Conflicts of Law

The 1980 Rome Convention (entered into force in 1991) established rules of contract law among the 15 nations of the European Union. It applies to contractual obligations involving a choice of law between different nations where at least 1 is a member of the Convention, Convention on the Law Applicable to Contractual Obligations, 1980 O.J. (L 266) 1. A hybrid of the civil and common law legal systems of is member countries, the Rome Convention favors the principle of “autonomy” of contacting parties.

The essence of this principle is that where a contract has connections with more than one legal system, the choice of the parties is prima facie the law that will govern their contract. Autonomy places the power to determine which law will govern a contract in the hands of the parties, simultaneously removing the responsibility from the sphere of the judiciary. Thus, Article 3(1) encourages parties to a contract to select a law to govern any future disputes and recognizes their right to do so (Williams 41-43).

This approach follows that of the Restatement (Second) of Conflicts of Laws (1971), adopted and promulgated by the American Law Institute. The Restatement is applicable to international contracts, i.e., “to cases with elements in one or more foreign nations.” Section 10 (cmt. c.). Also endorsing the principle of party autonomy, Section 187(1) of the Restatement provides that “The law of the state chosen by the parties to govern their contractual rights and duties will be applied…” (Morris 12).

Where parties have failed to designate applicable substantive or jurisdictional law, these conventions, again, reflect similar approaches. Choice of law theory in most common law countries mirrors that of the United States; Choice of law in non-common law countries is usually found in national statutory or regional codes. Nonetheless, even in these codes, the tenets of U.S. law are reflected if not fully accepted (Dellapenna 35-41).

Courts first determine whether the intention if the parties is obvious. If it is not, as is often the case, the majority of courts throughout the world look for a connection between the contract and the country seeking to have its law applied. The Rome Convention’s Article 4(2) applies the principle of closest connection.

The rule of “closest connection” requires a court to consider the country in which the party effecting performance is located, the country in which the of central administration for the business is located, the habitual residence of the parties, the place where the contract was formed, negotiated, and signed (when considering contract construction and validity issues), and the place of performance (when considering contract performance) (Hanreijo 26-28).

According to the rules of conflict set onward in the Rome Convention of June 1980 on the law applicable to contractual obligations (here referred to as the Rome Convention), an international agreement of employment is governed by “the law chosen by the parties.

Such provisions of private international law are based on the code of freedom of contract, even though that freedom cannot be raised to withdraw an employee of such defense as may be afforded by mandatory provisions. In this sense, a agreement of employment cannot be regarded as an common business contract along the lines of current liberal thinking even though the Rome Convention does support such traditional mechanisms of private international law as referral or public policy exclusions. The role of the courts therefore remains vital in interpreting the target of the parties signing the contract (Williams 44-48).

In the case when there is no option, “the contract shall be ruled by the law of the country with which it is most powerfully connected”. Clarification concerning individual contracts of employment is given in Article 6 of the Convention: the applicable law is that of the country in which the worker has occupation. Failing geographical stability, it is that of the country in which the place of business through which she/he was engaged is situated or the country with which “the contract is more closely connected”.

The phrase “More closely or powerfully connected” sometimes cause confusion and is solved with the assistance of international jurisdictional parties. Nevertheless, these principles of determination have been incorporated into other counties’ laws on Private International Law (Williams 49-50).

Alteration of the law applicable to an international agreement of employment states that, while the contract is in power, a new law replaces that was applied beforehand. The Rome Convention is referred in such circumstances in its Articles 3(2) and 6(2)(a).

The first of the applicable provisions centres on the intention of the parties. Accordingly, the latter “may at any time agree to subject the contract to a law other than that which previously governed it”. The same way, the transfer of the employee by way of a non-temporary project to another country for executing her/his work sometimes may involve a change of the legislation valid to the contract (Williams 51-52).

The very subjective standard applied in the Rome Convention therefore provides overriding significance to free choice of jurisdiction. It allows the law to be applied to an international agreement of employment to alter either by agreement between the parties or by expatriation.

From the side of more objective approaches taken previously, by main reference (or reference of principle) to the locus of performance of the contract, the mentioned situations can raise a problem in labour law. In addition, the master-servant connection that combines an employee to an employer calls for greater than before judicial attention to the very question of the choice of a new law at the time when the contract remains in force.

Though the employer is unlikely to violate her/his position of power, it depends on the court – despite confirmation of the principle of freedom of agreement – to determine that any such change of law has been acknowledged by the employee. One of the Rome Convention’s major contributions may appear in bringing the courts to think about the complete meaning of an adjustment aimed exclusively at changing the law applicable to an agreement.

The Convention provisions could guide a court ruling on a dispute to relate a less favourable new law where the employee under discussion has been permanently transferred to another country location. It offers only minor scope for applying the most complimentary law and gives preference to rules of conflict based on the notion of closeness (Morris 14).

We can start looking at the articles 3 and 7, in order to consider another aspect of the Rome Convention. Article 7, Mandatory Rules, of the Rome Convention states: “(1) 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, if and in so far as, under the law of the latter country, those rules must be applied whatever the law applicable to the contract.

In considering whether to give effect to these mandatory rules, regard shall be had to their nature and purpose and to the consequences of their application or non-application. (2) Nothing in this Convention shall restrict the application of the rules of the law of the forum in a situation where they are mandatory irrespective of the law otherwise applicable to the contract” (Rome Convention).

The second subsection of Article 7 of the Rome Convention is self-evident: Every member state can enforce its own mandatory rules on a contractual relationship and the Convention does not intervene. As discussed infra in regards to Article 3(3) of the Rome Convention, “mandatory rules” refers to those rules of national law which must be applied to a given transaction or dispute, no matter where the transaction is performed or where the dispute is litigated. In the past, mandatory rules from foreign countries have been applied by courts.

In Europe, when the applicable law–either the law consensually chosen by the parties or the law objectively determined where no choice of law was made–is the law of a foreign European or non-European country, mandatory rules are applied through reliance on contract law (lex contractus). This remains the case as long as there is no true conflict with the mandatory rules. Thus the second subsection of Article 7 limits the freedom of the parties in their choice of law because of the mandatory rules of the forum (Hartley 11-12).

The first subsection of Article 7 is the more difficult rule. This subsection opens up the possibility for a judge to apply mandatory rules from another country, rather than applying lex contractus –the latter law being the chosen law of the relationship. Professor Andreas Lowenfeld has said he was not aware that this has actually ever led to any application of foreign “public rules.” Although there has been much talk about this possibility, it is unclear if there has been a case where this has occurred.

However, there have been interesting developments in The Netherlands. Dutch commentators are proud that at least in one Dutch Supreme Court case there was extensive discussion about the possible respect that a Dutch judge could show towards Belgian imperative rules. However, in the end, the decision did not apply or positively “respect” the Belgian rule. In Part V of this article returns to the application of this rule, and discusses the treatment an American embargo in the court of The Hague (Hartley 14-18).

The principle of protection against the parties eluding mandatory laws is operative in Article 3(3) of the Rome Convention and limits the parties’ freedom to select the lex causae: “The fact that the parties have chosen a foreign law, whether or not accompanied by the choice of a foreign tribunal, shall not, where all other elements relevant to the situation at the time of the choice are connected with one country only, prejudice the application of rules of the law of that country which cannot be derogated room by contract, hereinafter called mandatory rules” (Rome Convention).

Article 3 is important theoretically, and it would gain importance if Article 7(1) of the Convention is eliminated in the future. Article 3(3) is evidently very limited in imposing the mandatory rules of a presumably European country. It only limits those cases where the parties have chosen the applicable law linking one country to the particular contract through all connecting factors except the voluntary choice itself. The text says that “where all the other elements relevant to the situation” shall be linked to the same country.

Thus, Article 3(3) leaves open an amount of uncertainty regarding what might be an “irrelevant” foreign connection, which would still require imposing the rule of mandatory law. It only refers to deviating legislation valid at the time of the agreement. Article 3(3) clearly contemplates cases that are not truly “international.” Notably, it does not justify a country’s desire to impose its own mandatory rules just because an important connecting factor–for example, the principal’s place of business–links the case to that country. Clearly, the application of such a national law is strictly conditioned on all the connections pointing in one direction (Hartley 19-21).

A single important connecting factor of a contract with a country does not establish a predominant connection with that country. On that basis, judges cannot alleviate a country’s fears of evasion of its mandatory rules. One such serious connecting factor–for example, the place of establishment of an agent in an international agency–might, however, be enough under Article 7 of the Rome Convention (Gooch 71).

Notably, neither the conflicts provisions of Article 3(3) nor the rules of Article 7(1) mention an act of an institution of the E.U. as the source of mandatory rules to be safeguarded. In the case of the E.U. directive, this was transposed into Member States’ national law and, as such, could be implemented as a mandatory national rule. The E.U.’s ambition as a community legislator has made attentive observers note that there was no specific legal ground for making sure that the content of the typical E.U. legislative product would be safeguarded as a public-policy minimum (Gooch 71-74).

The issue of freedom to contract comes sharply to the forefront in international commercial agreements on agency. Abuse of power by a stronger contracting party or exploitation of the weaker party need not be condoned in all private contracts. However, inequalities in bargaining power of commercial entities will naturally exist. Parties will anticipate the resolution of their disputes by introducing choice-of-law clauses or by formulating jurisdiction clauses. Furthermore, it is advisable for parties to prospectively agree on such legal topics.

When parties refer to legal rules that are valid as the “law of the land” in a country that is a major trading partner–speaking of relations between Europe and the United States–one cannot be repulsed as if those foreign rules would be disruptive to the market at all times. If mutual cooperation and trade with a foreign country are to be seen and felt as beneficial, one cannot reject objective rules of law under the pretense of a general public policy exception when a case has appropriate ties to that foreign country. Notions of “national public policy” do not simply apply to all trans-frontier cases.

There are a few caveats in using “click wrap” agreements, while considering international web trade. For instance, the Rome Convention limits the principle of party autonomy where a consumer contract is involved. This is in part due to divergent national laws regarding consumer protection and the consequential inability of signatory nations to reach a compromise.

Although, under certain limited instances, the Rome Convention permits a consumer to maintain the protection of his domestic consumer protection law, none of these are applicable to Internet transactions. In any event, the risk of dealing with foreign consumers is low. It has been found that the dominant reality remains that few consumers purchase consumer goods from sellers in countries other than their own. (Swire & Litan 217-221).

Additionally, there are limits as to which law or jurisdiction can be chosen. In most instances, parties cannot choose a forum or law unrelated to their transaction. For example, a United States company engaged in a transaction with a Romanian could not choose the law or forum of Australia. In fact, even under Section 1-105 of the UCC, while parties need not be confined to the law of their jurisdictions, chosen law must bear a reasonable relation to the transaction to which the contract applies.

(The Mexico Convention, by contrast, permits the choice of non-national law). Accordingly, the easily-enforceable option is to choose the law of the forum of either party. To ensure predictability, however, a business would choose the law and forum in which it is located. Finally, choice of law notwithstanding, courts is not obligated to apply law that is incompatible with the public policy of its jurisdiction or its own rules of law (McCoy 249).

Considering the past events, – the draft Regulation says that the general rule of “where the damage arises” seeks to balance the interests of the offender and the damaged party. The proposal covers civil and commercial disputes, but not those that touch family relations, such as maintenance payments and child custody rights. In addition, it excludes any contractual disputes because there is already the 1980 Rome Convention (“Rome I”) to deal with this. The Commission is also planning to eventually integrate Rome I into EU law.

The Rome II proposal has a “universal character” clause, meaning that even the law of non-EU Member States may be applied if the choice-of-law rules indicate theirs is the applicable law. Rome II does not cover jurisdiction i.e. which court is competent to hear the case, because the Brussels I Regulation (44/2000/EC) tackles the issue.

One of the confusions may occur because the draft Regulation lays down a general rule but at the same time provides for it to be waived in certain circumstances. For example, if both parties live in the same country, the law there will apply, and if there are very close links to another country, its law applies. If the dispute concerns a faulty product, the law in the injured party’s country of residence applies.

For cases of unfair competition, the applicable law is that of the country whose market is most affected. For cases of environmental damage, the injured party could either apply the general rule or choose the law of the country where the damage occurred. And for intellectual property disputes, the applicable law is that of the country for which protection is sought. A “freedom of choice” clause allows the two parties to mutually agree whose law should apply, thereby disregarding the choice-of-law rules (Garavaglia 18-21).

Conflict of laws may occur because of defamation. For attacks against private life, including defamation of character, the general rule applies i.e. where the damage was sustained. However, the competent court could choose to apply its own national law if applying the general rule “would be contrary the fundamental principles of … freedom of expression and information”. In concrete terms, a French person could sue a United Kingdom-based newspaper for defamation of character and ask the British court to apply French privacy laws as the damage was sustained in France.

However, the UK judge could decide that the French privacy law breached the freedom of expression principle and that the British law therefore should apply. This clause has been carefully crafted to strike a balance between the interests of damaged parties and the interests of the media. The Commission had considered giving priority to the law in the victim’s country of residence but finally settled for the general rule (Hanreijo 63-68).

The rules contained in this Regulation would not override existing EU laws in specific sectors that either lay down choice-of-law rules or actually dictate what law shall apply. Neither would it affect any international conventions, such as Rome Convention, that the Member States have signed up to in this field. Under the proposal, the Member States would inform the Commission by the end of 2004 which conventions they are party to and the Commission would publish a comprehensive list. The suggested date of entry into force for the Regulation is January 1, 2005. Denmark would not apply it while Ireland and the United Kingdom could choose whether or not to, in line with their respective opt-out and opt-in Protocols attached to the EU Treaties (Hanreijo 70-71).

In a truly international contract, one must practice a less self-centered judgment. A legislator may limit the freedom of parties in truly international cases only through concepts that are part of the “international” public policy of a country.

This technical expression refers to a category of the most stringent requirements of civil society, which is a smaller core of basic rules. It has long been the practice of the treaties on private international law to restrict deviations from their rules regarding applicable law to the manifest infringement of rules of public policy and to infringements of rules of truly international public policy. The acceptance of “freedom of contract” and the mitigation of the national order public in international cases were hard-fought victories for those who championed flexibility in international trade and who hoped for openness and respect for foreign laws.

European countries should not try to reintroduce a new rigor through a new concept of “community public policy,” just when separate nation-states have come to accept international flexibility over the private-public divide. The “newer” European rules of a hierarchically higher order than national rules are not to be treated differently in the face of trans-frontier transactions. They are not better suited for trade beyond the European borders than national rules were for a nation’s international business. They are no more chiseled in stone than national laws.

It should be especially clear to those who practice international commercial law before tribunals of private commercial arbitrators that the ambit of national rules of a public policy nature is in many ways limited. Arbitrators are freer from their allegiance to rules of national law. The rules of arbitral procedure are free of much of what is evidently mandatory in the field of procedural law.

Even the national courts of all European nations and of the United States are under the obligation of the U.N. treaty on the mutual recognition of arbitral awards to push back national sentiments over the law and to address in a more liberal fashion the requests for respect of a decision taken by a tribunal with seat elsewhere and operating “internationally” under the protection of that convention (Peterson 37).

Europe may be presently moving in the wrong direction, and it may be time to stop to reflect. In trans-frontier transactions, mandatory rules–in this case, so-called European public policy rules–will apply only in a more restricted domain. The grounds for denying respect of foreign law in international legal cooperation are limited. If is another debate for another day to determine which rules are the truly international rules of public policy generally respected–and to be respected–by the civilized nations of the world.

Such considerations emphasize another aspect of the Convention. Given the significance this instrument attaches to contractual freedom of choice by demanding the courts to determine the intention of the parties, it also appears to express concern over the need for objective standards: such as the place of work carried out in performance of the contract. It happens in the interest of protecting the employee. This duality, not to say this paradox, can be seen in the judicial practice of constituting the events that carry a change of applicable law (Morris 14-15).

Therefore, the consideration needs to be given to the criteria used by the courts to decide whether the new law applicable to an international agreement of employment in case of the employee’s expatriation or of a change in the parties’ choice of law. In this case, judicial reasoning consists first in accepting that there are circumstances that may lead to a change of law and, second, in making a determination of the new law applicable on the basis of the established rules of conflict (Garavaglia 22).

The main point is then to determine the implications of the bases of jurisdiction provided for in the Rome Convention and, where applicable, their respective advantages or dangers for labour law. They must be applicable more specifically, for the employee, whose protection remains the prime concern.

Words: 3,702.

Works Cited:

Dellapenna, J. W. Suing foreign governments and their corporations. Oxford: Oxford Press, 1998.

Garavaglia, M. In Search of the Proper Law in Transnational Commercial Disputes, 12 N.Y.L. SCH. J. INT’L & COMP. L. 29 (1991).

Gooch, C. Personal Jurisdiction, and the Federal Long-Arm Statute. London: International & Comparative Law, 1999.

Hanreijo, T. Applications of Rome Convention. London: Annual of International Law, 1997.

Hartley, T. Beyond the Proper Law: Mandatory Rules under Draft Convention on the Law Applicable to Contractual Obligations, 1989.

McCoy, T. A unifying theory for judicial jurisdiction and choice of law. American Journal of Comparative Law, 39, 1990, p. 249.

Morris, J. The Conflict of Laws, Vol. 2. London: Jeremy Press, 1985.

Peterson, K. Powerful exchange. Profit, November 1998, p. 37.

Swire, P. & Litan, R. None of your business: World data flows, electronic commerce, and the European privacy directive, 1998.

Williams, P. Rome Convention on the law applicable to contractual obligations. London: International & Comparative Law Quarterly, 35, 1997.