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Oxford Law Citator

15 Overriding Mandatory Provisions & Public Policy

From: The Rome I Regulation on the Law Applicable to Contractual Obligations

Michael McParland

Content type:: Book content

Product:: Private International Law [PRIL] — International Commercial Law [ICML]

Published in print:: 19 March 2015

ISBN:: 9780199654635

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Subject(s):: Choice of law clauses — Rome Convention — Rome I Regulation and choice of law

(p. 683) 15 Overriding Mandatory Provisions & Public Policy

1. 15. Overriding Mandatory Provisions and Public Policy: Articles 9 & 21 15.01

Articles 9 & 21

Article 9 Overriding mandatory provisions

1. Overriding mandatory provisions are provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation.
2. Nothing in this Regulation shall restrict the application of the overriding mandatory provisions of the law of the forum.
3. Effect may be given to the overriding mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed, in so far as those overriding mandatory provisions render the performance of the contract unlawful. In considering whether to give effect to those provisions, regard shall be had to their nature and purpose and to the consequences of their application or non-application.

Article 21 Public policy of the forum

The application of a provision of the law of any country specified by this Regulation may be refused only if such application is manifestly incompatible with the public policy (ordre public) of the forum.

A. Two Sides of the Same Coin

15.01 This chapter is concerned with Article 9 (‘overriding mandatory provisions’) and Article 21 (‘public policy of the forum’); both provisions that primarily exist to protect the national (p. 684) interests and policies of Member States. These provisions are a necessary counter-balance to the principal of party autonomy in choice of law in contractual obligations.¹ Articles 9 and 21 effectively represent two sides of the same coin, with overriding mandatory rules often involving expressions of public policy.² Article 9 is concerned with the positive application of a country’s laws that reflect the public interests of the forum state, or, in limited circumstances, the interests of a third country that the forum state has decided to ‘give effect to’ under Article 9(3). Article 21 involves a ‘negative’ response by the forum court to the consequences of an otherwise applicable law that was selected under the rules of Regulation.

B. Mandatory Rules

[M]andatory rules…an ill-defined category of national laws which override the normal conflictual rules, including the choice made by parties to an international contract.³

15.02 Article 9 of the Rome I Regulation is the direct descendant of Article 7 of the Rome Convention, which was entitled ‘mandatory rules’ (‘Lois de police’/‘Zwingende Vorschriften’).

15.03 At common law, the fundamental notion of a mandatory rule was that it could not be ‘excluded, altered or limited by contract’.⁴ But these rules were further sub-divided into those that were (a) applicable when the governing law of the contract was the same as the law containing the mandatory rule, (often known as ‘internal’ or ‘domestic’ mandatory rules); and (b) were applicable in any event: ie those provisions which applied to all international contracts irrespective of the otherwise governing law, which was overridden by these special rules. Such provisions were labelled overriding or international mandatory rules, ‘peremptory norms’, or ‘super-mandatory rules’.⁵

(p. 685) 15.04 In France, the concept of ‘lois de police’ is associated with the work of Professor Phocion Francescakis. Following on from von Savigny’s recognition there were rules which were exceptional and could claim to apply regardless of his usual bilateral conflict rule,⁶ Professor Francescakis analysed French court decisions to discover a class of laws that, by virtue of their content, had a special application in French private international law. He originally described these rules as ‘lois d’application immédiate’,⁷ but would subsequently use the title of ‘lois de police’ to describe them. It is this concept, whose etymological roots lie in the Greek word politea (Πολιτεία‎),⁸ that Professor Francescakis defined as ‘[l]aws, the application of which is necessary to safeguard the political, social and economic organisation of the country’ (‘Lois don’t l’application est nécessaire pour le sauvegarde de l’organisation politique, social et économique du pays’).⁹

15.05 However labelled, the first wave of such rules originated in laws directly and primarily concerned with the territorial integrity and economic well-being of the Nation State. They included such matters as exchange control, rules designed to prevent monopolies, and anti-competitive behaviour. But the advent of the welfare state and, in the European context the Internal Market, has led to a second wave of mandatory rules; which reflect these societal changes, and encompass the field of welfare, housing, employment, and consumer protection, which serve both the general interests of the State and the particular interests of the protected party.

Under the Rome Convention

15.06 Under the Rome Convention, the concept of ‘mandatory rules’ was defined in in Article 3(3) as ‘rules of law…which cannot be derogated from by contract, hereinafter called “mandatory rules”’.¹⁰ To common law eyes, this term was used in the Rome Convention in the traditional bifurcated sense. The first kind of mandatory rules, ‘domestically mandatory rules’,¹¹ were described as ‘mandatory rules of law’ in Article 5(2) (‘certain consumer contracts’)¹² and Article 6(1) (‘Individual employment contracts’) of the Convention. In the context of employment contracts under Article 6(2), those rules were described in the Giuliano–Lagarde Report as consisting ‘not only of the provisions relating to the contract of employment itself, but also provisions such as those concerning industrial safety and hygiene which are regarded in certain Member States as being provisions of public law’.¹³ It was said that if the law of the country designated by Article 6(2) of the Convention made collective employment agreements binding for an employer, an employee would not be deprived of the protection afforded to him by those agreements by the choice of law of another State for their individual employment contract.¹⁴

(p. 686) C. Article 7 of the Rome Convention

15.07 Article 7 of the Rome Convention, although entitled ‘mandatory rules’, was concerned with the ‘somewhat narrower sense’ of the concept than those mandatory rules found in Articles 3, 5, and 6 of the Convention. Article 7 dealt with the internationally, overriding, mandatory kind of rules.¹⁵

15.08 Article 7(1) of the Convention permitted a forum court to give effect to ‘the mandatory rules of another country’ in certain circumstances, when under the law of that other country ‘those rules must be applied whatever the law applicable to the contract’. These laws were to cover both ‘legislative’ provisions of any other country and also common law rules.¹⁶

15.09 In addition, Article 7(2) provided that ‘nothing’ in the Convention ‘shall restrict the application of the rules of the law of the forum in a situation where they are mandatory (qui régissent impérativement) irrespective of the law otherwise applicable to the contract’.¹⁷ Article 7(2) was included as a ‘safeguard’ to ensure the application of the forum’s own ‘mandatory rules’. These were said to ‘(notably rules on cartels, competition and restrictive practices, consumer protection and certain rules concerning carriage) which are mandatory in the situation whatever the law applicable to the contract may be’.¹⁸

The Article 7(1) opt-out reservations

15.10 Article 7(1) of the Rome Convention had been a controversial proposal from the beginning,¹⁹ and a relative negotiating failure. It proved unacceptable to Germany, Ireland, Luxembourg, and the United Kingdom, four of the original nine signatories to the Convention, who instead ratified the Rome Convention excluding the operation of Article 7(1) under a power of reservation in Article 22 of the Convention.²⁰ As Sir Peter North pointed out, this reservation in Article 22 had been sought because the United Kingdom ‘considered Article 7(1) of the Convention a recipe for confusion, uncertainty, expense and delay’.²¹

‘All in’ or ‘all out’

15.11 Converting the Rome Convention into an EU instrument meant the previous national reservations regarding Article 7(1) made under Article 22 of the Convention could not be maintained. The controversial provision in Article 7(1) would either have to be deleted (p. 687) or be adopted by the eventually seven dissenting countries who had entered reservations under the Convention. As such, the Green Paper said that ‘the question of the future of this Article will have to be addressed’.²² Consultees were asked whether they believed there should be rules concerning foreign mandatory rules within the meaning of Article 7 of the Convention, and, if so, would it be desirable for a future EU instrument to be more precise on the conditions for applying such rules?²³

D. Article 9(1): The New Autonomous Definition

15.12 Article 9(1) of the Rome I Regulation now provides an autonomous definition of the concept of overriding mandatory provisions of law (‘lois de police’/‘Eingriffsnormen’/‘leg-ge di applicazione necessaria’). These are the overriding mandatory provisions of law that, under national law, should apply to any international contract, irrespective of the actual law governing it, or the party’s wishes. Article 9 says:

Overriding mandatory provisions

1. Overriding mandatory provisions are provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation.

Legislative development

15.13 In their Green Paper, the Commission noted that the concept of ‘mandatory rules’ used in Articles 3(3), 5, 6, 7, and 9 of the Rome Convention, covered ‘a multiform reality’.²⁴ They observed that, in national laws, there are numerous mandatory provisions designed to guarantee a country’s social and economic order, which were often called ‘public policy’ rules.

15.14 These rules fell into two categories. The first involved the use of private law for public policy purposes; and included laws that, for example, created minimum standards for contractual relations, or dealt with housing shortages by introducing rent control legislations, or measures against unfair employment conditions. The second category involved matters of public law; which, in order to be enforced properly, effected the validity of private party contracts. Examples of this category include laws against the restraint of trade or unfair competition, or exchange control regulations. Because of these developments:

States do not allow private parties to evade cogent regulatory restrictions that were adopted to protect important political and/or economic interests of the legislating state by choosing a foreign law to govern their contract which does not provide similar restrictions.²⁵

15.15 From the Commission’s perspective, Articles 3(3), 5, and 6 of the Rome Convention had been concerned with those rules from which the parties could not derogate from by contract; in particular those aiming to protect weaker parties (consumers, workers, authors in publishing contracts, minors, commercial agents).²⁶ But those rules were, ‘merely internally mandatory (p. 688) rules that can be removed by choice’.²⁷ These were ‘cogent internal rules that do not aim at the safeguarding of fundamental political, economic and social institutions; instead these pursue the protection of certain interests of the parties to the contract’.²⁸ But, if the parties to a contract choose the laws of country A to govern it, the internally mandatory rules of country B that would otherwise govern the contract in the absence of choice, ‘do not apply anymore’.²⁹ As the Commission noted, in a contract that was itself validly subject to a foreign law, a weaker party could not automatically expect his own country’s public policy provisions to apply, unless the special rules of the Convention for consumers or employees provided for this.³⁰

15.16 By contrast, the Commission saw the internationally mandatory rules within the meaning of Article 7 of the Rome Convention, that were described as ‘overriding rules’ by English writers, as being:

a different matter, and they are involved only in an international context: this involves provisions to which a state attaches such importance that it requires them to be applied whenever there is a connection between the legal situation and its territory, whatever law is otherwise applicable to the contract’.³¹

15.17 What was special about the mandatory rules in Article 7 of the Convention was that:

the court does not even apply its conflict rules to see what law would be applicable and assess whether its content might be repugnant to the values of the forum but automatically applies its own law.³²

15.18 But the Rome Convention did not enumerate what those overriding, internationally mandatory rules were. Each court had to decide on the basis of its own legal system whether a particular provision was a mandatory rule within the meaning of Article 7, ‘and the answer is not always obvious’.³³ An example the Commission gave was the French law on redundancy. This was indisputably an ‘internal public policy law’, which meant that any contract between a French employer and a French employee whereby the latter waived his rights to redundancy pay, or agreed to shorter than normal periods of notice without compensation, would be null and void. The French courts had held this law was not an ‘overriding mandatory rule’ within the meaning of Article 7 of the Convention, which would have made it applicable whatever the law applicable to the contract.³⁴ Accordingly, a French employee whose employment contract was validly subject to a foreign law could not expect French redundancy legislation to apply automatically as a mandatory rule under Article 7(2) of the Convention.

The Arblade‎-inspired definition

15.19 The Commission suggested that the future Rome I instrument could contain a definition of the concept of international mandatory rules based on the decision of the Court of Justice in Arblade,³⁵ according to which this term meant:

national provisions compliance with which has been deemed to be so crucial for the protection of the political, social or economic order in the Member State concerned as to require (p. 689) compliance therewith by all persons present on the national territory of that Member State and all legal relationships within that State.³⁶

15.20 This proposed definition owed much to Professor Franceskakis’ definition of ‘lois de police’. Even so, the use of Arblade as a source for defining such rules was not without difficulties. The Court in Arblade did not intend to formulate its own notion of overriding mandatory provisions as the question posed by the Belgian court did not require them to do so. The issue in Arblade was whether the Treaty could render inoperative a provision of Belgian law relating to public order legislation (loi de police et de sûreté).³⁷ The Court in Arblade held that the fact that a provision had been classified as a public order matter in national law did not place that provision outside EU law. The Court simply confirmed the principle that EU law takes precedence over the internal laws of Member States, including those provisions of internal national laws that, within their own legal order, are deemed to have the status of overriding mandatory provisions.³⁸ As a result, the definition of ‘lois de police’ which had been adopted in Arblade was a national, Belgian one.³⁹ There was no apparent intent to fashion an autonomous EU definition within the judgment: ‘[t]he facts of Arblade…had little or nothing to do with the conflict of laws’.⁴⁰ Some scholars, such as Professors Magnus and Mankowski, approved of its choice.⁴¹ They saw this Arblade derived definition as, in essence, requiring the mandatory provision as being one which ‘must mainly serve important public interests instead of private interests which a state wants to enforce towards all persons on its territory without regard to the international elements of the case’. The Arblade definition also conformed ‘to the prevailing view in national court practice and legal writing’.⁴²

The Rome I Proposal

15.21 The Commission’s Rome I Proposal contained a draft article 8(1), based on a revised version of the Arblade definition used in the Green Paper. This said:

Draft article 8—Mandatory rules

1. Mandatory rules are rules the respect for which is regarded as crucial by a country for safeguarding its political, social or economic organisation to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation.

15.22 The word ‘protection’ used in the Green Paper had been changed to ‘safeguarding’.⁴³ Furthermore, the Arblade reference to requiring compliance by all persons present on the national territory of that Member State and all legal relationships within that State which had been criticized by some commentators in the Green Paper had been removed. The (p. 690) Proposal recognized the wider geographic scope of application of such mandatory provisions, and simply referred to ‘any situation falling within their scope’.⁴⁴

The title to be used

15.23 There was some debate within the Council as to the title to be used, with some countries, like Poland, Slovakia, The Netherlands, and Germany, all favouring a change of title to ‘internationally mandatory rules’. But the title was changed to ‘overriding mandatory provisions’ in the Finnish Presidency’s 12 October 2006 revisions,⁴⁵ to align the text with Article 16 of the Rome II Regulation, which proved an acceptable alternative.

The real debate within the council

15.24 But the real debate was about providing a definition for the concept of overriding mandatory rules, and, if so, what that should be.

15.25 Germany considered that the term ‘mandatory rules’ should be defined in greater detail.⁴⁶ The Arblade judgment was seen as a starting point, but it needed to be developed further. In Germany’s view, the mandatory rules within draft article 8(1) referred to a different category of mandatory rules than those then found in draft articles 3(3), 6, and 7 of the Proposal. The Germans considered it might be helpful to define ‘mandatory rules’ as ‘rules protecting supra-individual interests’.

15.26 The Netherlands indicated they would welcome a clear definition of such rules that clarified that the lex contractus included ‘rules of (semi-) public law in as far as such rules want to be applicable and the situation falls within the scope of such rules’.⁴⁷ The Dutch were also concerned that the proposed definitional phrase, the ‘political, social and economic organisation’, seemed to leave no room for rules of relating the environment, health care, cultural matters, or even those of a military nature:⁴⁸ ‘We see no reason for such a restriction.’ The Netherlands therefore put forward a proposed amendment which read:

(1) Internationally mandatory rules are rules the respect for which is regarded as crucial by a country for safeguarding its political, social economic, environmental, health care, cultural or military organisation to such an extent that they demand to be applicable to any situation falling within their scope irrespective of the law otherwise applicable to the contract under this Regulation.

15.27 The reference to ‘semi-public laws’ made by the Netherlands reflects a label applied by some scholars to the emergence of those rules with social aims, such as consumer protection, labour rules, etc, ‘that were neither truly private, not truly public but rather of a semi-public nature. The rules were enacted in areas where private autonomy was not believed to be able to reach fair results’.⁴⁹

15.28 These questions of definition raised in the Council, reflected a difference of approach between European states as to when overriding mandatory provisions should be applied.

(p. 691) 15.29 German courts had adopted a restrictive interpretation of Article 7(2) of the Rome Convention, and limited its application to only those rules where the public interest took undoubted precedence over any desire to protect the individual, usually the weaker party in particular contractual transactions. German courts saw overriding mandatory provisions as those found in import and expert embargoes, anti-trust/competition rules, etc.⁵⁰ In 2005, the Bundesgerichtshof held that the application of overriding mandatory provisions should ‘protect a public interest’ (‘Schutz der Gemeinwohlinteressen’) in restrictive terms.⁵¹ Accordingly, a German consumer could not rely on certain provisions of German consumer credit law as overriding mandatory provisions to avoid changes in a loan agreement they had with a Swiss bank that was governed by Swiss law. The Bundesgerichtshof held the German consumer credit law protected the private interests of the parties rather than the ‘public interests on the international plane’.⁵² In similar vein, the German Federal Labour Court, the Bundesarbeitsgericht had held that, in order for Article 34 of the EGBGB to apply,⁵³ the provision in question must not be directed exclusively at individual interests, but must also serve a public interest (‘Gemeinwohlinteressen’).⁵⁴ German law describes such public interest rules under the title Eingriffsnormen (‘mandatory rules’).⁵⁵

15.30 The French, in contrast, had been prepared to confer overriding mandatory status on provisions that fell within the second wave of lois de police legislation; those which include laws reflecting a willingness to protect the weaker party. The difference in the French approach can be seen in the case of Aginitis.⁵⁶ A French company, B, concluded a contract with a German entity, SAB, for the construction of industrial property in France. SAB subcontracted the construction to a French company, Aginitis. Both the main contract and the subcontract contained German choice of law clauses. After Aginitis did the work, SAB didn’t pay. Aginitis obtained an arbitration award in their favour, and SAB still failed to pay. Aginitis sought payment direct from B, as the master of the works. Under French law, a subcontractor can seek direct redress against the master of the works in the case of the default of the main contractor.⁵⁷ B refused to pay on the grounds that both the main contract and the subcontract were governed by German law which did not permit a similar claim. The Cour de Cassation found in favour of the subcontractor, holding the French law provisions were lois de police, mandatory provisions, in both the sense of Article 3(1) of the French Civil Code, and Articles 3 and 7 of the Rome Convention. Advocate-General Guérin argued the French provisions were aimed at ensuring equal competition for all subcontractors operating in the French market, and the rules applied to serving both the interests of the French State in ensuring fair competition and the protection of the subcontractor as the weaker party.⁵⁸

(p. 692) 15.31 The question that was being posed within the Council was where the line should be drawn between these competing approaches.

The presidency’s proposed deletion of draft article 8(1)

15.32 The Finnish Presidency’s initial response to this debate was to provide no definition at all. In their 12 October 2006 text,⁵⁹ the Presidency proposed deleting draft article 8(1) completely (thereby removing any Arblade inspired autonomous definition of the concepts involved), and instead, as part of a revision to draft article 8(2), stating that ‘nothing in this Regulation shall restrict the application of the overriding mandatory provisions of the law of the forum’.⁶⁰ No further explanation was given in the text for the proposed change.

15.33 When this proposal was discussed at the Rome I Committee, the Presidency asked the Committee to consider deleting the definition of mandatory rules, but that Proposal was rejected by the Council:

[t]he majority of delegations disagreed with this [the Presidency’s Proposal] and spoke for keeping a definition. The exact content and extent of the definition would remain to be clarified and there was no consensus amongst delegations. Some preferred a broader, others a narrower concept than that set out in the original Commission proposal.⁶¹

The Presidencies’ 12 December 2006 revised text

15.34 As a result, the next revision to the text of the Commission’s Proposal, made by the Finnish Presidency and incoming German Presidency on 12 December 2006, saw a restored and amended draft article 8(1), which was aligned with draft article 16 of the Common Position on the draft Rome II Regulation, in combination with its (then) draft recital (29) (now Recital (32) of the Rome II Regulation).⁶² The amended text read:

Draft Article 8—Overriding mandatory provisions Mandatory rules

1. ~~Mandatory rules are rules~~ Overriding mandatory provisions are provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation.

15.35 This was the text that was ultimately enacted as Article 9(1) of the Regulation. As discussed in paragraphs 15.39–15.44 below, the most important change to this text was the new requirement that the laws in question must be regarded as crucial by a country for safeguarding ‘its public interests, such as…’.

E. Recital (37)

15.36 The interpretation of the definition contained in Article 9(1) is assisted by Recital (37):

(37) Considerations of public interest justify giving the courts of the Member States the possibility, in exceptional circumstances, of applying exceptions based on public policy and (p. 693) overriding mandatory provisions. The concept of ‘overriding mandatory provisions’ should be distinguished from the expression ‘provisions which cannot be derogated from by agreement’ and should be construed more restrictively.

15.37 Recital (37), like Recital (32) to the Rome II Regulation, emphasizes that the concept of ‘overriding mandatory provisions’ should be distinguished from the expression ‘provisions which cannot be derogated from by agreement’ in Articles 3(3), 3(4), 6(2), and 8(1) of the Regulation, and declares the former ‘should be construed more restrictively’. The operation of overriding mandatory provisions was justified by considerations of public interests and exceptions based on overriding public policy, and were only to be used in ‘exceptional circumstances’.⁶³ Not all mandatory rules can qualify, as ‘overriding mandatory provisions’ even if they involve interests regarded as sufficiently important that they contain provisions which cannot be derogated from as a matter of contract.

F. Article 9(1): Two Key Issues

15.38 In practice, there are likely to be two key issues for a court to address in determining whether or not a law falls within the material scope of Article 9(1). The first of these, in particular, may require further assistance in interpretation from the Court of Justice.

‘Safeguarding…its public interests, such as…’

15.39 Overriding mandatory provisions are now defined as ‘provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organisation…etc’.⁶⁴ The italicized phrase was added in the 12 December 2006 Presidencies’ amendments, after the Council could not reach consensus on the scope of the rule. The Council was divided between those who preferred a broader, and those a narrower, concept than first identified in draft article 8(1) of the Rome I Proposal.⁶⁵

15.40 The absence of consensus within the Council is reflected in the different interpretations put on Article 9(1) by participants in the negotiations. Professor Hellner, who was part of the Swedish delegation to the Rome I Committee, recalls that ‘a significant number of delegations found that a limitation of the scope of the rule to only those rules protecting a State’s political, social or economic organisation’ as ‘public policy laws’ as defined in the Arblade judgment,⁶⁶ might make the scope of Article 9(1) ‘too narrow’. But ‘after a widening of the scope to all rules protecting public interests, the rule was acceptable’.⁶⁷

15.41 Professor Hellner has argued that Article 9 will exclude those rules which only protect a private interest—not provisions that protect both a public and private interest; something (p. 694) he recognizes conflicts with approach of the Bundesgerichtshof.⁶⁸ But Professor Hellner submits it would be very difficult to identify such rules, as ultimately:

All public interests are built upon the interests of individuals, as only individuals exist in the real world. On the other hand, all private interests, at least those that affect a sufficient number of individuals, can also be said to be public interests.⁶⁹

15.42 In contrast, Professor Garcimartín Alférez, a member of the Spanish delegation, suggests that the purpose of the definition in Article 9(1) was to reduce the scope of Article 9 and therefore minimize the risk that judges could invoke this clause to frustrate the general application of the Rome I Regulation’s rules.⁷⁰ He argues that because of the new text in Article 9(1), Article 9 only encompasses ‘ordo-political rules’ or ‘Eingriffsrechte’, ie ‘it can only be invoked when “public policy interests” are at stake…Rules such as those aimed at the protection of a party to the contract (consumers, agents and so on) are not included in this concept’.⁷¹ Professor Garcimartín Alférez therefore sides with the German school of thought on this subject, while Professor Hellner would seem to fall more within the broader, French approach.

‘“Crucial” and “applicable”…irrespective of the law otherwise applicable’

15.43 The second issue that determines whether a provision falls within Article 9(1), is that it must be one ‘applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation’.⁷² It is that requirement, the automatic or universal application to any situation within its scope, which is the required end-product of any provision regarded as ‘crucial’ by a country for safeguarding its public interests. This is emphasized by the words ‘to such an extent’.

15.44 The word ‘crucial’, taken from the Court’s decision in Arblade (‘so crucial’),⁷³ was maintained in the face of proposed amendments. The European legislator rejected the European Parliament’s proposed amendment,⁷⁴ the European Economic and Social Committee’s (EESC’s) Opinion,⁷⁵ and the European Parliament’s Committee on Social Affairs’ proposed amendment,⁷⁶ which had all called for the term ‘crucial’ to be replaced by the term ‘necessary’.

The role of the Court of Justice

15.45 Article 9(1) is intended as an autonomous definition of the concept of overriding mandatory provisions that is be followed by the courts of the Member States, free from the previous interpretations of national law, including those made under Article 7 of the Rome (p. 695) Convention. There was no express adoption of any national law interpretation of the concept of overriding mandatory provisions. So although the French text of Article 9(1) refers to ‘lois de police’, there was no intention this provision should necessarily be interpreted by French courts in the same way as they do domestically.

15.46 The existence of Article 9(1) gives an interpretive role to the Court of Justice as to what national laws can constitute an overriding mandatory provision. Absent consensus among Council members on the scope of Article 9, the Court is the only EU body competent to resolve disputes. This is a role which some believe it should not have, or only as a last-stop, supervisory function to prevent abuse.⁷⁷ But as Professor Bonomi has put it:

Nonetheless, it cannot be denied that the definition of overriding mandatory provisions in the Regulation has the effect of introducing a new level of examination of compliance, that is distinct and prior to that of the compatibility of overriding mandatory norms with the principles of European law; such an examination will have as its purpose the conformity of the national lois d’application immédiate with the criteria established by Article 9(1) of the Regulation.⁷⁸

15.47 But it is a role that the Court has fulfilled in Unamar,⁷⁹ in relation to the mandatory provisions in Articles 3(3) and 7(2) of the Rome Convention where general guidance on the approach of national courts was given. As the approach in Unamar, and as with the ‘public policy’ provisions of the Brussels Regime,⁸⁰ it seems likely that the Court will exercise, at least, a residual supervisory jurisdiction over Member States. It is may prove to be a necessary function. Some have pointed out that if the Court refrained from deciding the scope of Article 9(1), then the divergence of approach between eg German and French courts and others will cause problems: ‘it is doubtful whether the French and German position can continue to exist in parallel’.⁸¹

15.48 Having given this definition in Article 9(1) and confirmed that nothing in the Regulation shall interfere with the operation of the overriding mandatory provisions of the lex fori in Article 9(2), the Court is likely to require the national courts to give a reasoned judgment which applies the criteria in Article 9(1) to determination of any disputed question before it whether or not a particular provision is an overriding mandatory provision or not. There must be an ‘appropriate reasoned justification of their decision to qualify a mandatory norm as a loi d’application immediate’.⁸²

G. Article 9(2): Overriding Mandatory Rules of the Forum

15.49 Article 9(2) of the Regulation is the direct descendant of Article 7(2) of the Convention. Article 9(2) is an edited version of the earlier text with no change in substance.

(p. 696) 15.50 Applying the forum’s own overriding mandatory provisions will now require a forum court to determine whether those rules fall within the Article 9(1) definition.⁸³ This will only arise in exceptional circumstances.⁸⁴

Unamar

15.51 In Unamar, the Court noted the wording of Article 7(2) of the Rome Convention did not expressly lay down any particular condition for applying the mandatory rules of the law of the forum.⁸⁵ But the Court said the classification of national provisions by a Member State as falling within that definition requires that they be provisions:

compliance with which has been deemed to be so crucial for the protection of the political, social or economic order in the member state concerned as to require compliance therewith by all persons present on the national territory of that member state and all legal relationships within that state.⁸⁶

15.52 The Court in Unamar said that that interpretation was also consistent with the wording of Article 9(1) of the Rome I Regulation.⁸⁷

15.53 The Court also emphasized that, to respect the key objective of party autonomy the existence of a mandatory rule within the Member State’s legislation must be ‘interpreted strictly’:

49. Thus, to give full effect to the principle of the freedom of contract of the parties to a contract, which is the cornerstone of the Rome Convention, reiterated in the Rome I Regulation, it must be ensured that the choice freely made by the parties as regards the law applicable to their contractual relationship is respected in accordance with Article 3(1) of the Rome Convention, so that the plea relating to the existence of a ‘mandatory rule’ within the meaning of the legislation of the member state concerned, as referred to in Article 7(2) of that Convention, must be interpreted strictly.

15.54 It was for the national court, ‘in the course of its assessment of whether the national law which it proposes to substitute for that expressly chosen by the parties to the contract is a “mandatory rule”’, to take account not only of the exact terms of that law, but also of its general structure and of all the circumstances in which that law was adopted in order to determine whether it is mandatory in nature in so far as it appears that the legislature adopted it in order to protect an interest judged to be essential by the Member State concerned.⁸⁸

15.55 The regime established under the Commercial Agents Directive (86/653/EEC) is mandatory in nature.⁸⁹ A third country laws may fall foul of a Member State’s implementation of that Directive,⁹⁰ and, in certain circumstances, as Unamar shows, even another Member State’s national laws which have implemented a lower standard of protection for commercial agents can be rejected as being contrary to the mandatory rules of the forum.

15.56 In Unamar, the Court acknowledged that, the ‘mandatory provisions’ of Articles 3 and 7(2) of the Rome Convention must be interpreted as meaning that the law of a Member State (p. 697) of the EU which meets the minimum protection requirements laid down by Commercial Agents Directive (86/653/EEC), and which has been chosen by the parties to a commercial agency contract, may be rejected by a forum court of another Member State in favour of the law of the forum, when, owing to the mandatory nature of the forum’s own implementation of the Directive, the forum court finds, on the basis of a detailed assessment, that while transposing the Directive into national law, the legislature of the forum State held it to be crucial, in the legal order concerned, to grant the commercial agent protection going beyond that provided for by that Directive, taking account in that regard of the nature and of the objective of such mandatory provisions.

H. Article 9(3) of the Rome I Regulation: Third Country Overriding Mandatory Rules

15.57 Article 9(3) is a revised version of Article 7(1) of the Rome Convention. It provides:

3. Effect may be given to the overriding mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed, in so far as those overriding mandatory provisions render the performance of the contract unlawful. In considering whether to give effect to those provisions, regard shall be had to their nature and purpose and to the consequences of their application or non-application.

The Green Paper

15.58 The Green Paper noted that Article 7(1) of the Rome Convention was ‘a highly innovatory provision, expressing the concern of the Member States to respect the legislative policy of other states, including non-member countries’.⁹¹

The Rome I Proposal

15.59 Draft article 8(3) of the Rome I Proposal provided:

8(3). Effect may be given to the mandatory rules of the law of another country with which the situation has a close connection. In considering whether to give effect to these mandatory rules, courts shall have regard to their nature and purpose in accordance with the definition in paragraph 1 and to the consequences of their application or non-application for the objective pursued by the relevant mandatory rules and for the parties.

15.60 Other than the new requirement to use the new proposed autonomous definition of mandatory rules in draft article 8(1), and the revision to the text that required a court, in considering whether to exercise their discretion to apply such rules, should have regard to ‘the objective pursued by the relevant mandatory rules’ rather than to their ‘nature and purpose’ as under the Convention, draft article 8(3) was substantively similar to Article 7(1) of the Convention:⁹²

Reaction in the council to draft article 8(3)

15.61 When draft article 8(3) was first discussed at the Rome I Committee,⁹³ ‘many delegations expressed serious reservations and pleaded for its deletion’.⁹⁴ Several delegations pointed (p. 698) out a similar provision was deleted during the negotiations over Article 16 of the Rome II Regulation.⁹⁵ The United Kingdom told the meeting that ‘this provision was the main reason behind their decision not to opt in to the Regulation and indicated that they would submit a written note clarifying their reasoning’.⁹⁶ The prospect of applying draft article 8(3) had given rise to widespread concern in commercial circles, particularly in the City of London: ‘These concerns turned once again on the likelihood of significant legal uncertainty and the extent to which the provision would undermine the key principle of party autonomy.’⁹⁷

15.62 This concern was not limited to the United Kingdom. Six of the original seven dissenters from Article 7(1) of the Convention (namely Ireland,⁹⁸ Latvia,⁹⁹ Luxembourg,¹⁰⁰ Portugal,¹⁰¹ Slovenia,¹⁰² and the United Kingdom)¹⁰³ all maintained their objections. They were joined by Hungary,¹⁰⁴ who thought that the provision would grant too wide a discretionary power to the trial judge and could therefore cause legal uncertainty, and Lithuania, who cogently summed up the fundamental problems with draft article 8(3):

It seems to us that the wording of [draft article] 8(3) of the Regulation could give rise to some problems in practice. In order to apply [draft article] 8(3) of the Regulation, the judge (the court) must determine the link between the situation and the third State, the nature of the mandatory rules of the third State, their purpose, the consequences of their application or non-application and, finally, must coordinate the application of the laws of different legal systems with a package of legal relations. The judge would have considerable discretion, which could lead to legal uncertainty and unforeseeability regarding the final decision of the court. For this reason, Lithuania favours the deletion of [draft article A] 8(3).¹⁰⁵

15.63 The United Kingdom submitted a detailed note calling for the deletion of draft article 8(3), raising serious concerns about the legal uncertainty inherent in it, and the adverse economic consequences of that uncertainty, particularly in relation to complex financial transactions. They spoke of potentially dire consequences for the EU economy, particularly in the financial sector if draft article 8(3) was adopted. Germany, the other major financial transactions market in the EU and the seventh dissenter from Article 7(1) of the Rome Convention, recognized that draft article 8(3) was ‘controversial’, but then sat on the fence, suggesting that ‘either deletion or retention of the Commission proposal’ was acceptable to them. Germany thought that ‘[w]hile the arguments in favour of deletion (legal uncertainty owing to lack of transparency regarding the applicability of third-country rules) should not be rejected out of hand, Germany does not consider that the problems with this provision would be excessive in practice’.¹⁰⁶

(p. 699) 15.64 Draft article 8(3) had some supporters among those who had adopted Article 7(1) of the Rome Convention. Italy was in favour, although a similar provision had been deleted from the Rome II Proposal.¹⁰⁷ Spain favoured the incorporation into the Regulation of an Arblade-derived meaning of mandatory rules,¹⁰⁸ and France thought draft article 8 was ‘particularly important for the overall balance of the future Regulation’.¹⁰⁹

The Dinky Toys dilemma

15.65 The Netherlands gave the most detailed justification why it was considered important to keep a provision like draft article 8(3), suitably modified to refer only to ‘internationally mandatory provisions’. The Dutch did so using an example designed to attract the attention of any British former schoolboy of a certain age: the possible consequences of an illicit cornering of the English market for Dinky Toys,¹¹⁰ in circumstances where only a provision like draft article 8(3) would enable a friendly forum court in another Member State to stop it. The Netherlands said:

If two non-EU parties agree to divide the English market on Dinky Toys between them.¹¹¹ They choose French law as the law applicable to their contract and the court in Paris to decide their case in case of a dispute. One of the parties, when asked for performance of his obligations under the agreement may invoke a rule of English competition law which forbids the agreement (since the parties only divide the English market EU-competition law may not be involved). The French court dealing with the case may want to apply this rule. Without an [draft article] 8 par. 3, the French court is not allowed to apply this rule of English law since it is neither the applicable law nor a rule of the law of the forum. Would the parties have chosen for jurisdiction of an English court, then the English court would have the possibility to apply the rule of English competition law under par. 2 of [draft article] 8.

We think such a difference in outcome based on the forum which decides the case is highly undesirable. In as far as substantive law solves this type of problems it means that it becomes completely arbitrary whether or not the substantive law (either the chosen law or the law designated by [draft] articles 4–7) allows for such a solution (e.g. by qualifying the problem as a force majeure problem). We think it preferable to have a uniform rule on this at choice-of-law level. This creates more legal certainty than leaving it open and dependent on whether the applicable substantive law allows a solution.

15.66 But did this really require a uniform European rule to deal with that potential situation arising, or could the individual national laws of Member States be trusted to reach a reasonably equivalent result?

The European Parliament

15.67 The European Parliament did not see the need for an EU rule, and proposed that draft article 8(3) be deleted, echoing concerns over the discretionary nature of the rule, and its potential for detracting from legal certainty, increasing risk and costs for economic operators.¹¹²

(p. 700) The presidency’s proposed deletion of draft Article 8(3)

15.68 As a result of these observations the Finnish Presidency suggested deleting draft article 8(3) in their 12 October 2006 revisions.¹¹³ When that text was discussed in the Rome I Committee, ‘[m]ost delegations could agree’ to the Finnish Presidency’s deletion suggestion. However, ‘five delegations spoke for retaining it’.¹¹⁴ Sweden presented a working document with a possible compromise, suggesting a new draft Article 8a on rules of safety and conduct. The Presidency concluded that the Swedish proposal would be examined in substance during the next meeting.¹¹⁵

15.69 This began a process of negotiation and compromise that would be subsequently alluded to by the United Kingdom Ministry of Justice:

[T]he Government’s initial position in the negotiations was to seek deletion of this provision. During the course of negotiations, however, it became clear that it would not be possible to secure sufficient agreement on this amongst Member States as the majority already applied Article 7(1) of the Convention. Discussions then focussed on finding a generally acceptable compromise that would be narrower in scope than the Commission’s original proposal and would keep any legal uncertainty to a minimum.¹¹⁶

The First Swedish Proposal

15.70 The Swedish proposal put forward was for a new draft article 8a, entitled ‘rules of conduct’.¹¹⁷ This suggested that:

Account shall be taken, in so far as is appropriate, of the rules of conduct which at the time of implementation were in force in the countries from which or in which the contract is to be or has been implemented and that makes the contract or a part of it illegal or unenforceable.

15.71 Sweden’s argument was that the proposed text of the Rome I Regulation did not contain any equivalent to Article 17 of the Rome II Regulation on rules of safety and conduct. Consequently there was no rule giving a court instructions on how to deal with rules of conduct ‘in a country from which or in which the contract is to be implemented’. Sweden therefore proposed a text similar to Article 17 of the Rome II Regulation with a narrow scope and precise conditions for application. This first Swedish proposal, ‘did not meet with much favour…but it showed that there was indeed resistance to a total deletion of all rules pertaining to third country mandatory rules’.¹¹⁸

Stalemate

15.72 For the next four months of negotiations, the delegations were split and matters did not progress. The suggested deletion of draft article 8(3) remained in the Presidencies’ text 12 December 2006.¹¹⁹ When considered by the Rome I Committee, ‘[s]ome delegations and the Commission representative were against the deletion of [draft article] 8(3). Others were firmly opposed to that provision. One delegation stressed that the practical impact (p. 701) of this provision was very limited’.¹²⁰ The German Presidency’s revisions of 2 March 2007 retained the deletion of that provision, but it noted in the text that ‘[s]everal delegations spoke in favour of including again this paragraph’.¹²¹

15.73 The Rome I Committee appeared to have reached a deadlock. France presented a paper on the mandatory provisions in draft article 8(3), emphasizing their importance in a system which has party autonomy as one of its cornerstones, and which, if unchecked, would allow such provisions to be avoided by a choice of law:

In matters of contractual obligation, mandatory rules ensure that certain requirements (protection of particular categories of persons or particular transactions) are met and they are very important. The freer the parties are to express their own preference, the more important it is to reserve the application of imperative provisions such as mandatory rules. In the case of international contracts where the parties’ freedom is particularly extensive, this mechanism must be guaranteed.¹²²

15.74 At the 27–28 March 2007 meeting of the Rome I Committee, several delegations were against including draft article 8(3) in the Regulation, but some indicated an interest in finding a compromise. The French delegation presented their working document. Several delegations supported the French idea, but also indicated their interest in finding a compromise.¹²³ Professor Hellner recalls there was ‘a fairly even split’ between those States who favoured deletion and those which favoured reintroduction of draft article 8(3).¹²⁴

The first four options

15.75 By the end of April 2007, four options had emerged within the Committee’s debates, and were categorized as:

(1) ‘Option 1’ was adopting the Commission’s original draft article 8(3) in the Rome I Proposal.
(2) ‘Option 2’ was deleting draft article 8(3).
(3) ‘Option (3)’ was a (second) proposal put forward by the Netherlands for (another) new draft article 8a of the Regulation, that tried to give some objective form to the concept of a ‘close connection’ with a country that could engage the overriding mandatory provisions of that countries law, and, in particular emphasizing that it was those provisions that rendered the contract, or performance of it, ‘unlawful’.¹²⁵ (p. 702)
(4) ‘Option (4)’ was a second Swedish proposal, for a new draft article 11a on rules of performance which ‘renders the contract unlawful’.¹²⁶

15.76 The Swedish Option (4) went even further in deference to the opposition to Article 8(3) than had the Dutch Option (3). The Swedish Option (4) had been created to allow both sides of the retain/delete—Option (1) vs Option (2) debate to return to their political masters and claim victory, an interesting insight on developing European legislation by committee:

The idea was to connect it to (then) Article 11(2)—now Article 12(2)—on defective performance and create a separate Article on performance. The underlying thought was that those delegations that were opposed to any rule on third country internationally mandatory rules could go home to their politicians and say that the rule had been deleted. Hence the expression ‘overriding mandatory provisions’ was not used but the idea was that rules that rendered performance unlawful would generally be such rules. To those delegations that favoured Article 8(3) it could be said that the key content was preserved since the most important case of a ‘close connection’ is when the contract is performed in a country and the concept of ‘unlawfulness’, in the wide interpretation intended, covers basically all internationally mandatory rules.¹²⁷

15.77 The Netherlands’ Option (3) and Sweden’s Option (4) were discussed at the meeting of the Rome I Committee on 25 April 2007.¹²⁸ Several delegations indicated their willingness to compromise. The Presidency concluded that work should be continued on that provision. At a further Council Committee meeting on 30 April 2007, ‘one delegation supported the Netherlands’ Option (3) and suggested some amendments’,¹²⁹ while others stated they were against or for the original draft article 8(3). Again, there was a stated willingness to compromise.¹³⁰

Option (5): The hybrid compromise that won

15.78 Following these meeting the Commission’s General-Secretariat prepared a compilation of the options discussed and believed they had found a fifth option, that had emerged at the 30 April 2007 Meeting of the Committee.¹³¹ This new Option (5) combined Dutch Option (p. 703) (3) and Swedish Option (4), with a suggestion made by the Danish delegation of adding the final sentence.¹³² This new Option (5) read:

[Draft] Article 8—Overriding mandatory provisions […]

(3) Effect may be given to the overriding mandatory provisions of the law of the country where the contract has to be or has been performed [, or of the country where the parties have their habitual residence], insofar as these overriding mandatory provisions render the contract unlawful. In considering whether to give effect to these provisions regard shall be had to their nature and purpose (…) and to the consequences of their application or non-application (…).

15.79 Option (5) provided a national court could give effect to the overriding mandatory provisions of the law of a country where the contract has to be, or has been performed, where those overriding provisions rendered the contract ‘unlawful’. In considering whether to give effect to those provisions, regard was to be had to their ‘nature and purpose’ and to the consequences of their application or non-application. There was also a query whether, besides the country of performance, the new Option 5 should include the overriding mandatory provisions of the law of the country of the habitual residence of the parties, which was put in brackets as a possibility.

15.80 When this matter was next discussed at the Rome I Committee on 30 May 2007,¹³³ all delegations that took the floor indicated their readiness to search for a compromise between Option (1) (adoption of the Commission’s draft article 8(3)) and Option (2) (deletion). ‘Many delegations underlined that there should be no strict obligation to apply the overriding mandatory rules of a third country.’ A majority of delegations considered Option (5) to be an acceptable basis for a compromise, subject to further improvement of the drafting and integration of certain elements contained in the Dutch Option (3) and Swedish Option (4).

The Presidencies’ 25 June 2007 proposal

15.81 In the 25 June 2007 amendments to the Rome I Proposal by the German Presidency and the incoming Portuguese Presidency,¹³⁴ a revised version of draft article 8(3) based on Option (5) was included in the text. It provided that:

[3. Effect may be given to the overriding mandatory provisions of the law of the country where [the obligations arising out of] the contract has to be or has been [have to be or have been] performed [, or of the country where the parties have their habitual residence], insofar as these overriding mandatory provisions render the [performance of the] contract unlawful.^{Fn 1} In considering whether to give effect to these provisions regard shall be had to their nature and purpose (…) and to the consequences of their application or non-application (…).]

15.82 Footnote (1) one to the text of the Proposal said that ‘it could be examined whether the words “and if and insofar as under the law of that country those provisions must be applied to the situation at hand regardless of the law applicable to the contract” should be inserted at this place. It should be examined to what extent they could be covered by the last sentence of paragraph 3 in combination with a recital’.

(p. 704) The Rome I Meeting of 3–4 July 2007

15.83 This new provision was considered at the Rome I Committee meeting on the 3–4 July 2007. In the Council’s minutes of that meeting, kindly provided to the author by the Commission, the discussions over draft article 8(3) were recorded as:

Most delegations and the Commission representative indicated their readiness to discuss Article 8(3) as set out in document 11150/07¹³⁵ as a basis for compromise, although seven of those delegations expressed their persisting preference for the deletion of the provision and three expressly stated their preference for the reintegration of the text of the Commission proposal. Many of them and the Commission representative underlined that discretion for the judge (‘may be given’) was essential for their acceptance of such a compromise.

A majority of delegations and the Commission representative supported maintaining the words ‘the obligations arising out of’ and ‘performance of the’. A majority of delegations and the Commission representative were also in favour of deleting the words ‘, or of the country where the parties have their habitual residence’ in square brackets.

Concerning footnote 1 to [draft] Article 8(3), the prevailing view was that the suggested clarification concerned the concept of ‘overriding mandatory provisions’ and that it was not necessary to include this in the text, but that in any case it would be better placed in the context of paragraph 1.

One delegation suggested moving the last sentence of paragraph 3 to paragraph 1. Many delegations were, however, strongly opposed to that idea.

15.84 This meeting is an important record of the fact that many of the delegations and the Commission underlined that the discretion (ie ‘effect may be given’) which was given to a national judge to decide whether or not to apply any third countries’ laws was ‘essential for the acceptance of such a compromise’.

15.85 Professor Hellner recalls that the decision to delete the text referring to the habitual residence of the parties was made because the only example that anyone could imagine when this connecting factor would be relevant were cases of trade embargoes, economic sanctions or the like. Such cases were not considered ‘sufficiently relevant’ to be included in the text.¹³⁶

The Presidencies’ 4 October 2007 revisions

15.86 In the Portuguese Presidency’s 4 October 2007 revisions to the Proposal,¹³⁷ draft article 8(3) was amended on the basis of that 3-4 July 2007 Rome I Committee meeting, to take out any reference to the habitual residence of the parties. The new revision now read:

3. Effect may be given to the overriding mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed, insofar as these overriding mandatory provisions render the performance of the contract unlawful.^{fn 1}In considering whether to give effect to these provisions regard shall be had to their nature and purpose (…) and to the consequences of their application or nonapplication.

15.87 Footnote (1) remained as in Presidencies’ 25 June 2007 text.

(p. 705) The Rome I Committee’s 10 October 2007 meeting

15.88 This revision was considered for the final time at the 10 October 2007 meeting of the Rome I Committee.¹³⁸ The minute of that meeting records:

Article 8(3): The Committee could accept the text of the Presidency.

15.89 Professor Hellner’s recollection of this meeting perhaps explains the rather laconic meeting summary. For at this meeting ‘the chair of the working party could finally draw the conclusion, without really pausing to give any delegation the chance to ask for the floor, that there was consensus on the text by the Presidency’.¹³⁹

15.90 Because of the Committee chair finding consensus before anyone had time to disagree, the Presidency’s 4 October 2007 text became the enacted text adopted in Article 9(3) of the Rome I Regulation. Footnote (1) which had been inserted in both the 25 June and 4 October texts was forgotten.

I. Article 9(3) in Practice

3. Effect may be given to the overriding mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed, in so far as those overriding mandatory provisions render the performance of the contract unlawful. In considering whether to give effect to those provisions, regard shall be had to their nature and purpose and to the consequences of their application or non-application.

15.91 Article 9(3) grants a discretionary power to the forum court to give effect to the overriding mandatory provisions of the laws of a third country, but only when:

(1) the obligations arising out of a contract have to be, or have been performed in a third country (which is not the country that provides neither the lex contractus or the lex fori); and
(2) only where those provisions render the performance of the contract unlawful;
(3) If both of the requirements in (1) and (2) are met, then a national court may give effect to those third country overriding mandatory provisions, but in considering whether to do so, a court must have regard to:
1. (a) the ‘nature and purpose’ of these provisions; and to
2. (b) ‘the consequences of their application or non-application’.

The third country requirement

15.92 The first stage in any potential application of Article 9(3) of the Regulation requires the identification of ‘the country where the obligations arising out of the contract have to be or have been performed’. If that country of performance is the same as the country that provides the lex contractus,¹⁴⁰ or is the forum court itself,¹⁴¹ then Article 9(3) will not be (p. 706) engaged. It is only if the country of performance is ‘a third country’ that does not provides either the lex contractus or the lex fori that the possible application of Article 9(3) of the Regulation arises.

‘Arising out of the contract’

15.93 The existence and location of that third country depends upon the locating the performance of the obligations ‘arising out of the contract’. The concept of an ‘obligation arising out of the contract’ is not the same as ‘included in’.¹⁴² There is no requirement under Article 9(3) that the obligations that have to be or have been performed must be formally provided for in the express terms of the contract: otherwise the circumstances in Regazzoni v K C Sethia (1944) Ltd,¹⁴³ which the Commission saw as involving ‘precisely the kind of situation’ to which the idea of giving effect to the overriding mandatory provisions of a third country applied, could not have been so described.¹⁴⁴ In Regazzoni, the contract involved the sale of jute twills that were intended to be exported from India to Italy for resale in South Africa, but the original contract did not expressly say so. The resale arose out of the original contract, but was not included in it. It seems likely that a court may take a broad brush view whether or not an obligation is sufficiently connected to the contract that it can be said to arise out of it. There is no requirement for it to be the characteristic obligation of the contract, nor even the primary obligation.¹⁴⁵

Where the obligations ‘Have to be or have been performed’

15.94 A court will be concerned with locating where those obligations ‘have to be or have been performed’.¹⁴⁶ This phrase first appeared in the opening sentence to the proposed Option (5) compromise,¹⁴⁷ which emerged from an amalgamation of earlier Dutch Option (3) and Swedish Option (4). Option (3) had favoured a connecting factor with the country ‘where or from which the contract has to be carried out in accordance with the terms of the contract or the common intention of the parties’.¹⁴⁸ Option (4) had preferred the phrase, the country ‘in which the contract is to be or has been performed’.¹⁴⁹

15.95 Professor Hellner discusses the adoption of the phrase ‘have to be or have been performed’ and says that ‘the intention was clearly to widen the scope of the provision’.¹⁵⁰ This seems to be the correct interpretation. The chosen phrase is broad enough to cover the location of the performance of any obligation arising out of the contract that is either specified under its express or implied terms (‘have to be…performed’), and any obligation arising out of the contract that have in fact been performed in a particular country (‘or have been performed’), as long as that place can be said to reasonably reflect the common intention of the (p. 707) parties under the contract, and not some accident of fate or unilateral decision by one of the parties, including wholly defective performance.

15.96 Dicey, Morris, & Collins take the view that phrase ‘have to be or have been’:

is likely…intended to refer to the country in which performance was contractually obliged to take place. To extend Article 9(3) to include a country in which it merely happened to be performed would be contrary to its purpose.¹⁵¹

‘Render the performance of the contract unlawful’

15.97 The second new requirement introduced by the text of Article 9(3) is that any third country overriding mandatory provision can only be given effect to if it ‘renders the performance of the contract unlawful’ (rendent l’exécution du contrat illégale / die Erfüllung des Vertrags unrechtmäßig werden lassen).¹⁵²

15.98 Laws which render the performance of the contract ‘unlawful’ was found in both Options (3) and (4), the ‘parents’ of the compromise Option (5) that Article 9(3) is based on. The Netherlands’ Option (3) referred to ‘overriding mandatory provisions are those provisions which render performance under the contract unlawful or which render performance under the contract unlawful if certain [specific] conditions or requirements have not been met’.¹⁵³ The Swedish Option (4) had referred to ‘the law of a country where the contract, [or a performance foreseen under the contract] is to be or has been performed and which renders the contract unlawful’.¹⁵⁴

15.99 But what makes performance of a contract ‘unlawful’? The Max Planck Institute had recognized that ‘[i]nternationally mandatory rules are frequently supplemented by criminal sanctions’.¹⁵⁵ But was it necessary for the application of Article 9(3) that a breach of a third country overriding mandatory provision must result in criminal sanctions?

15.100 In putting forward their Option (4), the Swedish delegation suggested that a recital should clarify that the concept of ‘unlawfulness’ must be understood ‘in the widest sense and was not restricted to criminal law sanctions, but also included rules rendering the contract void or unenforceable and rules that would otherwise modify it, eg lower a price in violation of rules on usury’.¹⁵⁶ No such recital was ever drafted or approved during the development of the Regulation. But Professor Hellner’s recollection of the debates in the Rome I Committee is that:

[t]his interpretation was never contradicted by any delegation in the Council working party discussions even though several examples of how the rule would work were given both orally and in written form, which included rules that would only render the contract unenforceable or void but did not include criminal sanctions—but then on the other hand no recital was included in the Regulation. What conclusions can be drawn from this? Was this because of opposition to the interpretation? But then surely at least one delegation would have asked for the floor and said so?¹⁵⁷

(p. 708) 15.101 The reference to rules rendering a contract ‘void or unenforceable’ had appeared in the first Swedish proposal for a new Article 8a (entitled ‘rules of conduct’), that had begun the eventual compromise process, which highlighted the need to make provision for a third country’s ‘rules against smuggling or exportation of certain goods in the country of origin or destination, or rules against corruption and antitrust rules. Such rules would make the contract void or unenforceable’.¹⁵⁸

15.102 The term ‘unlawful’ may have been borrowed from the English cases, but will now acquire a Regulation meaning.¹⁵⁹ Some have argued that ‘unlawful’ should be interpreted, both on a textual and teleological basis, as covering situations in which the third country law renders a contract ‘illegal or simply unenforceable’.¹⁶⁰ Criminal sanctions are unnecessary, although the ‘greater the sanction for breach of the prohibition, the stronger the case is for the exercise of the discretion by the courts to apply the overriding rules of the law of the place of performance’.¹⁶¹ Article 9(3) will cover situations in which the precise terms of a contract cannot be enforced, as in the old common law case of Ralli Bros, that is discussed at para 15.107.

15.103 Professor Harris argues that ‘unlawfulness’ suggests something more than an invalid contract, and that the key requirement of unlawfulness appears to be that ‘the law of the place of performance prohibits performance in that state, as opposed to not requiring the contract to be performed according to its terms’.¹⁶² Professor Harris says:

Where there is some form of prohibition on performance, then a rationale for excusing the parties in whole or in part from performance exists. That prohibition may involve a criminal sanction, a civil sanction, or, in rare cases there may be no [legislative] sanction laid down by the foreign law.¹⁶³

15.104 Dicey, Morris, & Collins take a similar view:

It also seems clear, from the requirement that the performance is unlawful, that it will not be sufficient that the contract is merely unenforceable or that it would be regarded as invalid if made in the country where it is to be performed.¹⁶⁴

15.105 Although common law pre-Regulation cases are not authoritative, and did not correspond to the material scope of Article 7(1) of the Rome Convention,¹⁶⁵ they featured in discussions and examples raised by both the delegations to the Rome I Committee and the Commission itself as examples of when Article 9(3) might be engaged. The only case the Commission (p. 709) cited in the Rome I Green Paper as an example of how foreign overriding mandatory rules might apply was the 1958 common law case of Regazzoni v Sethia,¹⁶⁶ which had not referred specifically to the concept of foreign-public order legislation, ‘but the situation was precisely the kind of situation to which Article 7(1) [of the Convention] applies’.¹⁶⁷

15.106 The United Kingdom’s Ministry of Justice regarded Article 9(3) as being ‘formulated in terms that are sufficiently broad to cover situations of unlawful contractual performance where the applicable law is foreign’;¹⁶⁸ and see Article 9(3) as reflecting the English law position in the light of Ralli Bros¹⁶⁹ and Foster v Driscoll. Both cases merit detailed consideration.

Ralli Bros

15.107 In Ralli Bros,¹⁷⁰ an English firm chartered a Spanish steamship from a Spanish firm to carry a cargo of jute from Calcutta to Barcelona at an agreed freight, half of which was to be paid in London on the vessel sailing from Calcutta and the balance to be paid in Barcelona by the receivers of the cargo. The charterparty which was made in London, in English, and contained a London arbitration clause. The ship sailed, and the initial half of the freight was paid. A subsequent Spanish law had set a limit for the freight rate for jute to 875 pesetas per ton. Owing to alterations in the rate of exchange, by the time the vessel arrived in Barcelona the agreed freight rate was largely over the Spanish law limit. The receivers of the cargo agreed to pay the Spanish limit but refused to pay the remainder due under the contract. The Spanish ship-owners pursued claims in London against the English charterers claiming to recover the balance of the freight due, even though it exceeded the Spanish law limits. The English courts, at first instance and on appeal in the Court of Appeal, held the charterparty was an English contract to be construed according to English law, but as part of the contract dealing with the obligation of the charterers regarding the payment of the balance of the freight had to be performed in Spain, and as by the law of Spain the payment of freight above 875 pesetas per ton was illegal, then that part of the contract which required the payment of freight over 875 pesetas per ton was invalid and could not be enforced against the charterers.

Foster v Driscoll

15.108 Foster v Driscoll¹⁷¹ involved a plan to smuggle whiskey into the United States during Prohibition. The case has a subject matter, and a cast of characters, reminiscent of an Ealing comedy. The participants included Sir Harry Seymour Foster,¹⁷² ‘a knight and a member of Parliament’, who carried on business as a ‘financier’ in Westminster;¹⁷³ two City of London shipbrokers (mysteriously known in the case as ‘the syndicate’); an Edinburgh distiller, and ‘a retired schoolmaster’ residing in Worthing. The Court of Appeal noted ‘these five persons (p. 710) entertained the project of equipping a steamship and loading her with a cargo of whisky in cases and conveying it across the Atlantic to be sold in the United States, if that were possible, or, if not, in Canada or on the high seas at some point sufficiently near the territory of the United States to facilitate a sale in that territory in violation of the laws of the United States’.¹⁷⁴ The Edinburgh distiller would provide the whiskey, the shipbrokers would find the steamer to buy and equip, Sir Harry would finance the adventure and the retired school teacher from Worthing ‘should see to the disposal of the whisky and receive the profits of the sale’.¹⁷⁵ The retired teacher was ‘brought into the adventure on account of the special facilities he professed to have for introducing whisky into the United States’.¹⁷⁶

15.109 Two agreements were drawn up, documents purporting to be bills of exchange drawn in Sir Harry’s name were created, and all sorts of logistical problems befell the syndicate. The merry band of adventurers then fell out between themselves, and Sir Harry sued everybody else, claiming rescission of the agreements, delivery up of the purported bill of exchange allegedly drawn in his name, and declarations he was no longer bound by the agreement he had entered into, and that the bill of exchange was void. Only one defendant in this first action, the retired school teacher from Worthing, pleaded that the original agreement was ‘illegal and void and contrary to public policy in that to the knowledge of all the parties thereto the whiskey was to be supplied for the purpose of being shipped to and delivered in the United States of America in violation of the laws of that country’.¹⁷⁷

15.110 Unperturbed by the public revelation of the plan, Sir Harry brought a second action against the school teacher under the bill of exchange, and was met with the same defence, that the agreement was illegal and void.¹⁷⁸ Sir Harry went back to the litigation drawing board and commenced a third action against the syndicate and the school teacher as acceptors of the alleged bill of exchange, and again the retired teacher pleaded the same defence as in the first and second action.¹⁷⁹ The three cases were heard together. At first instance, Wright J found in Sir Harry’s favour in the first action, but he lost the second and third action, though without any determination of the illegality question raised by the school teacher.

15.111 On appeal, the Court of Appeal, by a majority of two to one, held that everybody should lose. The majority took the view that ‘the whole adventure is illegal and that the Court should set aside the judgment of Wright J, make no order in favour of or against any of the parties, and give no one any costs’.¹⁸⁰ Lawrence and Sankey LLJ held that the object to be attained by the agreement was in breach of international comity, and thus contrary to public policy and void. Lawrence LJ recognized that the evidence of the laws of the United States put before the English courts showed that the importation of alcohol for beverage (p. 711) purposes was prohibited and made it a criminal offence.¹⁸¹ Sankey LJ summed up his view, that an English contract should and will be held invalid on account of illegality if the real object and intention of the parties necessitates them joining in an endeavour to perform in a foreign and friendly country some act which is illegal by the law of such country notwithstanding the fact that there may be, in a certain event, alternative modes or places of performing which permit the contract to be performed legally.¹⁸²

15.112 Foster v Driscoll is authority in English law for under which illegality of contractual performance, in terms of the breach of a foreign law, may also prevent enforcement of a contract on the basis that to do so would be against the comity of nations and therefore contrary to English public policy. The Ministry of Justice appear to take the view that the new Article 9(3) removes the doubt over Foster v Driscoll’s availability to English courts in the light of the United Kingdom’s reservation under Article 22 of the Rome Convention.¹⁸³ It also shows the potential overlap between Article 9(3) and Article 21 of the Regulation

J. ‘Effect May Be Given’

15.113 If both the obligations arising out of a contract have to be, or have been performed in a third country, provisions of whose laws render the performance of the contract unlawful, then a court has a discretion to give effect to those third country provisions.

15.114 ‘Effect may be given’ was the phrase used in the first sentence of Article 7(1) of the Rome Convention. The Giuliano–Lagarde Report emphasized this phrase imposed on the court, ‘the extremely delicate task of combining the mandatory provisions with the law normally applicable to the contract in the particular situation in question’.¹⁸⁴

15.115 It is a crucial element of the compromise reached in Article 9(3). As noted at the Rome I Committee meeting of 3–4 July 2007, ‘many’ of the delegations and the Commission representative ‘underlined that discretion for the judge (“may be given”) was essential for their acceptance of such a compromise’. It is for the forum court to make a value judgment on the issues and evidence before it, whether or not such a provision may be given effect to (and to what extent), the taking account of the objectives and scheme of the Rome I Regulation, in keeping with the principle of sincere cooperation.

15.116 In considering whether to give effect to those provisions, there are two matters that a forum court must have regard to under Article 9(3).

The ‘nature and purpose’ of the foreign provisions

15.117 The first matter a forum court must have regard to in deciding whether to give effect to them is the ‘nature and purpose’ of the third country overriding provisions in question.

15.118 Again this phrase is taken from Article 7(1) of the Rome Convention which ‘regard shall be had to their nature and purpose’.¹⁸⁵ The Giuliano–Lagarde Report noted that:(p. 712)

One delegation had suggested that this should be defined by saying that the nature and purpose of the provisions in question should be established according to internationally recognized criteria (for example, similar laws existing in other countries or which serve a generally recognized interest). However, other experts pointed out that these international criteria did not exist and that consequently difficulties would be created for the court. Moreover this formula would touch upon the delicate matter of the credit to be given to foreign legal systems. For these reasons the Group, while not disapproving this idea, did not adopt this drafting proposal.¹⁸⁶

15.119 The Report said nothing more about how a court should determine a provision’s ‘nature and purpose’. Some have argued that this task required a judge ‘to familiarise himself at least to some extent with the legal, constitutional and social order of the foreign country’.¹⁸⁷

15.120 Under the revised Article 9(3) of the Regulation, the need for such an exercise is likely to be reduced because the nature and purpose of any rule that has reached this stage of the analysis is to render performance of an obligation arising out of a contract ‘unlawful’.

‘The consequences of their application or non-application’

15.121 The second matter that a forum court must take into account in deciding whether to give effect to third country overriding provisions is ‘the consequences of their application or non-application’.¹⁸⁸ Again this phrase comes from the second sentence of Article 7(1) of the Rome Convention.

15.122 Draft article 8(3) of the Rome I Proposal had referred to the consequences of their application or non-application ‘for the objective pursued by the relevant mandatory rules and for the parties’; with the italicized phrase having been added to the original text language of Article 7(1) of the Convention.¹⁸⁹ But when Option (5) for a compromise proposal was put forward by the Commission’s General-Secretariat, the added phrase had been dropped, and it was never restored during subsequent discussions in the Rome I Committee.¹⁹⁰

15.123 What consequences are involved here, and to whom? The phrase ‘the consequences’ is broad enough however to cover the consequences for the particular parties involved in the particular contractual relationship before the court, and the consequences for the objectives of the third country who promulgated the provisions in the first place.¹⁹¹ If taking account of the third country’s objectives was irrelevant for the operation of Article 9(3), then much of the rationale behind respecting overriding mandatory provisions in the first place would be removed. In certain cases, it could include potential consequences for the forum country itself, and its own national interests; eg regarding (p. 713) relations with the third country whose mandatory provisions are in issue. After all, this is a discretionary provision, and a court being asked to exercise its power under Article 9(3) will need to know as much about the end result of their doing so as possible. It is for the parties to provide the evidence to educate the court on the particular issues that arise out of the matters in dispute.

K. Article 21: Public Policy of the Forum

15.124 Article 21 grants a forum court of a Member State the limited right to refuse the application of any provision of any the law of any country specified in the rules of the Rome I Regulation. But such refusal can only be justified if such application is ‘manifestly incompatible’ with the public policy (ordre public) of the forum. It provides:

Article 21

Public policy of the forum

The application of a provision of the law of any country specified by this Regulation may be refused only if such application is manifestly incompatible with the public policy (ordre public) of the forum.

15.125 The concept of public policy, or ordre public, is a common feature of both public international law,¹⁹² private international law conventions,¹⁹³ and national laws.¹⁹⁴Ordre public has even been described as ‘a general principle of law’.¹⁹⁵ But it is one that must be exercised exceptionally, and with the greatest circumspection, ‘when to do otherwise would affront basic principles of justice and fairness which the courts seek to apply in the administration of justice in this country’.¹⁹⁶

15.126 Article 21 is substantively unchanged from Article 16 of the Rome Convention, with the only difference now being a reference to ‘a provision’ of the law of any country, rather than the Convention’s ‘a rule’ which aligned the text with the Rome II Regulation.

15.127 The Giuliano–Lagarde Report explained that Article 16 contained ‘a precise and restrictively worded reservation in favour of public policy (“ordre public”)’.¹⁹⁷ The Report emphasized the restrictions. First, in the abstract and taken as a whole, the public policy of a Contracting State was not, in general to affect the law specified by the Convention. ‘Public policy is only to be taken into account where a certain provision of the specified law, if applied in an actual case, would lead to consequences contrary to the public policy (‘ordre public’) of the forum’.¹⁹⁸ As a consequence, it was suggested that it might happen that a (p. 714) foreign law, which might in the abstract be held to be contrary to the public policy of the forum, could nevertheless be applied, if the actual result of its being applied did not in itself offend the public policy of the forum. Second, the result of applying the foreign applicable law must be ‘manifestly’ incompatible with the public policy of the forum. The Report noted this condition, which was in all The Hague Conventions since 1956, ‘requires the court to find special grounds for upholding an objection’.¹⁹⁹ Article 16 provided that it was the public policy of the forum which must be offended by applying the specified law. ‘It goes without saying that this expression includes Community public policy, which has become an integral part of the public policy (“ordre public”) of the Member States of the European Community.’²⁰⁰

Legislative development

15.128 The public policy exception raised no comments in either the Green Paper or the Commission’s Explanatory Memorandum to the Rome I Proposal, where it featured as draft article 20 in the same terms as Article 16 of the Convention.

15.129 Ireland suggested replacing the word ‘rule’ with ‘provision’ as had been agreed in equivalent provisions of the Rome II Regulation,²⁰¹ and also suggested using the title ‘public policy of the forum’ in place of ‘ordre public’.²⁰² The Netherlands agreed that the wording should be brought into line with the text of the proposed Rome II Regulation.²⁰³ The Finnish Presidency adopted both of the Irish suggestions in their 12 October 2006 revisions to the text of the Proposal, amending the text to the form in which it would be finally approved.

The rejected Spanish amendment

15.130 Spain put forward an amendment suggesting that the public policy clause should not be capable of being invoked where the law being challenged was the law of another Member State.²⁰⁴ The Spanish proposal was not adopted by the EU legislator.

Application in exceptional circumstances

15.131 As highlighted in Recital (37) and the Court’s Brussels Regime²⁰⁵ case law, the ordre public defence to application of a law identified by the rules of the Regulation should only be applied in exceptional circumstances. The courts of Member States will remain in principle free to determine, according to their own conceptions, what public policy requires, but the limits of that concept will be a matter of interpretation of the Rome I Regulation, and subject to the supervision of the Court.²⁰⁶

(p. 715) 15.132 In Krombach v Bamberski, the Court explained that recourse to a public policy defence in the Brussels Regime can be envisaged only where recognition or enforcement of the judgment delivered in another Contracting State would be at variance to an unacceptable degree with the legal order of the State in which enforcement is sought inasmuch as it infringes a fundamental principle. The infringement must constitute a manifest breach of a rule of law regarded as essential in the legal order of the State in which enforcement is sought or of a right recognized as being fundamental within that legal order.²⁰⁷

15.133 Article 21 is concerned with the possible application of policy rules that are actually intended to apply to international contractual obligations, not to merely domestic matters.²⁰⁸ Occasionally, the circumstances where public policy is intended to be engaged in international matters may be made explicit by the law in question.²⁰⁹

15.134 Cheshire, North, and Fawcett²¹⁰ have analysed and summarized the English cases where distinctive policies of English courts may be affected to a degree that may justify the application of the concept of public policy. These are:

(i) Where the basic principles of English justice and fairness are affronted. In relation to contractual obligations, this may arise if the contract has been obtained by a duress so unconscionable that it causes the English court to override the governing law.²¹¹ The duress may be of such a type as ‘to violate some moral principle, which, if it is not, ought to be universally recognised’.²¹²
(ii) Where English conceptions of morality are infringed. This may well include contracts involving an element of personal influence hinting at corruption and abroad.²¹³ The court may, on the facts established, refuse to enforce a contract intended to deceive a third party.²¹⁴
(iii) Where a transaction prejudices the interests of the United Kingdom or its good relations with foreign powers. This will arguably include such cases as Regazzoni v K C Sethia (1944) Ltd,²¹⁵ and Foster v Driscoll,²¹⁶ where the performance of the contract (p. 716) involves a contract designed to achieve a purpose illegal under the law of a friendly State.²¹⁷
(iv) Where the transaction involves a gross infringement of human rights, which may involve issues of duress.²¹⁸
(v) Where the transaction involves a fundamental breach of international law.²¹⁹

Footnotes:

1 P Nygh, Autonomy in International Contracts (Oxford University Press, 1999), Chapter 9; J-J Kuipers, EU Law and Private International Law, (Martinus Nijhoff, 2012), 54–175; F A Mann, ‘Contracts: Effect of Mandatory Rules’, in K Lipstein (ed), Harmonisation of Private International Law by the EEC (University of London, 1978), 31–8; P M North, in P North (ed), Contract Conflicts: The EEC Convention on the Law Applicable to Contractual Obligations: A Comparative Study (North-Holland Publishing Co, 1982), 17–20; D Jackson, ‘Mandatory Rules and Rules of Ordre Public’, in Contract Conflicts, 59–80; A Philip, ‘Mandatory Rules, Public Policy (Political Rules) and Choice of Law’ in Contract Conflicts, 81–110; A Bonomi, ‘Mandatory rules in Private International Law: The quest for uniformity of decisions in a global environment’ (1999) 1 YPIL, 215; A Chong, ‘The Public Policy and Mandatory Rules of Third Countries in International Contracts’ (2006) 2 JPIL, 27; A Dickinson, ‘Third Country Mandatory Rules in the Law Applicable to Contractual Obligations: So Long, Farewell, Auf Wiedersehen, Adieu’ (2007) 3 JPIL, 53; A Mills, ‘The Dimensions of Public Policy in Private International Law’ (2008) 4 JPIL, 201; J Harris, ‘Mandatory Rules and Public Policy under the Rome I Regulation’, in in F Ferrari & S Leible (eds), Rome I Regulation: The Law Applicable to Contractual Obligations in Europe (Munich: Sellier, 2009), 270–342; M Hellner, ‘Third Country Overriding Mandatory Rules in the Rome I Regulation: Old Wine in New Bottles?’ (2009) 5 JPIL, 447.

2 A Chong, ‘The Public Policy and Mandatory Rules of Third Countries in International Contracts’ (2006) 2 JPIL, 32.

3 P Nygh, Autonomy in International Contracts (Oxford University Press, 1999), Chapter 9; J-J Kuipers, EU Law and Private International Law (Martinus Nijhoff, 2012), 200.

4 T Hartley, ‘Mandatory Rules in International Contracts: The Common Law Approach’ (1997) 266 Rec des Cours, 341, 345. P B Carter, ‘The Role of Public Policy in English Private International Law’ (1993) 42 ICLQ 1.

5 H Eek, ‘Peremptory Norms and Private International Law’ (1973) 139 Recueil des cours, 1–74; P Lagarde, ‘Public Policy’, in K Lipstein (ed), International Encyclopedia of Comparative Law, Vol III; Private International Law (Dordrecht: Martinus Nijhoff, 1994), Chapter 11; M Pauknerovà, ‘Mandatory Rules and Public Policy in International Contract law’ (2010) ERA Forum No 11, 29; M Pauknerovà, ‘Overriding Mandatory Rules and Czech Law’ (2010) CzYIL, 81–94.

6 Friedrich Karl von Savigny, System des heutigen Römischen Rechts (Vol. III, Berlin, 1849) 32: ‘mit Rücksicht auf manche Arten von Gesetzen, deren besondere Natur einer so freien Behandlung der Rechtsgemeinschaft under verschiedenen Staaten widerstrebt’.

7 P Francescakis, La théorie du renvoi et les conflits de systèmes en droit international privé: publié avec le concours du C.N.R.S. (Paris: Sirey, 1958).

8 The original title to Plato’s ‘The Republic’, and a term that ancient Greek philosophers deployed in discussing how a Greek City State, the polis, was run.

9 G Guedj, ‘The theory of the lois de police, a functional trend in continental private international law—A comparative analysis with modern American theories’ (1991) AJCL 661.

10 Rome Convention: Article 3(3); Giuliano–Lagarde Report, 18 (8).

11 M Hellner, ‘Third Country Overriding Mandatory Rules in the Rome I Regulation: Old Wine in New Bottles?’ (2009) 5 JPIL, 455.

12 Giuliano–Lagarde Report, 23.

13 Giuliano–Lagarde Report, 25.

14 Giuliano–Lagarde Report.

15 Dicey, Morris, & Collins On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [32-086].

16 Giuliano–Lagarde Report, 27.

17 Rome Convention: Article 7(2).

18 Giuliano–Lagarde Report, 28.

19 The Law Commissions were against it from its original appearance in as draft article 7 of the 1972 Draft Convention: see their 1974 Consultation Paper, [7.2.4–7.2.7]. Dr F A Mann, a member of the Law Commission’s Working Group on the original Draft Convention, thought draft article 7 constituted ‘something that was not only new, but a radical departure from traditional thought. It proposes the partial applicability of the law of a third country, that is to say, the law of a country which is neither that of the proper law of contract nor that of the forum’: see FA Mann, in K Lipstein (ed), Harmonisation of Private International Law by the EEC (University of London, 1978), 31; L Collins, ‘Contractual Obligations—The EEC Preliminary Draft Convention’ (1976) 25 ICLQ 35, 49–51.

20 Council Document 13035/06 ADD 4, (22 September 2006) Annex B, paragraph (2).

21 P M North, in P North (ed), Contract Conflicts: The EEC Convention on the Law Applicable to Contractual Obligations: A Comparative Study (North-Holland Publishing Co, 1982), 19–20.

22 Green Paper, [3.2.11].

23 Green Paper, [3.2.11], Question 16.

24 Green Paper, [3.2.8.1].

25 Max Planck Institute, Green Paper Comments, 56–7.

26 The Commission noted, for example, in employment law, the rules concerning safety and health at work, minimum wages, paid leave or sick leave.

27 Max Planck Institute, Green Paper Comments, 58.

28 Max Planck Institute, Green Paper Comments, 57.

29 Max Planck Institute, Green Paper Comments, 57.

30 Green Paper, [3.2.8.1].

31 Green Paper, [3.2.8.1].

32 Green Paper, [3.2.8.1].

33 Green Paper, [3.2.8.1].

34 Paris Court of Appeal, 22 March 1990, D 1990, Somm, p 176.

35 Joined Cases C-369/96 and C-376/96 Arblade [1999] ECR I-8453.

36 Joined Cases C-369/96 and C-376/96 Arblade [1999] ECR I-8453, [30].

37 Joined Cases C-369/96 and C-376/96 Arblade [1999] ECR I-8453, [24].

38 Joined Cases C-369/96 and C-376/96 Arblade [1999] ECR I-8453, [31].

39 A Bonomi, ‘Overriding Mandatory Provisions in the Rome I Regulation on the Law Applicable to Contracts’ (2008) YPIL, 287–8.

40 R Plender & M Wilderspin, The European Contracts Convention (Sweet & Maxwell, 1st edn, 1991), [12-005].

41 U Magnus & P Mankowski, ‘Joint Response to the Rome I Green Paper’, 33.

42 U Magnus & P Mankowski, ‘Joint Response to the Rome I Green Paper’, 33.

43 Perhaps further reflecting the origin of the definition in the work of Professor Francescakis.

44 M Hellner, ‘Third Country Overriding Mandatory Rules in the Rome I Regulation: Old Wine in New Bottles?’ (2009) 5 JPIL, 457.

45 Council Document 13853/06 JUSTCIV 224 CODEC 1085 (12 October 2006).

46 Council Document 13035/06 ADD 12 (27 September 2006).

47 Council Document 13035/06 ADD 16 (2 October 2006).

48 Council Document 13035/06 ADD 16 (2 October 2006).

49 J-J Kuipers, EU Law and Private International Law (Martinus Nijhoff, 2012), 58.

50 J-J Kuipers, EU Law and Private International Law (Martinus Nijhoff, 2012), 136–49. See also the comments by the Max Planck Institute and Professors Magnus & Mankowski ‘Joint Response to the Rome I Green Paper’, 33).

51 Bundesgerichtshof, 13 December 2005, XI ZR 82/05. A Bonomi, ‘Overriding Mandatory Provisions in the Rome I Regulation on the Law Applicable to Contracts’ (2008) YPIL, 292.

52 J-J Kuipers, EU Law and Private International Law (Martinus Nijhoff, 2012), 144–5.

53 The German statute that incorporated Article 7(2) of the Rome Convention into domestic law.

54 Bundesarbeitsgericht, 13 December 2001, 5 AZR 255/00.

55 Article 34, EGBGB: ‘Nothing in this subsection shall restrict the application of those provisions of German law which govern the subject matter irrespective of the law otherwise applicable to the contract’.

56 Cour de Cassation, 30 November 2007, 06-14006; See P Piroddi, ‘The French Plumber, Subcontracting and the Internal Market’, (2008) 10 YPIL, 593.

57 Loi No 75-1334 du 31 décembre 1975 relative à la sous-traitance; (Articles 12 and 14 (1)).

58 J-J Kuipers, EU Law and Private International Law (Martinus Nijhoff, 2012), 131–2.

59 Council Document 13853/06 JUSTCIV 224 CODEC 1085 (12 October 2006).

60 Council Document 13853/06 JUSTCIV 224 CODEC 1085 (12 October 2006).

61 Council Document 16046/06 (21 December 2006).

62 Council Document 16353/06 JUSTCIV 276 CODEC 1485 (12 December 2006).

63 Rome I Regulation: Recital (37).

64 (‘für die Wahrung seines öffentlichen Interesses, insbesondere…/pour la sauvegarde de ses intérêts publics, tels que’).

65 Council Document 16046/06 (21 December 2006).

66 Joined Cases C-369/96 and C-376/96 Arblade [1999] ECR I-8453.

67 M Hellner ‘Third Country Overriding Mandatory Rules in the Rome I Regulation: Old Wine in New Bottles?’ (2009) 5 JPIL, 458.

68 M Hellner ‘Third Country Overriding Mandatory Rules in the Rome I Regulation: Old Wine in New Bottles?’ (2009) 5 JPIL, 459.

69 M Hellner ‘Third Country Overriding Mandatory Rules in the Rome I Regulation: Old Wine in New Bottles?’ (2009) 5 JPIL, 459.

70 F J Garcimartín Alférez, ‘The Rome I Regulation: Much Ado about Nothing?’ (2008) EuLFor I-61, 76–7; [75].

71 F J Garcimartín Alférez, ‘The Rome I Regulation: Much Ado about Nothing?’ (2008) EuLFor I-61, 76–7; [75].

72 Article 9(1).

73 Joined Cases C-369/96 and C-376/96 Arblade, [30].

74 Amendment 25: First Draft Report by the European Parliaments JURI Committee of 28 August 2006: Document No PR\619636EN.doc, PE 374.427v01-00, 16–17.

75 EESC’s Opinion: OJ C 318/56; [3.3.4].

76 EP Committee on Employment and Social Affairs opinion of 14 September 2006: Document No AD\630272EN.doc PE 374.323v02-00.

77 R Plender & M Wilderspin, The European Private International Law of Obligations ((3rd Ed, Sweet & Maxwell, 2009), [12-011], Anton [10.279].

78 A Bonomi, ‘Overriding Mandatory Provisions in the Rome I Regulation on the Law Applicable to Contracts’ (2008) YPIL, 289.

79 Case C-184/12 United Antwerp Maritime Agencies (UNAMAR) NV v Navigation Maritime Bulgare [2013] ECR I-000, [2014] 1 Lloyd’s Rep 161.

80 Discussed under Article 9(2) at Section G (paragraph 15.49) below.

81 J-J Kuipers, EU Law and Private International Law (Martinus Nijhoff, 2012), 175.

82 A Bonomi, ‘Overriding Mandatory Provisions in the Rome I Regulation on the Law Applicable to Contracts’ (2008) YPIL, 289.

83 It may be that national legislators may take to specifically identifying qualifying legislation in the text of the legislation itself, possibly by reference to the definitional terms in Article 9(1).

84 Recital (37), see paragraph 15.36.

85 Case C-184/12 Unamar [2013] ECR I-000, [2014] 1 Lloyd’s Rep 161, [45].

86 Case C-184/12 Unamar [2013] ECR I-000, [2014] 1 Lloyd’s Rep 161, [47] citing Arblade, [30], and Case C-391/06 Commission v Luxembourg [1999] ECR I-4323, [29].

87 Case C-184/12 Unamar [2013] ECR I-000, [2014] 1 Lloyd’s Rep 161, [48].

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15 Overriding Mandatory Provisions & Public Policy

From: The Rome I Regulation on the Law Applicable to Contractual Obligations

Michael McParland

(p. 683) 15 Overriding Mandatory Provisions & Public Policy

Articles 9 & 21

Article 9 Overriding mandatory provisions

Article 21 Public policy of the forum

A. Two Sides of the Same Coin

B. Mandatory Rules

Under the Rome Convention

(p. 686) C. Article 7 of the Rome Convention

The Article 7(1) opt-out reservations

‘All in’ or ‘all out’

D. Article 9(1): The New Autonomous Definition

Legislative development

The Arblade‎-inspired definition

The Rome I Proposal

Draft article 8—Mandatory rules

The title to be used

The real debate within the council

The presidency’s proposed deletion of draft article 8(1)

The Presidencies’ 12 December 2006 revised text

Draft Article 8—Overriding mandatory provisions Mandatory rules

E. Recital (37)

F. Article 9(1): Two Key Issues

‘Safeguarding…its public interests, such as…’

‘“Crucial” and “applicable”…irrespective of the law otherwise applicable’

The role of the Court of Justice

G. Article 9(2): Overriding Mandatory Rules of the Forum

Unamar

H. Article 9(3) of the Rome I Regulation: Third Country Overriding Mandatory Rules

The Green Paper

The Rome I Proposal

Reaction in the council to draft article 8(3)

The Dinky Toys dilemma

The European Parliament

(p. 700) The presidency’s proposed deletion of draft Article 8(3)

The First Swedish Proposal

Stalemate

The first four options

Option (5): The hybrid compromise that won

The Presidencies’ 25 June 2007 proposal

(p. 704) The Rome I Meeting of 3–4 July 2007

The Presidencies’ 4 October 2007 revisions

(p. 705) The Rome I Committee’s 10 October 2007 meeting

I. Article 9(3) in Practice

The third country requirement

‘Arising out of the contract’

Where the obligations ‘Have to be or have been performed’

‘Render the performance of the contract unlawful’

Ralli Bros

Foster v Driscoll

J. ‘Effect May Be Given’

The ‘nature and purpose’ of the foreign provisions

‘The consequences of their application or non-application’

K. Article 21: Public Policy of the Forum

Article 21

Public policy of the forum

Legislative development

The rejected Spanish amendment

Application in exceptional circumstances

Footnotes: