Samstag, 22. Oktober 2016 | Home | Studium & Lehre | Forschung | Autoren | Über uns |
GanzRecht > Studium & Lehre > Ausland > Int. Commercial Litigation

International Commercial Litigation

von Holger Langer, LL.M.
SS 2000

Pleading and Proof of Foreign Law

A. Question of fact

  • the English judicial system is based on a technical ignorance of foreign law
  • foreign law is treated as a question of fact
  • knowledge of foreign law is not to be imputed to an English judge, therefore he cannot take notice of it, unless it is pleaded and proved in the same way as other facts
  • effect:
    • if foreign law is not pleaded or proved by the party wishing to rely on it, the judge will apply English law, because it is the only law he has judicial knowledge of
  • according to Fentiman, this is because English law lacks two basic assumptions
    • English law does not treat conflict of laws rules as mandatory rules, application of which is a matter of ordre public
      • in other countries, where this view prevails, the courts have to apply foreign laws according to their conflict of laws rules regardless of whether it is pleaded or proved
    • English law does not treat the world’s laws as equal partners
      • otherwise, domestic and foreign laws would have to be treated as equal and the judge would be assumed to be equally knowledgeable as to both, with the effect of requiring the judge to research and prove foreign law himself as part of his findings
  • onus of proving that foreign law is different from English law is on the party which pleads the difference
    • again, if it is not pleaded or satisfactorily proved, the court will give a decision according to English law, even if the case is connected solely to another country and the law of such state would be applicable according to English conflict of laws rules

B. How foreign law is proved

  • foreign law has to be proved by appropriate evidence, i.e. by properly qualified witnesses
  • generally, foreign law cannot be proved
    • by citing a previous decision of an English court in which the same foreign rule was at issue
    • by referring to a previous decision of a foreign court, in which such court has stated the meaning and effect of the foreign rule
    • by merely presenting the judge with the text of the foreign law, leaving him to draw his own conclusion
  • However, s 4 (2) of the Civil Evidence Act 1972 made the proof of foreign law easier, as it provides that, when a question of foreign law has been determined in an English court, any finding made or decision given in such proceedings, if reported in citable form, shall be admissible in later proceedings as evidence of the foreign law and shall be taken to be in accordance with such finding unless the contrary is proved

C. Witnesses who can prove foreign law

  • foreign law is a question of fact, but it cannot be proved by a witness of fact
  • a witness that speaks to a question of foreign law has to give an opinion - the rule is therefore that he must be an expert
  • court has a discretion as to who is a sufficiently competent expert
    • general principle is that no person is a competent witness
      • unless he is a practising lawyer in the particular legal system,
      • or unless he occupies a position in which he must necessarily acquire a practical working knowledge of the foreign law
  • evidence is given
    • usually orally, open to cross-examination
    • exceptionally by affidavit
  • expert may refer to codes, decisions or treaties for the purpose of refreshing his memory
  • court may or may have to (if there is a conflict of testimony between experts on either sides) place its own interpretation on the foreign law in the light of the evidence given

D. Advantages

  • advantages
    • parties can choose to plead and prove when the application of foreign law would be favourable to them
  • disadvantages
    • unpredictability
    • additional cost


Exclusion of foreign law

  • Dicey and Morris employ a three-fold classification of foreign laws that are not enforced by English courts
    • revenue laws
    • penal laws
    • other public laws
  • first adopted by Lord Denning in Attorney General of New Zealand v Otiz ("Maori carving")
  • same classification has been adopted by the Private International Law (Miscellaneous Provisions) Act 1995, s 14 (3) (a) (ii) for the area of tort conflict of laws
  • common thread to all three laws is that they will not be enforced if they involve an assertion of sovereign authority by one state within the territory of another (Lord Denning)
  • whether the claim is one which involves a penal, revenue or other public law is a matter to be determined according to English law

A.  Foreign revenue laws

  • first introduced by Lord Mansfield: "no action lies in England for the enforcement of a foreign revenue law"
  • main authority: Government of India v Taylor [1955] (House of Lords)
    • claim of income tax for the proceeds of a sale of business was sought to be enforced against the liquidator in England
    • alleged that
      • the rule did not extend to taxes similar to those imposed in England
      • modification was needed for a country within the Commonwealth
    • House of Lords confirmed that no enforcement of Indian revenue law in English courts; duty of a liquidator is to discharge only those liabilities that are legally enforceable
    • "no exception exists for any other state except founded on a specific treaty"
  • exceptions of the general rule
    • rule does not mean that foreign law is to be totally ignored, i.e. refusal to enforce it does not imply a disclaimer of its lawful existence
    • thus, on the ground that public policy demands the maintenance of harmonious relations with other nations, the courts will not countenance any transactions that are merely and knowingly designed to violate foreign revenue law, such as fraudulent tax-evasion schemes

B. Foreign penal laws

  • well settled principle that English courts will not help to enforce foreign penal laws, either directly or indirectly
    • the imposition of a penalty reflects the exercise of a State’s sovereign power
    • however, act of sovereignty cannot have effect in the territory of another State
  • meaning of "penalty"
    • leading authority: Huntington v Attrill [1893] (Privy Council)
      • New York statute provided that directors of a corporation shall be personally liable for its debts on proof that false reports of its financial condition have been published
      • Privy Council pointed out that the statute was remedial, not penal, since it permitted a private person to enforce a liability in his own interest and for the protection of his own private rights
      • nothing can be regarded as a penalty, unless it is "recoverable at the instance of the State or of an official duly authorised to prosecute on its behalf"
      • "penalty" is limited to a fine or some other exaction imposed by the State for the violation of public order of a criminal complexion
    • more recent authority: Attorney General of New Zealand v Otiz [1984]
      • a maori carving was regarded as a historic article under New Zealand law and was brought out of country and offered on auction for sale in England
      • Court of Appeal held that a New Zealand statute providing for the forfeiture of historic articles in such a case without compensation was to be regarded as penal (Lord Denning: other public law), therefore not enforceable
  • enforcement must be distinguished from its application or recognition
    • where in a proceeding pending before an English court the applicable law is that of a foreign state, according to English conflict of law rules, it has to operate even before an English court

C. Other foreign public laws

  • characterisation of a foreign law as public law
    • “public law” has to be seen as a wide overall exclusionary category, and a foreign penal law will necessarily also be a foreign public law
    • whether the right of action is public or private is depending on three considerations
      • the party in whose favour the right was created
      • the purpose of the law on which the right is based
      • the general context of the case as a whole
  • examples
    • import and export regulations
    • price control regulations
    • anti-trust legislation
  • one of the main questions is to which extent foreign expropriatory legislation is recognised in England when it is directed not against a particular person or a particular item (cf. Otiz case), but against national property in general
    • legislation can take four forms
      • requisition – seizure of property in the public interest for a limited time (usually for an emergency) in return for compensation
      • nationalisation – permanent absorption of property into public ownership for the furtherance of some political aim in return for compensation
      • compulsory acquisition – permanent seizure of property in fulfilment of some economic or social aim in exchange for compensation
      • confiscation – permanent seizure of private property without payment of compensation
    • main question is the extent to which, according to English law, a decree of a foreign state implementing one of these forms affects property within the jurisdiction belonging either to nationals of that state or to aliens
    • leading case: Williams and Humbert Ltd v W & H Trade Marks (Jersey) Ltd [1986] (House of Lords)

      classification of confiscatory laws

      • class 1 – laws that English courts will not recognise
        • discriminating on grounds of race, religion or the like (“so grave an infringement of human rights that they ought not to be recognised at all”)
        • discriminatory in times of war (seizure of English property in foreign countries)
      • class 2 – laws which will be recognised, but to which effect will not be given
        • confiscation of property in foreign state, if penal
        • confiscation of property in England
      • class 3 – laws to which effect will be given
        • confiscation of property in foreign state + title perfection in foreign state

D. Foreign laws repugnant to English public policy

  • well established principle that any action brought in England is subject to the English doctrine of public policy
  • accordingly, foreign laws which are contrary to English public policy will be denied application and enforcement
  • however, power of the courts has to be exercised cautious in that the court should consider the relevant foreign law as a whole
  • an action concerning a transaction governed by a foreign law must not necessarily fail just because it would have failed had the governing law been English
  • English courts should not invoke public policy except in cases where the foreign law is manifestly incompatible with public policy, because it violates some fundamental principles of justice
  • one of the main questions a court should be concerned with, is what the rule was designed to prevent
  • illustrative cases in which public policy is affected
    • cases where fundamental conceptions of justice are disregarded
      • principles of natural justice are offended, e.g. defendant was denied to present his case to the foreign court
      • contract was entered into under an unconscionable class of undue influence, duress or coercion
    • cases where English conceptions of morality are infringed
      • promotion of sexuality, e.g. a contract for prostitution
      • agreements that involve payments of bribes
      • Canadian courts have held that gambling debts do not violate Canadian concepts of essential morality
    • cases where a transaction prejudices the interests of the United Kingdom or its good relations with a foreign State
      • prohibition of business with an alien enemy
      • agreements with the object of causing injury to a friendly Government, e.g.
        • loans to further a revolt
        • agreements to import liquor contrary to prohibition laws
        • export of prohibited commodities
      • all these conducts are breaches of international comity and tend to injure the relation of the British Government with other States
    • cases where a foreign law or status offends the English conceptions of human liberty and freedom of action
      • slavery
      • excommunication
      • heresy
      • infamy
      • civil death
  • problem
    • in English domestic law it is a settled principle that judges are not free to invent new heads of public policy as they see fit, in other words, they may expound but not expand
    • in the field of private international law, however, judges feel more free to exercise a discretion and exclude foreign laws whenever they feel proper to do so in the circumstances, especially in regard of the status of a person under foreign law
    • this should be refrained, for otherwise the concept of public policy that was shaped with a lot of judicial effort, would once again become indeterminate
    • however, problem at the moment more apparent than real


Forum non conveniens

A.    Development

  1. General power to stay actions on the basis of forum non conveniens traditionally in Scotland and the United States
  2. St Pierre v South American Stores [1936]
    • English action “oppressive and vexatious” (abusive claim in bad faith)
    • stay would not cause injustice to the Plaintiff
  3. The Atlantic Star [1974] (House of Lords)
    • Principles still not entirely clear
    • “oppressive and vexatious” test still applies, but is treated more liberally
  4. MacShannon v Rockware Glass Ltd. [1978]
    • the continued use of the words “vexatious” and “oppressive” was specifically deprecated and abandoned
    • introduced the term “natural forum”, which refers to the country with which the action has the most real and substantive connection
  5. The Abidin Daver [1984] (House of Lords)
    • Final acceptance by the House of Lords that a doctrine of forum non conveniens is applied when exercising the discretion to stay English proceedings
    • per Lord Diplock: “…judicial chauvinism has been replaced by judicial comity to an extent which is indistinguishable from the Scottish legal doctrine of forum non conveniens.”
    • Chief problems remaining:
      • on whom lies the burden of proof?
      • what are “legitimate personal or juridical advantages”?
  6. Spiliada Maritime v Cansulex [1987] (House of Lords)
    • Leading case which sets out a number of guidelines that represent the current legal approach of courts towards forum non conveniens
    • Two stage inquiry
    • Clear indication of burden of proof:
      • for first stage (clearly more appropriate forum):          defendant
      • for second stage (personal or juridical advantage):      claimant
    • Significance of second stage (personal or juridical advantage) reduced

B.   Principles

  1. The basic principle (Spiliada)
  • A stay will only be granted on the ground of forum non conveniens where the court is satisfied that
    • there is some other available forum
    • which has jurisdiction
    • and which is the appropriate forum for trial, i.e. in which the case may be tried more suitably for the interests of all the parties and the ends of justice.
  1. The two stage inquiry
  • Another available forum which is clearly more appropriate
    • burden of proof on defendant
    • “available”
      • available in practice to this plaintiff to have his dispute resolved
    • “clearly more appropriate”
      • it is not enough just to show that England is not the natural or appropriate forum for trial
      • it is not enough to establish a mere balance of convenience in favour of the foreign forum
      • in ascertaining whether there is a clearly more appropriate forum abroad, the court will look for the country with which the action has the most real and substantial connection
        • Connecting factors:
          • availability of witnesses
          • law governing the relevant transaction
          • place where the parties reside or carry on business
          • tort committed in England against an English resident
          • choice of jurisdiction clause in contract
        • cases where there is no clearly more appropriate forum abroad
          • RSC Order 11 cases (the court has already exercised its discretion on the basis of forum conveniens, i.e. England is in the court’s view the most appropriate forum
          • letters of credit (independent of the underlying contract)
          • collision of vessels on the high seas
  • Requirements of justice
    • if there is some other available forum which is clearly more appropriate for the trial of the action, the court will ordinarily grant a stay unless there are circumstances by reason of which justice requires that a stay should nevertheless not be granted
    • once it has been shown that there is a clearly more appropriate forum for trial abroad the burden of proof shifts to the claimant to justify coming to England
    • “Personal or juridical advantage”
      • General principle (per Lord Goff, Spiliada): “…if a clearly more appropriate forum overseas has been identified, the plaintiff will have to take that forum as he finds it, even if it is in certain respects less advantageous to him than the English forum
      • Advantage can be personal (e.g. claimant is English resident) or juridical (substantive or procedural)
      • Limitations:
        • Advantage must be real (i.e. objectively demonstrated)
        • Advantage must be shown when compared with trial in the alternative forum
        • Advantage must be a legitimate one (Contingency fee system in the US was held not to be legitimate advantage)
      • Examples:
        • lack of independence of judges in foreign forum (respective disadvantage)
        • claimant liable to imprisonment if he were to return to the foreign forum (respective disadvantage)
        • summary judgment obtainable
        • security for the full amount of the claim obtainable
        • cheaper and quicker trial
        • higher damages
        • award of interest
        • costs
        • more generous limitation period

Structure of the problem:

  1. Is there another available forum?  -- yes
  2. Is the English or the foreign forum more appropriate?  -- foreign
  3. should the plaintiff not be obliged to litigate abroad (legitimate judicial advantages)?


Restraining foreign proceedings – Anti-suit injunctions

A.    General underlying Principles

  1. Injunction operates in personam
    • disobedience can be punished by contempt of court
    • if foreign court refuses recognition or enforcement of the injunction, English court might refuse recognition or enforcement of the foreign judgment
  2. Court must have jurisdiction to grant injunction
    • no problem when addressee is English resident
    • more complicated when addressee is foreign resident; jurisdiction when:
      • addressee is party to proceedings in England (including RSC Order 11 cases)
      • addressee has sufficient connection with England to justify jurisdiction (e.g. where foreign proceedings are commenced in breach of an agreement providing for arbitration in England)
  3. Comity
    • since the power to restrain foreign proceedings implicitly interferes with the jurisdiction of a foreign court and, thus, touches matters of comity and sovereignty, it should be exercised with great caution
    • anti-suit injunction will not be granted in circumstances that amount to a breach of comity; as per Lord Goff, Airbus Industrie v Patel: “…comity requires that the English forum should have a sufficient interest in, or connection with, the matter in question to justify the indirect interference with the foreign court which an anti-suit injunction entails.” (new principle introduced)
  4. Jurisdiction is only to be exercised when the ends of justice require it

B.   Categorisation of the cases

  1. Cases where the pursuit of proceedings abroad is vexatious and oppressive
  • Action in England possible (leading case: SNIA v Lee Kui Jak [1987])
    • Castanho v Brown & Root [1981]
      • power to restrain foreign proceedings traditionally exercised on the basis of vexation or oppression
      • principle was regarded the same, regardless of whether the remedy sought was a stay of English proceedings or a restraint of foreign proceedings (application of forum non conveniens test as in The Atlantic Star in reverse, i.e. asking whether the foreign court was forum non conveniens)
    • SNIA v Lee Kui Jak [1987]
      • acknowledged that issues raised in context of anti-suit injunctions are different from issues raised in context of stay of English proceedings
      • therefore, different principles should apply when court exercises discretion in these two different contexts
      • since Spiliada Maritime v Cansulex [1987] gave less weight to the advantage of the claimant, there was a danger that anti-suit injunctions would simply be granted on the basis that England was the natural forum for trial
      • House of Lords held accordingly that the application of the same principles as for a stay of English proceedings would be against comity and would disregard the fundamental requirement that an injunction will only be granted where the ends of justice so require (’ advantage to the claimant)
      • old language of vexation and oppression resurrected and combined with the modern language of the natural forum
    • Application of the principles
      • vexatious and oppressive” - Examples
        • action in a third forum that has no apparent connection with the two appropriate for a (cf. Airbus Industrie v Patel [1998])
        • requiring the defendant to fight in two different jurisdictions can itself amount to substantial injustice
        • claim abroad is brought in bad faith
        • claim abroad is doomed to fail
        • preventing the defendant from properly preparing his case
        • misleading of the foreign court
        • forcing a party to incur expenses not apparently connected with the case
        • no oppression, when foreign state has very real connections with the case (property in dispute situated there, defendant permanently resident etc.)
      • advantage to the claimant
        • higher damages (e.g. punitive damages, cf. Castanho case) ’ doubtful if still the case after SNIA v Lee Kui Jak [1987]
        • no legitimate advantage:
          • availability of contingency fees
          • availability of pre-trial discovery proceedings (esp. discovery of documents from a third party)
      • Comity considerations
        • Since Airbus Industrie v Patel distinction between
          • cases where England is the natural forum
            • no infringement of comity, since England as the natural forum is provided with a sufficient interest in, or connection with, the matter in question to justify the interference with the foreign court that an anti-suit injunction entails
          • cases where foreign state is the natural forum
            • infringement of comity
  • Action in England not possible (leading case: Airbus Industrie v Patel [1998])
    • grant of an injunction in these circumstances is inconsistent with comity
    • no exception to the general rule, despite the fact that
      • effective injunctive relief abroad was not available
      • alternative forum (Texas) did not recognise forum non conveniens at that time
  1. Cases where the bringing of proceedings abroad would be unconscionable
  • “unconscionable” conduct
    • first introduced in British Airways v Laker [1985]: “The power of the English court to grant the injunction exists, if the bringing of the suit in the foreign court is in the circumstances so unconscionable that in accordance with our principles of a “wide and flexible” equity it can be seen to be an infringement of an equitable right of the applicant.”
    • existence of this ground was acknowledged in Airbus Industrie v Patel [1998]
    • in principle it simply means contrary to the rules of English equity
  • relationship between “unconscionability” and “vexatious and oppressive”
    • unconscionability is the wider category and encompasses vexation and oppression, the latter being a subdivision of the former
    • unconscionability is wider in that it also encompasses conduct which is not vexatious or oppressive, such as
      • conduct which interferes with the due process of the court (South Carolina Insurance v Assurantie NV [1987])
      • bringing of an action against a person who has a right not to be sued because of a defence (promissory estoppel, waiver etc.) available to him under English law (British Airways v Laker)
    • vexation and oppression is used in alternative forum cases, whereas unconscionability is used in single forum cases
  • Examples
    • pre-trial discovery procedure sought in the US is not per se unconscionable, since it does not interfere with the due process of the English courts, who still control their own procedure
    • also mere extra cost and inconvenience do not interfere with the court’s control
    • multiple damages for breach of US anti-trust laws is not unconscionable conduct, since the US are the only state where this remedy is available (no cause of action under English law)
      • the fact that such a judgment for multiple damages in an anti-trust case would not be enforceable in England does not matter for the exercise of the court’s discretion
  • General rule that English forum should have a sufficient interest in, or connection with, the matter in question to justify the interference with the foreign court applies as much to single forum cases as it does to alternative forum cases
  • in single forum cases (unconscionability) need for caution even higher, since granting the injunction means to deny the claimant trial in any country at all
  1. Cases in which the bringing of proceedings abroad would be in breach of an agreement
  • Two types of agreements
    • (exclusive) Jurisdiction agreements (see for example Continental Bank NA v Aeakos Compania Naviera SA [1994])
    • Arbitration agreements (see for example The Angelic Grace [1995])
  • in case of a valid agreement and foreign proceedings pending, the court has an inherent power to restrain the parties from bringing or continuing foreign proceedings, for that would constitute a breach of contract
  • no difference in principle between breach of an arbitration agreement and breach of an exclusive jurisdiction clause
  • justification in both cases for the interference is that, without it, the claimant will be deprived of his contractual rights in a situation in which damages are manifestly an inadequate remedy
  • principles that
    • discretion should be exercised with caution
    • English forum should have a sufficient interest in, or connection with, the matter in question
      • shall not be applicable in a “breach of contract” situation (although a degree of caution may be even in these cases necessary for obvious comity reasons)
  • it is for the party in breach of the agreement to persuade the court that there is a good reason not to exercise its discretion to grant an injunction
  • discretion should be exercised
    • breach of jurisdiction clause: same criteria as in stay of English proceedings (i.e. forum non conveniens, risk of inconsistent judgments etc.)
    • breach of arbitration agreement: little or no weight should be given to forum non conveniens or inconsistency of judgments

The Applicable Law under the Rome Convention

A.    The scope of the Convention – Art. 1

  1. General principles
    • no retrospective effect - only contracts made after the Convention entered into force (1 April 1991 for the UK, cf. Art. 7 CALA 1990)
    • no prejudice of other international conventions
    • acts of the EC (Regulations, Directives) take precedence over the Convention
    • Contracting States are allowed to introduce their own choice of law rules, even if inconsistent with Convention
  2. Scope
    • Contractual obligation
      • RC does not cover tortuous obligations, property rights and intellectual property rights (although contractual obligations in respect of an intellectual property right, e.g. a licensing agreement, would be covered)
      • problem of classification
        • one State might classify as contract, the other as tort
        • can be avoided by giving the concept of contractual obligation a independent Community meaning, as in the case of Art. 5(1) Brussels Convention
    • Choice between the laws of different countries
      • dispute has to contain a foreign element (one party is foreign national or habitually resident abroad, contract is concluded abroad, contract is to be performed abroad etc.)
      • object of the Convention (i.e. harmonisation / unification, cf. Preamble RC) is most likely to be attained if the scope is given as wide an interpretation as possible
      • if foreign law is not pleaded or proved before English court, it can be disregarded according to Traditional English rules, since matters of evidence and procedure are not covered by the Convention
  3. Exclusions
    • arbitration clauses / choice of law clauses
      • when clause is excluded, it affects only the clause, i.e. the remaining clauses will be within the scope of the RC and the rules of the RC will be applied to them
      • courts will apply English national rules of private international law (= traditional common law rules), with the effect that the contract will be split up and different laws might be applicable to the excluded agreement and to the rest of the contract
    • Evidence and procedure
      • without prejudice to Art. 14 (burden of proof and proving of a contract)
      • vital question of classification of a matter as being procedural (e.g. contract to be in writing: under English law classified as being procedural, under Convention as a matter of substance raising questions on formal validity)

B. Universal application – Art. 2

  • basic principle of universal, i.e. world wide, application
  • no connection of the contract to the Contracting State necessary, in particular no need for either party to be domiciled in a CS ’ only thing that matters is that trial is in a CS
  • therefore, no distinction between CS and non-CS necessary

C. Freedom of choice – Art. 3

  1. Basic principle – Art. 3 (1)
    • parties are free to chose the governing law, cf Art. 3 (1)
    • severance of the contract, i.e. different laws for different parts of the contract (dépeçage), permissible, cf. Art. 3 (1) last sentence
    • choice can be expressly or inferred
      • express choice
        • distinction between express selection of governing law and verbatim incorporation in the contract of certain domestic provisions ’ if incorporated, terms remain constant even if subsequent variation of governing law
      • inferred choice
        • by the terms of the contract, e.g.
          • choice of forum clause (cf. Amin Rasheed v Kuwait Insurance)
          • arbitration agreement (cf. Egon Oldendorff v Liberia Corp.; NV Kwik Hoo Tong v Finlay)
        • by the circumstances of the case
          • express choice of law in a related transaction
          • previous course of dealing under contracts between the same parties contained an express choice of law
  2. Timing and variation of choice – Art. 3 (2)
    • choice can be made at the conclusion of the contract or at any time after the conclusion (policy = maximum freedom to the parties)
    • if choice is made after the conclusion, the time until then will be governed by Art. 4
    • subsequent variation of the choice under Art. 3 (2) possible, regardless of the fact that the chosen law (both, previous and new) might not allow for variation
    • subsequent agreement is subject to Art. 3 (1) and can accordingly be expressly or inferred
    • new choice can contain formal requirements that were not required under the previous law ’ no prejudice of formal validity under Art. 9
    • validity of the new choice of law is to be determined under the new law (New York choice of law clause (as subsequent choice) is a matter for New York law)
    • in English courts obligation to plead and prove foreign law, otherwise application of English law ’ procedural application of English law by mere omission to plead and prove does not operate as a new agreement
  3. Limitations on choice – Art. 3 (3)
    • restriction of evasion of law: essentially domestic contract is turned into a conflict of laws case by virtue simply of the parties’ choice of a foreign law
    • limitation to the extent of preserving mandatory rules of the country where all other connecting factors are situated
    • “mandatory rules”: rules that cannot be derogated from by contract
    • mandatory rules of the forum should also be encompassed by Art. 3 (3) since Art. 7 (2), although concerned with mandatory rules of the forum, is narrower
    • effect of a mandatory rule is to override the parties’ choice (rather than to destroy it), i.e. chosen law will apply to all other relevant clauses of the contract
    • since Art. 3 (3) is only concerned with mandatory rules, choice is still valid as far as non-mandatory rules are concerned, even if all other connections are with one country

D. Applicable law in the absence of choice – Art. 4

  1. The closest connection test – Art. 4 (1)
    • two views on the nature of the process
      • one stage process (Continental view)
        • case starts and finishes with the presumptions in Art. 4
      • two stage process (English view)
        • case starts with presumptions, but then moves on to the closest connection test to see whether the presumption can be rebutted
  • Traditional English approach – proper law doctrine
    • Bonython v Commonwealth of Australia [1951] AC 201 (Privy Council)
      • The proper law of the contract is to be found in the system of law
        • by reference to which the contract was made   or
        • that with which the transaction has its closest and most real connection
          • “system of law” = English law / “that country’s law” = e.g. Scottish law
          • closest and most real connection
            • commercial reality: intentions, results, purposes that parties wish to obtain
            • e.g. place of residence
            • place of business
            • place where contract was made
            • place where contract was to be performed ’ cf. Benaim v Debono [1924] AC 514 (Privy Council), where a contract was concluded in Malta, but  delivery f.o.b. took place in Gibraltar: when the contract is made in one country, and is to be performed either wholly or partly in another, then the proper law of the contract may be presumed to be the law of the country where the performance is to take place (lex loci solutionis)
    • subjective approach ’ starting point are the parties’ intentions, the results and purposes they wish to obtain
  • Rome Convention – Art. 4
    • purely objective test ’ inappropriate to talk about the intentions of the parties
  1. The presumptions – Art. 4 (2)
  • Characteristic performance
    • concentration on one performance which is characteristic of the contract as a whole, i.e. which constitutes the essence of the contract
    • presumption in the Giuliano and Lagarde Report that the characteristic performance is usually the performance for which the payment is due
    • criticism of the concept
      • some contracts do not fit within this concept (e.g. barter, countertrade) – resort would then be Art. 4 (5)
      • in some contracts payment of money is the essence of the contract (pledge, hire-purchase, repayment of a loan)
      • effect of general denial that payment constitutes the essence of the contract leads to favour the seller of goods over the buyer and is questionable (does not conform with the ambit of the Convention, i.e. protection of the weaker party, since manufacturers of goods or provider of services as professionals are favoured against weaker parties, such as consumers)
  • Habitual residence
    • despite the emphasis placed on characteristic performance, Art. 4 (2) does not apply the law of that place, but makes reference to the place where the party which has to effect the characteristic performance is habitually resident (or in the case of a company has its central administration)
    • habitual residence at the time of the conclusion of the contract, since this connecting factor could change subsequently
  1. Non-application of the presumptions – Art. 4 (5)
  • Characteristic performance cannot be determined
    • applicable law has to be determined by the closest connection approach taken in Art. 4 (1) ’ court will have to weigh all connecting factors against each other to reach a decision
  • Contract is more closely connected with another country
    • presumptions are rebutted

E. Limitations of the applicable law by the concept of mandatory rules – Art. 7

  • one of the key concepts in the Convention
  • the State’s interest in upholding certain laws may dictate that those laws must apply even though the issue is, in principle, governed by a different law
  1. Differences in the six provisions on mandatory rules
    • the concept appears in six provisions: Artt. 3 (3), 5 (2), 6 (1), 7 (1), 7 (2) and 9 (6)
      • differences on the question of which country’s mandatory rules are being referred to
      • differences on the type of mandatory rules that are relevant under the Convention
        • wide type of mandatory rule – Artt. 3 (3), 5 (2) and 6 (1)
          • all that has to be shown is that the definition is satisfied
        • narrow type of mandatory rule – Artt. 7 (1), 7 (2) and 9 (6)
          • it has to be shown that the mandatory rule is one according to he definition in Art. 3 (3)
          • in addition, it has to be shown that under the law of the country the mandatory rule overrides the applicable law
          • a rule falling within the narrow type will automatically come within the wide type as well
  2. Definition of mandatory rules
    • universal definition of mandatory rules in Art. 3 (3)
    • to determine whether rules of a particular country are mandatory rules, reference must be made to the law of that country
    • effect given to mandatory rules by the Convention is to override the normal rules on applicable law in the Convention
      • complete overriding effect ’ it does not only override the parties’ choice of the applicable law, but also the applicable law in the absence of choice
      • limited overriding effect ’ overrides the parties’ freedom to choose the applicable law, but does not override the applicable law in the absence of choice (e.g. Unfair Contract Terms Act 1977, s.27)
      • no overriding effect
  3. The effect given to mandatory rules under Art. 7 (2)
    • overriding effect under Art. 3 (choice) and Art. 4 (absence of choice)
    • probably wider effect with regard to the wording “Nothing in this Convention shall restrict…” ’ suggests that Art. 7 (2) should be regarded as a general exception (like public policy) to all choice of law rules contained in the Convention, i.e. also overriding formal validity, special contract rules etc.

F. Material validity – Art. 8

  1. Definition of material validity
    • does not only cover issues of material validity in the English sense (e.g. illegality), but also issues relating to formation of the contract (offer, acceptance, consideration etc.)
    • covers also validity of consent (mistake, misrepresentation, duress etc.)
    • covers not only matters in relation to the contract (as a whole) but also in relation to terms (clauses) of the contract
  2. The putative applicable law – Art. 8 (1)
    • with material validity one has to assume that the contract or term is valid in the first place before ascertaining the applicable law ’ “putative applicable law” is applied
    • e.g. validity of a New York choice of law clause is governed by New York law, validity of a clause providing for arbitration in England is governed by English law (the arbitration clause being an inferred choice of law)
  3. The safeguard in relation to consent – Art. 8 (2)
    • safeguard for the following situation: A makes offer to B, and inserts a choice of law clause providing for Utopian law, under which silence can constitute an acceptance
    • effect of Art. 8 (2) is that B can assert that he did not consent according to the law of his habitual residence
    • wide enough to cover offer and acceptance
    • nonetheless, only concerned with existence of consent, not with validity of consent (mistake, misrepresentation, duress)
    • validity of consent governed by Art. 8 (1), but without safeguard of Art. 8 (2)

G. Formal validity – Art. 9

  • formal validity encompasses every external manifestation required on the part of a person expressing the will to be legally bound, and in the absence of which such expression would not be regarded as fully effective
  • Examples
    • contract to be in writing
    • two signatures
    • duplicate
  1. Between persons who are in the same country – Art. 9 (1)
    • normal rules on the applicable law under the Convention are applied
    • if the contract is formally invalid under these rules, recourse can be had to the law of the country where the contract was concluded in order to validate it
    • policy: to avoid the invalidation of contracts on the basis of formal defects
    • difficulties
      • alternative law can be varied according to Art. 3 (2)
        • subsequent variation will not prejudice the formal validity, i.e. a variation which has the effect of invalidating the contract will not be allowed
        • subsequent variation which has the effect of formally validating a contract will presumably be allowed
      • if different laws are to govern different parts of a contract, which is to govern the formal validity?
      • when Art. 9 speaks of the governing law, it means apparently the “putative” governing law, i.e. the law which would govern the contract if it were formally valid
  2. Between persons who are not in the same country – Art. 9 (2)
    • recourse to the law of up to three different countries
    • Art. 9 (1) and Art. 9 (2) are alternatives for validating the contract without giving priority to any one alternative