The Concept of Characteristic Performance in the Rome Convention - Essay Example

Using case law critically assess the concept of ‘characteristic performance’ in Article 4(2) of the Rome Convention Rome Currently, in the majority of European nations, the correct choice of law is to be decided as per the provisions of Rome Convention. Pursuant to Section 1 and Schedule 1 of the Contracts (Applicable Law) Act of 1990, the Rome Convention has the force of law in the UK and other major European nations.(Jaeger & Hok 2010:58). Article four of the Rome Convention reaffirms the general clash of laws tenet that parties to a contract at their liberty to select the governing law to their contractual relations. Article 4(2)- states that “ with the reference to the stipulations of paragraph five of this Article four, it shall be construed that the contract is most closely linked with the country where the party who is to guarantee the execution of the terms of the contract which is the main feature of the contract , has , at the juncture of signing the contract , characteristic performance will be decided with his routine domicile, or ,in the case of a company or any incorporated body , its head administration office. Nonetheless, if the contract is carried mainly in the ordinary course of their profession or trade, then the country shall be the country where the chief place of business is located or as per the terms of the contract, the execution of the contract is to be carried out from a place of business instead of chief place of business, the country in which the other kind of business is located.” Article 4(5) of the Rome Convention provides an exception to the rule 4(2). It provides that Article 4(2) will not be applicable if the distinguishing feature cannot be evaluated, and the assumption in the paragraph 2 shall be overlooked if it seems from the background in its entirety that the contract is more intimately linked with another nation. It is to be observed that Rome 1 varies from the Rome Convention as regards to the contract of carriage. In general parlance, the complicated and supple system under the Convention has been replaced by a system with a stern choice of law regulation and with a thin escape clause in Rome I. Where the parties have not consented on the place of delivery, the applicable law under Rome 1 will be, it is advocated, to be concluded under Article 4(2), where the nearest connection litmus test would be extended under the convention. Rome 1 which offers a selection of the law system for contracts of carriages with certainty at the cost of flexibility offered under the Convention. (Ferrari & Ferrari 2009:108). Article 4(2) of the Rome I Regulation uses the stipulation of “characteristic performance, “stating that: “Where the features of the contract would be covered by more than one of the points detailed in (a) to (h) of paragraph or the contract is not covered by these paragraphs, then, the contract shall be administered by the laws of the nation where the party is needed to demonstrate the characteristics performance of the contract is to be decided from the customary domicile.” The Characteristic performance connotes to the centre of gravity of a business transaction. The underlying aim in the assumption of characteristic performance is not the deciding of the domicile of the characteristic performance but the deciding the place of business or residence of the party who is to execute the characteristic performance. (Chuah & Kaczorowska 2000: 190). Thus, Article 4(2) of the Rome I Regulation is alike to Article 4(2) of the Rome Convention as regards to the association between habitual residence and characteristic performance. Even though the notion of characteristic performance and closest connection prolong to play a significant part in the operation of the deciding of the applicable law in case where there is no clear provision for the party’s selection of choice of law, their relevant positions in the methodological hierarchy have to be transformed significantly. In Article 4(2) of the Rome Convention, as regards to the notion of “characteristic performance (hereinafter will be referred as CP) “there exists two chief points in the Article 4(2) of the Rome Convention. Firstly, in applying the particular factor about the assumption of deciding the applicable, the characteristic performance is considered as a relevant factor; secondly, the element of characteristic performance is decided ‘at the juncture of signing of contract.’ Characteristic performance of a contract pertains to the performance that comprises the main spirit of the contract. (Wang 2010:112). The notion of characteristic performance is a new but somewhat contentious feature of the Rome Convention 1980 and the concept has been borrowed from Swiss law as observed by D’Oliviera. One of the main issues is that the convention has not defined the term. In common law, more significance was given to the law of lex loci solutionis (the place of performance). However, under normal bilateral contract, the place of performance may fall under two heads, viz. the place of delivery of products and the place where the payment is to be made. Further, even the Giuliano and Lagarde report does not explain what is ‘characteristic performance’ but recognises it as the socioeconomic objective of the contractual transaction. The above report suggests that CP refer to the place where the work is carried out under the contract instead of place where the payment is made for such contract. Hence, under sale contract, the applicable law will be the seller’s country law and not the buyer’s country law. The above report also gives some illustrations as to what CP connotes; in a banking contract , the law relates to the bank, in a law of agency , the law relates the agent’s place; in a hire contract , the law relating to the hirer out; and in a building contract ,the law relating to the builder. (O’Brien & Smith 1999:340). If CP cannot be identified in a contract as in the case of a contract which engrosses the exchange of products or mutual services, the governing law will be the law of the nation with which the contract is most intimately associated. Even in cases where CP can be identified, the supposition will not apply if the contract is more intimately associated with another nation and in such case, the other country law will be applicable in its place. (O’Brien & Smith 1999:340). In “Société Nouvelle des Papeteries de l´Aa v. BV Machinenfabrik BOA” case, the CP was applied by the Dutch Supreme Court despite the fact that relevant Dutch law in that case , the language , the place of negotiation , language of the contract , place of performance , and the nationality of seller’s agent showed the evidence of the application of French law. In” Soc. Amman – Yanmar v. Soc. Zwaans BVA, Cour de cassation,” French Supreme Court had to look into one of the striking scenarios for the determination of the CP of an exclusive distribution contract. The French Supreme Court deliberated the CP by having merely relied on the rule of closest relation of Art 4(1) of the Rome Convention. Though there was no performance is evidently characteristic in a relationship of distribution, it was the supply of the good by the distributor to the second-tier seller that was regarded to be the chief traits of CP of the distribution contract. In Samcrete v Land Rover,1 Potter LJ was of the opinion that application of Article 2 engrossed a two-tire process. Firstly, there is a necessity to recognise the characteristic performance of the contract and the nationality of the party who is to give effect to it, and then to identify what elements, if any, might force the court to ignore the presumption under Article 4(5). (Stone 2010:311). It was clear that the scene of the characteristic performance could vary from the domicile of the characteristic performer, and it is obvious that Article 4(2) of the Convention intentionally favoured the domicile to the location of the performance as some more elements was essential to dislodge the supposition. Lord Hamilton was of the view in Grant v Brizard that the fact that the contract was signed in the background of long-run contract for the exclusive supply of products in the purchaser’s country was not adequate to dislodge the supposition in support of the law of the country of the seller. However, Lord Penrose, in Ferguson Shipbuilders v Voith Hydro2 viewed that it could be adequate that the sale was of a constituent to be supplied and then, establishment of a huge machine in the purchaser’s country. In this case, a German company delivered in Scotland, the propeller system which it manufactured in Germany for fitting into the ships that were under construction in Scotland by a Scottish ship building company. (Dicey, Morris & Collins 2000: 81). In Definitely Maybe v Marek Lieberberg3, more significance was given to the place of performance in deciding the characteristic performance. In this case, an English company entered into a contract for the provision of a band service in Germany, which was organised by a German based company. Morison J found that the aggregate of contract had a closer link with Germany than that of England as the Germany was the location of the performance by the both parties, where the organiser was to make arrangements, and the band was to be performed in Germany. (Ahern & Binchy 2009: 106). Lightman J observed in Albon v Naza Motor Trading4 that in a contract of agency between a Malaysian principal and an English agent as regard to the purchase of cars in South Africa and their shipment to Malaysia, the applicable law was the South African Law on the basis of characteristic performance. (“Stone 2010: 318”). However, in Caledonia Subsea v Micoperi5, the above supposition was not eventually followed. In this case, an Italian company contracted with a Scottish company, where the latter had to offer diving services in Egyptian waters. Thus, the location of the characteristic performance was in major part were carried over in Egypt, and the supervisory and preparatory work were carried out in Scotland. Lord Hamilton whose opinion was later confirmed by the Inner House illustrated that it was essential to offer more significance to characteristic performance ,which was carried out in the country where the performer head or principal place of business. (Carr &Stone 2009: 580). However , little consideration is given to the rule of CP by the English and Scottish courts ,and this prolonged to highlight the real and the closest connection as per the rule of proper law of contract in decisions like Sierra Leone Communications Co. Ltd v. Barclays Bank plc6, “HIB Ltd v. Guardian Insurance Co. et al7, ACE v. Zurich Insurance Company and Zurich American Insurance Company, Commercial Court8” .(Lauterpacht & Greenwood 1999:467). In “Crédit Lyonnais v. New Hampshire Insurance Company9”, Hobhouse L.J. observed that the supposition of Article 4(2) is replaced if the court regards that it is not proper in the background of any given case. However, this makes the supposition very feeble. (Collier & Collier 2001:199). In “Bank of Baroda v. Vysya Bank Ltd”10, an English court, despite the fact extending the CP in a letter of credit transaction, being the law of the branch of the confirming bank, did not view the CP to be the sole and crucial linking factor, but also felt it was essential to take into cognisance other supportive evidences so as to corroborate the applicable law. The above case law affirms the finding that judges from the common law jurisdiction deviate from the rule of the law of the CP when enforcing Article 4, with much greater simplicity than their civilian colleagues. (Cafaggi 2011:219). Under British law, the shipment of products will be given due weightage in case of the characteristic performance of an export contract and the party making such performance will be the exporter of the products. This has been held in vases like Johnson v. Taylor 11and Benaim v Debono12. Thus, for want of choice of law by the parties, the administering law of the contract would be the law of chief place of business of the exporter, who in majority but not in all cases will be the seller of the products. (Ziegler 2010: 139). In Cf Print Concept v GEW13 , it was held that the law does not include any particular provision recognising the CP in the case of industrial property rights or intellectual property rights. (Carr &Stone 2009: 576). In Raiffeisen Zentralbank v National Bank of Greece, Tuckey J observed that in case of a contract between banks where so as to facilitate one bank to offer extra finance for a ship construction project, and the other bank accepted to redirect to the bank offering extra finance, the installement payments which it was required to advance the ship construction purchaser. In this case, the responsibility to redirect the payments construed to be the CP and hence the Article 4(2) of the Convention focussed to the law of the domicile of the bank which committed to divert. (Carr &Stone 2009: 576). In HIB v Guardian Insurance14, Longmore J observed that in case of insurance contract whereby an insurance broker is ordered to arrange for insurance as per the law of the nation in which such insurance broker carries on his business, and that constitutes CP. (Carr &Stone 2009: 576). In Latchin v General Mediterranean Holidays15 , Andrew Smith J viewed that CP would be the law of an architect’s residence where under a contract; an architect is required design a building. In Tonicstar v American Home Assurance, Morrison J observed that in case of the reinsurance contract, CP would be the law pertaining to the reinsurer’s domicile. (Carr &Stone 2009: 576). In case of some English verdicts under the Convention, there had been overruling, which spelled out that in the case of independent contract for services like to reimburse the expenses or to pay a fee in case of some services, and it is the party who assures to pay and not the provider of services, who is being reckoned as the character performance as held in Ark Therapeutics v True North Capital16. (Carr &Stone 2009: 578). In Intercontainer Interfrigo v Balkenende Oosthuizen, Bot AG was of the view that Article 4(4) of the Convention acknowledges that there are instances where the CP cannot be evaluated and thus, no appropriate assumption can be extended to find out the CP. In such instances, Article 4(4) points the contract to the law of the nation with which it is most directly associated. (Carr &Stone 2009: 578). In Jacobs Marcus v Credit Lyonnais 17 and in Zivnostenska Bank v Frankman18 , it was held that the assumption in favour of the CP’s domicile considerably coincides with the trend in the customary English law of favouring the domicile of head office instead of the domicile of the characteristic or principal performer. (“Stone: 2010 312”). In Bloch v Soc Lima, where a French guarantor warranted a debt administered under Italian law. The guarantee was written in Italy and signed in Italy. It was held that though the CP indicated to French law, but the Italian law will be applicable as it is having close connection. (Wood 2007:2-069). To sum up, Characteristic performance of a contract pertains to the performance that comprises the main spirit of the contract. Lord Penrose, in Ferguson Shipbuilders v Voith Hydro viewed that it could be adequate that the sale was of a constituent to be supplied any product could be regarded as CP. In Definitely Maybe v Marek Lieberberg, more significance was given to the place of performance in deciding the characteristic performance. , Little consideration is given to the rule of CP by the English and Scottish courts, and this prolonged to highlight the real and the closest connection as per the rule of proper law of contract by English courts. In “Bank of Baroda v. Vysya Bank Ltd “, an English court, despite the fact extending the CP in a letter of credit transaction, being the law of the branch of the confirming bank, did not view the CP to be the sole and crucial linking factor, but also felt it was essential to take into cognisance other supportive evidences so as to corroborate the applicable law. Under British law, the shipment of products will be given due weightage in case of the characteristic performance of an export contract and the party making such performance will be the exporter of the products. This has been held in vases like Johnson v. Taylor and Benaim v Debono. In Intercontainer Interfrigo v Balkenende Oosthuizen, Bot AG was of the view that Article 4(4) of the Convention acknowledges that there are instances where the CP cannot be evaluated and thus, no appropriate assumption can be extended to find out the CP. Rome I is analogues to the Rome convention. It offers some flexibility to the parties to select the law that will be pertinent to the contract. In case, where no choice of jurisdiction is pointed out, or when there is a failure to arrive at a consensus, Rome is meant to offer clear cut regulation to decide the choice of law that should be applicable to the contract, while prolonging to offer the courts with easiness and prudence. Further, one of the main aims of Rome I is to safeguard the interest of the employees and consumers. With some exclusion, the law of the consumer’s regular domicile will be governing law for disputes relating to choice of law. List of Refereces Ahern, J & Binchy, W. (2009). The Rome II Regulation on the Law Applicable to Non-Contractual. London: Brill Caffagi, F. (2011).Contractual Networks, Inter-Firm Cooperation and Economic Growth. Brussels: Edward Elgard Publishing Carr, I & Stone, P. (2009). International Trade Law. London: Taylor & Francis Chuah & Kaczorowska, A. (2000). Conflict of Laws Q&A. London: Routledge Taylor & Francis Group Collier & Collier. (2001). Conflict of Laws. Cambridge: Cambridge University Press Dicey, AV, Morris, J H C & Collins L A. (2000).Dicey and Morris on the Conflict of Laws. London: Sweet & Maxwell Ferrari,F& Ferrari, F. (2009). Rome I Regulation: The Law Applicable to Contractual Obligations in Europe. Brussels: Sellier European Law Publishing Jaeger, AV & Hok, GS. (2010).FIDIC-A Guide for Practitioners. London: Springer Lauterpacht, E & Greenwood, C J, (1999).International Law Reports: Volume 114. Cambridge: Cambridge University Press O’,Brien J & Smith ,R. (1999) Conflict of Laws. London: Routledge Taylor & Francis Stone ,P. (2010). EU Private International Law. Brussels: Edward Elgard Publishing Wang, FF. (2010). Internet Jurisdiction and Choice of Law. Cambridge: Cambridge University Press Wood, PR. (2007). International Finance, Volume 6. London: Sweet & Maxell Ziegler, V. (2010). Transfer of Ownership in International Trade: 2nd Edition. London: Kluwer Law International Read More