The Rome regulation and Rome Convention replaced common law rules on choice of law applicable as between EU / Convention countries. It applies to matters within its scope even if the contracts have no association with the EU. The common law provisions apply in relation to third-country cases.
The Regulation and Convention are a matter of European Union law and the approach taken by the Court of Justice is different to that at common law. There is greater emphasis on a purposive than on a literal meaning. Reference may be made to the work of the working group responsible for drafting, as an aid to interpretation.
As with any European legislation, the Irish and other domestic courts may apply it if the principles are clear. There is possibility of a referral to the Court of Justice if the legal position is insufficiently clear. Each language is equally authentic.
The Convention applies to contractual obligations involving a choice between the laws of different countries. What is or is not a contractual obligation is determined in accordance with domestic law. Common law distinguishes between contract, quasi contract, proprietary and tortious liability. Civil law jurisdictions have equivalent concepts under their law of obligations typically codified.
Questions may arise as to whether an obligation is contractual or proprietary. An assignment of a receivable has contractual and proprietary aspects. A debt is contractual. Issues of third party beneficiaries are contractual.
Contractual obligations are of their nature, intentionally entered. The principal characteristic is the voluntary assumption of obligation by agreement. This is to be contrasted with a tortious duty or duty arising under equitable rules, even one arising from voluntary assumption of responsibility, but not under agreement.
Matters of company law and regulation are not contractual for this purpose.
The position with quasi-contract or restitutionary claims differs. The Rome II Regulation makes separate provision for the two main types of restitutionary claims. One is non-contractual unjust enrichment. The other is non-contractual obligations arising out of acts performed without authority.
Many restitutionary claims are outside the Convention. Some claims which arise from failed contracts may be within its scope. Some continental jurisdictions characterise issues surrounding the failure of contracts as contractual rather than quasi contractual or restitutionary.
Where there is liability both in contract and tort, the applicant will be obliged under Rome II to specify the obligation as one or the other. There was formerly greater freedom under the predecessor to frame the claim under either contract or tortuous liability basis.
The Convention applies to a contract with an international element. This is one involving a choice of law between two different countries. This may arise, for example, where one of the parties is resident abroad, or where the contract is to be concluded or performed abroad by one of the parties.
If a dispute is purely domestic, there may not be sufficient foreign element. For example, if a contract arises in one jurisdiction, exclusively but another jurisdiction claims a right to try because defendant has moved his business, there may be an international element, but they may not be sufficient international element for the purpose of the convention.
Certain matters are excluded from the Convention. It does not apply
- to revenue, customs, or administrative matters.
- arbitration agreements and certain types of insurance contracts.
- non-commercial contracts such as agreements to pay maintenance.
- procedure or evidential matters.
- matters where choice of law is irrelevant such as legal capacity; questions involving the status or legal capacity of a natural person are excluded from the Convention.
- contractual obligation relating to rights and property arising out of a matrimonial relationship,
- wills and succession rights and duties arising out of the family relationship
- parentage marriage or affinity
- maintenance obligations; Maintenance agreements are excluded insofar as there is an underlying legal obligation of maintenance as they are treated as noncontractual, even if there is a contract.
- obligations arising under bills of exchange, cheques, promissory notes and other negotiable instruments to the extent that the obligations under which negotiable instruments arise out of their negotiable character.
The Bills of Exchange Act govern negotiable instruments. What is or is not negotiable depends on the laws of the place where the matter is being heard. A range of instruments have been held to be negotiable. See generally the sections on bills exchange and negotiable instruments.
Arbitration agreements and agreements on the choice of forum
are excluded. This limitation applies to the clause itself. The remainder of the contract is subject to the Convention. Accordingly the common law rules apply insofar as they relate to the formation, validity and effect of the agreement. In some cases, it may be necessary to interpret this part of the contract in accordance with traditional rules and the remaining parts in accordance with the Convention.
Questions governing the law of companies and other bodies corporate or incorporate, such as creation by registration or otherwise legal capacity, internal organization, winding up, personal liability of officers and members for the obligations of the company or body are excluded.
Questions whether an agent is able to bind a principal whether a person or company to a third party are excluded. This exclusion relates to the relationship of the principal and the third party and the issue of the authority of the agent only. It does not apply in relation to the agency relationship.
The constitution of trusts and the relationship between settlors, trustees and beneficiaries is excluded. Trusts are unique to common law. There are equivalent continental law concepts which are contractual and would appear to be within the scope of the Convention.
Matters of evidence and procedure are excluded. There is an exception in respect of the burden of proof insofar as it relates to substantive issues.
Procedural and evidential issues are generally decided by the forum in which the case is heard. Some procedural rules may have a substantive element. Different jurisdictions may have different concepts of what is or is not procedural. The Statute of Frauds is seen as procedural at common law but would be regarded as substantive in continental jurisdictions. Accordingly the issue of whether a contract has to be in writing would be likely to be substantive under the Convention.
Contracts of insurance are not subject to the convention. This applies only in relation to insurance contracts which cover risks that were within EU states. The state’s internal law will apply to determine whether the risk is situated within the relevant EU state. The Rome regulation amended and extended the Convention to cover most insurance contracts. The remaining exclusion is relatively narrow in scope.
Obligations arising out of dealing prior to the conclusion of the contract are excluded. They fall within the scope of the Rome II Regulation which has standalone provisions dealing with quasi-contract and failed contracts et cetera.
The Convention applies in all states or regardless of whether the contract has a connection with the state or indeed any EU state. Parties need not be domiciled or resident in the EU. Once the dispute is heard in an EU state, the Rome Regulation [or convention] is applicable. This is so even if the dispute is between residents of non-EU states concerning matters taking place outside the EU, which fall within its scope.
Laws specified by the Convention are to be applied whether or not they are the law of any EU state. Accordingly if the rules under the Convention apply, a third-party state’s laws must be applied, even if it not a party to the Convention.
The former concept of renvoi whereby reference would be made to the choice of that rules of the country concerned is not applicable under the Convention.
The Regulation defines habitual residence of companies and other bodies corporate or unincorporated as the place of their central administration. Where contracts are concluded during the operations of a branch, agency, or other establishment or if under the contract for which it is responsible for performance, such branch, agent, or establishment, then the place of the branch, agency or other establishment is deemed to be the place of habitual residence.
The habitual residence of a natural person, it is not defined. Where the natural person act during a business, it is deemed to be his principal place of business. The test is applied at the time the contract is entered.
The habitual residence concept applies even in the case of a commercial contract.
The connection is with the habitual residence or central administration of the party who is to undertake the characteristic performance.
The presumption may be displaced. This may occur for example where the characteristic performance is to take place through some other place of business rather than the place of central administration or habitual residence. This should be an express requirement rather than that there is an expectation that it is to be performed there.
There are further presumptions in relation to immovable property and the carriage of good. In case of immovable property, it is presumed the contract is most closely connected with the country where the property is situated. This applies to the extent that the contract subject matter is a right in immovable property or a right to use immovable property. It may not apply to a construction contract.
Contracts for the carriage of goods are presumed connected to the principal place of business of the carrier when the contract was concluded. This does not apply to a contract for the carriage of passengers.
The above presumptions shall not apply if the characteristic performance cannot be determined, and the above further special presumption shall be disregarded if it appears in the circumstances as a whole that the contract is most closely connected with another country. In this case, Court will look at the totality of connections with the various countries and weigh them up. It will look to see with which country there is a greater connection.
The Rome I Regulation modifies the above position which applies under the Rome Convention. The Regulation provides that where there is no express choice of law, there is several fixed rules applicable to certain types of contracts.
In the case of a contract for the sale of goods, it is governed by the law of the place where the seller has his habitual residence. A contract for services is governed by the country where the service provider has his habitual residence. A contract relating to a right in property or to a tenancy is governed by the country where the property is situated.
A tenancy of immovable property for temporary private use of no more than six months is governed by the law of the landlord\’s habitual residence if the tenant is a natural person and his habitual residence is in the same country.
A franchise contract is governed by the law of the country where the franchisee has his habitual residence. A distribution contract is governed by the law of the distributor\’s habitual residence. A contract for the sale of goods by auction is governed by the law of the place where the auction takes place if it can be determined.
There is a further rule for financial markets providing that the contract concluded within a multilateral system which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments in accordance with nondiscretionary rules and which is governed by a single law, is subject to that law.
The effect of the above rules is to achieve similar result to that applicable under the Convention in most cases. Where the contract is not covered by the above provision or where elements of the contract would be covered under more than one set of rules under the above provisions, the contract is to be governed by the law of the country where the party required to affect the characteristic performance of the contract has his habitual residence. Rather than a presumption as under the Convention, this is effectively a rule.
Where the applicable law cannot be determined under the above rules, the contract is to be governed by the law of the country with which it is mostly closely connected. Courts will look at whether there is a close relationship between one of the countries.
Where it is clear from all the circumstances of the case that the contract is manifestly more closely connected with another country than that indicated above, the law of that country will shall apply. It must be manifestly more closely connected. Being more closely connected of itself is insufficient.
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