Posts Tagged Overriding mandatory law
Thank you Maxime Barba for flagging the judgment in the Paris Court of Appeal Sodmilab et al. (Text of the judgment in Maxime’s post). The case concerns the ending of a commercial relationship. Part of the contract may be qualified as agency with lex causae determined under the 1978 Hague Convention. On this issue, the Court of Appeal confirmed French law as lex causae.
Things get messy however with the determination of that part of the contract that qualifies as distribution (a mess echoing DES v Clarins), and on the application of Rome II.
The Court of Appeal first (at 59) discusses the qualification of A442-6 of the French Code du commerce, on unfair trading practices (abrupt ending of a commercial relationship), dismissing it as lois de police /overriding mandatory law under Article 9 Rome I. As I noted in my review of DES v Clarins, this is a topsy turvy application of Rome I. The qualification as lois de police is up to the Member States, within the confines of the definition in Rome I. The Court of Appeal holds that A442-6 only serves private interests, not the general economic interest, and therefore must not qualify under Rome I. Hitherto much of the French case-law and scholarship had argued that in protecting the stability of private interests, the Act ultimately serves the public interest.
Next (as noted: this should have come first), the Court reviews the application of A4f Rome I, the fall-back position for distribution contracts – which would have led to Algerian law as lex causae. It is unclear (62 ff) whether the Court reaches its conclusion as French law instead either as a confirmation of circumstantial (the court referring to invoicing currency etc.) but clear choice of law under Article 3, or the escape clause under Article 4(3), for that Article is mentioned, too.
Rome I’s structure is quite clear. Why it is not properly followed here is odd. That includes the oddity of discussing French law under Article 9 if the court had already confirmed French law as lex causae under A3 or 4.
Finally, corners are cut on Rome II, too. Re the abrupt ending of the relationship (at 66ff). French law again emerges victorious even if the general lex locus damni rule leads to Algerian law. The court does not quite clearly hold that on the basis of Article 4(3)’s escape clause, or circumstantial choice of law per A14. The court refers to ‘its findings above’ on contractual choice of law, however how such fuzzy implicit choice under Rome I is forceful enough to extend to choice of law under Rome II must not be posited without further consideration. Particularly seeing as Article 6 Rome II excludes choice of law for acts of unfair trading.
(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 2, Heading 220.127.116.11, Heading 18.104.22.168.9; Chapter 3, Heading 3.2.8, Heading 22.214.171.124; Chapter 4).
International comity underlies the rule of both Ralli Brothers v Compania Naviera Sota y Aznar (‘Ralli Bros’)  2 KB 287 and Foster v Driscoll  1 KB 470, jointly known as ‘illegality under foreign law’. They both engage lois de police of the place of performance, and the English courts’ attitude towards not assisting with contractual performance that would go against such lois. Per Cockerill J in Magdeev v Tsvetkov  EWHC 887 at 307:
“The Foster v Driscoll and Ralli Bros principles differ in this way: the latter is concerned only with whether the contract between the parties necessarily involves performance of an act which is illegal by the law of the place of performance, irrespective of the object and intention of the parties; the former is only concerned with whether the object and intention of the parties is to perform their agreement in a manner which involves an illegal act in the place of performance, and is not concerned with whether the contract necessitates the undertaking of such an act…’
At issue in Colt Technology Services v SG Global Group SRL  EWHC 1417 (Ch), is an injunction to restrain SGG (of Italy) from presenting a winding-up petition against it. SGG claims that Colt UK is indebted to it in the sum of US$4,936,619.93 plus interest. Colt UK contends that the debt is bona fide disputed on substantial grounds, such that the Companies Court is not an appropriate forum to determine the dispute and the presentation of a winding-up petition would be an abuse of process. Colt UK says that SGG was not the true supplier of the services under the relevant agreement, but was a shell company acting as a front for another supplier and was engaged in a form of VAT “missing trader” fraud with the Italian authorities as victims.
After due consideration Wicks J holds that Colt UK has a properly arguable illegality defence to the sums claimed by SGG, based on the Ralli Bros principle. Held: the presentation of a winding-up petition against Colt UK would be an abuse of process and in all the circumstances it is right to restrain SGG from taking that step.
Another interesting example of international comity in private, commercial litigation.
The extensive ruling by Foster J in Roberts (a minor) v Soldiers, Sailors, Airmen and Families Association & Ors  EWHC 994 (QB) is clearly related to Soole J’s 2019 ruling which I reviewed here. Yet exactly how is not clear to me. No reference at all is made to the 2019 ruling (there is reference to an earlier Yoxall M 2018 ruling) in current judgment. Current ruling treats partially related issues of limitation and applicable law, Rome II is not engaged ratione temporis. The English rules’ general lex causae provision (pointing to locus delicti commissi), summarised at 112-113, Foster J finds, should not be displaced with a ‘substantially more appropriate’ rule in the circumstances. However she does find that the implications of the German statute of limitation should be set aside on ordre public grounds, for they would otherwise cause ‘undue hardship’.
Elijah Granet has extensive review here and I am happy to refer.
Update 17 July 2020 appeal against the decision was today dismissed:  EWCA Civ 926. As Bobby Lindsay summarises the outcome: the contribution provisions of 1978 Act are overriding mandatory provisions. Joint wrongdoers’ entitlement to seek, or liability to make, contribution are governed by English law regardless of foreign connections.
A late post (I am slowly trying to mop up my back issues; none of them thankfully going back quite as far as this one) on Roberts v The Soldiers, Sailors, Airmen And Families Association & Anor  EWHC 1104 (QB) in which Soole J had to hold on whether the Civil Liability (Contribution) Act 1978 (the 1978 Act) has mandatory/ overriding effect and applies automatically to all proceedings for contribution brought in England and Wales, without reference to any choice of law rules. A tortious and residual private international law (as opposed to Rome I or II) take therefore on similar issues as in the contracts case of Lamesa Investments.
Claimant was born at the Hospital in Viersen, North-Rhine Westphalia, Germany on 14 June 2000. The Hospital provided medical services to UK Armed Forces stationed in Germany, with whom the Claimant’s father was serving, and their families. His claim is that he sustained an acute profound hypoxic brain injury as a result of negligence in the course of his delivery by a British midwife supplied by the First Defendant charity (SSAFA). On his behalf it is alleged that SSAFA and/or the Second Defendant (MOD) are vicariously liable for her acts or omissions.
The Hospital contends that the application of the 1978 Act is subject to choice of law rules, whose effect is to apply German law to a claim for contribution. By the combined effect of the German law of limitation and s.1 Foreign Limitation Periods Act 1984 the contribution claim is time-barred; and therefore must fail. SSAFA/MOD accept that, if choice of law rules prevail, the relevant law is German and the claim time-barred. However they contend that the 1978 Act has overriding effect. Since the limitation period under the 1978 Act expires 2 years from the date of judgment award or settlement (s.10 Limitation Act 1980), the claim can proceed.
Rome II is not engaged ratione tempore (it may have varied the outcome).
Soole J first summarises at lenghth the submissions of the parties, including their scholarly references. He then, at 81, reminds us of the common law approach to characterisation (one which we successfully pleaded in a continental court in a trust case recently): ‘the first question in such a dispute is the characterisation (or classification) of the claim or issue in question. Such classification should not be constrained by particular notions or distinctions of the domestic law of the lex fori, or that of the competing system of law, which may have no counterpart in the other’s system; and should be taken in a broad internationalist spirit in accordance with the principles of conflict of laws of the forum’.
He then holds that the questions of lois de police do not justify cutting corners in conflict of laws analysis: one does not jump straight to application of a local act. Rather, one dutifully follows conflicts analysis and then applies the local act only if and to the extent the foreign law impedes it. Then follows at 92 his classification of the act as lois de police indeed (the terminology used here also includes ‘extraterritorial application’ which however suggests a disconnect from the usual conflicts exercise): ‘In my judgment it is implicit from the provisions of the 1978 Act that the statute does have overriding effect; and that the presumption to the contrary is accordingly rebutted. And at 93: ‘I consider that the express references in the 1978 Act to private international law (ss.1(6), 2(3)(c)) support this implication. Parliament having chosen to identify specific circumstances in which choice of law rules are to apply (and the extent of that application) in a claim under the statute, the natural implication is that the availability of this statutory cause of action was not itself to be subject to choice of law rules.’
Most interesting judgment. It is being appealed, with appeal to be heard in April 2020.
Are proclamations of lois de police an absolute prerogative of the Member States? Italy’s response to Covid19 /Corona and the package travel sector.
Update 11 May 2020 see further review by Caterina Benini here.
Update 15 April 2020 for similar Greek measures see here.
Thank you Ennio Piovesani for signalling and reviewing one of the first conflicts-specific developments on the Corona /Covid 19 landscape. Update 28 March 2020 see the comments on and Ennio’s comprehensive response to his own post and comments, for further interesting discussion going beyond the immediate Corona context.
In an effort to safeguard the economic position of the travel sector, the Italian Government by decree has essentially frozen the travel sector’s statutory duty to reimburse travellers whose package travel has become impossible due to the pandemic. Ennio reports that the decree refers specifically to Article 9 Rome I’s overriding mandatory law provisions (earlier applied in Unamar), (in his translation): ‘“The provisions of the present article constitute overriding mandatory provisions within the meaning of Article 17 of Law of 31 May 1995, No. 218 [“Italian PIL Act”] [5, 6] and of Article 9 of Regulation (EU) No. 593/2008 of the European Parliament and of the Council, of 17 June 2008 [“Rome 1 Regulation”]”.
Ennio signals and important issue: how much leeway may be given to Member States to push their own definition of the concept of ‘lois de police’ /overriding mandatory law in light of the CJEU definition in Joined Cases C-369/96 and C-376/96 Arblade. In Brussels Ia of course the CJEU has pushed the concept of ordre public in a limited direction. Lois de police however are different from ordre public and Rome I is not Brussels Ia, and I am therefore not so pessimistic as Ennio when it comes to leaving a lot of discretion to Member States. What to me looks a touch more problematic is the relation with the package travel Directive 2015/2302 which applies to many of the travel arrangements concerned and which is the source of many of the protections for travellers.
No doubt to be continued.
(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 3, Heading 126.96.36.199.
OHADA law and arbitration at the Paris Court of appeal. A tale of overriding mandatory laws /lois de police and ordres publics.
Update 12 May 2020 for a similarish issue see Prakash Steelage v UZUC 17/18001, with the Court of Appeal upholding a Panel’s application of UNIDROIT [update 20 July 2020 similar to a CIETAC application of Unidroit principles reported here], this time in the absence of choice of law by the parties. The case is reviewed here.
Thank you Thomas Kendra and Thibaud Roujou de Boubée for signalling 16/25484 Cameroon v Projet Pilote Garoubé at the Paris Court of Appeal end of December 2018. The essence of the case is the Court confirming an arbitral award applying OHADA law. OHADA stands for ‘Organisation pour l’harmonisation en Afrique du droit des affaires’ – ie the Organisation for the Harmonization of Corporate Law in Africa.
Thomas and Thibaud analyse excellently – of note for this blog are the issue of non-State law as lex contractus (compare with Rome I), the recognition of same as trumping Cameronese law essentially as overriding mandatory law, and the rejection of the Cameronese argument that its wildlife laws qualify themselves as lois de police /overriding mandatory law and that the lack of recognition of same violates ordre public.
Interesting arbitration /conflicts material.
The Portuguese claimant’s vehicle was damaged in an accident in Spain in August 2015. He issued proceedings in Portugal in November 2016 to recover his uninsured losses. Under Portuguese law, the lex fori, the limitation period is 3 years. Under Spanish law, the lex causae per Rome II, limitation is fixed at 1 year.
The Court first of all re-emphasises the importance of co-ordinated interpretation of Rome I and II, here with respect to the terminology of the two Regulations which in the French version in particular differs with respect to the use of the term ‘lois de police’ (Article 9 Rome I) and ‘dispositions impératives dérogatoires’ (Article 16 Rome II). The lois de police of Rome I (albeit with respect to the Rome Convention 1980) had already been interpreted in Unamar, leading to the first of the two conditions discussed below.
The Court effectively held there is little limit content-wise to the possibility for courts to invoke the lois de police /overriding mandatory law provision of Article 9 Rome II. Despite Article 15 Rome II verbatim mentioning limitation periods as being covered by the lex causae (but see the confusion on that reported in my post on Kik this week), limitation periods foreseen in the lex fori may be given priority.
This is subject to two conditions:
firstly, the national court cannot interpret any odd lex fori provision as being covered by the lois de police exception: here the Court re-emphasises the Rome I /II parallel by making the Unamar test apply to Rome II: at 31: ‘the referring court must find, on the basis of a detailed analysis of the wording, general scheme, objectives and the context in which that provision was adopted, that it is of such importance in the national legal order that it justifies a departure from the applicable law.’ Here, the fact that limitation periods are mentioned in so many words in Article 15, comes into play: at 34: given that express reference, the application of the overriding mandatory law exception ‘would require the identification of particularly important reasons, such as a manifest infringement of the right to an effective remedy and to effective judicial protection arising from the application of the law designated as applicable pursuant to Article 4 of the Rome II Regulation.’
secondly, and of course redundantly but worth re-emphasising: the rule at issue must not have been harmonised by secondary EU law. As Alistair Kinley points out, the Motor Insurance Directive (MID) 2009/103 is currently being amended and a limitation period of minimum 4 years is being suggested – subject even to gold plating. That latter prospect of course opens up all sorts of interesting discussions particularly viz Article 3(4) Rome I.
(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).
Lois de police /ordre public /overriding mandatory law in arbitration: Paris Court of Appeal in MK Group v Onyx
Julien Huet and colleagues at White & Case have excellent insight in MK Group v Onyx. The Paris Court of appeal set aside an ICC arbitral award for violation of Laos overriding mandatory law. As such the violation of foreign ‘lois de police’ (overriding mandatory law in European private international law jargon) was seen as being comprised in French ‘ordre public international’.
It is clear that this approach increases the grip of the courts in ordinary on arbitral panels – lest the Cour de Cassation disagrees.
Dana Gas v Deutsche Bank et al. Islamic financing. Interest v usury (riba). Depecage, von Munchausen and overriding mandatory law. Partial unenforceability. All in the face of anti-suit.
Update 14 June 2020 for a recent consideration of the Foster v Driscoll principle, discussed below, see Colt Technology Services v SG Global Group SRL  EWHC 1417 (Ch).
In  EWHC 2928 (Comm) Dana Gas v Deutsche Bank et al., Leggatt J treats his readers to a concise insight into islamic finance (particularly in para 10) which he needs to do to inform readers of the essence of the case. The operation essentially involves raising investment (with a view to restructuring), organised by the main agreement (of the ‘Mudarabah’ type), subject to UAE law, and supported by a purchase undertaking of the same date, subject to English law. The set-up therefore evidently is not one of dépeçage per se (this would require one and the same agreement being subject to different laws) however it comes close.
Inevitably following unfavourable market conditions, an anti-suit injunction was sought and obtained in the UAE, followed however by English proceedings which required the aint-suit to be lifted – something which Dana Gas did not succeed in as a result of shareholder opposition. The English proceedings were effectively saved from collapse by the involvement of a third party, BlackRock, who as a non-party to the UAE sharia proceedings, were not bound by the anti-suit injunction. The somewhat complicated result is that the English proceedings really can only limp along.
Dana Gas seek confirmation that the transaction is unlawful and all the relevant contractual obligations are unenforceable as a matter of UAE law. Leggatt J with neither emotion nor hesitation refers essentially to Rome I’s universal application: the Mudarabah agreement is subject to UAE law and he is happy to assume it is invalid under UAE law – hence not enforceable by an English court. See in this respect Article 10(1) Rome I.
That however leaves the viability of the purchase undertaking. (at 46) The fact in and of itself that the contract or its performance would be regarded as invalid or unlawful under the law of some other country than England (for example, a country where one of the parties is domiciled or carries on business) is generally speaking irrelevant (reference is made to Kleinwort, Sons & Co v Ungarische Baumwolle Industrie AG  2 KB 678.
At 48, Dana Gas sets out its case for unenforceability of the purchase agreement under English law. This includes reference to ordre public but also inevitably an attempt to ‘contaminate’ the purchase agreement with the Mudarabah agreement. Leggatt J justifiably turns this around: at 54: it is apparent from the purchase agreement’s terms that the risks against which the Purchase Undertaking is intended to protect the Certificateholders include the risk that the mudarabah and the transaction documents governed by UAE law will turn out to be invalid. That is why they needed to be separated. (In that respect merging the two agreements into one and applying dépeçage might give even stronger force to this argument: however I do not know whether under UAE law such construction would be acceptable).
Further arguments swept aside, the Court turns to ordre public.
Dana Gas nb had employed both ordre public and, earlier Article 9(3) Rome I: overriding mandatory law: a rare treat indeed. Relevant English precedent is Ralli Brothers: Ralli Brothers v Cia Naviera Sota y Aznar  1 KB 614: an English court will not enforce an obligation which requires a party to do something which is unlawful by the law of the country in which the act has to be done. Rome’s Article 9(3) operates in a similar context. However Dana Gas later abandoned that claim for (at 80) those rules of law are only applicable if and in so far as the obligations in question have to be performed in the UAE – quod non.
A switch was then made to ordre public, now with Foster v Driscoll  1 KB 470 as leading precedent. However, here too, it is only if a contract has as its object and intention the performance in a friendly foreign country of an act which is illegal under the law of that country that the contract will be considered (at 82 in fine) contrary to English public policy.
Conclusion: the Purchase Undertaking is valid and enforceable.
Without claiming anything near proper competence in Islamic finance law, it would seem that Dana Gas does not introduce new principles in that area. However in diligently applying conflicts analysis, Leggatt J in my view does practice a great service: he re-emphasises the need for parties clearly to identify locus implementi: the place of performance of an obligation. When obligations are marked out for a seperate lex causae, such clear identification of place of performance will insulate them from collapse.
(Handbook) of Private International Law, 2nd ed. 2016: essentially, almost every section of Chapters 2 and 3.