Choice Of Law Contract Notes

CHOICE OF LAW

Choice of law

• General form: legal category and connecting factor

Why have choice of law?

• Should not always apply English law as “lex fori” – justifications:

  1. Possibility of injustice – actions may have been tailored to take account of a foreign law, cannot be made to apply English law

  2. Safeguard intentions and expectations of the parties

  3. Possibility of forum shopping ? claimant is allowed to alter chances of winning by selecting a forum which favours him regardless of whether it is the ‘correct’ forum. Methods to reduce forum shopping:

     1. Rules on jurisdiction

     2. Harmonising substantive law

     3. Rules on choice of law

Rome I and Rome II

• Within the EU, uniform choice of law rules now apply in both contract (Rome I) and tort (Rome II)

Step 1: selecting applicable choice of law rules: characterisation

In English law, the methodology of choice of law is based on categorisation.

• Three stages of categorisation - MacMillan Inc v Bishopsgate Investment Trust plc (No. 3)

  • Characterise the issue that is before the court

    • Is it an issue relating to the interpretation of the contract?

  • Identify connecting factor for issue in question

    • Contract - main question faced in area is what the appropriate connecting factor is

    • Marriage – generally where the marriage took place

  • Apply connecting factor to identify applicable legal system

Step 2: substance v procedure

Need to determine whether issue in question is one of substance or procedure

• If procedure: governed by lex fori (local law)

• If substance: governed by applicable law

Step 3: scope of applicable law

• Need to consider scope of applicable law to determine whether the applicable law could sort all the issues in the case

• Art 10 and Art 12: all matters of the existence and enforcement of contractual obligations are governed by applicable law

• Art 12(1)(a): questions of interpretation are governed by applicable law

• Matter of performance: dealt with by lex fori

• Consequences of breach of contract, assessment of damages Art 12(1)(c)

  • Matter of fact procedural law of court to determine

  • Matter of law applicable law determines result

• Nullity of contract matter for applicable law (Art 12(1)(e))

Art 18: applicable law applies to the extent that it contains rules which raise presumptions of law/determine burden of proof in matters of contract.

Step 4: Putative proper law

• If the issue relates to the very validity of the contract the issues are governed by the “putative” proper law (i.e. law which would govern if the contract was valid)

  1. Art 10(1) assumes contract is valid

  2. Identifies applicable law using usual rules of Regulation

  3. Applies that law to determine whether there is contract

Step 5: Consider mandatory rules and public policy

Additional mandatory rules and/or public policy rules may override normal choice of law rules to an extent.

• Public policy: works in a negative sense

• Mandatory rules: positive; even if everything else governed by German law, but there were mandatory English law rules apply regardless of what law has been chosen.

Step 6: Contract or not?

Once you have considered whether the issue in question is a contractual one, need to consider which regime should apply:

Rome Regulation: Contracts entered into after 17 December 2009

Rome Convention: Before 17 December 2009 and after 1 April 1991

Common law rules: Neither of the above

NB: If not expressly stated, then assume contract was made now.

ROME I REGULATION

1 – Material Scope and Interpretation

1 - Applies to contracts entered into after 17 December 2009

2 - Art 1(1):

• Contractual obligation

  • Adopt broad European autonomous approach (Re Bonacina)

  • Even if not regarded as contractual obligation within English law, doesn’t exclude from scope of Regulation

    • E.g. gifts and promises = contractual obligations (GL Report), but not so in English law

  • Likely to be interpreted consistently with the case law on Art 5(1) BIR

• Civil and commercial matter

  • Expressed in same manner as BIR, to be interpreted consistently with that Regulation

3 – Exclusions (Arts 1.2 – 1.3)

1. Revenue, customs or administrative matters (Article 1(1)).

2. Questions involving the status or legal capacity of natural persons (subject to Art 13 which will be discussed in detail in a later lecture).

3. Obligations arising out of family relationships (Article 1(2)(b)).

4. Obligations arising out of matrimonial property regimes (Article 1(2)(c)).

5. Obligations arising under bills of exchange, cheques and promissory notes (Article 1(2)(d)).

6. Arbitration agreements and agreements on choice of court. (Article 1(2)(e)).

7. Questions governed by the law of companies and other bodies corporate or unincorporated. (Article 1(2)(f)) governed by company law

8. In relation to contracts of agency, the question whether an agent is able to bind a principal to a third party. (Article 1(2)(g)) governed by agency law

9. Constitution of trusts and the relationship between settlers, trustees and beneficiaries (Article 1(2)(h)) governed by trusts law

10. Obligations arising out of dealings prior to the conclusion of a contract (Article 1(2)(i)).

    1. Excluded because it is now within Rome II regulation

11. Questions of evidence and procedure, without prejudice to Article 18 (Article 1(3)) questions of procedure are always governed by lex fori (local law)

    Art 2: Universal application – law specified by Regulation applies whether or not it is law of a MS.

    NB: secondary legislation stipulates that Regulation rules are applicable in case of conflicts

    between laws of different parts of the UK

    4 – Interpretation

• Court of Justice: art 267 TFEU – has jurisdiction to interpret provision of Regulation

  5 – Exclusion of renvoi (Art 20)

  E.g. If Russian law is law applicable to a contract, rights and obligations of the parties are to be determined by Russian domestic law, not by reference to the law which would be regarded as the governing law according to Russian choice of law principles.

  2 – Determining applicable law

(a) Express...

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