Posts Tagged Mandatory law
Wallis v Air Tanzania. A good reminder of the (soon to be resurrected) UK reservation viz the Rome Convention.
In Wallis Trading Inc v Air Tanzania Company Ltd & Anor  EWHC 339 (Comm), at stake is a claim by Wallis Trading, a Liberian company which carried on the business of acquiring and leasing aircraft, against Air Tanzania and the Government of Tanzania in respect of sums which Wallis says are due to it from the Defendants arising out of a lease of an aircraft by Wallis to ATCL.
Of interest to the blog is the discussion of the Rome Convention at 74 ff. Defendants contend that the Lease is invalid, and ‘null and void’ because it was entered into in breach of the Procurement Legislation. Butcher J holds that the Lease expressly provided that English law was to be its governing law. The putative law of the lease therefore is English law (the bootstrap of Article 8 Rome Convention, now Article 10 Rome I. The Procurement Legislation is not part of English law, and non-compliance with it does not, as a matter of English law, render the Lease invalid, null or void.
What however about the application of A7 Rome Convention’s rule on lois de police /mandatory law?
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]
Here, Butcher J points out that Article 7(1) of the Rome Convention does not have the force of law in the United Kingdom: the UK had entered an Article 22 reservation viz the lois de police rule. The impossibility of same viz Rome I led to the stricter language in Article 9. In the event of Rome I not being part of the future relations between the UK and the EU, the Convention and its reservation will once again be applicable.
(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 3, Heading 3.2.8, Heading 126.96.36.199.
Lamesa Investments v Cynergy. Rome I-like ‘mandatory law’ provisions applied to US secondary sanctions.
A long overdue post I fear (I hope in the next week and a half or so to turn to draft posts which for all sorts of reasons have gotten stuck in the queue, finally to be published) on Lamesa Investments Ltd v Cynergy Bank Ltd  EWHC 1877 (Comm). Latham and Watkins have had background for some time here.
The case concerns a standard clause in an English law governed contract on ‘mandatory law’ as an excuse for contractual non-performance. Here, the clause (in a (credit) facility agreement) read: clause 9.1: (party is not in breach of the agreement if) “… sums were not paid in order to comply with any mandatory provision of law, regulation or order of any court of competent jurisdiction”.
“Regulation” was defined in the Agreement as including “any regulation, rule, official directive, request or guideline … of any governmental, intergovernmental, or supranational body, agency, department or of any regulatory, self-regulatory or other authority or organisation”.
Lamesa argued that Cynergy could not rely on clause 9.1 because:
- “provision of law” meant a law that applied to a UK entity, acting in the UK, that had agreed to make a sterling payment pursuant to a contract governed by English law; and
- “mandatory” meant that the relevant law made it compulsory for Cynergy to refuse payment
‘In order to comply’ was the focus of discussions, in particular whether there was any territorial limit to it. Pelling J took a flexible approach, holding that Cynery could not reasonably be expected to have excluded the only type of sanction which it could have reasonably foreseen, namely secondary sanctions imposed by US sanctions law (at the time the parties entered into the Facility Agreement, Cynergy was aware that it was possible that US sanctions would be imposed on Lamesa).
Of interest to the blog is the brief reference to Rome I (and the Convention), at 23:
‘It was submitted on behalf of CBL and I agree that English lawyers during the period the FA was being negotiated and down to the date when it became binding would have understood a mandatory law to be one that could not be derogated from. The context that makes this probable includes the meaning given to the phrase “… mandatory provision of law …” in the Rome Convention 1980 and the Rome 1 Regulation on Choice of Law. It was not submitted by CBL that the construction for which they contend applies by operation of either regulation. It submits however and I accept that they provide some support for the submission that lawyers at the relevant time would have understood the effect of the word “mandatory” to be as I have described. It goes without saying that it was not open at any stage to either party to dis-apply the US statutes that purported to apply secondary sanctions by their agreement, nor did the parties attempt to do so either in the FA itself or afterwards.’
(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 3, Heading 3.2.8, Heading 188.8.131.52.
DES v Clarins. The law applicable to ending commercial agency: Granarolo (and Rome I’s /Rome Convention’s overriding mandatory law rules) applied by Paris Court of Appeal.
In RG 16/05579 DES v Clarins (I have a copy on file for those finding it difficult to get access) the Paris Court of Appeal on 19 September 2018 effectively applied the CJEU’s Granarolo judgment on jurisdiction, to issues of applicable law. Yet it leaves many questions unanswered and does not carry out a neat and tidy analysis at all.
Companies belonging to the Clarins group (of France and Luxemburg) were sued for breach of their business relationship with a French company that distributed Clarins cosmetics in Algeria through local companies there, and for the alleged sudden halt in negotiations to try and resuscitate their contractual relationship.
The Court of appeal first of all (p.16-17 of the PDF version of the judgment) summarily rejects objections to the anchoring of non-France based defendants onto Clarins, with domicile in département 92 – Hauts de Seine: claimants request damages from all defendants, on the basis of the same facts and the same legal basis. So as to avoid conflicting judgments the Court sees no reason at all not to join the cases.
In terms of applicable law, the Court refers to Granarolo to qualify the relationship as contractual (reference is made to a tacit contract), yet then skips the application of the cascade rules of the Rome Convention (which applied ratione temporis rather than Rome I) to simply jump straight to the qualification as the relevant French rules as lois de police. As Christophe points out, there are plentry of the Convention’s default categories which could have applied to the case. Skipping the cascade to go straight to the exception is not the right way to go about conflict of laws.
The Court similarly cuts plenty a corner by summarily qualifying the sudden stop to negotiations to resuscitate a previous contractual relationship as non-contractual and applying French law as lex loci damni per Rome II (p.18), particularly as Rome II has a specific rule for culpa in contrahendo.
I am assuming an appeal with the Supreme Court is underway.
(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 2, Heading 184.108.40.206, Heading 220.127.116.11.9; Chapter 3, Heading 3.2.8, Heading 18.104.22.168).
Sinocore International Co Ltd v RBRG Trading: The commercial court on fraus, ordre public and arbitration.
Fraus omnia corrumpit (fraud corrupts all; alternatively formulated as ex turpi causa non oritur actio) is not easily applied in conflict of laws. See an earlier post here. In  EWHC 251 (Comm) Sinocore International Co Ltd v RBRG Trading , the Commercial Court granted permission for the enforcement of a foreign arbitral award despite allegations that the transaction in question had been “tainted” by fraud: this is how the case is summarised by Mayer Brown and I am happy broadly to refer to their overview and analysis.
The Commercial Court’s relaxed attitude is another sign of strong support of the English courts for the New York Convention and its narrow application of ordre public.
An interesting case for comparative conflicts /arbitration classes.
Update 19 October 2016. The court held yesterday. I shall have review it soon.
Szpunar AG’s Opinion in C-135/15 Hellenic Republic v Grigorios Nikiforidis has travelled half the world with me in my briefcase. Time to tackle the blog queue…
As I had reported earlier, the Bundesarbeitsgericht has given the CJEU an opportunity to provide much needed clarity on the application of Rome I to continuing (employment) contracts, and on the Regulation (or as the case may be, the Rome convention)’s provisions on overriding mandatory law.
The Opinion (not available in English) first of all clarifies the temporal scope of Rome I. Article 28 Rome I provides that it applies to contracts concluded ‘as from 17 December 2009’ (this is the corrected format; initially Article 28 read ‘after’). When exactly a contract is ‘concluded’ needs to be determined in accordance with the putative lex causae as identified by the Regulation (an extension of Article 10(1), suggested by most if not all of relevant scholarship). What, however, about ‘continuing’ contracts’: those concluded before the temporal scope of the Regulation, continuing after, however renewed, renegotiated, amended…: do these continue to be covered by the Rome convention ad infinitum, or is there a cut-off point at which these continuing contracts become newly concluded?
I had suggested in my earlier posting that one’s intuitive assumption may be to prefer autonomous interpretation of the concept ‘concluded’. That, after all, is the standard approach of the Court. However I argued that in the current state of (lack of) harmonisation of contractual law, it is more likely that the Court will prefer an Article 10(1) type solution. Szpunar AG is of the same opinion. He first of all points out (at 33) that secondary EU law need not necessarily include verbatim transitionary measures. In the absence of a specific regime, the general rule is that the new provisions immediately apply to future effects of situations that arose under the old regime. Rome I’s transitory regime therefore, with its reference to date of ‘conclusion’ is an exception to that general principle. Can that moment of conclusion be autonomously defined? Szpunar AG shares my intuition (at 35 ff): along the lines of Article 10’s regime (the von Munchausen or the ‘bootstrap’ principle) the lex causae has to determine the moment of conclusion. For long-term contracts, this will inevitably lead to uncertainty (at 49). Yet that does not take away the soundness of the rule.
Next up is the application of Article 9’s provision on overriding mandatory provisions. This is the first time the CJEU will rule on that Article (Unamar was held under the Rome Convention). The Regulation quite deliberately limited the room for manoeuvre for the court seized to apply overriding mandatory law other than that of the forum: only such laws of the country where the obligations arising out of the contract ‘have to be performed’ can come into calling. That place is likely to be Germany in the case at issue (the Regulation does not define ‘place of performance’ under Article 9(3)) – however the AG suggests differently: there are a variety of reasons to assume that Greece, too, can be that place (at 95).
Szpunar AG first of all, in his very first para, remarks that scholarly attention to ‘lois de police’ far exceeds its featuring in practice. He also notes that von Savigny himself discussed ordre public (at 68 with references) and succinctly discusses the difference between the two (at 69-70). He repeats (at 78) that scholarly attention to overriding mandatory law has been excessive. He then rejects the suggestion that Article 9(3) needs to be applied restrictively to such a degree that its application becomes pretty much near-impossible. Importantly, he rejects in the process (a la Kainz) a strict parallel between ‘performance’ in Article 9(3) Rome I and Article 7(1) Brussels I Recast, and suggest that while the latter needs strict interpretation in line with the overall interpretative rules of that Regulation, there is no such need for Article 9(3) (at 92).
I wonder whether the Court will still hold before the recess (professor Szpunar Opined in April: I did flag there is a queue of cases waiting to be reviewed…
(Handbook of) European Private international law, 2nd ed. 2016. Chapter 2, Heading 22.214.171.124, Chapter 3, Heading 3.2.5 , heading 3.2.8.
Postscript 21 September 2015: the case is C-135/15 Hellenic Republic v Grigorios Nikiforidis.
The German Federal Labour Court, the ‘Bundesarbeitsgericht’, has provided the ECJ with an opportunity to provide much needed clarity on the application of Rome I to continuing (employment) contracts, and on the Regulation (or as the case may be, the Rome convention)’s provisions on overriding mandatory law. The Bundesarbeitsgericht has issued a press release on the case, Giesela Rühl flagged the case in March, and Lisa Günther has more detailed input on the overall context. Claimant is a Greek, employed by the Greek State at the Greek primary school in Nuremberg (Germany). His salary was reduced in accordance with relevant Greek Saving Laws. Claimant asks for payment of the sums withheld. Is the German court bound to apply the Greek Saving Laws?
The case (which as yet to appear on the ECJ’s website) first of all seeks clarification on the temporal scope of Rome I. Article 28 Rome I provides that it applies to contracts concluded ‘as from 17 December 2009’ (this is the corrected format; initially Article 28 read ‘after’). When exactly a contract is ‘concluded’ needs to be determined in accordance with the lex causae as identified by the Regulation (an extension of Article 10(1), suggested by most if not all of relevant scholarship). There has hitherto been much less noise about the application of Article 28 to ‘continuing’ contracts’: those concluded before the temporal scope of the Regulation, continuing after, however renewed, renegotiated, amended…: do these continue to be covered by the Rome convention ad infinitum, or is there a cut-off point at which these continuing contracts become newly concluded? Any suggestion along these latter lines presumably requires determination of a threshold. For instance, adaptation of price in line with inflation presumably is not sufficient to speak of a ‘new’ contract. But would contractually foreseen price renegotiation to take account of economic cycles, lead to such a new contract?
One’s intuitive assumption may be to prefer autonomous interpretation of the concept ‘concluded’ however in the current state of (lack of) harmonisation of contractual law, it is more likely that the Court will prefer an Article 10(1) type solution.
Next up is the application of Article 9’s provision on overriding mandatory provisions. This is the first time the ECJ will rule on that Article (Unamar was held under the Rome Convention). The Regulation quite deliberately limited the room for manoeuvre for the court seized to apply overriding mandatory law other than that of the forum: only such laws of the country where the obligations arising out of the contract ‘have to be performed’ can come into calling. That place is likely to be Germany in the case at issue (the Regulation does not define ‘place of performance’ under Article 9(3)).
No doubt the ECJ will cut some corners, per judicial economy, however the case nevertheless promises to be entertaining.
Fraus omnia corrumpit or accidental oversight? New South Wales Supreme Court goes full throttle in Proactive Building Solutions
Fraus omnia corrumpit (fraud corrupts all) is not easily applied in conflict of laws. Both forum shopping and choice of law ought not prima facie to be regarded with much suspicion, especially in a B2B context. States typically employ mandatory law provisions, sometimes restricted to ‘overriding mandatory law’ (such as in the EU’s Rome I Regulation for choice of law in contracts) to ring-fence parts of national law not capable of being avoided by choice of law in purely domestic situations, and ‘public order’ provisions to trump choice for foreign law even in not purely domestic contexts, but then only for the most essential parts of a State’s legal fabric.
In Proactive Building Solutions, McDougall J held ex tempore that a choice of court and choice of law clause in favour of the English courts cq English law, was void in its entirety for it negated the working of a provision of the New South Wales Building and Construction Industry (Security of Payment) Act 1999 (NSW) (SOP Act). The object of this Act is to ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services.
Section 34 of that Act reads
34 No contracting out
(1) The provisions of this Act have effect despite any provision to the contrary in any contract.
(2) A provision of any agreement (whether in writing or not):
(a) under which the operation of this Act is, or is purported to be, excluded, modified or restricted (or that has the effect of excluding, modifying or restricting the operation of this Act), or
(b) that may reasonably be construed as an attempt to deter a person from taking action under this Act, is void.
Section 7(1) of the Act, not referred to in judgment, reads
Subject to this section, this Act applies to any construction contract, whether written or oral, or partly written and partly oral, and so applies even if the contract is expressed to be governed by the law of a jurisdiction other than New South Wales.
As pointed out by Leigh Duthie and his colleagues, while Section 7(1) may have normally allowed the Court to void only the SOP relevant aspects of choice of law, the trouble in the current case was that the contract had thrown choice of court and choice of law into one clause (a very common contractual occurrence), with a foreign court adjudicating. McDougall J found it highly unlikely that the English courts would uphold the provisions of the SOP Act, hence giving the NSWSC no choice but making the clause void in its entirety. Consequently the whole contractual arrangement became subject to choice of court and choice of law as if no express clause had been inserted, even if the workings of the SOP Act would have had only a minor impact on parties’ contractual relations.
An obvious remedy is to lift SOP relevant parts of the contract out of the choice of court clause, however even in such case some uncertainty persists: for the recalcitrant party, suing in NSW in spite of a choice of court elsewhere, could attempt to raise the SOP flag if only to delay proceedings.
An interesting case for comparative conflicts classes.