives from the International Labour Organisation.

Evidently, the provision on employment contracts in the Convention can be seen in the initiative to simplify this complex of laws, especially since the movement of labour within the European region has become more dynamic as brought by the unification. There is also the noted similarity between this article and the provision on consumer contracts.

In Giannantonio v. Società Imprese Industriali s.p.a., the employment contract agreement exercised Article. 3 whereby the employer and the employee agreed on referring to the Italian Law. Hence, it applies, ‘the fundamental rule that guarantee the workers (art. 18 Statuto dei Lavoratori) is a mandatory law and an international public order law and it is in any way applicable, even if the relation is ruled by a foreign law’.

Mr Tegos in FRANCE • Conseil d’Etat, section • 1999, November 19, the court exercised Art. 4 in determining the platform of the employment contract of Mr. Tegos. The supply teacher was hired by a French school operating in Greece; hence, his contract was governed by Greek law and not French rules.

Article 8: Material validity

Article 8 is stated as follows:

1. The existence and validity of a contract, or of any term of a contract, shall be determined by the law which would govern it under this Convention if the contract or term were valid.
2. Nevertheless a party may rely upon the law of the country in which he has his habitual residence to establish that he did not consent if it appears from the circumstances that it would not be reasonable to determine the effect of his conduct in accordance with the law specified in the preceding paragraph.

The validity of a contract is therefore examined in this article. This is important especially if other relevant laws have to be applied in which the applicability of the identified laws depend on the validity of the cited contract. This article has been applicable to the SA Cofermet c/ Société Gottscholl Alcuilux case in which a Luxemburger company wrote a letter to its French subsidiary promising financial support. The subsidiary would then owe another company, a French company, which would lead the latter to suing the parent company for the inability to pay credit. In this case, in order to determine the jurisdiction of the situation, the Brussels Convention was cited as a reference for the case although the effectiveness of the Convention is based on the validity of the contract between the Luxemburg Company and the French subsidiary was in fact contractual or extra contractual. Based on this, in order to determine the jurisdiction of the case, the Convention was consulted as based on the provisions of Article 4.

Article 9: Formal Validity

In Article 9, the validity of contracts between persons coming for different jurisdictions is discussed as follows:

1. A contract concluded between persons who are in the same country is formally valid if it satisfies the formal requirements of the law which governs it under this Convention or of the law of the country where it is concluded.
2. A contract concluded between persons who are in different countries is formally valid if it satisfies the formal requirements of the law which governs it under this Convention or of the law of one of those countries.
3. Where a contract is concluded by an agent, the country in which the agent acts is the relevant country for the purposes of paragraphs 1 and 2.
4. An act intended to have legal effect relating to an existing or contemplated contract is formally valid if it satisfies the formal requirements of the law which under this Convention governs or would govern the contract or of the law of the country where the act was done.
5. The provisions of the preceding paragraphs shall not apply to a contract to which Article 5 applies, concluded in the circumstances described in paragraph 2 of Article 5. The formal validity of such a contract is governed by the law of the country in which the consumer has his habitual residence.
6. Notwithstanding paragraphs 1 to 4 of this Article, a contract the subject matter of which is a right in immovable property or a right to use immovable property shall be subject to the mandatory requirements of form of the law of the country where the property is situated if by that law those requirements are imposed irrespective of the country where the contract is concluded and irrespective of the law governing the contract.

Basically, this Article tackles the validity of the contract as based on the applicable jurisdictions. In époux ROUSSEAU c/ Commerzbank⁷, for example, the court ruled based on the Rome Convention that the law applied is based on the habitual residence of the consumer despite the proactive of express selection as allowed by Art. 3.

The importance of the validity of the contract is different than the identification of the applicable laws for certain conditions. Similar to the explanation on the previous section on the materiality of the contract, a number of factors can be said to depend on the issue of validity. This can therefore either move or cancel the case in which case a different legal route may have to be identified.

Article 12: Transfer of Obligation

Article 12 is stated as follows:

1. The mutual obligations of assignor and assignee under a voluntary assignment of a right against another person (“the debtor”) shall be governed by the law which under this Convention applies to the contract between the assignor and assignee.
2. The law governing the right to which the assignment relates shall determine its assignability, the relationship between the assignee and the debtor, the conditions under which the assignment can be invoked against the debtor and any question whether the debtor’s obligations have been discharged.

The transfer of obligation can be determined through the series of relations created depending on the series of transactions that took place. Hence, for example, the law which applies to a contract also determines the ranking of competing claimants. The transfer of obligation therefore relies on the act of voluntary assignment, which, as Banson points out (2007), ‘differing from transactions that come under the law of tort or unjust enrichment’.

The assignment of the applicable law, in this regard, depends on how the obligation is transferred which is determined by the development of the relationship of transactions between and among the parties involved. For example, the identification of a particular set of terms and conditions, as determined by an identified set of laws (similar to Art. 3), can provide a venue for the adjustment of claims especially if both parties reach an agreement when it comes to the potential changes in the obligations among the participants of the contract.

Article 16: “Ordre Public”

According to Article 16:

The application of a rule of the law of any country specified by this Convention may be refused only if such application is manifestly incompatible with the public policy (“ordre public”) of the forum.

Based on this, although the Rome Convention is applicable to the Member States, incompatibility of the application as based on the public policy may lead to the rules of the Convention getting declined by a particular court. What is interesting in this is that although the Rome Convention can be regarded as an instrument of harmonisation among the differences in laws among nations that have strong contractual partnerships as based on private channels, certain national policies cannot easily concede to the rules of the Rome Convention.

The relationship between the Convention and national policies can then be examined in this context. Apparently, the Convention does not enforce the same amount of power and influence as compared to the national and/or local policies although the Convention plays an important point of reference in cases where intra-national contracts are concerned.

Article 19: Composite or federated states

States with more than one legal system is tackled in Art. 19 as follows:

1. Where a State comprises several territorial units each of which has its own rules of law in respect of contractual obligations, each territorial unit shall be considered as a country for the purposes of identifying the law applicable under this Convention.
2. A State within which different territorial units have their own rules of law in respect of contractual obligations shall not be bound to apply this Convention to conflicts solely between the laws of such units.

The Convention also addresses the existence of countries that have more than one legal system. Based on Art. 19, if a case includes situations in which different legal systems are present, the state or the collection of states will be taken as a single territorial unit in which the applicable laws are at federal levels provided that the laws are also applicable to the Convention. The same is true as to the presence of any conflicts between the laws of the Convention and the policies of the state in which case, similar to Art. 16, the Convention does not apply.

Final Notes

The Rome Convention provides a charter which serves as a legal reference for cases in which contractual obligations and relations involve parties from different national jurisdictions. Given the differences of laws, the Convention therefore provides a venue where courts find applicable laws in order to come up with means to resolve any disputes or conflicts. However, although there is a strong legal nature of the Convention as agreed by the participating nations, legal systems and courts are still left with the discretion as to how applicable laws can be utilised depending on the case at hand. This is why the Convention is not absolutely exclusive in addition to the fact that there are other applicable conventions that can be referred to.

In this case, North presents a final note as to the role of the Convention especially when it comes to its role and function in a particular regional community (1993, 182):

What is also worth noting is how unfettered this freedom is. At common law, there was debate as to the limits of the freedom of choice. We were told that the choice had to be ‘bona fide and legal’ and not contrary to public policy. There was debate as to how far a law unconnected with the contract could be chosen; though it has been pointed out that commercial men are likely to have good reasons, which should be accepted, for such a choice. Under the Convention, there are no real limits on the freedom of choice of the applicable law, as such. However, mandatory rules of the forum will continue to be applied, and rules of the chosen law may be refused application as being contrary to the public policy of the forum.

These are likely to be relatively minor limitations in practice and the Convention marks a high point in the acceptance of party autonomy– an approach to contract choice of law which has been shown to have had wide acceptance ‘in the private international law of all the Member States of the Community and of most other countries’, as well as being ‘supported both by arbitration decisions and by international treaties designed to unify certain rules of conflict in relation to contracts.

Article 4 and International Business Community

This chapter will examine in detail the contents of article 4. In other words it will detail what the five paragraph of the article 4 entails. It will further try to evaluate how article 4 can be reviewed in respect to international business community

Applicable law in the absence of choice

Paragraph 1 of the article 4 states that to the extent that the law applicable to the contract has not been chosen in accordance with article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a severable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country.

Paragraph 2 of the same article states that subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration. However, if the contract is entered into in the course of that party’s trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated.

The third Paragraph states that notwithstanding the provisions of paragraph 2 of this Article, to the extent that the subject matter of the contract is a right in immovable property or a right to use immovable property it shall be presumed that the contract is most closely connected with the country where the immovable property is situated.

Fourth Paragraph of this article states that a contract for the carriage of goods shall not be subject to the presumption in paragraph 2. In such a contract if the country in which, at the time the contract is concluded, the carrier has his principal place of business is also the country in which the place of loading or the place of discharge or the principal place of business of the consignor is situated, it shall be presumed that the contract is most closely connected with that country. In applying this paragraph single voyage charter-parties and other contracts the main purpose of which is the carriage of goods shall be treated as contracts for the carriage of goods.

Finally Paragraph 5 states that Paragraph 2 shall not apply if the characteristic performance cannot be determined and the presumptions in paragraphs 2, 3 and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country.

The application of Article 4 presupposes that there is no express choice and that no implied choice can be discovered (preferably using a rather strict approach to implied choice, as indicated above). In the absence of an express or implied choice, there are usually no justice-based grounds for preferring one law to another. (The need to protect weaker parties is not a concern of Article 4, but of other provisions, such as Articles 5 and 6).

This is to imply that the default solution should endeavour to maximise certainty, predictability, and uniformity of results, regardless of forum. Adherence to the residence of the characteristic performer achieves this, while the concept of closest connection can mean almost anything (or nothing). If no implied choice can properly be discovered, there is simply no intelligible perspective from which the importance of the various connections (such as the residences of parties, and the places of negotiation and performance) can rationally be assessed and compared.

In the interests of certainty and convenience, it is good to simplify the definition of the residence of the characteristic performer, so as to refer to that party’s business establishment whose staffs were engaged in the negotiation of the contract. That is the residence which is generally known and important to the other party.

For similar reasons it is also good to delete Article 4(4), and subject contracts for the carriage of goods to the normal presumption in favour of the carrier’s residence. As regards Article 4(3), on contracts whose subject matter is a right in immovable property or a right to use immovable property, it is good to substitute a rule referring to the country in which both parties reside, where they both reside in the same country, and if they do not both reside in the same country, to the country where the immovable property is situated.

It remains to consider what should be done where there is no characteristic performance; for example in the case of a contract of barter. Some Scholars suggest a series of rules referring, first, to the country in which both parties reside, if such exists; and secondly, to the country in which one party resides and the most important performances are to be carried out (North, 1993). If neither of those two tests enables the applicable law to be ascertained, it seems difficult to find any principled solution. In that situation slight inclination could be to apply the law of the defendant’s residence, even though that would make the result depend on which part

The lex fori

In situations such as the lex fori a test of closest connection would help little, on almost any interpretation of that test. So Article 4 can be rewritten as follows:

1. To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, it shall be determined in accordance with the provisions of this Article (North, 1993).
2. In such cases, where there is a performance which is characteristic of the contract, the contract shall be governed by the law of the country in which the party who is to effect the said characteristic performance had its relevant residence at the time when the contract was concluded (Andersen, 2005).
3. The relevant residence of a party who acted in the course of a business is its business establishment whose staffs were (wholly or mainly) involved in the negotiation of the contract on its behalf. The relevant residence of a party who did not act in the course of a business is his or her habitual residence.
4. Where the subject matter of the contract is a right in immovable property or a right to use immovable property, paragraph 2 shall not apply. Instead the contract shall be governed by the law of the country in which both parties had their relevant residences (determined in accordance with paragraph 3) at the time of its conclusion; or where they did not have their relevant residences in the same country, by the law of the country in which the immovable property is situated (Andersen, 2005).
5. Where the contract is of such a nature that there is no performance which is characteristic of the contract, the governing law shall be determined as follows: where at the time of its conclusion both parties had their relevant residences (determined in accordance with paragraph 3) in the same country, it shall be governed by that law of that country; where at the time of its conclusion both parties did not have their relevant residences (determined in accordance with paragraph 3) in the same country, it shall be governed by the law of the country in which one of the parties then had its relevant residence and in which the most important obligations under the contract had to be performed (Andersen, 2005).

As a last resort, where for any reason the country whose law governs the contract cannot be ascertained in accordance with the foregoing provisions of Article 3 and this Article, then the law of the country in which the party who is defendant in the action presently before the court had its relevant residence at the time of the conclusion of the contract shall apply; and if that country is also unascertainable, the court shall apply the law of its own country (Fletcher, 1999).

Cited Case Summaries

Soc. Cameroun shipping line c/ Soc. Bomaco. FRANCE • Cour de cassation – chambre commerciale • 1997.

The Van Dyck shipping company (Van Dyck) and the “Compagnie sénégalaise de navigation maritime” (Cosenam) concluded a “time charter-party”, under which the shipowner Van Dyck had to charter the ship Nobility to the charterer Cosenam. The contract contained a choice of law clause under which it was governed by English law.

During a stopover of the Nobility in a French harbour, Van Dyck, asserting the charterer owed him money due to arrears, obtained from a French judge an order providing for the consignment of the goods in hands of a third party, and for the attribution of the proceeds of the sale of the goods to the plaintiff. The order was granted under French law, applying as the law of the place where the goods were located.

Before the French Cour de cassation, the owners of the cargo, invoking their bills of loading, asked for her to quash the order, alleging that under English law, which should apply to the contract under article 3 of the Rome convention, the shipowner cannot claim any right on the cargo against the cargo owners in possession of the bills of loading.

The French Cour de cassation decided to quash the decision, on the ground that the English law, chosen in the charter-party as the law governing the contract, should have been taken into account to determine the rights a shipowner could claim on the cargo against the cargo owners in possession of their bills of lading. Accordingly, having determined the rights of the shipowner with exclusive consideration to the French law, the referred judgement violated articles 3§1 and 10 of the Rome convention.

Provisions 3 3.1 10 10.1 10.2

The lower court violated articles 3§1 and 10 of the Rome convention, in deciding to apply exclusively French law, as the law of the situation of the goods, to an action brought against the owner of the goods by the owner of the ship chartered, whereas the charter-party referred to English law as the law applicable to the contract of carriage allegedly breached by the charterer.

N.a. Bundesgerichtshof (BGH) • 1999.

The plaintiff a Netherlands construction company and the defendant a German company concluded a construction contract about the renovation of a hotel situated in Germany. Later the plaintiff sued for the remaining remuneration.

The parties did not agree on the applicable law. Nevertheless the parties agreed on the application of the German DIN rules (general standards for construction works) and on the application of the German contracting rules for award of public works contracts (VOB). Moreover the parties used the German Civil Code provisions as a basis for their own individual contract

Provisions 3.1

An agreement that a contract has to be governed by German contracting rules for award of public work contracts (VOB) and some of the general German standards for construction works (DIN) have to be regarded as a inferred choice of law by the parties.

N.a. Bundesgerichtshof (BGH) • 2000.

In 1996 the N-GmbH (limited company) concluded a contract with the defendant a Norwegian construction company for the construction of some houses in Germany. Later the N-GmbH assigned the claims to the plaintiff a German company. Because of some defective workmanship the plaintiff sued the defendant for removal of the damages and for compensation. The defendant denied first that a contract for the construction of the houses (construction contract) and second that a contract for the supervision of the construction site (architecture contract) had been concluded.

The German district court (Landgericht) denied the international jurisdiction for German courts. The appellate court (Higher Regional Court – Oberlandesgericht) affirmed the international jurisdiction concerning the construction contract but denied it concerning the architecture contract. The court of appeals (Federal Court of Justice – Bundesgerichtshof) affirmed also the international jurisdiction concerning the architecture contract under art. 5 no.1 Logan-Convention.

Provisions 3.1

Concerning the circumstances of an implied choice of law in an architecture contract.

Otto Kogler v. Eurogames S.r.l. Corte di cassazione (Cass.) • 2001.

Otto Kogler was ordered to pay a sum of money to its creditor (Eurogames) by an Italian judge (Tribunale di Forlì). He asked the judges to deny Italian jurisdiction, because the contract contained a clause of reference to the Austrian law. Even if it was written in art.8 (related to guaranty), it has to be referred to the whole contract. Besides this, the contract was a sale in exclusive. Following art. 4, n.1 Rome Convention (closer connection), it has to be applied Austrian law, because the characteristic performance, in general, is not the pecuniary one; so, in the commercial distribution, it is the distribution activity of the concessionary in exclusive (Kogler).

Cassazione reminds that this contract is a concession of sale in exclusive, it is atypical and it is subjected to Rome Convention, which is universal and applied even it is the law of a non-contracting state (art.2). Art.3 can’t be applied, because in this contract the choice of the parties seems to be Austrian law only in the case of guaranty. So art.4 has to be applied, but in this case the performance which is characteristic of the contract is the furniture of the goods, because the distribution depended on it. The most part of this furniture happened in Italy, so Italian jurisdiction exists.

Provisions 2 3 4

In the case of concession of sale in exclusive, the performance which is characteristic is the furniture of goods, which the distribution is dependent on

Société Fort James France c/ Soc. Fabio Perini et soc. Perini International. Cour d’appel de Colmar, ch. 1, section A • 1998.

A cooperation agreement was concluded between a French company and an Italian one, under which the latter agreed to sell machines to the European subsidiaries of the former, and not to market a specific technology needed to get products made with this machine. An action was brought for breach of contract against the Italian company before the French courts.

The issue of the jurisdiction of the French courts arose, and had to be handled with under Brussels convention (particularly, art. 5§1). Consequently, the court needed to localize the place of the performance of the obligation at dispute in the instant case.

This place being determined in accordance with the law applicable to the contract under the conflict rule, the court had to apply the Rome convention. In the case at issue, the court held that, under article 4 of this convention, the characteristic performance of the contract is the performance owed by the Italian company as to the delivery of machines. Thereby, Italian law was to apply as the law of the country of the central administration of the party owing the characteristic performance.

Provisions 4 4.1 4.2

In an international cooperation agreement under which one of the parties is to deliver machines to European subsidiaries of the other party, the characteristic performance of the contract is the one relating to the obligation to supply machines, and under article 4 of the Rome convention, the law of the country of the central administration of the party owing this performance governs the issue of the localization of the place of performance of the obligation at dispute under article 5§1 of the 1968 Brussels convention.

Mme Moquin c. Deutsche Bank AG et autre. FRANCE • Cour de cassation, 1ère ch. civ. • 1999.

The “Deutsche Bank” (plaintiff) agreed to grant a loan to French married couple (respondent) living in France who soon had difficulties to return the funds. Therefore, the Bank sued the couple before a French « Tribunal de grande instance », to have him refund the sums he still owed it. The court declined its jurisdiction on the ground that French law on consumer protection dated 1978 applied to this case. And in pursuance with this law, the qualified court to try such litigations is the “Tribunal d’Instance”.

The issue at dispute concerned in particular the determination of the applicable law. The “Cour d’appel” held that the conditions of application of article 5 (relating to “certain consumer contracts”) of the Rome Convention were not fulfilled in the present case. It also refused to apply article 7 of the Convention since this provision deals with “lois de police” to the exclusion of consumer protecting rules. The Court de cassation quashed this judgement on the ground that the Rome Convention had not come into force at the time the loan had been granted.

Provisions 5 5.2 5.3 7 7.2 17

Whereas the Rome Convention was not yet in force at the time of conclusion of the contract, it must be considered that the French statute on consumer credit contract 1978 is a mandatory rule applicable to an international loan entered into by a German bank and a consumer whose residence is in France.

Époux ROUSSEAU c/ Commerzbank. FRANCE • Tribunal d’Instance de Niort • 1998.

A German bank granted a loan to a French couple living in France. The purpose of the loan was the funding of the purchase of a real estate located in France. The contract contained a choice of law clause in favour of German law. Insofar as the real estate was intended to become the place of habitual residence of the couple, the question arose whether or not the French law, granting protection to the consumer in case of a loan concluded to finance the purchase of his/her habitual residence, should apply, notwithstanding the choice of law clause.

The court (French “tribunal d’instance”) held that the French consumer law was entitled to govern the case, due to several reasons:

1. Under article 5 of the Rome convention, French law was applicable since the offer of loan was made in France and the steps leading to the conclusion of the contract were accomplished in France, this country being the place of the consumer’s habitual residence.
2. The choice of Germany as the effective place of signature for the loan offer was fraudulent since it intended to avoid the application of a few provisions of French consumer law.
3. Under article 7 of the Rome convention, a compulsory provision of French consumer law was also applicable as a forum’s imperative rule, since the real estate, the purchase of which was the purpose of the loan, was located in France.
4. In incorporating one of the articles of French consumer law in the provisions of the loan, the parties agreed to submit their contract to this provision.
5. Under article 9 of the Rome convention, French law should apply to the form of the contact as the law of the country wherein was located the consumer’s habitual residence.

Provisions 5 7 7.2 9 9.5

Notwithstanding a choice of law clause in favour of German law, French consumer law must be applied under article 5 of the Rome convention, since the offer of loan has been made in France and the steps leading to the conclusion of the contract were accomplished in France, this country being the place of the consumer’s habitual residence. The choice of Germany as the effective place of signature for the loan offer being fraudulent since it intended to avoid the application of a few provisions of French law, it should not be taken into account.

Under article 7 of the Rome convention, a compulsory provision of French consumer law is applicable as a forum’s imperative rule, since the real estate, the purchase of which was the purpose of the loan, is located in France. A french legal provision relating to consumer protection must apply to a contract since the parties by way of incorporation into the contract have chosen it. Under article 9 of the Rome convention, French law should apply to the form of a contract since it is the law of the country wherein is located the consumer’s habitual residence.

Giannantonio v. Società Imprese Industriali s.p.a. ITALY • Pretura di Milano (Pret. Milano) • 1995.

The conveyed part excludes that Italian law can be applied to the employment contract because Rome Convention imposes the application of Libic Law if chosen by the parties (art. 3) or following the principles of art. 4. The judge denies that the parties have chosen Libic law or have made a reference to it. On the contrary, the contract seems to refer to Italian law, because regulations of various aspects of the work relation are similar to Italian law, and the dismissal for cause is described with the same words of art.2119 c.c. So the applicable law is Italian law (art. 3) and it doesn’t need to refer to the principles of art.4.

Besides this, the fundamental rule that guarantee the workers (art. 18 Statuto dei Lavoratori) is a mandatory law and an international public order law and it is in any way applicable, even if the relation is ruled by a foreign law.

Provisions 3.1 3.2 4.1 6.1

In an employment contract which specifically refers to Italian set of rules, Italian law is applicable. In any case art. 18 Statuto dei Lavoratori is applicable, as it is a mandatory law.

Mr. Tegos. FRANCE • Conseil d’Etat, section • 1999.

A French public school, the French Institute in Athens, depending on the Ministry of foreign affairs excluded the extension of a contract by which Mr. Tegos had been temporarily hired as a supply teacher. Alleging the decision was illegal; Mr. Tegos requested that the French “Conseil d’Etat” avoid it.

Expressly applying the Rome convention, the Court held that the common intention of the parties, at the time of the employment of Mr. Tegos, was to have the contract governed by Greek law, since, particularly, the contract contained a choice of jurisdiction provision under which the court of Athens has an exclusive jurisdiction to handle with any litigation relating to the contract. The Court also Noticed that, as a supply teacher, Mr. Tegos was not submitted to any of the French legal rules whatsoever. The court concluded that it had no jurisdiction to settle the case.

Provisions 6 6.1

Under Rome convention, French law does not apply to a contract concluded between a French overseas public school and a person appointed as a supply professor since the common intention of the parties, at the time of the conclusion of the contract, was to have it governed by a foreign law

SA Cofermet c/ Société Gottscholl Alcuilux. FRANCE • Cour d’appel de Paris, chambre 1. • 2000.

A Luxemburger company had written a comfort letter in favor of one of its French subsidiaries, according to which it promised in particular to support it financially. Another French company delivered goods to the subsidiary which in turn could not pay its debt. The creditor then sued before the French courts the parent company on the ground of the promise contained in the comfort letter.

The question of the jurisdiction of the French court arose. In order to apply article 5.1° of the Brussels convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, the court had to check whether or not the obligation in dispute was contractual or extracontractual. The French court decided to resort to the law applicable to the alleged contract under the Rome convention, articles 4-1, 4-2, 4-5 and 8-1. In the case of a party who promised to support financially one of its subsidiaries, the characteristic performance is the promisor’s engagement. This should have led to the application of the Luxemburger law.

Nevertheless, the « Cour d’appel » did not apply this law, taking into account that the situation was most closely connected with France, in pursuance of article 4.5 of the Rome convention, according to which “(…) the presumption in paragraph 2 (…) shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country.”

The connecting factors were in particular the place of writing of the letter, the fact that the letter was intended to the auditors of the French subsidiary and that it was part of the economical and financial environment of the French subsidiary.

Subsequently, the judge applied the French law and concluded that the letter at dispute could not be considered as a contract between the creditor of the subsidiary and the parent company, so that French court could not use article 5-1° of the Brussels convention as a ground for its jurisdiction.

Provisions 4 4.1 4.2 4.5 8 8.1

For the purpose of deciding whether a comfort letter must be regarded as a contractual engagement from its author in favor of a company which suffered from contractual failure of the subsidiary which was the beneficiary of the letter, and inferring there from whether article 5-1° should apply or not, it is necessary to determine the law which would govern the engagement that may derive from this letter. In pursuance of articles 8.1, 4.1, 4.2 and 4.5 altogether of the Rome convention in force in France and in Luxembourg, the contract is governed, in the absence of choice by the parties and although its validity was in dispute, by the law of the country with which it has the most connected links.

This country is presumed to be the country where the party who is to effect the performance which is characteristic of the contract has its regular place of business in the case of a company at the time of the conclusion of the contract. However, this presumption is set aside when it results from the circumstances as a whole that the contract has more connected links with another country. In the event of an obligation to do a particular thing and in which a party bound himself to provide a specific result which can be analysed as a going bail from his part, the characteristic performance is the obligation to do contracted by the promisor, which would lead to the application of the Luxemburger law.

However, insofar as the comfort letter in dispute had been written in France and was intended to the auditors of the French subsidiary and was part of the economical and financial environment of the French subsidiary and was appended to the auditors ‘situation report submitted to the company’s shareholders’ meeting that was to decide on the accounting period and for this reason was to be registered at the Trade Register, it could only spread out its effects in France ; subsequently, the issue regarding the contractual nature of the letter must be decided in pursuance of the French law.

References

Andersen, Camilla Baasch (2005). “The Uniform International Sales Law and the Global Jurisconsultorium”. Journal of Law and Commerce. 159-179. Web.

Benson, P. (2007). Contract as a Transfer of Ownership. William and Mary Law Review. Vol. 48, no. 5, pp. 1673+.

Collier, J.G. (2001). Conflict of Laws. Cambridge University Press, Cambridge, England.

Fletcher, I. (1999). Insolvency in Private International Law: National and International Approaches. Oxford University Press, Oxford.

Lowenfeld, A. (1996). International Litigation and the Quest for Reasonableness: Essays in Private International Law. Clarendon Press, Oxford.

North, P. (1993). Essays in Private International Law. Clarendon Press, Oxford.

‘Overview’. N.d. Hague Conference on International Private Law. Web.

Principles of International Commercial Contracts, 1994 – UNIDROIT. 1993. Lex Mercatoria. Web.

Rome Convention. Web.

Footnotes

1. Methods of dispute resolution include lawsuits, collaborative law, mediation, conciliation and a series of negotiations (“Dispute Resolution”, 2007).
2. De Boer, (1990) 54 RabelsZ24, 37, as cited in North (1993, 172).
3. Example of cases applicable is cases related to divorce, marriage and choice through pleading.
4. Contracts (Applicable Law) Act 1990. 48 Article 3(1) of the Rome Convention.
5. See Bundesgerichtshof (BGH) • 1999.
6. See 1. époux ROUSSEAU c/ Commerzbank. FRANCE • Tribunal d’Instance de Niort • 1998.
7. This case was also cited in Consumer Contracts.

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