Posts Tagged lex contractus
Thank you Filbert Lam for yet again flagging an important case. In  EWCA Civ 6 Kabab-Ji SAL v Kout Food Group Flaux LJ extensively discussed the application of Sulamerica as to the governing law of an arbitration agreement which provides for arbitration in Paris but which is contained in a main agreement which is expressly governed by English law; and as to whether the respondent became a party to the main agreement and/or the arbitration agreement notwithstanding the presence of No Oral Modification provisions in the main contract.
Parties’ choice of English law for the underlying contract was found to also be an express choice of the law governing the arbitration agreement. This meant there was no need to consider the implications (particularly viz a possible implied choice of law) of a choice of Paris as seat or other aspects of the Sulamérica test. The award applying French law was set aside.
Jonathan Lim suggests here that the judgment is a departure from the understanding of separability in previous CA decisions, although the ensuing discussion on his feed also suggests that the factual interpretation of the clauses might suggest the exact opposite. I tend to agree with Jonathan: the generic nature of the clauses and the lack of (reported at least) other strong indications seem to suggest the finding of express choice of law was optimistic.
Update 4 December 2018 thank you to his Grace der Graf von Luxemburg for additionally pointing out pending case C-16/18 Dobersberger dealing with workers employed on international trains which also travel through the host Member State – Update January 2020 the Court held 19 December 2019 after Opinion Szpunar AG in July 2019. – and see scholarly review of similar Dutch cases here.
Thank you MPI’s Veerle Van Den Eeckhout for pointing out a highly relevant reference to the CJEU by the Dutch Supreme Court /Hoge Raad. The link between the posted workers Directive and conflict of laws is clear, as I have also explained here. The most interesting part of the reference for conflicts lawyers, are the questions relating to ‘cabotage’, particularly where a driver carries out work in a country where (s)he is not habitually employed (international trade lawyers will recognise the issue from i.a. NAFTA). Update January 2019 the reference is now here, the case is C-815/18.
One to keep an eye on.
(Handbook of) EU Private International Law, 2nd ed 2016, Chapter 3, Heading 3.2.5.
I reported earlier on Sulamerica and the need properly and preferably, expressly to provide for choice of law vis-a-vis arbitration agreements, in particular vis-a-vis three elements: lex arbitri, lex curia, lex contractus. In Shagang the High Court added its view on the possible relevance of a fourth factor: the geographical venue of the arbitration, and its impact in particular on the curial law: the law which determines the procedure which is to be followed.
Atlas Power Ltd -v- National Transmission and Despatch Co Ltd  EWHC 1052 is another good illustration of the relevance (but in practice: rarity) of the proper identification of all four factors.
Bracewell excellently identify the four take away points from Atlas Power:
- It is the seat of arbitration that determines the curial law of the arbitration, not the governing law of the contract.
- (To English Courts) the choice of the seat of arbitration is akin to an exclusive jurisdiction clause in favour of the courts of the place designated as the seat of the arbitration having the supervisory role over the arbitration.
- The English courts can and will use their powers to grant anti-suit injunctions to prevent a party from commencing foreign proceedings in breach of an arbitration agreement.
- Complex drafting increases the risk of satellite litigation and the accompanying delay and expense.
The core point which Atlas Power illustrates is that specific identification of arbitration venue, curial law, lex contractus and lex arbitri is best done in simple terms. Overcomplication, particularly variance of any of these four points, is a truly bad idea. Specifically: the arbitration clause in the contracts between the parties (text from Bracewell’s overview)
- Started by providing that the “arbitration shall be conducted in Lahore, Pakistan”.
- Then stated that if the value of the dispute was above a certain threshold or fell within a certain category, either party could require that the arbitration be conducted in London.
- Finally, the clause provided that, notwithstanding the previous sentences, either party may require that the arbitration of any dispute be conducted in London, provided that if the dispute did not satisfy the threshold or category requirements set out earlier in the clause the referring party would pay the costs of the arbitration incurred by the other party in excess of the costs that would have been incurred had the arbitration taken place in Pakistan.
Various procedural events led to Phillips J essentially having to decide: whether the parties had validly and lawfully chosen London as the seat of the arbitration (answer: yes); and whether, in light of Pakistani law (which was the law governing the contracts), the choice of London as the seat of arbitration did not result in the English courts having exclusive supervisory jurisdiction with the effect that the courts of Pakistan had at least concurrent jurisdiction (answer: no, for this would result in an unsatisfactory situation where more than one jurisdiction could entertain challenges to an award)
Variation of any litigation relevant articles really does open all sorts of cans of worms.
Many thanks to Jan von Hein for flagging the ultimate judgment (the link is to a press release) of the Bundesarbeitsgericht in Nikiforidis. I had of course reported earlier my serious misgivings about the CJEU’s judgment in same, upon preliminary review.
The judgment eventually declined to employ the opening left by the CJEU, to take Greek law into account ‘as a matter of fact’. Thank you, but no thank you: there was no suitable point of entry in German law to take account of the Greek austerity laws. Still, as Jan points out, the judgment in Luxembourg undoubtedly will feature as precedent in future cases.
Which strap on which boot? CJEU rejects von Munchausen in Nikiforidis, without suggesting alternative. And it leaves effet utile stranded in the mud.
As my review of Szpunar AG’s Opinion in C-135/15 Nikiforidis highlighted, on the issue of temporal applicability to continued contracts, the AG suggested along the lines of Rome I Article 10’s regime (the von Munchausen or the ‘bootstrap’ principle) that the lex causae has to determine the moment of ‘conclusion’.
The employment relationship at issue is conducted in Germany and subject to German law, which does not permit reductions in remuneration similar to those to which the Hellenic Republic had recourse (as a result of austerity).
The Court held last week and points out (at 20) that if the Rome I Regulation did not apply to the main proceedings, Article 34 of the EGBGB (the relevant provisions of residual German private international law concerning contractual relationships) would permit it to take into account the overriding mandatory provisions of another State. Provisions like those are exactly why the UK and Luxembourg in particular (concerned about financial services contracts subject to their laws) insisted on Article 9 Rome I seriously constraining the room for manoeuvre of the forum.
Different from its AG, the Court squarely rejects (at 30) any role here for Article 10. In support, it refers to the original proposal of the European Commission with a view to the adoption of what eventually became Rome I. COM(2005) 650 referred to ‘contractual obligations’: ‘‘contractual obligations arising after its entry into application’; as opposed to the Regulation’s eventual use of ‘‘contracts’ concluded as from 17 December 2009.
At 34: ‘Whilst the reference, proposed by the Commission, to contractual obligations arising after the entry into application of that regulation covered, in addition to contracts concluded after its entry into application, the future effects of contracts concluded before then, that is to say, obligations arising from the latter after then, this is not so in the case of the wording of Article 28 of the Rome I Regulation, which covers exclusively contracts concluded on or after 17 December 2009, the date on which that regulation became applicable pursuant to Article 29 thereof. It follows that, contrary to what the referring court envisages, any agreement by the contracting parties, after 16 December 2009, to continue performance of a contract concluded previously cannot have the effect of making the Rome I Regulation applicable to that contractual relationship without thwarting the clearly expressed intention of the EU legislature.’
Now, I have admittedly only quickly scanned the travaux preparatoires in writing up this post, yet I do think the Court’s conclusion on this point may be misguided. It was Parliament which introduced ‘contracts’ as opposed to ‘contractual obligations’. It did so in response to the EC’s proposed sentence which read in full
‘It shall apply to contractual obligations arising after its entry into application. However, for contractual obligations arising before its entry into application, this Regulation shall apply where its provisions have the effect of making the same law applicable as would have been applicable under the Rome Convention of 1980.’
Parliament proposed lifting the first sentence into a separate Article and to drop the second sentence altogether, citing ‘Unlike in the case of torts and delicts, contracts are entered into deliberately and voluntarily. It is essential for the parties to know that the provisions on applicable law contained in this Regulation will apply only to contracts concluded after its date of application. Therefore proceedings brought after the date of application concerning contracts concluded before that date will apply the Rome Convention.’
This intervention therefore I believe was targeted at avoiding debates on equality between Rome I and Rome Convention outcomes. No indication was given that the change from ‘contractual obligations’ to ‘contract’ was of any specific relevance for the debate.
However, in the end that discussion in my view does not really matter because the Court itself does subsequently admit that its observation, that the Regulation cannot mean that ‘any, even minor, variation made by the parties, on or after 17 December 2009, to a contract initially concluded before that date were sufficient to bring that contract within the scope of the Rome I Regulation’ (at 35) , should not negate that
‘the possibility remains, as the Commission has pointed out in its written observations, that a contract concluded before 17 December 2009 may be subject, on or after that date, to a variation agreed between the contracting parties of such magnitude that it gives rise not to the mere updating or amendment of the contract but to the creation of a new legal relationship between the contracting parties, so that the initial contract should be regarded as having been replaced by a new contract, concluded on or after that date, for the purposes of Article 28 of the Rome I Regulation.’ (at 37).
Whether such ‘new legal relationship’ has been formed in casu, is down to the national court to decide. The CJEU does not give any indication whatsoever of what law is to guide that court in that decision. A European ius commune? I don’t see it. Lex fori? Perhaps. But that would encourage forum shopping. Lex causae? But the Court had dismissed Article 10 of having any relevance. I am at a loss.
Now, to the question of overriding mandatory requirements (please refer again to my review of Szpunar AG’s Opinion for context): here the Court I believe misses the mark. After pointing out, justifiably (and in contrast with the AG), that Article 9 needs to be interpreted restrictively, it holds that ‘the list, in Article 9 of the Rome I Regulation, of the overriding mandatory provisions to which the court of the forum may give effect is exhaustive. (at 49).
This means Article 9 of the Rome I Regulation must be interpreted ‘as precluding the court of the forum from applying, as legal rules, overriding mandatory provisions other than those of the State of the forum or of the State where the obligations arising out of the contract have to be or have been performed. Consequently, since, according to the referring court, Mr Nikiforidis’s employment contract has been performed in Germany, and the referring court is German, the latter cannot in this instance apply, directly or indirectly, the Greek overriding mandatory provisions which it sets out in the request for a preliminary ruling.’ (at 50).
But then, at 51:
‘On the other hand, Article 9 of the Rome I Regulation does not preclude overriding mandatory provisions of a State other than the State of the forum or the State where the obligations arising out of the contract have to be or have been performed from being taken into account as a matter of fact, in so far as this is provided for by a substantive rule of the law that is applicable to the contract pursuant to the regulation.‘
And in conclusion, at 53:
Accordingly, the referring court has the task of ascertaining whether Laws No 3833/2010 and No 3845/2010 are capable of being taken into account when assessing the facts of the case which are relevant in the light of the substantive law applicable to the employment contract at issue in the main proceedings.
Err, here I really do not follow. Surely such de facto circumvention of Article 9’s restrictive scope, negates its effet utile. If and when a law other than the lex causae may be taken into account ‘as a matter of fact’, the Rome modus operandi is to say so: see in this respect in particular Article 17 Rome II. And what would ‘taking into account as a matter of fact’ mean for the case at issue?
Now you see it, now you don’t. In West Tankers the Court took effet utile to extreme length. Here it arguably entirely negates it. I am not convinced.
(Handbook of) European Private international law, 2nd ed. 2016. Chapter 2, Heading 188.8.131.52, Chapter 3, Heading 3.2.5 , heading 3.2.8.
Commission effectively supplements Rome I using the posted workers Directive. Defines ‘temporary employment’ as not exceeding 24 months.
Update 15 July 2018 The text has now been adopted as Directive 2018/957. References to Rome I have been deleted however recital 9 and Article 1 reach a similar effect, tied to a reduced period of in principle 12 months.
Update 31 May 2017 A quick note by way of interim update: the proposal is stuck in Parliament (awaiting committee decision).
Thank you Fieke van Overbeeke for pointing this out to me. The EC have proposed to amend the posted workers Directive, to address unfair practices and promote the principle that the same work at the same place be remunerated in the same manner.
The amendment essentially relates to Article 8(2) of the Rome I Regulation, which partially corrects choice of law made in the context of contracts for employment. The proposal amounts to Union harmonisation of the concept ‘temporary employment’, as one not exceeding 24 months.
The proposal, if adopted, would insert an Article 2a in the posted workers Directive, 96/71, as follows:
Posting exceeding twenty-four months
1. When the anticipated or the effective duration of posting exceeds twenty-four
months, the Member State to whose territory a worker is posted shall be deemed to
be the country in which his or her work is habitually carried out.
2. For the purpose of paragraph 1, in case of replacement of posted workers
performing the same task at the same place, the cumulative duration of the posting
periods of the workers concerned shall be taken into account, with regard to workers
that are posted for an effective duration of at least six months.
Recitals 6-8 give context:
(6) The Rome I Regulation generally permits employers and employees to choose the law applicable to the employment contract. However, the employee must not be deprived of the protection of the mandatory rules of the law of the country in which or, failing that, from which the employee habitually carries out his work. In the absence of choice, the contract is governed by the law of the country in which or, failing that, from which the employee habitually carries out his work in performance of the contract.
(7) The Rome I Regulation provides that the country where the work is habitually carried out shall not be deemed to have changed if he is temporarily employed in another country.
(8) In view of the long duration of certain posting assignments, it is necessary to provide that, in case of posting lasting for periods higher than 24 months, the host Member State is deemed to be the country in which the work is carried out. In accordance with the principle of Rome I Regulation, the law of the host Member Sates therefore applies to the employment contract of such posted workers if no other choice of law was made by the parties. In case a different choice was made, it cannot, however, have the result of depriving the employee of the protection afforded to him by provisions that cannot be derogated from by agreement under the law of the host Member State. This should apply from the start of the posting assignment whenever it is envisaged for more than 24 months and from the first day subsequent to the 24 months when it effectively exceeds this duration. This rule does not affect the right of undertakings posting workers to the territory of another Member State to invoke the freedom to provide services in circumstances also where the posting exceeds 24 months. The purpose is merely to create legal certainty in the application of the Rome I Regulation to a specific situation, without amending that Regulation in any way. The employee will in particular enjoy the protection and benefits pursuant to the Rome I Regulation.
It would obviously be attractive to ensure the same rule is verbatim included in a future amendment of the Rome I Regulation.
(Handbook of) EU Private International Law, 2nd ed 2016, Chapter 3, Heading 3.2.5.