#3616 - Choice Of Law (Contract) - Conflict of Laws

CHOICE OF LAW – CONTRACT

1. Rome I Regulation

• all contracts entered into from 17^th December 2009

2. Rome Convention

• all contracts entered into after 1^st April 1991

• implemented in UK by Contracts (Applicable Law) Act 1990

• Giuliano-Lagarde Report 1980 on the Rome Convention aids with interpretation.

Rome I Regulation

Article 1(1): applies to contractual obligations in civil and commercial matters

Article 2: law specified by Regulation applies whether or not it is the law of a Member State

indeed Regulation applies even if both parties to contract are from non-Member States

“Contractual obligations”: not defined in Regulation.

Giuliano-Lagarde Report 1980: autonomous approach must be taken

e.g. gifts and promises to give are involve contractual obligations

Articles 1(2) + 1(3): Regulation DOES NOT apply to:

1. revenues, customs or administrative matters

2. arbitration agreements or jurisdiction agreements

• thus law applying to agreement to arbitrate is matter for common law

• jurisdiction agreements are almost always governed by law governing underlying contract

1. ARTICLE 3 – EXPRESS CHOICE OF LAW

   Regulation Article 3:

   Choice must be made:

1. Expressly

2. Or clearly demonstrated by terms of contract or the circumstances of the case

   Convention Article 3

   Choice must be made:

1. Expressly

2. Or demonstrated with reasonable certainty by terms of contract or circumstances of case

   Contrast: “clearly demonstrated” vs. “reasonable certainty”

   Express Choice of Law

   E.g. ‘this contract shall be governed by English law’

1. Incorporation:

1. Choice may be made via reference to one of parties’ general terms and conditions

   but only provided there is consensus that contract is concluded on those contractual terms

   Iran Continental Shelf Oil Company [2002]

2. Choice of law clause is not incorporated if one party deletes it before signing the contract and other party signs without noticing

   Samcrete Egypt Engineers and Contractors [2001]

2. Express choice by reference to an external factor

   e.g. governing law of ‘country by which ship is flagged’

   where it is obvious both parties assume this will lead to a particular choice of law, court will uphold it

   even if due to unforeseen events, the external factor has led to a different choice of law

   Companie Tunisienne de Navigation [1971]

   2. Implied Choice Clearly Demonstrated

G-L Report 1980

Implied choice is not imputed

it must be a real choice of law, but simply not stated in the contract

Report gives 4 examples of where ‘reasonable certainty’ test (Convention) is satisfied:

1. standard form contracts

2. jurisdiction and arbitration clauses

3. courses of dealing

4. reference to a particular country’s statutes

   by analogy these would also satisfy the ‘clearly demonstrated’ test.

1. Standard Form Contracts

   If contract is in a standard form known to be governed by particular system of law, is assumed that parties intended contract to be governed by that law.

   E.g. use of phrases which only make sense in context of English insurance law indicates that contract intended to be governed by English law.

   Grad Marine Energy [2010]

   Form of slip used related to London insurance market.

2. Jurisdiction and Arbitration Clauses

   RIR Recital (12): if there is jurisdiction clause in favour of State A, is a factor to be taken into account when determining whether contract is governed by law of State A.

   Is likely to be very influential factor.

   Convention approach stated to be almost identical to common law in this respect

   Egon Oldendorff v Liberia Corp [1996]

   Compagnie Tunisienne de Navigation [1971]

   GL Report: nevertheless this inference always subject to other terms of contract and circumstances of case

   thus possible for forum of governing law to be different from forum chosen to hear disputes

   i.e. choice of jurisdiction is not a choice of law.

   Compagnie Tunisienne de Navigation [1971]

   Inference will be stronger where:

1. England is chosen as neutral forum

   compared to where one of parties is English

2. the more issues under contract that are put to arbitration

3. Course of Dealing

   GL Report 1980: two scenarios in which course of dealing might be relevant:

1. Previous course of dealing under contracts containing express choice of law clauses

• where there is no evidence of deliberate change of policy, governing law will that used previously

• e.g. Marubeni Hong Kong [2002]

2. Express choice of law clause in related contract between the same parties

4. Other Factors not Considered in GL Report

   At common law, relevant factors have included:

1. if contract is valid under one choice of law but invalid under rival choice

   may be implied choice of law under which contract is valid

   however this implication is not conclusive

   Islamic Arab Ins Co [1987]

2. currency/place of payment

   implied choice may be that of country whose currency is used or in which payment takes place

   Islamic Arab Ins Co [1987]

• These 2 probably not sufficient to show implied choice under Art 3 by themselves. More likely that they reinforce another relevant factor.

Restrictions on Parties’ Choices

1. Non-National Systems

   Parties cannot validly choose a non-national system of law as governing law

   e.g. Jewish/Sharia law

   Halpern v Halpern [2008]

   Regulation Recital (13): however parties can validly incorporate specific provisions of a non-municipal law into their contract

   Halpern v Halpern [2008]

2. Variation of Choice

   Article 3(2): parties can change their choice of governing law at any time during existence of contract.

3. Floating Choice of Law Clauses

   ‘Floating choice’: i.e. where choice of law is determined by some event occurring after the conclusion of contract.

   Fentiman: suggests that article 3(2) allows for floating choice of law clauses.

   at common law, floating choice of law clauses were:

   not allowed where choice depends on unilateral choice of one party

   e.g. where there are two potential seats of arbitration from which D can choose, and applicable law depends which one he chooses

   Star Shipping [1993]

   allowed where choice depends on objectively ascertainable event

   e.g. where contract states that in the event an English arbitration clause is invalid, the contract is to be governed by Greek law

   The Mariannina [1983]

4. Dépeçage

   Art 3: parties may choose law applicable to “whole or part of the contract”

   thus parties may choose different laws to apply to different parts of a contract.

   GL Report: choice must be logically consistent

   e.g. contract in its entirety cannot be governed by two laws

   Bank of Bahrain [2003]

   Lando: cannot be one governing law for purchaser and another for the vendor

   Where dépeçage not logically consistent, Art 4 applies

2. ARTICLE 4 – APPLICABLE LAW IN ABSENCE OF CHOICE

   When seeing what applicable law is (in absence of express choice):

1. look at specific presumptions

2. if case falls outside these presumptions, look at the general presumption (i.e. characteristic performance)

3. if applicable law still not obvious, look at the default presumption (i.e. place of closest connection)

1. Rome Regulation:

   1. series of specific presumptions

   2. if not applicable, general presumption based on residence of party effecting characteristic performance

   3. either specific or general presumption can be disregarded if it contract more “manifestly more closely connected” with another country

   4. if applicable law cannot be determined from either presumptions, is that of country with which contract is most closely connected

2. Rome Convention:

   1. 1 specific presumption

   2. general presumption based on residence of party who is to effect characteristic performances lives

   3. either specific or general presumption may be disregarded if contract is more closely connected with another country

Specific Presumptions (Article 4(1)/(3))

REGULATION

Article 4(1): applicable law:

1. For contract of sale of goods = place where seller has his habitual residence

2. For contract for provision of services = place where seller has his habitual residence

3. Contract relating to rights in rem in immovable property = place where property is situated

4. Franchise contract = place where franchisee has habitual residence

5. Distribution contract = place where distributor has his habitual residence

6. Sale of goods by auction = place where auction takes place

   “Habitual residence” of person acting in course of business or company determined by Article 19 (see below)

   Art 4(2): “characteristic performer” approach only applies if contract either:

1. does not fall under Art 4(1)

2. falls under more than one specific presumption

   In most cases, specific presumptions result in same applicable law as that which would have obtained under Convention

   however removes doubt in some areas

   e.g. distributors (overrides Print Concept [2001])

CONVENTION

Article 4(3)

Applicable law to contract relating to ownership or right to use immovable property is that of country in which property is situated.

General Presumption (Art 4(2))

Test adopted from Swiss Law.

3-stage test:

1. identify performance characteristic to contract

2. identify party to effect that performance

3. identify that party’s territorial connection

   Regulation Recital 19: characteristic performance should be determined by ‘centre of gravity’ of contract

Examples under Rome Convention

1. Identifying Performance

1. Contract for performance in return for payment of money

   characteristic performance is the performance in return for which money being paid

   e.g. contract of sale: characteristic performance is the sale of goods

2. Where both parties undertake same type of performance (e.g. both parties make payment of money), characteristic performer is party...