Signed in as:

Access is brought to you by

Sign in to an additional subscriber account

This account has no valid subscription for this site.

Oxford Law Citator

17 The Scope of the Law Applicable

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

Prev | Next

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

(p. 743) 17 The Scope of the Law Applicable

1. 17. The Scope of the Law Applicable: Article 12 17.01

Article 12 Scope of the law applicable

1. The law applicable to a contract by virtue of this Regulation shall govern in particular:
(a) interpretation;
(b) performance;
(c) within the limits of the powers conferred on the court by its procedural law, the consequences of a total or partial breach of obligations, including the assessment of damages in so far as it is governed by rules of law;
(d) the various ways of extinguishing obligations, and prescription and limitation of actions;
(e) the consequences of nullity of the contract.
2. In relation to the manner of performance and the steps to be taken in the event of defective performance, regard shall be had to the law of the country in which performance takes place.

A. The Realm of the Applicable Law

17.01 Article 12 lists several core functions of the applicable law selected under the Regulation.¹ Article 12 is substantively identical to Article 10 of the Rome Convention and should be interpreted in a similar way. Compared to Article 10 of the Convention, the title of Article 12 has been changed, the opening sentence has been simplified, and Article 10(c)’s ‘the consequences of breach’ has been replaced with Article 12(c)’s ‘the consequences of a total or partial breach’, which, in fact, involved no substantive change from the Convention.²

(p. 744) A non-exhaustive catalogue

17.02 Article 12(1) declares the law applicable to a contract shall govern, ‘in particular’, the matters specified in Article 12(1)(a)–(e). As under the Convention this list is ‘not exhaustive’.³ What other matters might be covered has produced debate. Some have suggested it should include the ‘effects of a contract’, ie ‘the rights and obligations under it of the parties thereto’.⁴ Others have suggested this concept includes the extent to which those rights and obligations affect third parties.⁵ The absence of any comments regarding the ‘effects of a contract’ in both the Rome Convention and the Giuliano–Lagarde Report is surprising, since before the Convention the laws of most signatories agreed the applicable law of the contract governed its effects.⁶ The ‘effects’ of a contract was sometimes used as part of the definition of the proper law of a contract. Since 1910, French courts had adopted as a description of the applicable law as ‘[t]he law governing the contract, its formation, its conditions and its effects’.⁷ The position was similar in Germany.⁸ Why no equivalent reference was made in Article 10(1) of the Convention is unclear.⁹

17.03 Some issues arguably fall within more than one category in Article 12. Whether a contract has been frustrated could be classified as a matter of ‘performance’ under Article 12(1)(b), or as the extinction of obligations under Article 12(1)(d), or even as a matter of interpretation under Article 12(1)(a). The effect of an exemption clause may also cross the boundaries between matter of performance, interpretation and the consequences of breach under Article 12(1)(c).¹⁰ But there will be no practical difference in outcome, as the applicable law will be the same in any category.

B. Interpretation

17.04 Article 12(1)(a) declares the law applicable to the contract by virtue of the Rome I Regulation governs ‘interpretation’. This is given in other language versions as ‘its interpretation’.¹¹

17.05 Using the word ‘interpretation’ reflects Continental legal terminology. It is the process described as ‘construction’ at common law.¹² The goal is the same whatever label is used. The interpretation or construction of any contract involves ascertaining the meaning of words and phrases used by the parties to determine their legal effects.¹³ The starting point for a court is to determine what was agreed between the parties. Whether this initial process is seen as (p. 745) a question of fact,¹⁴ or of ‘fact-finding’,¹⁵ it is a necessary foundation for determining what was intended by the words or phrases used by the parties to record their bargain. This process involves a mixture of semantics and analysis of intention. Interpretation only becomes a matter for the applicable law when the intention of the parties cannot be discerned from the words they used, or where the applicable law of the contract itself determines the meaning of the parties’ words.¹⁶ In the latter case, the applicable law’s determination of the meaning of a word, term, or phrase, is binding on the parties to the contract.

17.06 Who is a party to, and liable on a contract, is governed by the applicable law,¹⁷ whether this question is regarded as a question of interpretation or not.

Rules of interpretation

17.07 Any rules of rules of interpretation (or ‘canons of construction’) contained in the applicable law of the contract selected under the Rome I Regulation are to be followed by the forum court,¹⁸ unless they conflict with another provision of the Regulation. This reflects the position under Article 10(1)(a) of the Rome Convention,¹⁹ and the traditional approach of the common law.²⁰

17.08 Many civil codes include rules for interpreting contracts.²¹ Some give high-level directions without detailed guidance.²² Other codes are for more detailed and prescriptive as to how contracts should be interpreted.²³ An example from a common law jurisdiction is the California Civil Code.²⁴

The use of ‘alien’ interpretative materials

17.09 The applicable law will determine the nature and scope of the materials to be used in interpreting the contract. There are differences of opinion among the laws of Member States (and others legal systems) on the evidential materials that can interpret a contract. An obvious example is the ability to refer to pre-contractual negotiations. English law holds this evidence is not admissible to interpret a contract, save in an action for rectification.²⁵ Continental legal systems have (p. 746) little difficulty in considering pre-contractual negotiations, and both the Institutional Institute for the Unification of Private Law (‘UNIDROIT’) Principles (1994 and 2004 revisions)²⁶ and the Principles of European Contract Law (‘PECL’) (1999)²⁷ provide that in ascertaining ‘the common intention of the parties’, regard shall be had to prior negotiations.²⁸

17.10 But when, for example, an English court is called upon to interpret a contract governed by a law that permits the use of such evidence, Article 12(1)(a) of the Rome I Regulation mandates that the applicable law of the contract should govern its interpretation. This must include the evidential materials admissible under the applicable law selected under the Regulation. To refuse to permit the interpretive materials used in the applicable law to be adopted could be seen as the transposition of the forum’s own rules into the foreign law contract, and thus be contrary to the objectives of the Regulation.

Pre-contractual negotiations

17.11 Evidence of pre-contractual dealings and negotiations, if admissible for the interpretation of a contract under the applicable law indicated by Rome I, should also be used in interpreting the contract in a forum court; even if, as in England and Wales, the forum does not consider such materials admissible for general purposes of interpretation under its own law. The same is true in reverse. The national courts of Member State (for example, Italy), interpreting an English law contract should adopt the interpretative methods used in English law, even if they are more restrictive in the materials that can be considered in interpreting contracts governed by their own national law. In such cases an Italian court should normally not refer to evidence of pre-contractual dealings and negotiations in interpreting an English law contract.

Post-contractual conduct

17.12 The same applies to the question of using the post-contractual conduct of the parties as an interpretative aid. Some national laws expressly permit this.²⁹ The Rome Convention recognized the possibility that a court may, ‘in the light of all the facts’, find that the parties have made a real choice of law although this was not expressly stated in the contract.³⁰ In addition, to determine the country with which a contract was most closely connected for the purposes of Article 4(1) of the Convention, ‘it is also possible to take account of factors which supervened after the conclusion of the contract’.³¹ This advice is equally applicable to the Rome I Regulation. An English court, faced with interpreting an Italian contract governed by the Italian Civil Code, should not exclude evidence of post-contractual conduct to the extent it is permitted under Italian law as an interpretative aid.³²

17.13 Article 12(1)(a) clarifies that ‘interpretation’ falls within the material scope of the applicable law selected under the Regulation, and the purposes of the Regulation could be (p. 747) frustrated if a forum court attempted to limit the applicable law’s role by an overzealous retreat to the last bastion of ‘evidence in procedure’ under Article 1(3). Familiar rules of a forum court (such as the parole evidence rule in England) will have to be ignored if the applicable law adopts a different approach to the tools that are available to interpret a contract.

Incorporating terms, and implied and customary terms

17.14 The applicable law will determine what (if any) terms, from standard terms and conditions, other referenced contracts, implied terms, or customs of the trade are to be incorporated into a particular contract.³³ This will include the necessary standards for determining whether terms have been incorporated. Questions regarding the incorporation of common international trade terms, such as Incoterms, eg Cost, Insurance and Freight (‘CIF’), Free on Board (‘FOB’), Ex Works (‘EXW’), and business clauses like ‘freibleibend’, and if they are incorporated into the contract, and what they actually mean, will be resolved by the applicable law.³⁴

The meaning of words, ambiguities, and terms of the trade

17.15 The applicable law of the contract will determine the meaning of words used by the parties, and it will resolve any disputes or ambiguities arising. Disputes may arise because of the incorporation of technical, legal, or trade terms, the imprecise choice of terminology, or because there are arguments as to the customary meaning of words used in a certain trade. Often ambiguities will arise because of problems of translation, caused by the adoption of superficially similar legal terminology from different languages that may, on proper analysis, mean something different from what the parties may have hoped.³⁵ In such circumstances, the applicable law has to act as the ultimate linguistic referee, and the meaning found in the applicable law of the contract should prevail. As at common law, the applicable law selected by the Regulation will solve disputes over the customary meaning of words even within branches of the same language. So the legal effects of ordinary English words in an English law contract will prevail over a different meaning in the United States.³⁶ A similar result should be reached under the Rome I Regulation, with the applicable law’s interpretation of the words governing.

The law of the language used?

17.16 Before the Rome Convention, when words which have a legal or commercial meaning were written in a language other than the language of the law governing the contract, courts had sometimes to decide whether the words and expressions used should be interpreted in accordance with the language in which they were written, or in accordance with the corresponding words used in the law governing the contract.³⁷ Under Article 12(1)(a) of the (p. 748) Regulation, the applicable law of the contract will determine how such ‘foreign’ language terms should be interpreted.³⁸

Construction clauses

17.17 Given Article 3(1) of the Regulation allows the parties to select the law applicable to ‘the whole or to part only of the contract’, it remains possible to choose a law to construe certain obligations under the contract which may differ from the law governing the other provisions of the contract.³⁹ In certain cases, to give effect to the intention of the parties, it may be that another ‘law’ may be used as an interpretative aid.⁴⁰

Article 12(1)(a) in practice

17.18 Examples of English courts applying and interpreting foreign law contracts are common. A good example is Svenska Petroleum Exploration AB v the Government of the Republic of Lithuania (No 2).⁴¹ The contract in question was governed by the laws of Lithuania, supplemented where required, by rules of international business activities generally accepted in the petroleum industry if they did not contradict the laws of the Republic of Lithuania.⁴² The particular issue was whether the Lithuanian Government had waived its sovereign immunity. It was common ground the agreement had to be construed in accordance with Lithuanian law, and the principles of construction in Articles 6.193–6.195 of the Lithuanian Civil Code as elaborated in a commentary by a Professor Mikelenas. However, the parties did not agree on the relevance and importance of the principal text of the contract or whether Article 6.193 represented a complete statement of interpretative principles. Both parties called Lithuanian legal experts to provide the English court with ‘the relevant foreign principles and rules of construction’, while accepting that the views of their respective experts on the true interpretation of the contract was not admissible evidence, as it was for the English court, in the light of those Lithuanian principles and rules, to determine the meaning of the document.⁴³ The court’s approach should be the same under the Rome I Regulation.

C. Performance

17.19 Article 12(1)(b) of the Regulation provides that the law applicable to a contract by virtue of the Regulation shall govern ‘performance’. Other language versions are slightly more descriptive, highlighting this rule is concerned with the fulfillment,⁴⁴ compliance,⁴⁵ and (p. 749) performance⁴⁶ of the obligations created by the contract. The concept of ‘performance’ in Article 12(1)(b) must be read in conjunction with the Article 12(2), which provides that in relation to (a) ‘the manner of performance’ and (b) ‘the steps to be taken in the event of defective performance’, the forum court shall have regard to the law of the country in which performance takes place.

17.20 Article 12(1)(b) and (2) of Rome I are in identical terms to Article 10(1)(b) and (2) of the Rome Convention, and will be interpreted in the same way.

17.21 When disputes on questions of performance (or the consequences of non-performance) of a cross-border contract arises at least three potential laws might be engaged, and each could produce different results. The law of the contract may govern performance or the consequences of non-performance, and could produce a different result from the law of the country in which actual performance of the contract was due; and both may differ from the law of the forum where the dispute is being heard.

The meaning of ‘performance’

17.22 The Giuliano–Lagarde Report described the concept of ‘performance’ in Article 10(1)(b) of the Rome Convention as appearing:

to embrace the totality of the conditions, resulting from the law or from the contract, in accordance with which the act is essential for the fulfilment of an obligation must be performed, but not the manner of its performance (in so far as this is referred to in the second paragraph of Article 10) or the conditions relating to the capacity of the persons who are to perform it (capacity being a matter excluded from the scope of the uniform rules, subject to the provisions of Article 11) or the conditions relating to the form of the act which is to be done in performance of the obligation.⁴⁷

17.23 The Giuliano–Lagarde Report listed several matters falling within the scope of the term ‘performance’. These were (i) the diligence with which the obligation must be performed; (ii) the conditions relating to the place and time of performance; (iii) the extent to which the obligation can be performed by a person other than the party liable; (iv) the conditions as to performance of the obligation, both in general and in relation to certain categories of obligation (joint and several obligations, alternative obligations, divisible and indivisible obligations, pecuniary obligations); (v) where performance comprises the payment of a sum of money, the conditions relating to the discharge of the debtor who has made the payment, the appropriation of the payment, the receipt, etc.⁴⁸ The same matters will be included within the scope of Article 12(1)(b) of the Regulation, and will be governed by the applicable law selected. Each of these matters should also be distinguished from rules that properly fall within the ‘manner of performance’ under Article 12(2).

Non-performance

17.24 The concept of ‘performance’ includes all aspects of non-performance other than those matters that fall within the ‘manner of performance’ under Article 12(2). Draft article 15 of the 1972 Draft Convention said that the law governing an obligation shall also determine ‘the (p. 750) consequences of its non-performance’. The 1972 Expert Group Report said this referred to consequences that may result due to the breach of that obligation, whether it was the responsibility of the party that non-performance is being attributed to, and issues as the termination of the contract due to non-performance, and the need (if any) to notify the debtor of the same.⁴⁹ This approach was preserved in the Rome Convention and now in the Regulation.

International sale of goods

17.25 In international contracts for the sale of goods, the applicable law will determine the essential performance obligations of the seller and the buyer. These will include (i) the quantity, quality, and packaging of the goods to be delivered; (ii) the seller’s obligations to supply goods which comply with their description, with any sample against which they were sold, and their fitness for the contractual purpose; (iii) the seller’s delivery obligations, including the time and place of delivery and the persons to whom the seller may deliver the goods; (iv) the seller’s duty to pass property and title in the goods. It will also include the buyer’s obligation (v) to pay the agreed price; (vi) in relation to the carriage or shipment of goods; and (vii) to take delivery.⁵⁰

Contractual interest

17.26 It is arguable that liability to pay contractual interest, and the rate to be applied to a contractual debt, are matters of ‘performance’ under Article 12(1)(b), since both relate to the substance of the obligation to be performed.⁵¹

Contrast with the common law

17.27 In Jacobs Marcus & Co v Crédit Lyonnais,⁵² English sellers contracted in London with London buyers to sell 20,000 tons of Algerian esparto to be shipped by a French company from an Algerian port. These goods were to be shipped at certain prices, according to specified qualities, on board vessels to be provided by the claimants in London, and paid for by them in London by cash. The defendants delivered and were paid for 9,000 tons of esparto, but failed to deliver the remaining 11,000 tons. The buyers sued and the defendant sellers sought to rely on force majeure provisions in the French Civil Code,⁵³ which then applied throughout Algeria. The sellers argued there was an insurrection in Algeria, and military commands prevented the collection and transport of esparto. Some of the esparto intended for delivery to the buyers was burnt and some of the seller’s servants or agents were killed, maltreated, or prevented from working. At trial, and on appeal, the English courts declared this was an English contract, and was to be construed according to English law. The sellers could not rely on the force majeure provisions of French law, applicable at the port of shipment, as an excuse for not performing the contract. An excuse sufficient under French law, as the law of the country of performance, was not sufficient under English law, the law of the contract.⁵⁴ (p. 751) Whether or not the same result would be reached under Article 12 of the Rome I Regulation would depend on the operation of Article 12(2).

The ‘manner of performance’: Article 12(2)

17.28 Article 12(1)(b) adopts the applicable law solution found in Jacobs Marcus & Co v Crédit Lyonnais, but then ameliorates its potential harshness by the adoption of Article 12(2). That provision requires a national court to have regard to the law of the country in which performance takes place in relation to (i) ‘the manner of performance’ and (ii) ‘the steps to be taken in event of defective performance’.

17.29 There is no definition of the concept of ‘manner of performance’ in either Rome I or the Rome Convention and if required, the Court of Justice will adopt an autonomous interpretation.

17.30 Before the Rome Convention, many countries had adopted a clear distinction between questions concerning (i) the effects of a contract, and (ii) its performance. Within Europe, many legal systems accepted that questions concerning the (a) time, (b) mode, and (c) manner of performance were governed by the law of the place of performance and not by the applicable law of the contract.⁵⁵ Article 10(2) of the Rome Convention recognized the existence of this traditional approach, though the solution it adopted was novel.⁵⁶

17.31 In drafting the Convention, it was recognized there had always been ‘some uncertainty’ as to what was meant by the phrase ‘the manner of performance…[and]…matters affecting the substance of the contract were often contrasted with those connected with the mode and manner of its performance’.⁵⁷ The Giuliano–Lagarde Report advised that Article 10(2) of the Convention constituted a ‘restriction’ on the scope of the law applicable to the contract, which was often imposed in the national laws of many countries and in several international conventions. Many jurists had supported and continued to support this restriction, even when the contractual obligation was performed in a country other than that whose law applied.⁵⁸ The Giuliano–Lagarde Report essentially left the key question of what the concept of ‘manner of performance’ meant to the lex fori:

What is meant, however, by ‘manner of performance’ of an obligation? It does not seem that any precise and uniform meaning is given to this concept in the various laws and in the differing views of learned writers. The Group did not for its part wish to give a strict definition of this concept. It will consequently be for the lex fori to determine what is meant by ‘manner of performance’. Among the matters normally falling within the description of ‘manner of performance’, it would seem that one might in any event mention the rules governing public holidays, the manner in which goods are to be examined, and the steps to be taken if they are refused.⁵⁹

(p. 752) 17.32 Other than the rather modest three-pronged observations in the final sentence as to what the concept of ‘manner of performance’ might include, the Giuliano–Lagarde Report offers little assistance. It has been said this passage in the Giuliano–Lagarde Report ‘must be regarded as rather doubtful’, given the need to achieve a uniform application of the rules through an autonomous definition of the concept of ‘manner of performance’ under either the Convention and now the Regulation.⁶⁰

17.33 Some further assistance can be gained by considering the near contemporary elaboration by Professor Lagarde in 1981 at the Newcastle Colloquium. Then, Professor Lagarde quoted the suggestion in Cheshire & North⁶¹ that ‘minor details of performance alone are governed by the lex loci solutionis’, before describing some that fell within the concept of the ‘manner of performance’ under Article 10(2) of the Convention:

Among those matters, one may mention the money of payment, the hours during which delivery may be tendered, public holidays, the manner in which goods are to be examined, the steps to be taken if they are refused, and the form in which, or time by which, the consignee must protest after verification of the lack of conformity with the contract.⁶²

17.34 Each of these matters will likely fall within the scope of Article 12(2) of the Regulation. The idea that the concept of ‘manner of performance’ involves ‘minor details’ of performance may provide a rough rule of thumb to separate those matters that fall within the ambit of Article 12(1)(b) from those that might fall into the scope of Article 12(2). Thus, the country of payment will determine the form of legal tender to be used. If a contract, governed by French law, stipulates that goods will be delivered in Italy during ‘normal business hours’, then Italian law should determine what ‘normal business hours’ are at the place of delivery. This is a matter that relates to the ‘manner of performance’ of the obligation to deliver the goods. But French law will decide whether a failure to deliver the goods at all can be excused.⁶³ The concept of the ‘manner of performance’ cannot be used to usurp the fundamental obligations that are the proper responsibility of the governing applicable law of the contract.

‘Regard shall be had to the law of the country in which performance takes place’

17.35 In describing what having ‘regard’ to the law of the place of performance under Article 10(2) of the Convention meant, the Giuliano–Lagarde Report said:

Article 10(2) says that a court may have regard to the law of the place of performance. This means that the court may consider whether such law has any relevance to the manner in which the contract should be performed and has a discretion whether to apply it in whole or in part so as to do justice between the parties.

17.36 This advice is equally valid for the proper interpretation of Article 12(2) of the Regulation. Article 12(2) does not require the adoption of the lexi loci solutionis to matters of performance, and does not represent any form of depeçage of the law governing the contract.⁶⁴ (p. 753) Article 12(2) does not even require the application of the law of the place of performance to either the ‘manner of performance’ of the contract, or ‘the steps to be taken in the event of defective performance’. Instead, Article 12(2) contains a permissive, discretionary rule that allows a forum court to give effect to relevant provisions of the law of the place of performance if this is needed to do justice between the parties.

The application of Article 12(2)

17.37 The application of Article 12(2) of Rome I involves a two-stage process. The first stage requires the forum court to ascertain the nature of the law in question and to determine whether or not it has ‘any relevance’ to either (a) the manner in which the contract should be performed, or (b) the steps to be taken in the event of defective performance (‘the identified matters’ in Article 12(2)). If that investigation produces positive answers, then the second stage is for the forum court to exercise a ‘discretion’ as to whether or not they should apply that law ‘in whole or in part’, to either of the identified matters, with the objective being ‘to do justice between the parties’.

17.38 The objective of ‘doing justice between the parties’ suggests that the discretion should be exercised to give effect to the relevant laws of the place of performance in respect of the identified matters when a failure by the national court to do so would produce a result that would be unjust to one party.

17.39 At common law, there was no such discretion: if the issue was one relating to the manner or mode of performance of the contract, then the law of the place of performance was applied to that issue. For some, the adoption of a discretion in the Convention and now in the Regulation, ‘introduces a new and unwelcome uncertainty into this area…It is surprising to find a discretion, particularly one to be exercised on such a vague criterion, in a Convention which places such emphasis on achieving uniformity and certainty in the law’.⁶⁵

East West Corporation

17.40 As under the Rome Convention, questions will arise when the substance of ‘performance’ in Article 12(1)(b) ends, and the ‘manner of performance’ in Article 12(2) begins.⁶⁶

17.41 In East West Corporation v DKBS AF 1912,⁶⁷ the contracts of carriage in bills of lading were governed by English law. The claims related to losses of goods carried in containers from Hong Kong to Chile under those English law contracts. The goods had been cleared through Chilean customs and delivered in San Antonio, Chile to a Chilean company without presentation of bills of lading. Under Chilean customs law, as customs duty had not been paid in advance, the goods had to be placed on arrival in a licensed customs warehouse. After the customs duty was paid by the Chilean company, the goods were released to them without the presentation of the bills of lading. The court held that English law governed the substance of the obligation to deliver that arose in relation to each bill of lading; while the mode, or manner and method, of performance were governed by the law of Chile as the place of (p. 754) performance. The substance of the obligation governed by English law was to deliver only against a presentation of an original bill of lading. Having heard expert evidence on Chilean law, the court decided that although the goods were discharged into the customs’ ‘jurisdiction’, they had not been ‘delivered’ under the Hamburg Rules incorporated into the Chilean Code of Commerce, and there was no custom or usage in Chilean ports for warehouse operators and shipping line agents to make or permit deliveries without presentation of original bills of lading. Chilean law, as the law governing the ‘manner of performance’ therefore presented no defence to the breach of the obligation to deliver against the presentation of a valid bill governed by English law.

17.42 The Commercial Court analysed Article 10 of the Rome Convention in the following terms:

The effect of art. 10 of the Rome Convention is to maintain a distinction between the substance of the obligation which is governed by the proper law (in this case English law) and the mode (or manner and method) of performance which is governed by the law of the place of performance—Chile.⁶⁸

17.43 This analysis of the relationship between the two limbs of Article 10 has been criticized as being ‘not correct’,⁶⁹ and of erroneously turning a provision that enables a court to take account of a law other than the applicable law, ‘into a kind of dépeçage where the manner and method of performance is actually “governed” by the law of the place of performance’.⁷⁰ It is submitted that the division of roles between the applicable law and the law of the place of performance suggested in East West Corporation cannot stand. Article 10(2) of the Convention did not mandatorily apply the law of the place of performance to the manner of performance. The concept of ‘having regard’ to that law, cannot be treated as requiring its adoption. Neither Article 10(2) of the Convention nor Article 12(2) of the Regulation requires a forum court to replace the applicable law of the contract with the law of the place of performance for matters that fall within its scope. Instead, the court is given a discretion whether to apply relevant provisions of the law of the country of performance, and if so ‘the governing law and the law of the place of performance will work in tandem’.⁷¹ The proper application of Article 12(2) of the Regulation requires a court to undertake the two-stage process highlighted above. But, having said that, whether it would have made any difference to the result on the facts in East West Corporation seems very doubtful.

Illegality and the manner of performance

17.44 If performance of the parties’ agreement involves a breach of a foreign law, then this could fall foul of Article 9(3) of the Regulation. That will be the case if those foreign law provisions constitute overriding mandatory provisions as defined in Article 9(1), which render performance of the contract unlawful. In considering whether to give effect to those foreign provisions, a national court must have regard to ‘their nature and purpose and to the consequences of their application or non-application’ under Article 9(3).⁷² If the applicable law is English law, but performance is illegal under the foreign law of the place of performance, (p. 755) then maybe the English court will refuse to enforce the original contract as in Ralli Bros v Cia Naviera Sota y Aznar.⁷³

D. The Consequences of Breach/Assessment of Damages

17.45 Article 12(1)(c) of Rome I provides that the law applicable to the contract by virtue of the Regulation shall, within the limits of the powers conferred on the forum court by its own procedural law, govern the consequences of ‘a total or partial breach of obligations’, including the assessment of damages ‘in so far as it is governed by rules of law’.

(1) The consequences of total or partial breach of obligations

17.46 The phrase ‘the consequences of the total or partial breach of obligations’ is a revision of Article 10(1)(c) of the Rome Convention that referred to the ‘consequences of breach’. This is a clarification of the existing understanding of the concept of ‘consequences of breach’ under the Rome Convention. The Giuliano–Lagarde Report emphasized that, subject to the two limitations imposed in the text of the provision itself, Article 10(1)(c) provided that the applicable law ‘also governs the consequences of total or partial failure to perform these obligations’.⁷⁴

17.47 In discussing the meaning of the phrase ‘consequences of breach’ the Giuliano–Lagarde Report advised that:

The expression ‘consequences of breach’ refers to the consequences which the law or the contract attaches to the breach of a contractual obligation, whether it is a matter of the liability of the party to whom the breach is attributable or of a claim to terminate the contract for breach. Any requirement of service of notice on the party to assume his liability also comes within this context.⁷⁵

17.48 This advice is equally applicable to Article 12(1)(c) of the Regulation. The ‘consequences of a total or partial breach’ will include all matters of remedy, including questions of equitable remedies, such as the availability of final (and implicitly interim) injunctions and ‘arguably’ whether specific performance is available as a remedy,⁷⁶ subject to the basic requirement that all remedies must be compatible with the procedural rules of the forum court under Article 1(3). In OJSC TNK-BP Holding v Lazurenko⁷⁷ [2012] EWHC 2781 (Ch), an interim injunction restraining a former employee from disclosing confidential information was discharged, as the employee's employment contract was governed by Russian law under the Rome I Regulation, and the expert evidence before the court made it clear that under Russian law no quia timet injunction (interim or final) to restrain a threatened disclosure of confidential information was available. As a result, the claimant had not demonstrated any cause of action or serious question to be tried in respect of its claim for an interim quia timet injunction.

(p. 756) 17.49 Interpretative assistance can be found in decision of the Court under Article 5(1) of the 1968 Brussels Convention in Arcado,⁷⁸ where, in a claim for damages over the alleged wrongful repudiation of a commercial agent’s agreement, the Court took note that Article 10 of the Rome Convention provided that ‘the law applicable to a contract governs the consequences of a total of partial failure to comply with obligations arising under it and consequently the contractual liability of the party responsible for such breach’.⁷⁹

17.50 The applicable law selected under Rome I will determine (i) whether the party in breach is liable to pay damages to the innocent party, as well as deciding whether the innocent party is (ii) entitled to treat the contract as repudiated, or (iii) rescind the contract, (iv) is excused from further performance, or (v) may withhold his performance until the party in breach has tendered theirs (exceptio non adimpleti contractus).

17.51 The applicable law will also determine whether any required notice has been properly served in time on the party in breach. In some legal systems, especially in cases of delays in performance, the defaulting party’s liability for damages may not arise until they have been given a warning or a demand for performance by the other party.⁸⁰ Questions of notice may arise as regards the purported rescission of a contract, or whether or not the innocent party has lost a particular right under it. When a buyer seeks damages in a sale of goods contract, a question may arise whether the buyer has accepted the goods or given late notice of rejection to the seller, which in either case prevents him from recovering damages. All such matters are answered by reference to the applicable law of the contract by virtue of Article 12(1)(c) of the Regulation.⁸¹

17.52 The consequences of a total or partial breach might well cover all issues of remedies other than the assessment of damages.

(2) The assessment of damages

17.53 During the negotiations for the Rome Convention, questions concerning the ‘assessment of damages’ gave rise to ‘some difficulties’.⁸² For ‘some delegations’ (ie the United Kingdom and Ireland), the assessment, measurement or quantification of the damages was a question of fact. These common law delegations thought the assessment of damages should not be covered by the Rome Convention’s rules.⁸³ In those States, a court determining the amount of damages ‘was obliged to take account of economic and social conditions in its country, and there were some cases in which the amount of damages is fixed by a jury, and some countries use methods of calculation which might not be accepted in others’.⁸⁴ Civil law delegations countered those arguments by pointing out that in several legal systems there were rules for determining the damages; some international conventions fixed limits on the amount of compensation (for example, conventions relating to carriage); and the amount of damages in cases of non-performance (p. 757) was often prescribed in the contract, with grave difficulties being created for the parties if those amounts had to be determined later by the court hearing the action.⁸⁵ At root, the dispute was a philosophical difference which produced considerable practical differences: the common law countries treated the assessment of damages as being a matter of procedure and governed by the lex fori; the civil law countries saw the assessment of damages as a matter of substance to be governed by the lex contractus. Something was needed to bridge this gap.

17.54 The end result was a compromise between the two traditions. The Giuliano–Lagarde Report noted that:

By way of compromise the Group finally decided to refer in subparagraph (c) solely to rules of law in matters of assessment of damages, given that questions of fact will always be a matter for the court hearing the action.⁸⁶

The ‘halfway’ compromise

17.55 Article 10(1)(c) of the Rome Convention permitted the applicable law to determine the consequences of breach, including the ‘assessment of damages’, but only (a) within the limits of a forum court’s own procedural law, and only (b) in so far as the assessment of damages was governed ‘by rules of law’ found in the applicable law. Article 10(1)(c) declared that:

The law applicable to a contract by virtue of Articles 3 to 6 and 12 of this Convention shall govern in particular:

…

(c) within the limits of the powers conferred on the court by its procedural law, the consequences of breach, including the assessment of damages in so far as it is governed by rules of law[.]

17.56 No further explanation of the concept of ‘rules of law’ was given in the Giuliano–Lagarde Report. But when viewed against its historical background, the compromise encapsulated in the phrase ‘rules of law’ appears clear; especially when account is taken of both sides’ pre-Convention starting positions.

17.57 The civil law Member States all held the applicable law of the contact governed the key questions relating to the assessment of damages. This included the determination of (i) the items of loss for which damages could be recovered, eg whether only claims for damnum emergens (‘the loss he has suffered’) were permitted, or whether claims could also be made for damages for lucrum cessans (‘the gains of which he has been deprived’),⁸⁷ and (ii) the quantification of those recoverable damages.⁸⁸ In contrast, the common law principles developed in English courts considered all questions of the quantification, measure or assessment of damages to be matters of remedy, and questions of procedure for the (p. 758) lex fori rather than the lex causae (lex contractus).⁸⁹ A similar principle existed in Scots private international law.⁹⁰

17.58 But at common law not every aspect of the assessment of damages was treated as a matter of procedure. Questions of remoteness of liability or remoteness of damage were substantive matters for the lex causae. In D’Almeida Araujo Lda v Becker & Co Ltd,⁹¹ the English court had to decide whether an English buyer, who had broken a contract concluded with a Portuguese seller, had to indemnify the seller for the sum that the seller had had to pay to his own supplier. Pilcher J held that whether the Portuguese seller could recover this indemnity was one of remoteness; as such it was governed by the law applicable to the parties’ contract, which was Portuguese law. It was not a question of procedure governed by English law. In doing so, the court was influenced by the scholarship of Professor Cheshire,⁹² who had suggested that:

In brief, remoteness of liability or remoteness of damage must be distinguished from measure of damages. The rules relating to remoteness indicate what kind of loss actually resulting from the commission of a tort or from a breach of contract is actionable; the rules for the measure of damages show the method by which compensation for an actionable loss is calculated. Damage may be, but damages can never be, too remote. …But the rule that regulates the measure of damages is the same for contracts as it is for torts. It requires restitutio in integrum. …Alive to the distinction between remoteness of liability and measure of damages we can now attempt to state the relevant principles of private international law. There can be no doubt, at least on principle, that remoteness of liability must be governed by the proper law of the obligation that rests upon the defendant. Not only the existence, but also the extent, of an obligation, whether it springs from a breach of contract or the commission of a wrong, must be determined by the system of law from which it derives its source. The proper law admittedly determines the nature and content of the right created by a contract, and it is clear that the kind of loss for which damages are recoverable upon breach forms part of that content. Both the nature and the content of a contractual right depend in part upon the question whether certain consequential loss that may ensue if the contract is unperformed will be too remote in the eye of the law. If the proper law determines what constitutes a breach, it is also entitled to determine the consequences of a breach.

This passage would remain in the 1974 edition of Cheshire and North,⁹³ written by Professor North, a key member of the United Kingdom delegation negotiating the compromise found in Article 10(1)(c) of the Rome Convention.

17.59 By 1974, the House of Lords in Boys v Chaplin,⁹⁴ had also confirmed another aspect of Professor Cheshire’s opinion: that the existence of a ‘head of loss’ (ie an identifiable, recoverable component of a damages claim) was a substantive matter, even though the quantification of the damages for such a head of loss was a matter of procedure for the lex fori.

17.60 It is against this historical background that the United Kingdom, and probably Ireland, negotiated the Rome Convention compromise with the seven civil law Member States. There is (p. 759) nothing to suggest from the travaux to the Convention that the common law States reached a compromise that changed the existing common law position significantly. Indeed, in 1981, Professor Lagarde⁹⁵ informed a largely British audience at the Newcastle Colloquium that the traditional English rule, according to which the measure of damages was a question of procedure for the lex fori, would only be ‘slightly affected by the Convention’:

The Convention generally does not exclude the possibility that the calculation of damages—in other words, the quantification of the damages in terms of money—may be governed by the lex fori. But, if the proper law of the contract deals with this issue by a rule of law, this rule is to apply, because its existence shows that the question is one of substance not mere procedure. For instance, if the proper law limits the amount of compensation, as in matters of transport, the debtor must not be charged with an amount of compensation higher than that provided by the proper law, even if the lex fori does not limit compensation. Any other solution would frustrate the expectations of the parties. In return, if the creditor has stipulated in the contract that the debtor ought to pay him a lump sum in case of breach of contract that the validity of this provision depends on the proper law. In the same way, if, according to the proper law, damages should be paid in a lump sum and not by means of periodic payments, this law applies, because it lays down on this issue a ‘rule of law’. On this point, common law countries and civil law systems met each other halfway.⁹⁶

17.61 Central to what Professor Lagarde described as this ‘halfway’ compromise between the civil law and the common law traditions, was that the mechanisms for quantification of the damages in the different Member States were essentially unaffected by the Rome Convention. This was done to avoid disputes as to ‘methods of calculation’. Only substantive rules of law found in any (foreign) applicable law would be imported into a forum’s court’s assessment of damages under Article 10(c) of the Convention. Professor Lagarde confirmed that the Rome Convention considered ‘the kind of loss for which compensation may be recovered’ as a contractual issue for the applicable law.⁹⁷ The kind of loss recoverable was (and is) routinely described in both English and Scots law as a permitted ‘head’ of loss or damage.⁹⁸ Professor Lagarde also said that questions of remoteness of damage, or, in other words, the causal link between the breach of contract and the damage sustained, were also to be treated as contractual issues for the law selected under the Rome Convention. In Professor Lagarde’s view, the Convention confirmed the result in D’Almeida Araujo Lda v Becker & Co Ltd.⁹⁹ Consequently, the common law distinction between rules on remoteness and recoverable heads of damage that were matters of substance for the lex contractus, and the measure, quantification or assessment of damages being procedural for the lex fori, remained essentially unchanged in practice under the Convention.¹⁰⁰

(p. 760) The compromise preserved in the Rome I Regulation

17.62 During the legislative development of the Rome I Regulation, the European legislator refused to change the text of Article 12(1)(c) in a way that might have suggested to some that the original compromise agreed in the Rome Convention was being abandoned.

17.63 Draft article 11(c)¹⁰¹ of the Rome I Proposal had adopted Article 10(1)(c) of the Rome Convention verbatim. This included the limitations imposed on the operation of the applicable law derived from both the court’s own procedural laws and the requirement that, as regards the assessment of damages, only ‘rules of law’ provided by the applicable law were to be applied. In contrast, Article 15(c) of the (then draft) Rome II Regulation contained no such express limitations.¹⁰² Article 15(c) provided that the law applicable to non-contractual obligations under the Rome II Regulation shall govern ‘the existence, the nature and the assessment of damage or the remedy claimed’.¹⁰³ In particular, there was no limitation to ‘rules of law’ in relation to the assessment of damage.

17.64 In negotiating the Regulation, Germany suggested that the text of the Rome I Proposal should be looked at again to check whether the divergence from Article 15(c) of Rome II was ‘materially necessary’. Germany queried whether the limitation ‘within the limits of the powers conferred on the court by its procedural law’ was necessary. The Germans thought it would ‘surely only be justified if determined by differences in the law of the contract from the extra-contractual law. Germany preferred consistency with the draft Rome II Regulation’.¹⁰⁴ Spain supported the Germans.¹⁰⁵ The Netherlands¹⁰⁶ and Ireland¹⁰⁷ were also broadly in favour of making adjustments to then draft article 11 to reflect the wording of Article 15 of the Rome II Regulation.

17.65 Initially, the Rome I Committee ‘agreed to adjust the provision on the scope of applicable law to the similar provision in the recently adopted Rome II Regulation’.¹⁰⁸ But despite this agreement, no such adjustment occurred. Instead, the only changes made to the text of draft article 11 were made in the Finnish Presidency’s 12 October 2006 revisions,¹⁰⁹ which added the phrase ‘the total or partial breach of obligations’ to draft article 11(1)(c),¹¹⁰ that involved no substantive change from the Convention. This remained unchanged in the 12 December 2006 text prepared by Finnish Presidency and incoming German Presidency.¹¹¹

17.66 When the Rome I Committee considered this text on 13 February 2007, the delegations made a positive decision not to change the text to align it with the form of words that was adopted in the draft Rome II Regulation:

Delegations preferred not to align Article 11(1)(c) on Article 15(d) of the draft Rome II Regulation.¹¹²

(p. 761) 17.67 Accordingly, The text remained unchanged throughout the remainder of the legislative development of Article 12 of the Regulation.

‘Rules of law’

17.68 This deliberate decision of the European legislator not to align Article 12(1)(c) of Rome I with Article 15(1)(c) of Rome II, indicates strongly the legislative intent to preserve the halfway compromise on the role of lex contractus in the assessment of damages that had been reached by the civil law and the common law States in negotiating the terms of Article 10(c) of the Rome Convention.

17.69 Professor Lagarde’s 1981 observations on the scope of Article 10(1)(c) of Rome Convention (at 17.60 above) therefore remain equally valid in interpreting Article 12(1)(c) of Rome I. The applicable law will determine all rules of liability, causation, remoteness, and the existence of heads of damage.¹¹³ But importantly, the basic procedural role for the assessment of damages will remain largely unaltered. The law applicable to the contract will only apply to the assessment of damages if it contains ‘rules of law’, and then, only where the application of those rules are within the limits of the powers conferred on the forum court under the lex fori.

17.70 The concept of ‘rules of law’ will include a provision in the applicable law that limits the substantive right to recover losses under the contract. In Harding v Wealands,¹¹⁴ Lord Hoffmann¹¹⁵ observed that at common law a contractual term which limits the obligation to pay damages for a breach of contract or tort, or a statutory provision deemed to operate as such a term, qualifies a substantive obligation. His Lordship agreed with Street CJ in the New South Wales case of Allan J Panozza & Co Pty Ltd v Allied Interstate (Qld) Pty,¹¹⁶ that a statutory limitation on damages deemed to be incorporated into a contract of carriage is ‘an express limitation upon the substantive liabilities’. Consequently, as the majority of the High Court of Australia held in Stevens v Head,¹¹⁷ ‘[w]here the sources of the rights and obligations of contracting parties are in part the express terms of the contract and in part the provisions of its proper law, the courts of the forum are constrained to ascertain the parties rights and obligations from these sources’. Such rules do not affect the procedural quantification of those losses, but merely put a substantive cap on the recoverable losses. The position is likely to be exactly the same under Article 12(1)(c) of the Rome I Regulation.¹¹⁸

17.71 Similarly, the validity and scope of operation of any specifically agreed (i) liquidated damage clause, (ii) the scope of an exemption clause, and/or (iii) the effectiveness or otherwise of a limitation of liability provision contained in a contract, are all matters for the applicable (p. 762) law selected under the Regulation, as are the nature and consequences of any requirement to mitigate a loss for breach of a contractual obligation.

17.72 These rules must however, be ‘rules of law’: established norms contained in statute or case law or other guidance which binds the national law courts from where the applicable law indicated under the Regulation is derived. Rules practice, or non-binding guidance adopted in procedures of the national courts of the country that provides applicable law, as to how the damages should be assessed, do not qualify as ‘rules of law’ for the purposes of Article 12(1)(c) of the Rome I Regulation.¹¹⁹

Interest as damages

17.73 The right to claim interest as damages for breach of contract (rather than claiming contractually agreed interest rate) is best seen as a consequence of a total or partial breach of contract and therefore governed by the applicable law under Article 12(1)(c) of the Regulation.¹²⁰ Usually, the actual rate of interest to be applied should be, as at common law,¹²¹ a question of procedure to be governed by the lex fori. This position remains unchanged because the Rome I Regulation does not affect matters of procedure under Article 1(3).¹²² Some have suggested that if the applicable law specifies a particular rate of interest, then under the Rome I Regulation that rate of interest should be applied.¹²³

Statutory interest

17.74 The Late Payment of Commercial Debts (Interest) Act 1998, as amended,¹²⁴ partially implements Directive 2003/35 on combating late payment in commercial transactions.¹²⁵ This 1998 Act does not have effect in relation to a contract governed by the law of a part of the UK made by the choice of the parties if there is (i) no significant contract between the contract and that part of the UK, and (ii) but for the parties choice of law the applicable law would be a foreign law, namely that of a country outside the UK.¹²⁶ The 1998 Act may apply if there has been a choice of a foreign law which, but for that choice, the applicable law would be that (p. 763) of one of the component part of the UK.¹²⁷ If so, then the statutory interest rate set by the Secretary of State may apply to the contract.

Losses incurred by exchange rate fluctuations

17.75 Losses incurred by a party because of late payment of a contractual debt by fluctuations in currency exchange rates are likely to be governed by the applicable law indicated under the Regulation, as provided for in Article 12(1)(c). Such losses may ultimately turn on issues of remoteness of damage.¹²⁸

E. Extinguishing Obligations, Prescription, and Limitation of Actions

17.76 Article 12(1)(d) provides that the law applicable to the contract by virtue of the Rome I Regulation shall govern ‘the various ways of extinguishing obligations, and prescription and limitation of actions’. Article 12(1)(d) of Rome I is in identical terms to Article 10(1)(d) of the Rome Convention. The concepts of (i) the various ways of extinguishing obligations, (ii) prescription, and (iii) limitation three concepts are not defined within the text of the Regulation. If required to, the Court of Justice is likely to provide autonomous definitions of each.

The various ways of extinguishing obligations

17.77 Article 12(1)(d) appears to encompasses all the various ways that a party’s contractual obligations can be extinguished, other than (a) performance of the obligation, and/or (b) frustration of the contract, both of which will likely be governed by Article 12(1)(b),¹²⁹ and probably¹³⁰ (c) discharge by breach, which will fall within the scope or Article 12(1)(c). Given that under either Article 12(1)(b), (c), or (d) the applicable law will determine any questions arising there is likely to be no practical difference in allocating an issue to one sub-paragraph or the other.¹³¹

17.78 Under Article 12(1)(d), as at common law, the applicable law of the contract will determine whether obligations under the contract have been extinguished because of (i) supervening national legislation;¹³² (ii) a legislative moratorium introduced by national (p. 764) legislation;¹³³ (iii) discharge (or extinction) by accord and satisfaction;¹³⁴ (iv) discharge by novation;¹³⁵ and (v) (possibly) extinction by set-off, though this is probably best seen as the province of the law selected under the set-off provision of Article 17.¹³⁶

17.79 The extinction of contractual obligations differs from an abrogation or suspension of obligations arising from an outbreak of war, or a legislative divesting of a creditor’s contractual rights and transfer to another. These may not be determined by the applicable law of the contract at all.¹³⁷

Prescription

17.80 ‘Prescription’ under the Rome I Regulation is used to describe ‘the negative/extinctive’ rules applied in the legal systems belonging to the Roman legal family. These are ultimately derived from the Roman longi temporis praescriptio, a concept originally concerned with the positive acquisition of title to property by lapse of time, which was extended in the post-classical period to include the limitation of the right to sue.¹³⁸ A basic distinction between prescription and limitation is that the rule of prescription bars the right to bring an action, while the expiry of the limitation period merely bars the remedy, if raised as defence to a claim brought. Under the Draft Common Frame of Reference (‘DCFR’), ‘prescription’, in relation to the right to performance of an obligation, is defined as ‘the legal effect whereby the lapse of a prescribed period of time entitles the debtor to refuse performance’.

17.81 Prescription periods (or ‘time-bars’ as they are commonly known in practice)¹³⁹ are common in relation to contractual obligations derived from international conventions for the carriage of persons¹⁴⁰ and goods.¹⁴¹

17.82 The effect of Article 12(1)(d) of the Rome I Regulation is that the rules of prescription in the applicable law are to be applied, irrespective of any different rules in the forum’s own laws. This means the applicable law’s prescriptive rules will determine (i) the commencement of the prescription period (which may be the due date by when the party must effect performance)¹⁴² or, as in certain civil codes, the date when the creditor’s claim becomes (p. 765) enforceable;¹⁴³ (ii) any extension of the prescription period; (iii) any interruption of the prescription period; (iv) any suspension of the prescription period; (v) renewal of prescription; (vi) the effect of a debtor’s acknowledgment of the claim; (vii) the suspension (if any) in the case of an impediment beyond the creditor’s control; (viii) extension in cases of incapacity of the creditor; (ix) prescription of claims by or against an estate; (x) extension/suspension of prescription because of negotiations; (xi) suspension of prescription on the grounds of fraud or deliberate concealment of a claim; (xii) the effect of prescription; (xiii) waiver of the right to raise a defence of prescription because it infringes the precepts of good faith (‘Verwirkung’).¹⁴⁴

Limitation of actions

17.83 Article 12(1)(d) declares the applicable law of the contract provides the rules of law relating to the ‘limitation of actions’. Although this provision is in identical terms to Article 10(1)(d) of the Rome Convention, in the United Kingdom the application of Article 12(1)(d) may cause significant practical changes, because of consequential amendments made to domestic law to accommodate the Rome I and Rome II Regulations. In particular, the previously available ‘defences’ to the use of a foreign limitation period in United Kingdom law are no longer directly applicable to Rome I and Rome II cases.

The Rome Convention compromise

17.84 When negotiating Article 10(1)(d) of the Rome Convention, the United Kingdom was in an isolated position. English law acknowledged two ways a claimant’s right to sue could be limited by the running of time: prescription, by which the claimant’s title was extinguished when the relevant period expires and limitation, whereby the lapse of time rendered the claimant’s right unenforceable by action but left the right itself intact. For the purpose of private international law, English courts had classified rules of prescription as being matters of substance;¹⁴⁵ while statutes of limitation were matters of procedure to be determined by the lex fori,¹⁴⁶ with English rules applying even to a case (or contract) governed by a foreign substantive law.¹⁴⁷ At heart, the distinction drawn was between that between right and remedy.¹⁴⁸ The civil law Member States characterized both prescription and limitation as substantive matters and governed by the law governing the relationship, which in contract was the applicable law of the contract.¹⁴⁹ One reason for this distinction was that civil (p. 766) law jurisdictions adopted no rigid distinction between right and remedy as the criterion for distinguishing between substance and procedure in private international law.¹⁵⁰ But if a compromise was to be reached in negotiating the Rome Convention, the British had to give ground on the procedural classification of statutes of limitation. This they duly did. As Professor Lagarde said in 1981:

The British delegation agreed to give up its traditional position, which is very isolated in Europe, and which considered matters of limitation as procedural and governed by the lex fori. Unlike the corresponding provisions of recent Hague Conventions (Products Liability and Agency), Article 10(1)(d) provides that the proper law (and not the law of the forum) shall govern prescription and limitation of actions. The other delegations greatly appreciated that concession, but it must be said that the ground for it had been prepared by the numerous criticisms made of the traditional common law solution, even in the United Kingdom.¹⁵¹

The 1984 UK domestic limitation legislation

17.85 A change in the British ‘traditional position’ required legislation. The English¹⁵² and Scottish Law Commissions¹⁵³ investigated the options in consultation papers before producing final reports. These reports resulted in legislation. In England and Wales, it was the Foreign Limitation Periods Act 1984. In Scotland, it was the Prescription and Limitation (Scotland) Act 1984, which introduced a new s 23A in the Prescription and Limitation (Scotland) Act 1973.

17.86 While both the English and Scottish statutes made provision for applying foreign limitation rules as a matter of substance,¹⁵⁴ this was still subject to a substantial exception. Both refused to apply foreign limitation rules if they conflicted with domestic public policy. Under English law, the court could refuse to apply the foreign limitation rules to ‘any extent [they would] conflict…with public policy’ whether under s 2(2) or otherwise.¹⁵⁵ Under s 2(2) of the 1984 Act, the application of the foreign limitation rules ‘shall conflict with public policy to the extent that its application would cause undue hardship to a person who is, or might be made, a party to the action or proceedings’.¹⁵⁶ Under Scots law, s 23A of the 1973 Act did not apply where it appeared to the court that applying the relevant foreign rule of law ‘would be incompatible with the principles of public policy applied by the court’.¹⁵⁷

(p. 767) Public policy/undue hardship defence

17.87 The English law ‘public/policy undue hardship’ defence may not have been what the other Member States were anticipating. After all, within the civil law system, ‘[f]oreign statutes of limitation are seldom denied application on the grounds of public policy…Most courts…rightly allow foreign statutes to operate even though the time limits are much longer than the longest period of limitation provided by the lex fori’.¹⁵⁸

Amendments made in light of the Rome I Regulation

17.88 But whatever was the position under the Rome Convention, both of these Acts have now been amended in the light of the coming into force of the Rome I Regulation. The Foreign Limitation Periods Act 1984 has been amended to introduce a new section 8, which disapplies sections 1, 2, and 4 of the 1984 Act, where in proceedings in England and Wales, the law of a country other than England and Wales falls to be taken into account by virtue of any choice-of-law rule in the Rome I Regulation¹⁵⁹ or the Rome II Regulation.¹⁶⁰ In such cases, ‘sections 1, 2 and 4 above shall not apply in respect of that matter’.¹⁶¹ The means that all the caveats in those earlier provisions that preserved a role for English law even when a foreign limitation period was being applied are now no longer applicable: in particular, the expressed public policy exception in s 2 of the 1984 Act. In Scotland, a new s 23A(4) has been added to the Prescription and Limitation (Scotland) Act 1973, which provides that: ‘(4) This section shall not apply in any case where the law of a country other than Scotland falls to be applied by virtue of any choice-of-law rule contained in the Rome I Regulation¹⁶² or the Rome II Regulation.’¹⁶³

17.89 The practical consequence of these domestic changes is that, where the applicable law is determined by the Rome I Regulation, and a party wishes to argue that the foreign limitation period from that law is (a) so short or (b) so long, that its application should be refused, they will be forced to rely on the public policy provisions of Article 21 of the Regulation. This is only available if applying a provision of the law of any country specified by the Regulation is ‘manifestly incompatible with the public policy (ordre public) of the forum’.¹⁶⁴ This is likely to be a more stringent test than under s 2 of the 1984 Act in England Wales. Asserting what used to amount to ‘undue hardship’ may now not be enough for an English court to disapply a foreign limitation period on the grounds of public policy, except in truly exceptional cases.¹⁶⁵

(p. 768) Equitable defences: laches and acquiescence

17.90 A similar difference between the operation of the 1984 Act under the Rome Convention and the new position under the Rome I Regulation applies in relation to the application of equitable defences of laches and acquiescence. Section 4(3) of the 1984 Act preserved a role for English law in this field when applicable under s 1(1)(a), though the English court had to have regard to any relevant rules of the foreign law. The new s 8 of the 1984 Act expressly excludes the operation of s 4 to those cases governed by the Rome I Regulation. Article 12(1)(d) of the Rome I Regulation applies all rules on prescription or limitation to the lex contractus, so traditional equitable defences will not be available when the Regulation applies. The defendant to English proceedings who wishes to argue that the claims are too stale will have to rely on the provision of foreign law, and if there are none, on applying the public policy defence in Article 21 if a case can be properly made out on that basis.¹⁶⁶

The scope of the foreign limitation provisions

17.91 Because of s 12(1)(d) of the Regulation, the applicable law indicated under Rome I will determine, inter alia, (a) the nature and existence of the relevant period of limitation; (b) the commencement of the limitation period; (c) the effect of any acknowledgment by the debtor; (d) how the running of the limitation ‘clock’ is stopped; (e) the meaning and effect of any disability on the limitation period; (f) the nature and effect of any fraud, concealment or mistake on the running of the limitation period; and (g) the nature of the defence provided by the limitation rules. The operation of foreign limitation rules will be treated in exactly the same way as any other substantive provision enumerated by Article 12.

F. The Consequences of Nullity of the Contract

17.92 Article 12(1)(e) of the Regulation, declares that the law applicable to the contract under the Regulation will govern ‘the consequences of nullity of the contract’. This is identical to Article 10(e) of the Rome Convention. Yet Article 12(1)(e) is a new provision for the United Kingdom. This is because Article 10(1)(e) of the Convention never entered into force in the United Kingdom because the government entered a reservation against its application under Article 22(1)(b).¹⁶⁷ Such reservations were no longer possible under the Rome I Regulation.

17.93 As Professor North pointed out in 1981, Article 10(1)(e) was only added to the Rome Convention at ‘a very late stage of the negotiations and proved to be the source of some controversy’.¹⁶⁸ The principal objective in introducing that provision was to make the refunds which parties must pay each other following a finding of nullity of the contract subject to the applicable law of the (void) contract.¹⁶⁹ As Professor Lagarde observed at the same 1981 (p. 769) colloquium, had a seller delivered goods to the buyer, but the contract is rendered void and the buyer must return the goods:

[D]oes the purchaser have to hand back acquired fruits, or capital gains? Is he entitled to claim repayment of his expenses? Or, if it is a sum of money which is to be refunded, does this sum carry interest, and at what rate? Those issues are not often considered in the conflict of laws, and are full of uncertainty. Is the proper law, or the law of the forum to govern such questions? Or are these issues to be considered as concerning unjust enrichment, to be governed by the law of the country in which the goods to be refunded are located? The Convention gives a reasonable answer to these questions, without compelling Member States to adopt it.¹⁷⁰

17.94 During the Rome Convention negotiations, ‘some delegations’ (ie the United Kingdom and Ireland) indicated their opposition to this approach because, under their legal systems, the consequences of nullity of the contract was non-contractual. The majority of delegations were in favour of including such consequences within the scope of the law of contracts, but to take account of the opposition expressed, allowed any Contracting State to enter a reservation under Article 22(1)(b) of the Convention.¹⁷¹ This the United Kingdom did.¹⁷²

17.95 From a United Kingdom perspective the difficulties with Article 10(1)(e) of the Convention were twofold. The first difficulty arose because at common law the right to recover money paid under a void contract was not classified as a contractual obligation but was a matter of quasi-contract or restitution. As such, it was considered that there was no place for such a rule in a Convention whose choice-of-law rules were confined to contractual obligations. The second difficulty arose because the United Kingdom considered it was far from clear that Article 10(1)(e) achieved a desirable result. Up till 1980, English decisions on the law governing quasi-contract or restitutionary claims were all limited to cases where there was no choice of law by the parties.¹⁷³ In such cases, it was reasonable to conclude the applicable law of the contract should determine the rights of parties. But where the applicable law had been determined by the express choice of the parties, Professor North believed that ‘it is very doubtful whether that result should follow’:

Suppose, for example, that two Englishmen enter into a contract for the sale of a car. All the elements of the contract are English except there is an express choice of French law as the applicable law. But for that choice, the proper law would be English law. The buyer pays the price; the contract is for some reason void; the car is never delivered and the buyer seeks the return of his money. There has been no factual connection with France as the money was paid in England and credited to the seller’s English bank account. French law is only relevant because, notwithstanding the voidness of the contract, the choice of law clause is good by reason of the ‘bootstraps rule’ of Article 8.¹⁷⁴ It seems quite inappropriate for French law now to determine the extent to which the buyer is able to recover the money that has been paid under the void contract.¹⁷⁵

(p. 770) 17.96 During the Rome I negotiations there is no record of any substantive discussions among the delegations whether or not Article 12(1)(e) should be included within the Regulation at all or revised. The United Kingdom’s previous concerns over the suitability of the rule do not appear to have resurfaced during the Council’s Rome I debates.

A ‘nullity’? Applying Article 12(1)(e)

17.97 The concept of ‘nullity’ is not defined in the Rome I Regulation and, if required, the Court will probably provide an autonomous interpretation. Given the historical background to the Article 10(1)(e) of the Rome Convention, it seems likely such a definition would encompass all claims where the principal issues are whether, and to what extent, ‘refunds’ (in the broad sense of returning benefits received) have to be paid by the parties to each other following a finding that a contractual relationship was null, ‘void’, and unenforceable.¹⁷⁶ Under Article 12(1)(e) of the Regulation, the consequences of any contract being a ‘nullity’, will be determined by the applicable law of the ‘null’ or ‘void’ contract, which is the law which would have been applicable to it had it been valid.¹⁷⁷ This is irrespective of whether those consequences might be regarded as restitutionary in nature under national law. The extent of such claims must be developed in case law, but they will undoubtedly cover a wide range of issues.

17.98 Dicey, Morris, & Collins suggest the combined consequence of Articles 12(1)(c), (d), and (e) are:

restitutionary claims between the parties following the discharge of a contract for breach or for frustration, or the rescission of a contract (or damages in lieu of rescission) for, eg misrepresentation, duress or undue influence, or restitutionary claims in consequence of the contract being void (eg for mistake or want of authority), would fall within the scope of the Regulation, even though as a matter of English law they may be considered as resting on the defendant’s unjust enrichment, and will be governed by the law applicable to the contract, or (as the case may be) the law which would have been applicable had the contract been valid.¹⁷⁸

17.99 To use Professor North’s example of the two Englishmen contracting for the purchase of a car, the express choice of French law to the contract would prima facie result in the consequences of the nullity of the contract being determined by French law. This conclusion is subject to the operation of Article 3(3) of the Rome I Regulation, as all the other elements relevant to the situation at the time of choice were located in a country (England) other than that whose law (France) has been chosen. Consequently the choice of French law cannot prejudice the application of provisions of English law that cannot be derogated from by agreement. Such a back-stop provision probably answers the British prior concern over the appropriateness of the use of French law in what would otherwise be an English law contract.

(p. 771) Rome II

17.100 The above approach to Article 12(1)(e) is consistent with Article 10(1) of the Rome II Regulation. If a non-contractual obligation arising out of ‘unjust enrichment’ (including ‘payments of amounts wrongly received’) concerns a relationship existing between the parties, ‘such as one arising out of a contract or a tort/delict’, that is closely connected with that unjust enrichment, then that obligation shall be governed by the law that governs that relationship.¹⁷⁹ (p. 772)

Footnotes:

1 See also (i) Article 3(5) (the existence and validity of consent to a choice of applicable law); (ii) Article 10 (consent and material validity), (iii) Article 11 (formal validity), and (iv) Articles 1(2)(a) and 13 (capacity & incapacity).

2 Giuliano–Lagarde Report, 33. The amendment was made by the Finnish Presidency: Council Document 13853/06 JUSTCIV 224 CODEC 1085 (12 October 2006).

3 Giuliano–Lagarde Report, 33.

4 Dicey, Morris, & Collins On The Conflict of Laws (11th edn, Sweet & Maxwell, 1987), Rule 186, p 1236.

5 R Plender & M Wilderspin, The European Private International Law of Obligations (3rd Ed, Sweet & Maxwell, 2009), [14-013]–[14-015]. This is (tentatively) supported by Dicey, Morris, & Collins in On The Conflict of Laws (11th edn, Sweet & Maxwell, 1987), [32-142].

6 O Lando, Chapter 24: Contracts, in vol III in K Lipstein (ed), International Encyclopedia of Comparative Law (Mouton: JCB Mohr, 1976), [215].

7 Cass. Civ 5 December 1910, S. 1911.1.129.

8 O Lando, Chapter 24: Contracts, in vol III in K Lipstein (ed), International Encyclopedia of Comparative Law (Mouton: JCB Mohr, 1976), [215] fn 908.

9 Giuliano–Lagarde Report, 32–3.

10 Dicey, Morris, & Collins On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [32-142].

11 eg Dutch (de uitlegging ervan); French (son interprétation); German (seine Auslegung); Italian (la sua interpretazione); Polish (jej wykładni); Portuguese (A interpretação); Spanish (su interpretación); Giuliano–Lagarde Report, 32.

12 O Muthorst, ‘Contract Interpretation under the German BGB and under the DCFR’, in B Heiderhoff & G Źmij (eds), Interpretation in Polish, German and European Private Law (Munich: Sellier, 2011) pp 47, 48.

13 Rainy Sky SA v Kookmin Bank [2011] UKSC 50 [2011] 1 WLR 2900; J Waelkens, ‘Belgian perspective on Rainy Sky SA v Kookmin Bank’ (2013) 21 EuRevPL, 1319–57.

14 P Lagarde, ‘The Scope of the Applicable Law’, in P North (ed), Contract Conflicts: The EEC Convention on the Law Applicable to Contractual Obligations: A Comparative Study (North-Holland Publishing Co, 1982), 54.

15 R Plender & M Wilderspin, The European Private International Law of Obligations (3rd Ed, Sweet & Maxwell, 2009), [14-017], fn 29.

16 P Lagarde, ‘The Scope of the Applicable Law’, in P North (ed), Contract Conflicts: The EEC Convention on the Law Applicable to Contractual Obligations: A Comparative Study (North-Holland Publishing Co, 1982), 54.

17 Laemthong International Lines Co Limited v Artis & Ors [2005] EWHC 1595, [37].

18 Svenska Petroleum Exploration AB v Government of the Republic of Lithuania (No 2) [2005] EWHC 2437 (Comm) [2006] 1 Lloyd’s Rep 181, [29], [30]–[31].

19 Orinoco Navigation Ltd v Ecotrade SA (The Ikariada) [1999] 2 Lloyd’s Rep 365, 373; OT Africa Line Ltd v Magic Sportswear Corp [2005] EWCA Civ 710, [2005] 2 Lloyd’s Rep 170; CGU International Insurance Plc v Astrazeneca Insurance Co [2005] EWHC 2755 (Comm), [2006] CLC 162.

20 St Pierre v South American Stores Ltd [1937] 3 All ER 349; AB Bofors-Uva CAV Ltd v AB Skandia Transport [1982] 1 Lloyd’s Rep 410.

21 The Italian Civil Code (Articles 1362–1371); The French Civil Code (Articles 1156–1164); The Spanish Civil Code (Articles 1.281–1.289); The Portuguese Civil Code (Articles 236–239); The Estonian Law of Contract (§ 29, p 1–9); The Lithuanian Civil Code (Articles 6.193–6.195).

22 See eg German BGB, § 133, 157, 242; Austrian Civil Code, § 914-916; Greek Civil Code (Articles 173 and 200); The Norwegian Contract Conclusion Act (Articles 33 and 36); The Polish Civil Code (Article 65). See E Rott-Pietrzyk, ‘Interpretation’ in private law’, in B Heiderhoff & G Źmij (eds), Interpretation in Polish, German and European Private Law (Munich: Sellier, 2011) pp 1–13.

23 See Kingspan Environmental Ltd v Borealis A/S [2012] EWHC 1147 (Comm), for a discussion of Danish law.

24 California Civil Code, ss 1635–1663.

25 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101.

26 UNIDROIT Principles: Article 4.3.

27 PECL: Article 5:102.

28 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101 [39]. The same is true of the CISG (1980).

29 eg Article 1362 (2nd paragraph) of the Italian Civil Code which says ‘to determine the common intention of the parties, their overall behaviour should be evaluated even after the conclusion of the contract’.

30 Giuliano–Lagarde Report, 17.

31 Giuliano–Lagarde Report, 20.

32 Proposed ‘with some hesitation’ by Dicey, Morris, & Collins in On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [32-047].

33 Eg Morin v Bonhams [2003] ILPr 25 (Jonathan Hirst QC); [2004] 1 Lloyd’s Rep 702 (CA) (incorporation of auctioneer’s conditions of sale); Kingspan Environmental Ltd v Borealis A/S [2012] EWHC 1147, at [559]–[568] (Christopher Clarke, J); (under Article 8(1) of the Rome Convention, incorporation under Danish law of a party’s standard terms, including a choice of Danish law).

34 G Schulze, ‘Scope of the Law Applicable’, in G-P Calliess (ed), Rome Regulations: Commentary on the European Rules of the Conflict of Laws (Wolters Kluwer, 2011), 251, [16].

35 See [449]–[450] (p 300–1) of the 2002 ‘Study on Property Law and Non-Contractual Liability Law as they relate to Contract Law’ by C von Bar and U Drobnig for the European Commission; available at <http://ec.europa.eu/consumers/cons_int/safe_shop/fair_bus_pract/cont_law/study.pdf> (accessed 1 November 2014).

36 Mowbray, Robinson & Co v Rossor (1922) 10 Ll L Rep 316, (CA).

37 O Lando, in K Lipstein (Ed), International Encylopedia of Comparative Law, Vol. III Chapter 24, Contracts, (1976, Mouton, Mohr Siebeck), [214].

38 See the discussion in R Plender & M Wilderspin, The European Private International Law of Obligations (3rd Ed, Sweet & Maxwell, 2009), 405, fn. 52 of two Dutch cases in (1) Rb Rotterdam [2007] LJN, BB7009, and (2) Hof Leeuwarden [2007] LJN BB0655, where Dutch courts (at first instance and on appeal) used the applicable Dutch law to interpret contract clauses in (1) the German and (2) English language respectively.

39 R Plender & M Wilderspin, The European Private International Law of Obligations (3rd Ed, Sweet & Maxwell, 2009), [14-025]–[14-026].

40 See the discussion over the use of Jewish law in Halpern v Halpern [2007] EWCA Civ 291, [2008] QB 195, [34]–[35], per Waller LJ.

41 [2005] EWHC 2437 (Comm) [2006] 1 Lloyd’s Rep 181 (appeal dismissed [2006] EWCA Civ 1529, [2007] QB 886). See also Kingspan Environmental Ltd v Borealis A/S [2012] EWHC 1147 (Comm), (Danish law).

42 Svenska Petroleum Exploration AB v Lithuania (No 2) [2005] EWHC 2437 (Comm) [2006] 1 Lloyd’s Rep 181, [24].

43 Svenska Petroleum Exploration AB v Lithuania (No 2) [2005] EWHC 2437 (Comm) [2006] 1 Lloyd’s Rep 181, [29], [30]–[31].

44 German: ‘die Erfüllung der durch ihn begründeten Verpflichtungen’.

45 Portuguese: ‘O cumprimento das obrigações dele decorrentes’.

46 French: ‘l’exécution des obligations qu’il engendre’.

47 Giuliano–Lagarde Report, 32. This is ‘a somewhat obscure passage’ (Dicey, Morris & Collins On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [32-147]), and ‘lacks clarity’ (H Beale (ed), Chitty on Contracts (31st edn, Sweet & Maxwell, 2013), [30-335]).

48 Giuliano–Lagarde Report, 32–3.

49 1972 Expert Group Report, ‘Copenhagen Colloquium’, 294–7.

50 J Fawcett, J Harris, & M Bridge, International Sale of Goods in the Conflict of Laws (Oxford University Press, 2005), [13.167]–[13.204].

51 H Beale (ed), Chitty on Contracts (31st edn, Sweet & Maxwell, 2013), [30-340]; Dicey, Morris, & Collins On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [7-085] et seq.

52 (1884)12 QBD 589.

53 Articles 1147, 1148.

54 P Lagarde, ‘The Scope of the Applicable Law’, in P North (ed), Contract Conflicts: The EEC Convention on the Law Applicable to Contractual Obligations: A Comparative Study (North-Holland Publishing Co, 1982), 55.

55 O Lando, in K Lipstein (Ed), International Encylopedia of Comparative Law, Vol. III Chapter 24, Contracts, (1976, Mouton, Mohr Siebeck), [216].

56 G Cheshire, P North, & J Fawcett, Private International Law (Oxford University Press, 14th edn, 2008), 755: ‘The big difference between the Convention and the common law rules is in respect of the rule to be applied to the issue of manner of performance’.

57 P Lagarde, ‘The Scope of the Applicable Law’, in P North (ed), Contract Conflicts: The EEC Convention on the Law Applicable to Contractual Obligations: A Comparative Study (North-Holland Publishing Co, 1982), 55.

58 Giuliano–Lagarde Report, 33. At common law, see Mount Albert BC v Australasian Temperance & General Mutual Life Assurance Society Ltd [1938] AC 224, 240–1, per Lord Wright.

59 Giuliano–Lagarde Report, 33, citing Article 4 of the 1955 Hague International Sales Convention as an example.

60 Dicey, Morris, & Collins On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [32-149].

61 P North, Cheshire & North (10th edn, London: Butterworths, 1979), 238–9.

62 P Lagarde, ‘The Scope of the Applicable Law’, in P North (ed), Contract Conflicts: The EEC Convention on the Law Applicable to Contractual Obligations: A Comparative Study (North-Holland Publishing Co, 1982), 55.

63 eg by force majeure, as in Jacobs Marcus & Co v Crédit Lyonnais (1884) 12 QBD 589 discussed at paras 17.27–17.28; H Beale (ed), Chitty on Contracts (31st edn, Sweet & Maxwell, 2013), [30-335].

64 As found in certain pre-Rome Convention traditions: see O Lando, in K Lipstein (Ed), International Encylopedia of Comparative Law, Vol. III Chapter 24, Contracts, (1976, Mouton, Mohr Siebeck), [216].

65 G Cheshire, P North, & J Fawcett, Private International Law (Oxford University Press, 14th edn, 2008), 755.

66 Import Export Metro Ltd v Compania Sud Americana de Vapores SA, [2003] EWHC 11 (Comm), [2003] 1 Lloyd’s Rep 405.

67 East West Corporation v DKBS 1912 and AKTS Svenborg Utaniko Limited v P& O Nedlloyd BV [2002] EWHC 83 (Comm), [2002] 2 Lloyd’s Rep 182; and on appeal, [2003] EWCA Civ 83, [2003] QB 1509.

68 East West Corporation v DKBS 1912 [2002] EWHC 83 (Comm), [2002] 2 Lloyd’s Rep 182, [64].

69 J Fawcett, J Harris, & M Bridge, International Sale of Goods in the Conflict of Laws (Oxford University Press, 2005), [13.161], fn 369.

70 P R Beaumont & P E McEleavy, Anton’s Private International Law (W Green, 3rd edn, 2011), [10.249-250].

71 J Fawcett, J Harris, M Bridge, International Sale of Goods in the Conflict of Laws (Oxford University Press, 2005), [13.161].

72 See Chapter 15.

73 [1920] 2 KB 287.

74 Giuliano–Lagarde Report, 33; contrast art 15 of the 1972 Draft Convention that declared the law governing an obligation shall also determine ‘the consequences of its non-performance’.

75 Giuliano–Lagarde Report, 33.

76 G Cheshire, P North, & J Fawcett, Private International Law (Oxford University Press, 14th edn, 2008), 756.

77 OJSC TNK-BP Holding v Lazurenko [2012] EWHC 2781 (Ch).

78 Case 9/87 SPRL Arcado v SA Haviland [1988] ECR 1539; G Cheshire, P North, & J Fawcett, Private International Law (Oxford University Press, 14th edn, 2008), 756.

79 Case 9/87 Arcado [1988] ECR 1539, [15].

80 See eg Articles 1146 and 1139 of the French Civil Code, and under German law, see § 280, and § 286 BGB.

81 J Fawcett, J Harris, & M Bridge, International Sale of Goods in the Conflict of Laws (Oxford University Press, 2005) [13.209].

82 Giuliano–Lagarde Report, 33.

83 Giuliano–Lagarde Report, 33.

84 Giuliano–Lagarde Report, 33.

85 Giuliano–Lagarde Report, 33.

86 Giuliano–Lagarde Report, 33 (emphasis added).

87 See eg Article 1149 of the French Civil Code, which, subject to exceptions and modifications, allows full compensation (réparation intégrale), ie as a rule, the recovery of damages, for the loss which the innocent party suffered and the profit which he has been deprived of.

88 H Battifol, Les conflits de lois en matière de contrats (Paris: Sirey 1938), 412, No 501; O Lando, in K Lipstein (Ed), International Encylopedia of Comparative Law, Vol. III Chapter 24, Contracts, (1976, Mouton, Mohr Siebeck), [220].

89 See Robinson v Bland, 97 Eng Rep 717, (1760) 2 Burr. 1077 (a case involving a claim in England on a French gambling debt). See also Huber v Steiner (1835) 2 Bing NC 202 approved by the House of Lords in Donn v Lippmann (1837) 5 Cl & Fin, 1 HL (Sc).

90 Hamlyn & Co v Talisker Distillery (1894) 21 R (HL) 21, per Lord Herschell (at p 24) and Lord Watson (at p 26).

91 D’Almeida Araujo Lda v Becker & Co Ltd [1953] 2 QB 329; Livesley v Horst Co [1924] SCR 605.

92 D’Almeida Araujo Lda v Becker & Co Ltd [1953] 2 QB 329, 335–6, citing G C Cheshire, Private International Law (4th edn, Oxford: Clarendon Press, 1952), 659–60.

93 P North, Cheshire & North, (9th edn, London: Butterworths, 1974), 700.

94 [1971] AC 356.

95 P Lagarde, ‘The Scope of the Applicable Law’, in P North (ed), Contract Conflicts: The EEC Convention on the Law Applicable to Contractual Obligations: A Comparative Study (North-Holland Publishing Co, 1982), 55–6.

96 P Lagarde, ‘The Scope of the Applicable Law’, in P North (ed), Contract Conflicts: The EEC Convention on the Law Applicable to Contractual Obligations: A Comparative Study (North-Holland Publishing Co, 1982), 55–6.

97 P Lagarde, ‘The Scope of the Applicable Law’, in P North (ed), Contract Conflicts: The EEC Convention on the Law Applicable to Contractual Obligations: A Comparative Study (North-Holland Publishing Co, 1982), 55–6.

98 Boys v Chaplin [1971] AC 356 (tort).

99 D’Almeida Araujo Lda v Becker & Co Ltd [1953] 2 QB 329.

100 Dicey, Morris, & Collins On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [32-154]; cf R Plender & M Wilderspin, The European Private International Law of Obligations (3rd Ed, Sweet & Maxwell, 2009), [14-046].

101 Article 12 of the adopted Rome I Regulation.

102 Which by the autumn of 2006 had been agreed in its subsequently enacted form.

103 Rome II: Article 15(c). The change appears to have been primarily because some delegations to the Rome II Committee were concerned that reference to ‘rules of law’ might exclude case-law rules.

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

105 Council Document 13035/06 ADD 18 (17 October 2006).

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

107 Council Document 13035/06 ADD 15 (2 October 2006).

108 Meeting of 5–6 September 2006: Council Document 12635/06 (12 October 2006).

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

110 Now Article 12(1)(c).

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

112 Council Document 6853/07 (1 March 2007).

113 Eg Excalibur Ventures LLC v Texas Keystone Inc [2013] EWHC 2767 (Comm), [1416]–[1447], (New York law governs assessment of damages under Article 10(1)(c) of the Rome Convention, including the date on which damages were to be assessed [1422]).

114 Harding v Wealands [2007] 2 AC 1 (HL).

115 Harding v Wealands [2007], at [46]. The late Lord Rodger of Earlsferry agreed with Lord Hoffmann’s analysis ([72], [78]), as did Lord Carswell [79]; Lord Woolf [2], and the late Lord Bingham of Cornhill, [1].

116 [1976] 2 NSWLR 192, 196–7.

117 (1976) CLR 433, 458.

118 P Lagarde, ‘The Scope of the Applicable Law’, in P North (ed), Contract Conflicts: The EEC Convention on the Law Applicable to Contractual Obligations: A Comparative Study (North-Holland Publishing Co, 1982), 55–6.

119 In Wall v Mutelle de Poitiers Assurance [2014] EWCA Civ 138, [2014] ILPr 18, the Court of Appeal gave an obiter and preliminary view that Article 15 of the Rome II Regulation should not be construed narrowly and it was therefore appropriate for a Master assessing tort damages to consider applying foreign judicial conventions or practice on the assessment of damages for different heads of injury, but mere methods for proving recoverable loss were not to be imported. In Wall, there was no reference to the legislative history of the Rome II Regulation on the issue of the assessment of damages, a process which involved complex negotiations based on some conflicting assumptions as to the role of the lex fori, and the issue may well need to be considered again. Not least because of the huge divergences internally within Member States as to the use of such guidance in personal injury actions.

120 Giuliano–Lagarde Report, 32; Dicey, Morris, & Collins On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [7-087], [7-098] et seq. See also Lesotho Highlands Development Authority v Impreglio SpA [2000] EWHC 2435 (Comm). No view was expressed in Kuwait Oil Tanker Co SAK v Al Bader [2002] 2 All ER (Comm) 271, 333–4.

121 H Beale (ed), Chitty on Contracts (31st edn, Sweet & Maxwell, 2013), [30-340], and authorities cited. See also Rogers v Markel Corp (formerly Markel Holdings Inc) (Contractual Construction) [2004] EWHC 1375 (QB), [77]–[81].

122 Lesotho Highlands Development Authority v Impreglio SpA [2003] EWCA Civ 1159, [2003] 2 Lloyd’s Rep 497 (CA), reversed, without reference to this point at [2005] UKHL 42, [2006] 1 AC 221.

123 H Beale (ed), Chitty on Contracts (31st edn, Sweet & Maxwell, 2013), [30-333].

124 By the Late Payment of Commercial Debts Regulations 2002 (SI/2002/1674).

125 [2000] OJ L 200/35.

126 Section 12(3) of the 1998 Act. See Martrade Shipping & Transport GmbH v United Enterprises Corp [2014] EWHC 1884(Comm), a Rome Convention case.

127 Section 12(2) of the 1998 Act; H Beale (ed), Chitty on Contracts (31st edn, Sweet & Maxwell, 2013), [30-343], [30-344].

128 Dicey, Morris, & Collins On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [37-084]; The Angeliki B [2011] EWHC 892 (Comm) [2011] Arb LR 24, [50]–[54].

129 As at common law: Jacobs Marcus & Co v Crédit Lyonnais (1884) 12 QBD 589; Antony Gibbs & Sons v Societe Industrielle et Commerciale des Metaux (1890) 25 QBD 399 (CA); Swiss Bank Corp v Boehmische Industrial Bank [1923] 1 KB 673, 681–3 (CA); Mount Albert BC v Australasian etc, Assurance Society Ltd [1938] AC 224 (PC); National Bank of Greece and Athens SA v Metliss [1958] AC 509; Re United Railways of Havana, etc. Warehouses Ltd [1960] Ch 52 (CA); [1961] AC 1007; Adams v National Bank of Greece and Athens [1961] AC 255; Rossano v Manufacturers’ Life Ins Co [1963] 2 QB 352.

130 But ‘not certain’: Dicey, Morris, & Collins On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [32-156]. Cf P Lagarde, ‘Le nouveau droit international privé l’entrée en vigeur de la Convention de Rome du 19 juin 1980’ (1991) 80 Rev crit dr int privé, pp 287, 333.

131 H Beale (ed), Chitty on Contracts (31st edn, Sweet & Maxwell, 2013), [30-346].

132 Employers’ Liability Assurance Corp v Sedgwick Collins Co [1927] AC 95, R v International Trustee for the Protection of Bondholders Aktiengesellschaft [1937] AC 500.

133 Merwin Pastoral Co Pty Ltd v Moolpa Pastoral Co Pty Ltd (1932) 48 CLR 565; McClelland v Trustees Executors and Agency Co Ltd (1936) 55 CLR 483; Dennys Lascelles Ltd v Borchard [1933] VLR 46; Re Helbert Wagg & Co Ltd [1956] Ch 323. Contrast, National Bank of Greece and Athens SA v Metliss [1958] AC 509.

134 Dicey, Morris, & Collins On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [32-156] et seq.

135 Though not by substitution of a debtor which results from a sucessio in universum jus as, for example, in the case of a merger of companies, or a change in the composition of a partnership: see Dicey, Morris, & Collins On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [32-159].

136 See Chapter 20 on Article 17. See also Dicey, Morris, & Collins On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [7-039]–[7-040]; H Beale (ed), Chitty on Contracts (31st edn, Sweet & Maxwell, 2013), [30-346].

137 Dicey, Morris, & Collins On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [31-158] and authorities cited.

138 R Zimmermann, Comparative Foundations of a European Law of Set-Off and Prescription (Cambridge University Press, 2002), p 69 ff.

139 Though some prefer to label them all as limitation periods: see eg A McGee, Limitation Periods (6th edn, Sweet & Maxwell, 2010).

140 See eg Laroche v Spirit of Adventure (UK) Ltd [2009] EWCA Civ 12 [2009] 1 Lloyd’s Rep 316 (CA) (re two-year air carriage prescription period).

141 See eg the 12-month time-bar in the Hague-Visby Rules (Article III, r 6) contained in the Schedule to the Carriage of Goods by Sea Act 1971.

142 A phrase used in PECL Article 7:102.

143 See eg Austria: § 1478 ABGB; France, Civil Code: Art 2935.

144 See R Zimmermann, (2002) for a detailed discussion of the possible issues involved.

145 See The Law Commission, ‘Classification of Limitation in Private International Law’ (Law Com No 114, 1982) [2.2]; The Scottish Law Commission, ‘Prescription and the Limitation of Actions’ (Scot Law Com No 74, 1983), [7.3].

146 Don v Lippmann (1837) 3 Sh & Macl 682.

147 See eg Huber v Steiner (1835) 2 Bing NC 202, where an action in England on a French promissory note governed by French law could be pursued despite the claim being time-barred under French law. See also Williams v Jones (1811) 13 East 439, 104 ER 441; Harris v Quine (1869) LR 4 QB 653, 658; Black-Clawson International Ltd v. Papierwerke Waldhof-Aschaffenburg AG [1975] AC 591, 630 (per Lord Wilberforce).

148 Huber v Steiner (1835) 2 Bing NC 202, 210–11.

149 This was well established in court decisions in France (see eg Cass civ 28 March 1960, Rev Crit d.i.p. 1960, 202; Cass civ, 21 April 1971; Rev crit DIP 1972, 74); Germany (BGH 9 June 1960, IPRspr 1960/61 No 23); Belgium (Cass 14 July 1898, Pas. 1898.I.274); Netherlands (Rb Middelburg 19 Dec 1957, Sch 1958 No 22); Denmark (HD 22 May 1949, UfR 1940 A 652; VLD 28 Feb 1973; UfR 1973 A 583). See O Lando, Chapter 24: Contracts, in vol III in K Lipstein (ed), International Encyclopedia of Comparative Law (Mouton: JCB Mohr, 1976), [231].

150 The Law Commission, (Law Com No 114, 1982) [3.3].

151 P Lagarde, ‘The Scope of the Applicable Law’, in P North (ed), Contract Conflicts: The EEC Convention on the Law Applicable to Contractual Obligations: A Comparative Study (North-Holland Publishing Co, 1982), 56.

152 The Law Commission, (Law Com No 114, 1982).

153 The Scottish Law Commission, (Scot Law Com No 74, 1983).

154 Even if the application of those rules was essentially ‘negative’, in that they did not provide a limitation period for the action in question: see eg Dubai Bank Ltd v Abbas [1998] Lloyd’s Rep Bank 230; [1998] ILPr 391.

155 The Foreign Limitation Periods Act 1984: s 2(1).

156 See the discussion of this provision in Harley v Smith [2009] EWHC 56 (QB), [2009] PIQR P.11 (Foskett J), (upheld on appeal [2010] EWCA Civ 78, (CA); Arab Monetary Fund v Hashim (No 9) [1996] 1 Lloyd’s Rep 589.

157 Prescription and Limitation (Scotland) Act 1973: s 23A(2).

158 O Lando, Chapter 24: Contracts, in vol III in K Lipstein (ed), International Encyclopedia of Comparative Law (Mouton: JCB Mohr, 1976), [230]. There seems little evidence of civil law courts refusing to recognize a foreign limitation period on the grounds that it was too short.

159 Added by Law Applicable to Non-Contractual Obligations (England and Wales and Northern Ireland) Regulations 2008/2986, reg 4 (11 January 2009).

160 Amended by Law Applicable to Contractual Obligations (England and Wales and Northern Ireland) Regulations 2009/3064, reg 3 (17 December 2009).

161 Foreign Limitation Periods Act 1984: s 8(1).

162 Words inserted by Law Applicable to Contractual Obligations (Scotland) Regulations, 2009/410 (Scottish SI), reg 3(a) (17 December 2009).

163 Added by Law Applicable to Non-Contractual Obligations (Scotland) Regulations, 2008/404 (Scottish SI) reg 3 (11 January 2009).

164 Chapter 15.

165 Dicey, Morris, & Collins On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [7-062], [7-063], [32-161].

166 Dicey, Morris, & Collins On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [7-063].

167 In Baring Bros and Co Ltd v Cunninghame DC [1997] CLC 108 (Court of Session), Lord Penrose considered the reservation in relation to Article 10(1)(e) reflected Parliament’s intention that the law of the void contact did not govern questions relating to the consequences of the nullity of such a contract.

168 P M North, ‘History and Main Features’, in P North (ed), Contract Conflicts: The EEC Convention on the Law Applicable to Contractual Obligations: A Comparative Study (North-Holland Publishing Co, 1982), 16.

169 P M North, ‘History and Main Features’, in P North (ed), Contract Conflicts: The EEC Convention on the Law Applicable to Contractual Obligations: A Comparative Study (North-Holland Publishing Co, 1982), 16; Giuliano–Lagarde Report, 33.

170 P Lagarde, ‘The Scope of the Applicable Law’, in P North (ed), Contract Conflicts: The EEC Convention on the Law Applicable to Contractual Obligations: A Comparative Study (North-Holland Publishing Co, 1982), 56.

171 Giuliano–Lagarde Report, 33.

172 Contracts (Applicable Law) Act 1990, s 2(2): ‘Articles 7(1) and 10(1)(e) of the Rome Convention shall not have the force of law in the United Kingdom’.

173 See eg Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32; Arab Bank v Barclays Bank [1953] 2 QB 527, 572; B.P. Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783, aff [1982] 2 WLR 252, (HL).

174 Rome Convention: Article 8 (‘Material Validity’).

175 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; Giuliano–Lagarde Report, 33.

176 Giuliano–Lagarde Report, 33; P Lagarde, ‘The Scope of the Applicable Law’, in P North (ed), Contract Conflicts: The EEC Convention on the Law Applicable to Contractual Obligations: A Comparative Study (North-Holland Publishing Co, 1982), p 56.

177 As determined by Article 10(1); H Beale (ed), Chitty on Contracts (31st edn, Sweet & Maxwell, 2013), [30-329], [30-330].

178 Dicey, Morris & Collins On The Conflict of Laws (15th edn, Sweet & Maxwell, 2012), [32-162].

179 Rome II: Article 10(1).

Recently viewed (0)