Choice of Law in Contractual Obligations (L16-18)

Question 1

What are the sources for choice of law rules in contract?

Answer 1

Common law.
Contracts (Applicable Law) Act 1990.
Rome I Regulation.

Question 2

When do the common law rules govern choice of law in contract?

Answer 2

Contracts entered into before 1991.

Question 3

When does the Contract (Applicable Law) Act 1990 govern choice of law in contract?

Answer 3

Contracts concluded on or after April 1 1991, up until 16 December 2009.

Question 4

When does the Rome I Regulation govern choice of law in contract?

Answer 4

Contracts concluded on or after 17 December 2009.

Note: Retained after 01/01/2021 by the Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc) (EU Exit) Regulations 2019.

Question 5

What is the common law doctrine of the “proper law” in choice of law in contract?

Answer 5

Party autonomy.
Vita Food Products v Unus Shipping Co [1939] AC 277.

If no choice, legal system with which transaction has its “closest and most real connection”.
James Miller & Partners v Whitworth Street Estates [1970] AC 583.

Question 6

What does the Contracts (Applicable Law) Act 1990 implement?

Answer 6

Rome Convention 1980.

Question 6

What is excluded from the Scope of the 1990 Act, and included in the scope of the Rome I Regulation?

Answer 6

Article 1.

Question 7

How does the principle of vertical continuity help to interpret the Rome I Regulation?

Answer 7

Large body of case law built up on Rome Convention.

Where terms of Rome I Regulation are identical, Rome I Convention case law may be used to interpret provisions of Regulation.

Question 8

How does the principle of horizontal continuity help to interpret the Rome I Regulation?

Answer 8

Consistency with terms in Brussels I Recast?
E.g. “sale of goods”: Brussels I Regulation, Art 7(1)(b); Rome I, Art 4(1)(a).

Consistency with Rome II (non-contractual obligations)?
Fit of scope: contractual or non-contractual?
Shared terminology (e.g. ”habitual residence”).

Question 9

How has Brexit and the European Union (Withdrawal) Act 2018 affected the Rome I Regulation?

Answer 9

S6(1). Not bound by post-exit day CJEU case law.
S6(2). May have regard to post-exit day CJEU case law.
S6(3) and (4). Lower courts bound by pre-exit day CJEU case law.
[UKSC, CSIH, and EWCA will be able to depart].

Also prospective changes wrought by s6 of the Retained EU Law (Revocation and Reform Act) 2023.

S6(4)(ba), read with s6(6B) (inserted into 2018 Act).
- UK Supreme Court, Inner House and E&W Court of Appeal may now depart from retained EU case law.

S6A (inserted into 2018 Act).
- Lower courts may make references to higher court as to whether retained EU case law is to be followed.

Question 10

What does Art 1(1) of the Rome I Regulation say?

Answer 10

“This Regulation shall apply, in situations involving a conflict of laws, to contractual obligations in civil and commercial matters.”

Question 11

How does the case of In re Bonacina [1912] 2 Ch 394 demonstrate that the courts take a wide approach to what is contractual?

Answer 11

“[the contract] has in English law no consideration to support it: but it is an Italian contract made in Italy between Italians and is governed by Italian law, and the expert evidence convinces me that it is a contract valid and enforceable in Italy. If so, the only bar to its validity here disappears.”

In English law, you can’t contract for nothing.
Argued it was not a contract under English law.
English court held it was sufficiently close to a contract, so they would apply choice of law rules of contract. (Enlightened lex fori).

Question 12

How does the case of Pan Oceanic Chartering v UNIPEC UK [2016] EWHC 2774 (Comm) help to demonstrate that the courts take a wide approach to what is contractual?

Answer 12

Applies to terms implied by statute, if underlying contract freely assented to.

Question 13

How does Committeri v Club Mediterranee SA [2018] EWCA Civ 1889 show the Rome I (contractual) vs Rome II (non-contractual) axis?

Answer 13

Term in the contract which said English law was applicable. But the claim appeared to be in delict.

If non-contractual, French law would apply.
English court said it was contractual.

Obligation freely assumed….
The contract was key to triggering the relevant liability. The remedy under French law required the contract to exist.

Question 14

How does Joint Administrators of Rangers Football Club plc, Noters 2012 SLT 599 show the contractual/property axis?

Answer 14

Deal with a company to pay him money, secured using future season ticket sales.
Contract under English law.
English law, agreement like this is a property right.
In Scots law, no such right exists.
Property law governed by the law of the place.
This property right does not exist under Scots law, so they had no right to ownership over Ibrox Stadium.

Question 15

Under Article 1(2), what is outside of the scope of Rome I?

Answer 15

“The following matters are outside the scope of the Regulation:
…
(b) family relationships
(c) matrimonial property
(d) bills of exchange
(e) choice of court and arbitration agreements
(f) corporate capacity and management
(g) agent-principal relationships
…”

Question 16

What does Article 3(1) provide?

Answer 16

“A contract shall be governed by the law chosen by the parties. The choice shall be made expressly or clearly demonstrated by the terms of the contract or the circumstances of the case…”

Question 17

How does The Komninos S [1991] 1 Lloyd’s Rep 370 demonstrate an express choice of law?

Answer 17

Contract of Greek shipping industry. Translated from Greek to English.
Choice of ‘UK’ law?
Said an international shipping contract would clearly be dealt with in England if saying ‘UK’ law.

Question 18

How does Dhir v Flutter [2021] EWHC 1510 (QB) demonstrate an express choice of law?

Answer 18

Choice of ‘Dubai’ law?
There are 2 legal systems in Dubai. The standard one which widely applies, the one which applies to those in front of the Dubai International Financial Court.
No sign they would want to deal with this special court.
Standard UAE law.

Question 19

What does VfK v Amazon [2017] QB 252; VfK v TVP Treuhand [2019] ILPr 44 demonstrate?

Answer 19

Possibility of reviewing choice of law clause as unfair term.

Question 20

What is the practice of deçepage?

Answer 20

“…By their choice the parties can select the law applicable to the whole or to part only of the contract.”

Issue splitting.
E.g. obligations of different parties governed by different legal systems.

Question 21

What is fluctuating choice of law under Art 3(2)?

Answer 21

“The parties may at any time agree to subject the contract to a law other than that which previously governed it…”

A ‘floating’ choice of law?
Mauritius Commercial Bank Limited v Hestia Holdings Ltd [2013] EWHC 1328 (Comm).

Question 22

What is the distinction between designation and incorporation in choice of law?

Answer 22

Designation = applying a legal system to the whole of a contract. Must be a (somewhat) sovereign state legal system.

Can incorporate parts of a Convention etc to apply.
If the law of the legal system allows this.

Question 23

What does Recital (13) say about incorporation?

Answer 23

“This Regulation does not preclude parties from incorporating by reference into their contract a non-State body of law or an international convention.”

Question 24

How may non-state law be involved in a contract?

Answer 24

A contract as a whole cannot be governed by non-state law…
…however, if principles of non-state law are sufficiently fixed, they may be incorporated into a contract (e.g. UN CISG; Hague Rules).

Question 25

How is Shamil Bank of Bahrain v Beximco Pharmaceuticals [2004] 1 WLR 1784 an example of non-state law being chosen for a contract?

Answer 25

“The principles of the Glorious Sharia’a”.
Many different systems of Sharia’a, disagreements about what it means.
Not sufficiently certain.
Trying to designate.

Question 26

How is Halpern v Halpern [2008] QB 195 an example of non-state law being chosen for a contract?

Answer 26

“Halakha” (Jewish Law) as an aid to interpretation and part of background to agreement?
Single recognised system.
Incorporated, NOT designated.

Question 27

What is an implied choice under A3(1)?

Answer 27

Clear that they thought a certain system applies?
Pretty much on the same level as express choice.
Must be certain!

Question 28

What does Lawlor v Sandvik Mining [2013] EWCA Civ 365 tell us about an implied choice of law?

Answer 28

For a party to prove an implied choice of law, they must establish objectively that parties would have “taken it without question” that the particular law would be applicable, or that the application of that law to the contract is “the only reasonable conclusion” ([33]).

Question 29

Which factors are to be considered when looking at implied choice of law?

Answer 29

Chain of transactions?
Jurisdiction agreement?
Use of terminology or reference to provisions particular to a certain system?

Question 30

How does Aquavita International v Ashapura Minecham [2014] EWHC 2806 (Comm) demonstrate the chain of transactions in implied choice of law?

Answer 30

Guarantee contract didn’t contain a choice of law clause.
The loan contract was given by English law. Parties must have thought this would also govern the guarantee.

Question 31

What does Recital (12) tell us about a jurisdiction agreement in implied choice of law?

Answer 31

Exclusive jurisdiction agreement in favour of Member State may go towards clearly demonstrating choice of law in favour of that Member State’s law.

Question 32

Which cases demonstrate a choice of court agreement?

Answer 32

Egon Oldendorff v Libera Corporation [1996] 1 Lloyd’s Rep 380.
Chose English court.

Khalifeh v Blom Bank Sal [2021] EWHC 3399 (QB).
No justification for limiting Recital 12 to ‘Member State’ courts.

Question 33

What does Lupofresh v Saporro Breweries [2013] EWCA Civ 948 tell us about the use of terminology or reference to provisions particular to a certain system?

Answer 33

Use of generic terms couldn’t localise the contract to a particular legal system.

Question 34

How does Mahmood v Big Bus Co [2021] EWHC 3395 (QB) demonstrate the use of terminology or reference to provisions particular to a certain system?

Answer 34

“The proposal is for a 50/50 joint venture company, set up in accordance with local law, and the shareholding split accordingly.”
Parties met in London, agreed on parameters.
Setting up a bus company in Dubai.

Question 35

What does Rome I, Article 4 provide?

Answer 35

A list of rules to govern specific types of contracts where there is an absence of choice of law.

Question 36

What does Article 4(1) set out?

Answer 36

Article 4(1): list of specific rules for particular contracts, e.g:

Art 4(1)(a): sale of goods contracts governed by law of place of seller’s habitual residence.

Art 4(1)(b): supply of services contracts governed by law of place of service provider’s HR.

Question 37

Article 4(2) applies when the contract falls outwith Article 4(1), what does it say?

Answer 37

If not on list, or covers more than one type of contract, law will be place of characteristic performer’s habitual residence.

Question 38

Article 4(3) provides an escape clause. What is it?

Answer 38

If it is clear that the contract is manifestly more closely connected to a country other than that designated by Art 4(1)/Art 4(2), then displacement is possible.

Question 39

Article 4(4) applies when 4(1) and 4(2) cannot. What does it say?

Answer 39

If Art 4(1) or 4(2) cannot be used to determine the applicable law, the contract is governed by the law of the country with which it is most closely connected.

Question 40

How is habitual residence defined under Article 19?

Answer 40

Limited definition.

Companies: place of central administration.

Persons acting in course of business: principal place of business.

Note: no definition for persons acting for private purposes.

Question 41

How can we determine the definition of habitual residence for persons acting for private purposes, when it is not given under Article 19?

Answer 41

Horizontal interpretation.
Look to case law under Art 3 of Brussels II bis, e.g:
Moore v Moore [2006] ILPr 29.
Tan v Choy [2014] EWCA Civ 251.

Question 42

Who is the characteristic performer, for the purposes of Art 4(2)?

Answer 42

“The performance in respect of which money or other consideration is given; not the payment itself.”

Question 43

How does the case of Winslet v Gisel [2021] EWHC 1308 (Comm) help us to understand the meaning of the ‘characteristic performer’?

Answer 43

Two friends agreed that the claimant would provide the dependent with a loan to build a summer house in her garden.
The parties didn’t put a choice of law clause in the contract.

What was the applicable law?

Court said it was a contract of a non-commercial loan. Not A4(1).

Who is the characteristic performer?
The one who provided the loan.
Habitual residence was England so English law governed the contract.

Question 44

What does Popplewell J say in Molton Street Capital v Shooters Hill Capital Partners [2015] EWHC 3419 (Comm) about when Art 4(3) will displace Art 4(1)?

Answer 44

at [94].
“The new language and structure suggests a higher threshold, which requires that the cumulative weight of the factors connecting the contract to another country must clearly and decisively outweigh the desideratum of certainty in applying the relevant test in Article 4.1 or 4.2”.

Question 45

What does BRG Noal GP Sarl v Kowski [2022] EWHC 867 (Ch) [65]-[73] tell us about when Art 4(3) will displace Art 4(1)?

Answer 45

As with Article 3(1), the existence of closely-related contracts with an identified applicable law can be taken into account.

Question 46

What does Article 12 provide?

Answer 46

Non-exhaustive list of matters which are referred to the applicable law.

Question 47

Interpretation is a matter referred to the applicable law.

Answer 47

Alhamrani [2014] UKPC 37, [18]-[20].
Expert evidence provides approach to interpretation, which is applied by the forum.
It’s not the expert’s job to tell the court how to interpret.

Essentially: an expert may tell them the general approach of the applicable law to interpretation, but it is not strict.

Question 48

Performance (when contractual obligations have been performed) is a matter referred to the applicable law.

Answer 48

CAVEAT: Art 12(2).
Account to be taken of law of place of performance (e.g. public holidays, business hours etc).

Question 49

Remedies are a matter referred to the applicable law.

Answer 49

Previously, while the rules on remoteness and head of damages were a matter of substance (and so determined by the applicable law), their quantification was a matter of procedure for the lex fori.

D’Almedia v Sir Frederick Becker [1953] 2 QB 329.
Now, quantification also is a matter for the applicable law.

Interest? Matter of procedure, for the lex fori.
Royal Pharma Collection Trust v Boehringer Ingelheim [2021] EWHC 2692 (Pat).

Question 50

Discharge of obligations is a matter referred to the applicable law. What is the most common way of discharging?

Answer 50

Performance.

Question 51

Which case shows the discharging of obligations by foreign legislation?

Answer 51

National Bank of Greece and Athens v Metliss [1958] AC 509.
Greek banks restructured. They said they didn’t owe any money anymore. The question of the effect of foreign law on who owes what is a matter for the applicable law.

Question 52

Which case shows the discharging of obligations by novation etc?

Answer 52

In re United Railways of Havana [1961] AC 1007

Question 53

Which case shows the discharging of obligations by frustration?

Answer 53

Canary Wharf (BP4) v European Medicines Agency [2019] EWHC 335 (Ch).
European Medicines Agency signed a lease for an office. Brexit posed issues. HQ must be in a member state.
Argued the lease was frustrated because they couldn’t carry on their contract.
English law applied because it was an English contract.

Question 54

Which case shows the discharging of obligations by bankruptcy of debtor?

Answer 54

Gibbs v Société Industrielle (1890) 25 QBD 399.
Effect of bankruptcy of debtor is a matter for the applicable law.

Question 55

Which statute shows the discharging of obligations by prescription/limitation?

Answer 55

Prescription and Limitation (Scotland) Act 1973, s23A.

Question 56

Nullity is a matter referred to the applicable law.

Answer 56

Unjustified enrichment actions arising out of void contract: referred to putatively applicable law.
The law that would have governed the contract if it was valid.

Question 57

What does Article 10(1) say about material validity?

Answer 57

Existence and validity of contract and its terms determined by putatively applicable law.

Question 58

Article 10(2) is an alternative to 10(1) for consent issues. What does it say?

Answer 58

A party alleging lack of consent may argue application of law of their HR if applying Art 10(1) unreasonable.

Question 59

How does Albeko Schumaschinen v Kamborian Shoe Machine Co Ltd (1961) 111 LJ 519 demonstrate Article 10?

Answer 59

Postal acceptance.
Rule did not exist under Swiss applicable law.
Contract formation a matter for the putatively applicable law: if applicable law does not contain postal acceptance exception, then contract formed when acceptance received.

Question 60

How does Egon Oldendorff v Liberia Corporation [1995] 2 Lloyd’s Rep. 64 demonstrate Article 10?

Answer 60

Existence of arbitration clause in contract determined by applicable English law.
But (supposed) existence of that clause was key basis in finding implied choice of English law: circularity?

Question 61

How does Lupofresh Ltd v Sapporo Breweries Ltd [2013] EWCA Civ 948 demonstrate Article 10?

Answer 61

Restrictive interpretation: duress and other vitiating factors not a matter for Art 10.

Question 62

How does Ebury Partners Belgium SA/NV v Technical Touch BV [2022] EWHC 2927 (Comm) demonstrate Article 10?

Answer 62

Reasonable director should have read contract, so not unreasonable to have English law apply. No evidence that unwilling to agree to jurisdiction and choice of law clauses.

Question 63

Formal validity appears to follow a favor negotii rule. What does this mean?

Answer 63

A rule that strives to find a valid contract.

Question 64

What does Article 11(1) provide for formal validity for parties contracting in the SAME country?

Answer 64

If contract concluded between parties who are in the same country, will be formally valid if it complies with either
(i) applicable law or
(ii) law of place of contracting.

Question 65

What does Article 11(2) provide for formal validity for parties contracting in DIFFERENT countries?

Answer 65

If parties in different countries, contract will be formally valid it it complies with
(i) applicable law;
(ii) law of place where either party located;
(iii) law of either place where either party has their habitual residence.

Question 66

What does Article 11(5) provide for formal validity for contracts relating to immoveable property?

Answer 66

If contract relating to immoveable property, must comply with formal requirements of the situs.

Question 67

What does Integral Petroleum SA v SCU-Finanz AG [2015] Bus LR 640 tell us about formal validity?

Answer 67

Requirement that contract be signed by two corporate officers to be valid a matter for Art 11?
No. Art 11 assumes that the will to be bound is established – only covers the determination of which external manifestations of that will are required to make the contract valid.
This is not a matter of formal validity.

Question 68

What is the Article 13 rule for capacity?

Answer 68

Limited rule.
If parties conclude contract in same country, then either party may rely on incapacity existing under another legal system if either party knew of this incapacity or did not know about it because of negligence.

Question 69

How do questions of capacity apply to natural persons under Art 1(2)(a) and the common law?

Answer 69

Art 1(2)(a): apart from Art 13, questions of capacity excluded.

Common law: apply the applicable law of the contract?
Male v Roberts (1800) 3 Esp 163.
Bodley Head Ltd v Flegon [1972] 1 WLR 680.

Question 70

How do questions of capacity apply to legal persons under Art 1(2)(f)?

Answer 70

Questions of capacity excluded.

Haugesund Kommune v Depfa Bank [2012] QB 549.
Company’s power to enter into particular type of contract = issue of capacity.
Issues of corporate capacity determined by law of place of incorporation.
Consequences of capacity for contract determined by its applicable law.

Question 71

Article 3(3) sets out what non-derogable provisions are, what are they?

Answer 71

“Where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement.”

E.g. rules that you can’t put a penalty clause in your contract etc.

Question 72

How does Caterpillar Financial Services Corporation v SNC Passion [2004] EWHC 569 (Comm) demonstrate non-derogable provisions?

Answer 72

As one party’s domicile was in Tennessee, and the place of delivery for related contract was in Singapore, the choice of English law was not the only factor pointing away from French law, which allegedly would strike down loan.
One party argued provision of French law would render the contract void.
Other party argued the choice of English law was just to get around the issue.

Party being resident in Tennessee and the delivery being in Singapore = NOT EVERY OTHER FACTOR POINTING TO FRENCH LAW.

Question 73

How does Emeraldian LP v Wellmix Shipping Ltd [2010] EWHC 1411 (Comm) demonstrate non-derogable provisions?

Answer 73

Chinese exchange regulations not applied as more factors than the mere choice of English law pointed to England: obligations under main contract governed by English law also.
Additionally, third state connection found in fact that beneficiary was Liberian.
Between that guarantee contract, the English law is the only thing pointing away from China.
But since it’s a guarantee, the main contract also points away from China.

Question 74

How does Banco Santander Totta v Companhia de Carris de Ferro de Lisboa SA [2017] 1 WLR 1323 demonstraste non-derogable provisions?

Answer 74

International Swaps and Derivatives Association (ISDA) agreement, subject to English law and jurisdiction. Effect of Portuguese provision providing for termination/modification on grounds of good faith?

Elements taken into account need not be connected with a particular country: [43].
Limited exception to party autonomy, so to be construed narrowly: [46].
Use of international “multi currency” standard agreement, international nature of market and fact benefit of that agreement could be assigned to subsidiaries in other countries, could be taken into account: [60]-[66].
Appeal court should be slow to interfere with evaluative assessment of judge below: [67].

Between Santander and Portugese company. English choice of law.
Non-derogable provisions can’t be applied. More provisions pointing away from Portugal.

Question 75

How does Dexia Crediop Spa v Comune di Prato [2017] EWCA Civ 428 demonstrate non-derogable provisions?

Answer 75

Either the use of international documentation, or fact that creditor entered into back-to-back hedging agreements with foreign banks, would be sufficient international connection to demonstrate situation not purely connected to “non chosen” system: [54]-[55].
For A3(3) to apply, you need to show that the contract is localised, NOT international.

Question 76

Article 3(4) lays out for non-derogable provisions IN EU LAW. What does it say?

Answer 76

“Where all other elements relevant to the situation at the time of the choice are located in one or more relevant states, the parties’ choice of applicable law other than that of a relevant state shall not prejudice the application of provisions of retained EU law which cannot be derogated from by agreement.”

Question 77

How does Ingmar GV v Eaton Leonard Technologies Inc [2000] ECR I-9305 demonstrate non-derogable provisions for EU law?

Answer 77

Commercial Agent Directive (86/653/EEC).
“[25] It must therefore be held that it is essential for the Community legal order that a principal established in a non-member country, whose commercial agent carries on his activity within the Community, cannot evade those provisions by the simple expedient of a choice-of-law clause. The purpose served by the provisions in question requires that they be applied where the situation is closely connected with the Community, in particular where the commercial agent carries on his activity in the territory of a Member State, irrespective of the law by which the parties intended the contract to be governed.”

Companies based in EU, choice of law clause for California. Does not provide for the Directive.
If every other factor points to EU Member States, any non-derogable EU provision applies.

Question 78

Article 9(1) sets out for overriding mandatory provisions. What are they?

Answer 78

Article 9(1):
“Overriding mandatory provisions are provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation.”

Much more potent than non-derogable provisions!!
Must be a social necessity. Public interest requirement.
E.g. provisions that protect parties.

Question 79

What does Unamar v Navigation Maritime Bulgare [2014] 1 All ER (Comm) 625 tell us about overriding mandatory provisions?

Answer 79

“[49] Thus, to give full effect to the principle of the freedom of contract of the parties to a contract, which is the cornerstone of the Rome Convention, reiterated in the Rome I Regulation, it must be ensured that the choice freely made by the parties as regards the law applicable to their contractual relationship is respected… so that the plea relating to the existence of a ‘mandatory rule’ within the meaning of the legislation of the Member State concerned… must be interpreted strictly.”

Tells us it is a strict definition. The freedom of the parties to make the choice is important and it should be respected in most cases.

Question 80

How does English v Donnelly 1958 SC 494 demonstrate overriding mandatory provisions of the FORUM?

Answer 80

Hire Purchase and Small Debt (Scotland) Act 1932, s2: contract of hire void unless signed and copy duly delivered to hirer.
Contract of hire governed by English law where hirer domiciled in Scotland.

Held: s2 applied despite the choice of English law:
“In the present case… the statutory provision contained in the Scottish Act of 1932 is mandatory. The Act is a piece of social legislation designed for the protection of certain persons… the general rules of private international law applicable to contracts are superseded by this express statutory provision.” (Lord President Clyde, 499).

Question 81

How does Duarte v Black and Decker [2007] EWHC 2720 (QB) demonstrate overriding mandatory provisions of the FORUM?

Answer 81

Common law prohibition on contracts in restraint of trade? NO.

“In my opinion, the mandatory rules referred to… are specific provisions such as those in the Employment Rights Act 1996 and the Factories Acts whose overriding purpose is to protect employees. The law governing the enforceability and validity of restrictive covenants in employment contracts is of an altogether different character. It is part of the general law of restraint of trade which in turn is part of the general law of contract. The English law of restrictive covenants in employment contracts does not therefore consist of mandatory rules affording protection to employee…”

Must be specific provisions which protect a part of society.

Question 82

How did Rome Convention, Art 7(1) provide for overriding mandatory provisions of the PLACE OF PERFORMANCE?
(Not applicable)

Answer 82

“When applying under this Convention the law of a country, effect may be given to the mandatory rules of the law of another country with which the situation has a close connection”.
UK opt out: Contracts (Applicable Law) Act 1990, s2(2).

Question 83

How does Rome I Regulation, Art 9(3) provide for overriding mandatory provisions of the PLACE OF PERFORMANCE?

Answer 83

Refined rule due to UK objection to A7(1) of the Convention.
“Effect may be given to the overriding mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed, in so far as those overriding mandatory provisions render the performance of the contract unlawful. In considering whether to give effect to those provisions, regard shall be had to their nature and purpose and to the consequences of their application or non-application”.

Question 84

What are the requirements for EU overriding mandatory provisions under Art 9(3)?

Answer 84

The provisions must be ‘overriding mandatory’ ones, in the sense defined by Article 9(1).

They must form part of the law of the place of performance of the contract.

They must have the effect of rendering performance unlawful.

The court has a discretion as to whether or not to give effect to the foreign OMPs.

Question 85

How is the rule in Ralli Bros v Compania Naviera Sota y Aznar [1920] 2 KB 287 similar to Art 9(3) for overriding mandatory provisions?

Answer 85

Contract to ship goods.
When the ship leaves Calcutta, Spanish legislature makes an Act saying goods can’t be charged above a certain amount (which this is priced above).
The buyer argues they won’t pay the higher amount because it’s illegal at the place of delivery.
English company argued that since the contract is governed by English law, it should be full price.

The English court said that since performance would be illegal due to the price, the provision would make the performance illegal.

Question 86

What does Article 21 provide about public policy?

Answer 86

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

Question 87

How does Brussels I bis, Art 45(1)(a), as interpreted in Krombach v Bamberski [2001] QB 709, apply a stricter test for public policy, compared with Rome I, Art 21?

Answer 87

The foreign law “[37] must be…at variance to an unacceptable degree with the legal order of [the forum] in as much as it infringes a fundamental principle [such as that it would] constitute a manifest breach of a rule of law regarded as essential in the legal order of [the forum] or of a right recognised as being fundamental within [its] legal order.”

Question 88

Why did the court override the Iraqi law of the contract due to public policy issues in Royal Boskalis Westminster Nv v Mountain [1999] QB 679?

Answer 88

Ship hired with its crew to a company in Iraq. Contract governed by Iraqi law. Iraq went to war with Quwait.
Parties who provided the ship and workers said it was an intolerable situation.
The party with the ship threatened to use the workers as human shields unless the work was completed.
Iraqi court said that anything that helps the war effort is not a ground of duress.
Under English law, it is.
English court said this is so unconscionable under English public policy that it overrode the Iraqi law of the contract.

Question 89

What were the reasons given by the judges for refusing to enforce the Iraqi law of the contract in Royal Boskalis Westminster Nv v Mountain [1999] QB 679?

Answer 89

“My conclusion is that there remains a class of duress so unconscionable that it will cause the English court, as a matter of public policy, to override the proper law of the contract… The threat to use a large number of personnel as human shields was about as cogent and unconscionable a form of duress as one can imagine.” (Phillips LJ, 730-731).
“I think there is force in Mr. Clarke’s submission that a payment in breach of United Nations sanctions as enacted in the relevant domestic law is in the circumstances akin to trading with the enemy and it would be contrary to English public policy…” (Pill LJ, 693).

Question 90

How does Lemenda Trading Co v African Middle East Petroleum [1988] QB 448 demonstrate the public policy issue?

Answer 90

Contract to bribe foreign officials into entering into supply contract, where contract of bribery not illegal by place of performance?
In order to form the contract, parties agreed to bribe the officials in the place of performance. This place did not find bribery to be illegal.
Strong English public policy against it, which is infringed.

Question 91

How does The Komninos [1991] 1 Lloyd’s Rep 370 demonstrate the public policy issue?

Answer 91

Greek law invalidating agreement to extend limitation period contrary to public policy, where parties did not foresee application of Greek law.
Very short limitation period under Greek law. Court said under special legislation that is such a short limitation period that it offends public policy.
NOTE: not a Rome application case.

Question 92

How does Heriz v Riera (1840) 11 Sim 318 demonstrate illegality under the law applicable to the contract?

Answer 92

Agreement to split proceeds of another contract with the Spanish government.
Party B was a member of the Spanish government. Conflict of interests.
Offended Spanish law, the law of the contract.

Question 93

What happens if the contract is illegal under the law of the forum?

Answer 93

Art 9(2) (OMP) or Art 21 (public policy).

Question 94

What happens if the contract is illegal under foreign, non-applicable law, which is the place of performance?

Answer 94

Article 9(3).
Apply OMP of place of performance where that provision makes performance of contract illegal.

Similar to common law rule in Ralli Bros v Compania Naviera Sota y Aznar [1920] 2 KB 287.
Banco San Juan Internacional v Petroleos de Venezuela [2020] EWHC 2937 (Comm) [75]-[83]; [104]; [105]-[112]; [113]-[122].
- Infringed US sanctions?
- Payment could’ve been made outwith Venezuala or US.
- Provision in US which says you can get a license.
- Performance wasn’t made illegal, simply a specific way to do it.

Question 95

How does Hellenic Republic v Nikiforidis [2017] ICR 147 demonstrate when a contract is illegal under a foreign, non-applicable law, other than the place of performance?

Answer 95

A matter for public policy?

Question 96

How does Foster v Driscoll [1929] 1 KB 470 demonstrate the Art 21 public policy argument when there is illegality under foreign law?

Answer 96

Failed plan to smuggle whisky into prohibition-era USA, governed by English law?
Public policy says you can’t infringe the legal system of a friendly state.

Question 97

How does Regazzoni v Sethia [1958] AC 301 demonstrate the Art 21 public policy argument when there is illegality under foreign law?

Answer 97

English contract to export jute to South Africa, in defiance of Indian prohibition?
No place of performance.

Held Foster v Driscoll was good law.

Question 98

How does Euro-Diam Ltd v Bathurst [1990] 1 QB 1 demonstrate the Art 21 public policy argument when there is illegality under foreign law?

Answer 98

Not all illegalities will suffice: a ‘background’ illegality not central to performance is insufficient for public policy purposes.

Question 99

How does Magdeev v Tsvetkov [2020] EWHC 887 (Comm) [332] demonstrate the Art 21 public policy argument when there is illegality under foreign law?

Answer 99

Cockerill J:
“One does not specifically invoke proportionality, because that assumes an understanding of the questions of weight and gravity which may not be available in respect of a foreign court’s or foreign judicature’s priorities. But where the clear answer is not given by either of the main principles (Ralli Bros, or Foster v Driscoll), one balances the relevant factors discernible from the case law in the light of the underpinning principle.”