18/03/2016 CONFLICT OF LAWS AND JURISDICTIONS VIRGINIE COLAIUTA virginie.colaiuta@pinsentmasons.com 18 March 2016 Table of Contents - Conflict of laws - Rome Convention 1980 (contractual obligations) - Rome I 2008 (contractual obligations) - Rome II 2007 (non-contractual obligations) - Conflict of jurisdictions - Brussels I Conflict of Laws A construction project may affect various legal systems Examples: pipeline project across different countries, a project involving contractors and subcontractors of different origins States have different substantive rules There are no uniform transnational substantive laws What law applies? 1 18/03/2016 Conflict of jurisdictions Judicial proceedings relating to the same dispute affecting different legal systems may be commenced before the courts of different states States have different rules defining the jurisdiction of their courts, that is the competence of the courts to hear and determine a case How the competent court is defined? How judgments of one country are recognized and enforced in other countries? CONFLICT OF LAWS/ CHOICE OF LAW/ INTERNATIONAL PRIVATE LAW Conflict of Laws Rules Conflict of laws rules designate the national law applicable to a specific factual situation whenever that situation presents some “foreign” element. 3 typical steps to determine the applicable law: - Classify legal issue - Identify relevant “connecting factor” - Identify applicable law 2 18/03/2016 How the applicable law is determined? Example: Article 3.1 of Rome I entitled “Freedom of Choice”: « 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. By their choice the parties can select the law applicable to the whole or to part only of the contract. » How the conflicts are overcome? States have different substantive laws and different conflict of laws rules. How the conflicts have been resolved? - Uniform substantive laws in international treaties: UN Anti-Corruption Convention EU public procurement regime - Uniform conflict of laws rules: Given the different legal traditions, it was easier to harmonise conflict of laws rules than substantive rules Uniform conflict of laws rules in Europe - Rome Convention 1980 (contractual obligations) - Rome I 2008 (contractual obligations) - Rome II 2007 (non-contractual obligations) 3 18/03/2016 THE ROME CONVENTION The Rome Convention 1980 • Contains conflict of laws rules defining applicable law to contractual obligations • Ratified by the UK on 29 January 1991: – Contracts (Applicable Law) Act 1990, – Applicable to contracts entered into after 1 April 1991. • Still applies to contracts entered into after 1 April 1991 but before 17 December 2009, when Rome I will apply The Rome Convention 1980 Party Autonomy is a key principle Article 3.1: « A contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part only of the contract. » 4 18/03/2016 Party Autonomy How the Parties choose the governing law? - Express or implied? May be implied from standard form of contract, previous course of dealing, choice of a particular forum, express choice of law in related transactions Which law the Parties choose? - Law of the site of the project - A ‘neutral’ law - English law? Is there any limitation to the freedom of the Parties? If the Parties have not chosen any law? Article 4: « the contract shall be governed by the law of the country with which it is most closely connected » « it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration. » Any exception? Mandatory or public policy rules: - May limit contractual freedom to choose the applicable law - May impose their application despite any conflict of laws rules Examples: • protective laws applicable to consumers • protective laws applicable to subcontractors (i.e., the 1975 French law on sub-contract agreements ) 5 18/03/2016 Nature of Mandatory Rules Domestic v. International mandatory rules Scenario 1 MAIN CONTRACTOR (French) I SUBCONTRACTOR (French) Construction project in France The 1975 French law on sub-contracts is mandatorily applicable Scenario 2 EMPLOYER (Swiss) I MAIN CONTRACTOR (German) I SUBCONTRACTOR (Spanish) Construction project in France The 1975 French law on sub-contracts is mandatorily applicable 6 18/03/2016 Origin of Mandatory Rules • • • • The lex fori The law chosen by the parties The lex causae The law of a third country If there is a conflict, which mandatory rules will prevail? The Rome Convention 1980 The 1980 Rome Convention provides for the application of mandatory rules of : • the lex fori • the lex causae • the law of a third country ROME I (Contractual Obligations) 7 18/03/2016 European Regulations European regulations: - are adopted by Qualified Majority Voting in the EU Council - have immediate legal effect within territory of member States - are integrated into the national legal systems of each EU member State and take priority over domestic laws European Regulation: Rome I Rome I • (Regulation 593/2008 on the Law Applicable to Contractual Obligations). • Applies in all EU member-States for contracts entered into after 17 December 2009 Rome I: Governing Law Art. 1(1) – Will operate to determine the governing law of contractual obligations ‘in civil and commercial matters’, except obligations arising out of: – Person’s status and legal capacity – Family relationships – Matrimonial property regimes – Documents guaranteeing the payment of a specific amount of money such as bills of exchange, cheques and promissory notes – Arbitration agreements and choice of court agreements – Law of companies and other corporate or unincorporated bodies – Trusts – Culpa in contrahendo (obligations arising out of pre-contractual dealings) – revenue, customs and administrative matters – Issues of evidence and procedure during legal proceedings 8 18/03/2016 Rome I: Party Autonomy - The parties to a contract can choose the governing law. - It may be applied to only a part or the whole of the contract. - The applicable law can be changed at any time as long as all parties agree. Rome I: Party Autonomy- Express choice The choice of law is ‘express’ where: – a) A provision in the contract explicitly states which law the parties have agreed will govern the contract OR – b) Reference is made to one of the parties’ standard terms which, in itself, expresses a choice of law (Iran Continental Shelf Oil Co. v IRI International Corp [2002] CLC 372), and the chosen legal system is that of a recognised nation state, not of an international organisation or religious law (i.e. Shria’a). Governing Law – Implied Choice For a choice to be implied, it must be ‘clearly demonstrated by the terms of the contract or the circumstances of the case’ This can include: – Pre-contractual correspondence Samcrete Egypt v Land Rover Exports Ltd [2001] EWCA Civ 2019, – Customary practice in the relevant market MSG v Les Gravieres Rhenanes (C/106/95) But does not necessarily include: Ceremonial ‘handshakes’ taking place in Kent, the jurisdiction of one of the contracting parties, References in correspondence to the approach the English courts will take to a particular issue under the contract as a means of contending that an implied choice of law exists, namely English law, where no governing law is elected. Lupofresh Ltd v Sapporo Breweries Ltd [2013] EWCA Civ 948. (supply of hops) 9 18/03/2016 Rome I – Non-Derogable Laws • Art. 3(3) – where all the elements of a situation are located in the same country (i.e. domicile of the parties, place for performance of the obligations), Parties cannot avoid mandatory provisions of law by simply choosing the law of another country to govern the contract. • Art. 3(4) – similarly, if all the elements of a situation are located within the EU, Parties cannot avoid the application of EU Regulations by selecting the law of a nonEU State as applicable Example: an English company employs a French contractor to build and operate a chemical factory in Italy: - Parties choose Canadian law as the governing law, - Regulation 850/2004 regarding persistent organic pollutants would still apply so as to regulate the manufacture and storage of chemicals. Absence of choice by the Parties When: – There is no governing law clause in the contract, OR – The choice of the parties is deemed invalid by the court, OR – The other party successfully argues the implied choice was not ‘clearly demonstrated’ Then the remainder of Rome I operates to determine the governing law of the contract Rome Convention v. Rome I The provisions of Rome I do not differ significantly from the Rome Convention. However, there are some changes that are relevant to those advising commercial parties. In particular: – The applicable law in the absence of choice: Rome I introduces eight specific rules for certain types of contracts. 10 18/03/2016 Rome I: Governing law in absence of choice Where the parties have not chosen the applicable law, the type of contract determines the rules (Article 4) For contracts for the sale of goods, provision of services, franchises and distribution, the law of the country of the habitual residence of the seller, service provider, franchisee or distributor applies. For contracts concerning immovable property, the law of the country where the property is located applies, except in the cases of temporary and private tenancy (maximum 6 consecutive months). In such cases, the applicable law is that of the landlord’s country of residence. In the case of sale of goods by auction, the law of the country of the auction applies. Rome I: Governing law in absence of choice Where the contract cannot be categorised as being one of the specified types or where its elements fall within more than one of the specified types, it should be governed by the law of the country where the party required to effect the characteristic performance of the contract has his habitual residence. However, where the contract is manifestly more closely connected with a country other than that indicated in Article 4(1) or (2), an escape clause provides that the law of that other country is to apply. If the applicable law cannot be determined by following the above approaches, the contract should be governed by the law of the country with which it is most closely connected. Rome I – Habitual Residence The default governing law provisions depend on the concept of ‘habitual residence’, defined in Art. 19: – Companies – the place of central administration – Individual acting in the course of his business – principal place of business – Branch/Agent carrying out the obligations – the place where the branch/agent is located. 11 18/03/2016 Rome I Article 19 Exclusion of renvoi « The application of the law of any country specified by this Regulation means the application of the rules of law in force in that country other than its rules of private international law, unless provided otherwise in this Regulation. » ROME II (Non-Contractual Obligations) Rome II Rome II: Regulation 864/2007 on the law applicable to noncontractual obligations. Art. 1(1) – applies to non-contractual obligations in civil and commercial matters. Entered into force on 20 August 2007 BUT applies to events giving rise to damages occurring after 11 January 2009 (Homawoo v. GMF Assurances, 2011, EUECJ, C-412/10) Applies in all EU member-States (except Denmark) 12 18/03/2016 Rome II – Party Autonomy Parties can choose the law to govern their non-contractual obligations. – Art. 14(1)(b) – Parties can agree to submit their noncontractual obligations to the law of their choice by agreement prior to the event giving rise to damage. – Art. 14(1)(a) – Parties can also agree on the governing law after the event has occurred. Characterisation of non-contractual obligations • In absence of a choice by the parties, Rome II defines the applicable law to non-contractual obligations “which are likely to arise” ( Art.2.2) • Different jurisdictions characterise certain obligations as either contractual or non-contractual. – i.e. liability for pre-contractual negotiations: • English approach – contractual • Continental European approach – non-contractual Characterisation by Rome II Rome II follows an “autonomous” approach: – Was the obligation ‘freely assumed’ by the parties? – i.e. was it negotiated and agreed upon? • Yes? Contractual • No? Non-contractual Rome II applies to: - obligations arising out of strict liability - liability in tort/delict 13 18/03/2016 Rome II - Scope Applicable law defined by Rome II will govern: – Basis and extent of a party’s liability – Grounds for exemption from and limitation of liability – Existence, nature and assessment of damages Rome II - Application • Rome II has “universal application”. Member States will apply substantive law identified by it even if such a law is not the law of a Member State Rome II – General Rule • Art. 4 – General Rule – The applicable law is the law of the country in which the damage occurs • NOT the country where the event giving rise to the damage occurs, • NOT the country where the indirect consequences of the event occur: – See Fortress Value Recovery Fund I LLC and others v Blue Skye Special Opportunities Fund LP and others [2013] EWHC 14 (Comm) – "The place where damage occurred is not the place where a claimant simply suffers financial loss. It is necessary to see where the event giving rise to damage produced its 'initial', 'direct', 'immediate' or 'physical' harmful effect..” 14 18/03/2016 Rome II – Exceptions to the General Rule • Art. 4(2) – Habitual Residence: – Where parties share an habitual residence, the governing law is the law of that country. • Art. 4(3) – Escape Clause: – If the circumstances are ‘manifestly more closely connected’ with another country, the governing law is the law of that country. • Rome II may infer such a connection where there’s a preexisting contractual relationship. • However the English courts have held that the escape clause from Art 4(1) and 4(2) should only be applied on an exceptional basis (Fortress Value Recovery Fund I LLC and others v Blue Skye Special Opportunities Fund LP and others [2013] EWHC 14 (Comm) Art 4(3) Escape clause cont. – (Winrow v Hemphill and another [2014] EWHC 3163 (QB) – In order to determine whether Article 4(3) applies to displace the general rule under Article 4(1), the court needs to assess “all of the circumstances of the case” which include: • the circumstances to be taken into account under Articles 4(1) and (2), • the habitual residence of the claimant at the date the consequential loss is suffered, and • the circumstances connected with the consequence of the tort Rome II – Exceptions to the General Rule Art. 16: Mandatory rules of the forum must apply Relevant for construction projects: Art. 17: Account must be taken of particular rules of “safety and conduct” in force at the time and place of the event giving rise to the liability 15 18/03/2016 Rome II – Special Rules • Arts. 5 – 9 contain rules for determining the governing law in situations involving specific subject matter: – Product Liability: law of the habitual residence of the person who suffers the damage – Unfair Competition: law of the country where the competitive relations/interests of consumers are, or are likely to be affected, – IP Infringement: law of the country in which the protection is claimed – Industrial Action, law of the country in which the action has been or will be taken, unless the parties share a common habitual residence, in which case Art. 4(2) applies so as to make the law of the common habitual residence apply Rome II – Special Rules contd. • Environmental Damage: – Claimant can choose either: • Law of the country where the damage occurred • Law of the country where the act giving rise to the damage occurred Reinforces ‘polluter pays’ principle favoured in Europe. CHOICE OF FORUM 16 18/03/2016 Party Autonomy is the key principle CONTRACTUAL FREEDOM DEFINES COMPETENT FORUM: Arbitration or litigation? Why to choose arbitration? Advantages: - can choose the arbitrators - More flexible procedural rules - no appeal on the merits - awards are more easily recognized than jurisdictional decisions:1958 New York Convention Arbitration clauses Choice of: - arbitration rules (ICC, LCIA, SCC, UNCITRAL, etc.) seat of arbitration substantive law procedural law Number of arbitrators Language of proceedings 17 18/03/2016 Any limitation to freedom of the Parties? National mandatory rules may limit contractual freedom to choose a forum: • By restraining freedom of State entities with respect to arbitration clauses. • By prohibiting arbitration clauses in consumers contracts Scenario 3 EMPLOYER (Swiss) I MAIN CONTRACTOR (German) I SUBCONTRACTOR (Spanish) I SUB-SUBCONTRACTOR (Belgian) Sub-sub-subcontractor (Danish) If project is located in France, French courts will have jurisdiction over claims made by subcontractors under the 1975 French law on sub-contracts BRUSSELS I 18 18/03/2016 BRUSSELS I: judicial cooperation • Regulation n. 44/2001, in force since 1 March 2002. • Supersedes the 1968 Brussels Convention on Jurisdiction and Recognition and Enforcement of Judgments in Civil and Commercial Matters • Brussels Convention continues to apply to those territories that are excluded from the regulation • The EU concluded an agreement with Denmark that extended the provisions of the regulation to Denmark Brussels I – Amendments Note that Regulation 1215/2012 « Recast Brussels Regulation » repealed Brussels Regulation n. 44/2001 and applies to: - legal proceedings issued on or after 10 January 2015 - judgments given in proceedings instituted on or after 10 January 2015 Brussels I – Scope • Governing jurisdiction of courts in “civil and commercial matters” – Excludes revenue, customs and administrative matters, Also excludes matters involving: • Arbitration • Status and legal capacity of natural persons • Property rights under marriage, wills and succession • Bankruptcy • Social Security 19 18/03/2016 Brussels I : Arbitration Exclusion • Amended Regulation – Recital 12: - Exclusion confirmed and reinforced « nothing in this Regulation should prevent courts of a Member State, when seised on an action in a matter in respect of which the parties have entered into an arbitration agreement, from referring the parties to arbitration, from staying or dismissing the proceedings, or from examining whether the arbitration agreement is null and void, inoperative or incapable of being performed, in accordance with their national law » Brussels I: Party Autonomy New Art. 25: If the parties, regardless of their domicile, have agreed that a court of a Member State is to have jurisdiction to settle any dispute, that court shall have jurisdiction Jurisdiction would be exclusive jurisdiction unless the parties have agreed otherwise. Separability: jurisdiction agreements are independent of the other terms of the contract Brussels I: Absence of choice If a choice is not made: – Brussels I will determine the appropriate jurisdiction if the matter falls within its rules – If the matter is not covered by the substantive scope of Brussels I, Art. 4(1) refers issues of jurisdiction to the domestic law of the Member State in which proceedings were issued. 20 18/03/2016 BRUSSELS I Brussels I impose default approaches for courts in accepting (and refusing) jurisdiction in civil and commercial cases, including tort claims. - To reduce uncertainty of legal consequences of cross-border transactions - To reduce parallel proceedings - To ensure that only one country’s courts will hear a case - To reduce risk of “forum shopping” - To reduce risk of contradictory judgments on same dispute Brussels I – Applicability • Applicability: The matter will generally be determined by Brussels I where either: – The defendant is domiciled in an EU Member State OR – If the defendant is not domiciled in an EU Member State and the subject matter of the dispute requires jurisdiction to be conferred on the courts of a Member State. Brussels I – General Rule defining competent court Domicile of the Defendant • General Rule (Art 2): – “Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State” 21 18/03/2016 Application of Brussels I: Domicile • Domicile: – Natural person – look at the domestic rules of the jurisdiction of the court hearing the claim. • In the UK – Civil Jurisdiction and Judgments Order (SI 2001/3929) Sch. 1, para. 9(2), domicile means residence in the UK indicating a substantial connection – presumed if resident in the UK for at least the last 3 months. – Companies – Art. 60 • Place where the company has its statutory seat, central administration, or principal place of business. Brussels I – Exceptions to the General Rule • Exceptions to the General Rule : – 1) ‘Special Jurisdiction’ – exceptions giving the claimant a choice of where to sue (Art 5), – 2) ‘Exclusive Jurisdiction’, where neither party has a choice of where to sue (Art 22), and – 3) Where both parties have agreed on the courts which are to have jurisdiction (Art 23). Brussels I – Exceptions to the General Rule contd. ‘Special Jurisdiction’ – Defendant of one Member State may be sued in the courts of another Member State: – Contract: - competent courts of the place of performance of the obligation in question, – Tort: - competent courts of the place where the harmful event occurred, – Branch/Agency operations: place where the branch/agency is established, Detailed rules on: – Insurance matters, – Consumer contracts, – Employment contracts In the amended Regulation, the detailed rules in Art. 5 were expanded to cover non EU domiciled defendants 22 18/03/2016 Brussels I – Exceptions to the General Rule contd. • Art. 22: ‘Exclusive Jurisdiction’ – Parties have no choice as to where to commence proceedings where they involve the following issues: – Rights over immovable property (Art 22(1), (except tenancies for private use for a maximum of 6 consecutive months) – the Member State in which the property is located must have jurisdiction, – Constitution, dissolution and/or governance of companies (Art 22(2)) – the Member State where the company has its seat must have jurisdiction, – Validity of entries on public registers (Art 22(3) – the Member State in which the register is kept must have jurisdiction, – Registration or validity of IP rights (Art 22(4))– the Member State where the right has been registered must have jurisdiction, – Enforcement of judgments (Art 22(5))– the Member State in which the judgment has been, or is to be enforced, must have jurisdiction. • • • Operates regardless of the domicile of the defendant. Art. 25 – any other court must declare it has no jurisdiction. Cannot be excluded by jurisdiction agreement between the parties and any such agreement will have no legal force (Art 23.5) Brussels I – Exceptions to the General Rule contd. • In relation to the Exclusive Jurisdiction exception for the Enforcement of judgments (Art 22(5)), while the court of a member state in which the judgment has been, or is being, enforced has exclusive jurisdiction over its own enforcement proceedings, it is important to note that it does not preclude enforcement proceedings for the same judgment being brought in another jurisdiction, provided that proper formalities have been observed (Bach v Davis [2013] EWHC 4459 (QB)). Brussels I – Appearance • Art. 24 – Defendant enters an appearance in the jurisdiction: – Defendant agrees to the jurisdiction. – Situations where this provision will not allow a court to take jurisdiction: • Where another court has ‘exclusive jurisdiction’ under Art. 22, • Where the defendant only enters an appearance to contest the jurisdiction of the court. 23 18/03/2016 Brussels I – Lis pendens Where there are proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States: – any court shall of its own motion stay its proceedings until jurisdiction of the court first seised is established (Art 27 .1) – Where jurisdiction of the court first seised is established, any other court shall decline jurisdiction (Art 27.2) Brussels I – Lis pendens The terms "court" and "proceedings" in Articles 27 have been held to have broad interpretation and include conciliation proceedings in Switzerland before the relevant conciliation authority (see Lehman Brothers Finance AG v Klaus Tschira Stiftung GmbH and another [2014] EWHC 2782 (Ch) Note that the above case concerns the application of the 2007 Lugano Convention but it is highly arguable that it applies equally to Brussels I. Brussels I – Lis pendens From 10 January 2015: - Where parties have expressly chosen a particular jurisdiction, the chosen court is free to decide on its jurisdiction and progress the litigation regardless of whether or not it is first seised. - Any other court shall stay proceedings until chosen court declares it has no jurisdiction 24 18/03/2016 Brussels I – Related proceedings in non-EU countries Recast Brussels I Regulation has introduced new rules relating to proceedings pending before courts of a non-EU States - Articles 33 and 34 – Member State courts with discretion to stay proceedings to take into account proceedings involving the same cause of action and the same parties or related proceedings pending before the courts of a third State - A Member State can exercise this discretion having assessed « all the circumstances in the case before it » and if related proceedings were started first Brussels I – Dismissal of proceedings Member State courts may dismiss the proceedings if third State proceedings are concluded and have resulted in a judgment capable of recognition and enforcement in that Member State Brussels I – Proceedings before third State courts Member State courts can, however, continue proceedings notwithstanding the new international lis pendens rule if any of the following apply: - There is no longer a risk of irreconcilable judgments (for related proceedings only) - Proceedings in a third State are themselves stayed or discontinued - Proceedings in a third State are unlikely to be concluded within reasonable time - The continuation of proceedings before a Member State court is required for proper administration of justice 25 18/03/2016 Brussels I : Recognition of judgments • A judgment rendered in a Member State shall be recognized in the other Member States without any special proceedings unless the recognition is contested • A judgment is enforceable following purely formal checks of the documents supplied • Under no circumstances a foreign judgment may be reviewed as to its merits/substance • « Judgment » means any judgment given by a court or tribunal of an EU country, whatever the judgment may be called, including a decree, order, decision or writ of execution as well as the determination of costs or expenses by an officer of the court Brussels I : Recognition of judgments • No recognition of judgments if: – Contrary to public policy – Defendant was not properly served – Irreconcilable with judgment rendered in a dispute between the same parties in the EU State where recognition is sought – Irreconcilable with earlier judgment rendered in another EU or non-EU country involving the same cause of action and the same parties QUESTIONS ? 26 18/03/2016 Working hard to make it easier LONDON DUBAI BEIJING SHANGHAI HONG KONG SINGAPORE OTHER UK LOCATIONS: BIRMINGHAM BRISTOL EDINBURGH GLASGOW LEEDS MANCHESTER International: T +44 (0)20 7418 7000 UK: T 0845 300 32 32 Pinsent Masons LLP, is a limited liability partnership registered in England & Wales (registered number: OC333653) authorised and regulated by the Solicitors Regulation Authority. 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