The Rome Convention and Contract - Case Study Example

The Rome Convention and Contract The core provisions of the Rome Convention have been applicable to contractual obligations within the UK since April 1, 19911 and contracts made between parties of different countries have been specified under the Act to be applicable either by the law chosen by the parties, or by the law of the country with which it is the most closely connected. In the history of UK law, since the implementation of the provisions of the Rome Convention within the UK through the Contracts (Applicable law) Act of 1990, it may be noted that adjudication that has taken place has hitherto followed along the lines of English law on contract, notably on the issue of determination of the intention of the parties concerned. When commercial contracts are executed between two parties who belong to two different countries or where the contract is executed in one place and performance takes place in another, the parties sometimes specify clearly by which country’s law they choose to be governed in the event of any dispute arising out of the provisions of the contract. Significant provisions of the Rome Convention: Article 3 of the Rome Convention become relevant when the parties concerned have specified their choice of law2 and any disputes in such cases are governed by the law of the country specified in the agreement. However, uncertainties arise only when no specific choice of law has been made in the contract between the two parties, or when there is a dispute between the parties as to which law they will agree to adopt for the resolution of the dispute and Article 4 becomes relevant in that case. According to the provisions of article 4, “the contract shall be governed by the law of the country with which it is most closely connected”3 In making a determination about which country’s law is most connected, the characteristic performance will be the determining factor, which will depend upon the residence or office of the party responsible for administration of the contract.4 But this feature will not necessarily apply in all cases. The place of residence of the parties will not apply when from the circumstances of the case as a whole, the contract appears more closely connected with another country.” 4 The English law of contract and the Rome Convention: Article 3: The English law of contract has traditionally been governed by the free will theory of contract or consensus as idem, which was an expression of laissez faire philosophies, governed by the belief that parties have the ultimate freedom to contract and may draw up any terms that are acceptable to both of them, wherein the courts will not interfere with a free will agreement reached by the parties5. However, despite this subjective approach, the English Courts have approached disputes from the perspective of discovering the intentions of the parties, or what meaning a reasonable person in the position of either of the parties would have understood the other to be conveying6 in order to make a determination on whether there is a consensus in which case, it will not interfere. It may be noted that Article 3(1) of the Rome Convention also specifies such free will agreement by both parties as to which law will govern the execution of the contract. As pointed out by Jonathan Hill, the “choice of law” in this case “raises basically the same issue as the question of whether the parties reached agreement on any other contractual term.”7 According to Article 3, if the parties have reached a consensual agreement on the court which will resolve the dispute, then this Court will take up the adjudication process.8 In arriving at such decisions, the Courts will examine the intentions of the parties to determine whether there was a consensual agreement, and where such intent is not clear, the Courts will not decide that an express choice of law exists. “….the parties made no choice as to the governing law, in the sense that, when the circumstances are considered, no clear common intention is apparent that English law should apply.”9 Therefore, the execution of Article 3 of the Rome Convention is also dependent upon determining the intention of the parties. As pointed out by Sabirau Perez, the role of the Courts is vital in determining the nature of contracts, even in the case of employment contracts - any international contract of employment is likely to be governed by the law that is chosen by the parties based upon the underlying principle of freedom of contract, however in order to ensure that employees are not deprived of their rights due to such freedoms, the Courts will have to play the interpretative role to determine intention of the parties10. English law use of the intention of the parties has been dependent not merely upon the actual intentions which could conflict in the case of both parties, rather the Courts focus on making a proper inference about what a reasonable person would have understood, based upon the circumstances that existed at the time. For example, in the case of Oscar Chess v Williams11 Lord Denning drew his inferences based upon the circumstances of the case and admits that it is the Court’s responsibility to draw such an inference about the intent of the parties based upon the circumstances of the case. A similar principle is applicable under the Rome Convention, where the intent of the parties must be clearly demonstrated through contractual terms or the circumstances of the case.12 Hill points out that in the adjudication of several cases13 dealing with Article 3(1), the Courts have supported the choice of English courts in contracts where English jurisdiction or arbitration has been chosen. In the case of Egon, Clarke LJ clarified that unless there were exceptional circumstances, the Rome Convention had not brought about any significant changes in the law of contract, which were still governed by the Common law, upon which the English notions of contract have traditionally been based and which have withstood the test of time14. Moreover the Guiliano Lagarde report15 states that when a contract is “in a standard form which is known to be governed by a particular system of law”16 then the choice of contract may be implied by default to mean English common law. Article 3 has in general been applied using the principles of English common law, especially in the case of insurance contracts17, where English common law are accepted as the standard forms of contract, thereby mandating implementation in accordance with English law principles. Article 4: Article 4 is generally relevant in cases where no specific choice has been made as to which law will prevail. In such cases, the Court must rely upon (a) characteristic performance and (b) the circumstances of the case in making a determination about which law is to prevail. In such cases, the conflict presented to the Court is whether it is to be guided by procedural law or jurisdiction under which the case has been filed.18 Dicey and Morris have clarified that issues of substance will be adjudicated in accordance with the law that is relevant to the cause of action in the case (lex causae) while procedural matters fall under the domestic law of the country where the suit for action is brought (lex fori) as follows: “All matters of procedure are governed by the domestic law of the country to which the country wherein any legal proceedings are taken belongs.”19 One of the first cases that rejected an application of the provisions of Article 4(2) of he Convention on the basis that it did not satisfy the grounds of substantive issues as laid out in Section 4(5) was that of Sierratel v Barclays Bank20 and in this case also, Cresswell J’s analysis of Article 4 was based upon the principles of common law which are the foundation of English law. Atrill puts forth the proposition that Article 4(2) of the Rome Convention, which presumes that the residence of the characteristic performer is the one most closely connected to the contract, may be based upon a “strong” or “weak” model - if the residence is the primary issue, the model is strong, if the residence has little bearing on the case, it is a weak model.21 He points out the presumption of Article 4(5) as being the “weaker” model signifies that it is often the characteristic performance that will be deemed important in determining applicable law rather than the factors surrounding the circumstances of a particular case.22 The relevance of appropriate jurisdiction is am important factor in English common law. As Atrill points out, the default position of Article 4(2) ensures that commercial parties are not in a position to make a sophisticated choice of law to suit their own interests23, although the precise strength of such an assumption cannot be adequately defined and experts prefer weakening it24. In some instances courts have applied a marketing model to determine appropriate law and such assessments have been in accordance with common law, most notably in the case of Sierratel25 where a commercial bank contract was governed by the common law rule which regards the law of the place where the characteristic performance occurs as being the most important factor. Lord Hamilton in the case of Caledonia Subsea v Microperi reiterated the importance of the lex fori in determining applicable law by stating the true reason for the decision as follows: “..the social and economic source from which the performance comes… is in the country of establishment.”26 This demonstrates an adherence to the common law principles in attributing an importance to the establishment and the courts have tended to favor the common law approach, in deciphering the presumed intentions of the parties when the contract does not specify the law to be used. Presumptions are made based upon the common law approach which makes them based upon “common sense, upon business convenience and upon the comity of nations.”27 This has been the established principle used by the Courts until the Rome Convention and accordingly, there is a “natural tendency” to refer to the common law.28 Conclusion: In the light of the above, it may be noted that the issues of lack of clarity in stating applicable laws in the administration of a contract have been dealt with on the basis of common law, which has been a long established principle of English contract law. The foundation of Article 3 of the Convention is that of freedom of contract, which is the basis of common law. Moreover in the determination of the applicability of Article 4 of the Rome Convention in instances where the applicable law is not clearly set out in the terms of the contract, the Courts have favored a strong model approach wherein greater weightage is accorded to the characteristic performance as opposed to the circumstances of the case. This is yet again in accordance with long established common law, where the location of an establishment is the important factor that counts in arriving at a judicial decision. Therefore, there has been a tendency to apply common law rather than international law in most cases involving conflicts of laws. English laws of contract have favored the enforcement of the consensual nature of contracts and the major focus has been upon determining the intentions of the parties concerned. However, as noted before, the presumptions that must be exercised by the courts in order to assess the true intentions of the parties have been conditioned based upon common law principles, which have long been the basis for implementation of laws of contract in English Courts. Therefore, it may be concluded that as of now, the exercise of adjudication in cases of conflicts of laws has been tilted towards favoring the common law approach of the English courts. International law in this aspect, existing as a separate and distinct entity from the common law governing English law of contract, is as yet indistinct and not well developed. Therefore, until the European Court of Justice or an international Court is able to set out fresh guidelines through precedents for the adjudication of such disputes, it appears that the common law approach favored by English courts will continue. Bibliography Books: * Dicey & Morris, 2000. Conflict of Laws, Volume 1, 13th edition. London: Sweet & Maxwell Limited, at pp 157 * McKendrick, Ewan, 2000. Contract Law (4th edn) Basingstoke: Macmillan, pp 53-55 * McLean, David, 2000 Morris: The conflict of Laws London: Sweet and Maxwell Articles: * Atrill, Simon, 2004. Choice of Law in contract: The missing pieces of the article 4 jigsaw? The International and Comparative Law Quarterly , 53(3), p 549 * Guiliano Lagarde Report OJ 1980 C 282/1 * Hill, Jonathan, 2004. Choice of law in contract under the Rome Convention: The approach of the UK courts The International and Comparative Law Quarterly, 53(2), p 325-350 * Sabirau-Perez, Marie-Agnes, 2000. Changes of the law applicable to an international contract of employment International Labour Review 139(3), pp 335-358 Legislation: * Contracts (Applicable Law) Act 1990 * The Rome Convention, available online at: http://www.rome-convention.org/instruments/i_conv_orig_en.htm Cases: * American Motorists Insurance Company v Cellstar Corporation (2003) IL Pr 370 * Caledonia Subsea v Microperi (2001) SLT 1186 at 26 * Centrovincial estates v merchant Investors (1983) * Definitely (Maybe) Touring Ltd v Mark Lieberberg (2001) 1 WLR 1745 * Egon Alderdoff v Libera Corporation OJ (1980) C282/17 * Ferguson ShipbuildersLtd v Voith Hydro GmbH & Co K.G.(2000) SLT 229 (OH) * Gan Insurance Company Ltd v Tai Ping Insurance Company Ltd (1999) IL Pr 729 * Hartog v Colin and Shields (1939) * Jacobs v Credit Lyonnais (1884) 12 QBD 589 * Oscar Chess v Williams (1957) * Samcrete Egypt Engineersand Conractors SAE v Land Rover Exports Ltd (2002) CLC 533 * Sierratel v Barclays Bank (1998) 2 All ER 821 * Tiernan v The Magen Insurance Co Ltd (2000) IL Pr 517 Read More