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Oxford Law Citator

7 Specific Exclusions

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

Michael McParland

Content type:: Book content

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

Published in print:: 19 March 2015

ISBN:: 9780199654635

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

(p. 203) 7 Specific Exclusions

1. 7. Specific Exclusions: Article 1(2) 7.01

Article 1(2)

2. The following shall be excluded from the scope of this Regulation:
1. (a) questions involving the status or legal capacity of natural persons, without prejudice to Article 13;
2. (b) obligations arising out of family relationships and relationships deemed by the law applicable to such relationships to have comparable effects, including maintenance obligations;
3. (c) obligations arising out of matrimonial property regimes, property regimes of relationships deemed by the law applicable to such relationships to have comparable effects to marriage, and wills and succession;
4. (d) obligations arising under bills of exchange, cheques and promissory notes and other negotiable instruments to the extent that the obligations under such other negotiable instruments arise out of their negotiable character;
5. (e) arbitration agreements and agreements on the choice of court;
6. (f) questions governed by the law of companies and other bodies, corporate or unincorporated, such as the creation, by registration or otherwise, legal capacity, internal organisation or winding-up of companies and other bodies, corporate or unincorporated, and the personal liability of officers and members as such for the obligations of the company or body;
7. (g) the question whether an agent is able to bind a principal, or an organ to bind a company or other body corporate or unincorporated, in relation to a third party;
8. (h) the constitution of trusts and the relationship between settlors, trustees and beneficiaries;
9. (i) obligations arising out of dealings prior to the conclusion of a contract; and
10. (j) insurance contracts arising out of operations carried out by organisations other than undertakings referred to in Article 2 of Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance (p. 204) [14]¹ the object of which is to provide benefits for employed or self-employed persons belonging to an undertaking or group of undertakings, or to a trade or group of trades, in the event of death or survival or of discontinuance or curtailment of activity, or of sickness related to work or accidents at work.

A. Definition by Exclusion

7.01 Since the 1968 Brussels Convention the substantive scope of EU private international law instruments has been limited by the use of specific exclusions rather than by the adoption of positive definitions.² The Rome I Regulation is no different. Article 1(2) of Rome I now specifically excludes ten classes of civil or commercial ‘obligations’, ‘questions’, ‘agreements’, or other matters from its scope. These are a mixture of old and new.

7.02 These exclusions will be interpreted in accordance with the objectives of the Regulation. Some, like obligations arising out of family relationships in Article 1(2)(b) will be interpreted relatively broadly, while others may well not be. When changes were made to the existing Rome Convention exclusions, the Explanatory Memorandum emphasized these were intended to align them with the Brussels I Regulation and with developments in the Rome II negotiations. Consistency of interpretation with the Convention, the Rome II Regulation and where appropriate the Brussels Regime will be maintained where possible. Despite disputes that arose during negotiations, all these exclusions were agreed at the meeting of the Council’s Justice and Home Affairs (‘JHA’) Committee on 19–20 April 2007.³

B. The Status or Legal Capacity of Natural Persons

7.03 Article 1(2)(a) excludes ‘questions involving the status or legal capacity of natural persons without prejudice to Article 13’ from the material scope of the Rome I Regulation.⁴ Apart from the very exceptional circumstances where Article 13 is engaged,⁵ the law that determines any questions involving the status and legal capacity of a natural person is not identified by the rules in the Rome I Regulation, but by reference to the private international rules of the national court hearing the dispute.

7.04 Articles 1(2)(a) and 13 are in substantively identical terms to Articles 1(2)(a) and 11 of the Rome Convention and will be interpreted in the same way. Variations on this exclusion are increasingly common in international conventions⁶ and national codifications of private international law.⁷

(p. 205) Background

7.05 The exclusion of the concepts of ‘status or legal capacity of natural persons’ was adopted in Article 1(1) of the 1968 Brussels Convention.⁸ The disparity in conflict-of-laws rules between the Member States had made it necessary to exclude those matters to ensure the effective operation of the 1968 Convention.⁹ Article 1(1) of the 1968 Brussels Convention remained unchanged by the 1978 Accession Convention. The Schlosser Report said:

The non-applicability of the 1968 Convention in respect of the status or legal capacity of natural persons concerns in particular proceedings and judgments relating to:

– the voidability and nullity of marriages, and judicial separation,
– the dissolution of marriages,
– the death of a person,
– the status and legal capacity of a minor and the legal representation of a person who is mentally ill; the status and legal capacity of a minor also includes judgments on the right to custody after the divorce or legal separation of the parents; this was the Working Party’s unanimous reply to the express question put by the Irish delegation,
– the nationality or domicile…of a person,
– the care, custody and control of children, irrespective of whether these are in issue in divorce, guardianship, or other proceedings,
– the adoption of children.¹⁰

7.06 The concepts of status or legal capacity would also be excluded from the scope of the Brussels I Regulation (44/2001), where (as under the Rome Convention) this exclusion was grouped with rights in property arising out of a matrimonial relationship and wills and succession.¹¹ The exclusion remains unchanged in the Brussels I Recast (1215/2012).¹²

Under the Rome Convention

7.07 In choice of law matters, both the 1972 Draft Convention and the Rome Convention adopted a similar approach to the Brussels Regime.¹³ ‘To obviate any possibility of misconstruction’, the wording used the same terminology as the 1968 Brussels Convention, and child custody matters fell within this Article 1(2)(a) exclusion, since they fell within the sphere of personal status and capacity.¹⁴

7.08 At the 1981 Newcastle Colloquium, Professor Lagarde said:

[i]n continental systems capacity is characterized as a personal issue and is consequently governed by the national law. The result is that a party may avoid a contract, which is valid under its proper law, on the ground that he is still a minor under his personal law. I dare not say that the negotiators had encountered the opinion expressed by Hartley, in a paper submitted some years ago to the I.C.C., that laws on capacity are overprotective laws. Such an opinion would have led them to adopt a conflict rule eliminating the risk of annulment for incapacity. The Convention did not intend to overthrow the rules of conflict now in force in the Contracting States in matter of capacity and it preferred to (p. 206) leave capacity outside its scope. Nevertheless it gives a solution which favours validity of the contract.¹⁵

7.09 Professor Sir Peter North also said:

The reason for the very limited treatment of capacity in the Convention lies in a difficulty of classification. Put very simply, to the common law capacity to contract is a contractual issue; to the civil lawyer it is an issue relating to status and should find not place in the Convention.¹⁶

7.10 In most civil law systems, an individual’s personal law, the law of their nationality (lex patriae) or their domicile/habitual residence, governs contractual capacity. Before the Rome Convention, hybrid variations evolved in Germany, Italy, and Greece and elsewhere, where a foreigner lacking capacity by his national law might still be bound by contracts concluded in the forum country if by the law of that country he had capacity to contract.¹⁷ The common law was desperately short of modern authority,¹⁸ but the requirement of legal capacity could be satisfied if the party had capacity under either the law of the country with which the contract was most closely connected of the law of their domicile.¹⁹

Legislative development

7.11 The Rome Convention’s exclusion was retained, substantively unchanged, as draft article 1(2)(a) of the Rome I Proposal. This provision was entirely uncontroversial during negotiations, and approved the Rome I Committee on 26–27 October 2006.²⁰

Interpreting Article 1(2)(a)

7.12 No guidance on the interpretation of the concepts of ‘status’ or ‘legal capacity of natural persons’ is given in the text of the Rome I Regulation. As under the Brussels I Regulation, any interpretation by the Court of these will be an independent, autonomous one,²¹ consistent with the equivalent exclusion in Rome Convention,²² and with the Court’s approach to the equivalent exclusion in the Brussels Regime.

7.13 Regard will also be had to the reasons for excluding these matters from the Regulation. These include a desire to protect those who, because of their age or mental capacity are quintessentially ‘weaker parties’ in any transaction, and accordingly their contractual obligations should not be subjected to the ordinary rules of party autonomy. The idea that a (nominal or putative) party choice of applicable law may purportedly confer on a weaker party a contractual capacity to enter into the transaction they did not otherwise possess under their personal law is objectionable as a matter of logic or policy:

as a matter of logic (how can we accept that they have chosen when the issue is whether they had any legal power to choose?) or policy (the question whether protective incapacities are (p. 207) binding is a matter for the law which imposes them, and not a matter for the law which the parties might have preferred to answer the question).²³

7.14 Legal capacity to enter into a contract is regarded in some countries as a matter of status, and therefore not treated as a matter to be regulated by the lex contractus.²⁴ The phrasing of Article 1(2)(a) to include either ‘status’ or ‘legal capacity’ means there is no scope for further classification arguments, based on differing national law approaches, to avoid the exclusion. Combined, these concepts will encompass all those matters identified in the Schlosser Report including ‘the status and legal capacity of a minor and the legal representation of a person who is mentally ill’.²⁵

7.15 Questions involving the status of legal persons or legal capacity in Article 1(2)(a) will not however, include any question relating to either the company law or agency matters, which are excluded under Article 1(2)(f) or (g).

Status

7.16 Questions involving the status of individuals will include issues relating to their nationality and their marital status,²⁶ including the voidability, nullity, and dissolution of marriages and judicial separation, as well as questions regarding the care and custody of children, parental rights and adoption.

7.17 It has been argued that a contract made in contemplation of a change of personal status, such as in contemplation of marriage, should not fall within the scope of Article 1(2)(a),²⁷ though the same authors’ extension of that argument, to include contracts between two parties to marriage in connection with its dissolution is harder to sustain; not least because of the scope of operation of the family relationships exclusion in Article 1(2)(b).

7.18 The concept of ‘status’ is limited. It cannot be interpreted in a way which might impede the proper functioning of the Regulation. For example, whether a natural person is ‘a professional’, who is ‘acting in the exercise of his trade or profession’ within the meaning of the consumer contract protections of Article 6(1), is not a question of status which was excluded from the Rome I Regulation, but depends on the precise circumstances of the individual contract. The same applies as to whether a person is an ‘employee’ for the purposes of Article 8.

Lack of capacity

7.19 The exclusion of ‘capacity’ from the Regulation is likely to be interpreted as covering questions relating to both their capacity to acquire rights and assume duties, and their capacity to perform certain (juristic) acts.²⁸ This will include (i) the ability of a natural (p. 208) person, independently, to act, to enter into binding contracts, and perform obligations; (ii) the legal or judicial mechanisms that permit a person under a disability to act in relation to contractual obligations; and (iii) the effects of lack of capacity on the validity of the contract, its terms or any actions purportedly taken by a party under it.

7.20 This exclusion will encompass any questions involving the ability of a person who lacks full legal capacity to take steps or enter into contracts to dispose of his property. In Schneider,²⁹ Mr Schneider was a Hungarian national who lacked capacity under Hungarian law and had been placed under guardianship, and a Hungarian national was appointed as his legal representative and official guardian. Following the death of his mother, Mr Schneider inherited a half-share in an apartment in Bulgaria. Acting with the approval of his Hungarian guardian, Mr Schneider applied to the Sofia District Court for authorization to sell his share of the property; a process required under the Bulgarian Family Code before immovable property belonging to a person who lacks full legal capacity may be disposed of. The Bulgarian court refused the application. On a reference from the appellate court, the Court of Justice held that the Brussels I Regulation did not apply to those non-contentious proceedings, as they were concerned with the ‘legal capacity of natural persons’ for the purposes of Article 1(2)(a) of that Regulation, which is a matter which falls outside the material scope of that Regulation. The sole aim of the main proceedings was to determine whether it was in the interests of a person who lacks full legal capacity to dispose of his immovable property; his rights in rem as owner of that property were not being called in question.³⁰

7.21 In Gorjat v Gorjat,³¹ three French adult children of a first marriage of a deceased Frenchman sued in England to challenge the validity of the transfer of funds made shortly before their father’s death. Their late father was domiciled and resident in England, but had died intestate in the USA. The disputed transfers were made from Swiss bank accounts in the deceased’s sole name, into joint accounts held with his second wife, an Argentinian national, domiciled in England. The challenge to the transfers was based on the deceased’s alleged lack of mental capacity, and claims of undue influence by the second wife. As matters relating to legal capacity did not fall within the scope of the Rome Convention, the court noted it was ‘necessary, therefore, to fall back upon the common law’.³² All questions of the deceased’s mental capacity (and the claimed exercise of undue influence) were decided by applying principles of English law. Questions of legal capacity in disputed inter vivos transfers of property will remain the same under the Rome I Regulation.³³

Incidental questions

7.22 Under the Rome I Regulation questions involving the status or legal capacity of natural persons may arise as an incidental question to issues concerning the validity of any contract, including any claimed choice of law agreement.³⁴ This is in contrast to the Brussels Regime, where such questions are only excluded if the question in dispute is directly and substantially concerned (p. 209) with either of those issues.³⁵ Under the Brussels Regime, ‘it is not sufficient if the issues raised are merely of a preliminary nature, even if their preliminary nature is, or has been, of some importance in the main proceedings’.³⁶ That is not the position under the Rome I Regulation.

C. Family and Comparable Relationships

7.23 Article 1(2)(b) excludes obligations arising out of family relationships, and relationships deemed by the law applicable to such relationships to have comparable effects, including maintenance obligations, from the material scope of the Rome I Regulation. Article 1(2)(b) is an updated and revised version of the exclusion previously found in Article 1(2)(b) of the Rome Convention.

Recital (8)

7.24 The interpretation to be given of Article 1(2)(b) is further explained by the Recital (8):

(8) Family relationships should cover parentage, marriage, affinity and collateral relatives. The reference in Article 1(2) to relationships having comparable effects to marriage and other family relationships should be interpreted in accordance with the law of the Member State in which the court is seised.

7.25 Article 1(2)(b) and Recital (8) of the Rome I Regulation have been aligned with the equivalent provisions of Article 1(2)(a) and Recital (10) of the Rome II Regulation, and both sets of provisions should be interpreted in a consistent manner. As with the Rome Convention, the legislative intent behind Article 1(2)(b) of the Rome I Regulation is to exclude all matters of ‘family law’, updated to take account of the increasing diverse concept of a modern family.³⁷

‘Obligations arising out of’

7.26 The exclusion in Article 1(2)(b) is not limited to ‘contractual obligations’, which appeared in draft article 1(2)(b) of the Rome I Proposal, but was deleted in the Finnish Presidency’s 12 October 2006 revisions:

~~contractual~~ obligations ~~relating to a~~ arising out of family relationships ~~or a relationship which, in accordance with the law applicable to it~~ ~~has similar effects~~ and relationships deemed by the law applicable to such relationships to have comparable effects, including maintenance obligations.³⁸

7.27 This revised text, which was enacted in the Regulation, is intended to ensure that all rights and duties (however classified) ‘arising out of’ a family or other relationship with comparable effects, fall outside the Regulation. The phrase ‘arising out of’, which replaced the Proposal’s ‘relating to’, was simply the restoration of the phrase previously used in Article 1(2)(b) of the Rome Convention.

7.28 The Presidency’s 12 October 2006 revised version of draft article 1(2)(b) was agreed at the meeting of the Rome I Committee on 26–27 October 2006.³⁹

(p. 210) ‘Family relationships’

7.29 Article 1(2)(b) of the Rome Convention excluded ‘rights and duties arising out of a family relationship, parentage, marriage or affinity, including maintenance obligations in respect of children who are not legitimate’. That exclusion had been added to the text of the 1972 Draft Convention during the negotiations for the Rome Convention. Article 1(2)(b) of the Convention was based on Article 1 of the Hague Convention on the Law Applicable to Maintenance Obligations of 2 October 1973, which applied ‘to maintenance obligations’ arising from a family relationship etc. The Rome Convention replaced the concept of ‘maintenance obligations’ with the phrase ‘rights and duties’, but the latter included the former. The Working Group intended their enumeration in Article 1(2)(b) to exclude from the scope of the Rome Convention ‘all matters of family law’.⁴⁰

7.30 Recital (8) to Rome I is worded slightly differently to Article 1(2)(b) of the Convention, adding the reference to ‘collateral relatives’ and abandoning the out-dated reference to ‘children who are not legitimate’. The Court will probably adopt a broad autonomous interpretation to the concept of family relationships, especially when the issue in question involves obligations of maintenance. ‘Parentage’ will include not only those relationships where persons exercise parental authority over children and provide for them daily,⁴¹ but will also include purely biological parents, who conclude an agreement to provide child support, but otherwise have no role in their children’s lives.⁴² ‘Affinity’ may well include both degrees of kinship by marriage (ie in-laws) and step-relationships within a broad range of blended family arrangements. The concept of ‘collateral relatives’ sometimes appears in national tax laws implementing the VAT Directives, where a distinction is drawn between spouses, relatives in the direct line, and relatives in the collateral line to a particular degree, and relatives by marriage.⁴³ The question of maintenance obligations towards collateral relatives, such as an aunt towards a wholly dependent nephew, has arisen in an EU Staff Regulation case.⁴⁴

‘Comparable relationships’

7.31 Including relationships with comparable effects to family relationships reflects the social changes that have seen an increasing number of States sanction same sex-unions, whether as civil partnerships or marriages, that are deemed comparable to traditional forms of marriage, which was all that existed when the Rome Convention was drafted.⁴⁵ There is, however, something of an unfortunate question of interpretation in the Rome Regime as to which law a national court should use to determine whether such a relationship exists.

7.32 Under Article 1(2)(b) of Rome I, the court must exclude those relationships deemed ‘by the law applicable to such relationships to have comparable effects’ which would normally be law of the country where the relationship was concluded and registered.⁴⁶ Yet, Recital (8) says (p. 211) the reference in Article 1(2)(b) to relationships having comparable effects to marriage and other family relationships ‘should be interpreted in accordance with the law of the Member State in which the court is seised’, ie the lex fori.⁴⁷ If a man and a women enter into a civil partnership under the law of State X, whose law deems their relationship as comparable to a traditional marriage, but a dispute between them over a contract to provide maintenance takes place in Member State Y, which does not recognize the existence of civil partnerships between members of the opposite sex. In such circumstances, which law should decide whether the obligation falls within the exclusion in Article 1(2)(b), and how should the forum court rule? ‘[J]udges in Member States may need to contort themselves’ to ensure the Regulation does not apply without apparently in doing so ‘being seen to validate family law institutions that are not recognized within their own legal system’.⁴⁸

7.33 This unfortunate combination of enacting term and recital was dreamt up during the Rome II negotiations and was not the subject of any significant recorded debate during the Rome I negotiations. Draft article 1(2)(b) of the Rome I Proposal had suggested excluding ‘a relationship which, in accordance with the law applicable to it, has similar effects’. The change to ‘relationships deemed by law to have comparable effects’ to family relationships was introduced after Malta argued the text should be revised and a recital included, to align with the work done during the Rome II negotiations.⁴⁹ This proposal was supported by Latvia.⁵⁰ The change was made in the Finnish Presidency’s 12 October 2006 revisions.⁵¹

Maintenance

7.34 The exclusion of obligations arising out of family or comparable relationships is a broad one, and will include any duties imposed on a family member towards other family members by operation of rules of ‘family law’ or comparable laws. This includes all ‘maintenance obligations’ arising out of family or comparable civil relationships, whether to a former spouse, partner, or to any child. How therefore is the concept of ‘maintenance’ to be defined?

7.35 In negotiating the 1978 Accession Convention’s revisions to the 1968 Brussels Convention, there were concerns over the need for a more precise definition of the term ‘maintenance’.⁵² Although Article 5(2) of the 1968 Convention was revised, no further definition of the concept was produced; no doubt because of similar difficulties to those which befell the drafters of the 1973 Hague Convention.⁵³ Instead, the Schlosser Report acknowledged there was ‘no significant difference’ between the concepts of maintenance used in the 1973 Hague Convention and the Brussels Convention.⁵⁴ It was recognized that maintenance claims (p. 212) could manifest themselves in a variety of ways, including by contract. Where a contract created a ‘maintenance’ obligation which previously did not exist, then depending on the form employed, such obligations could arise as gifts, contracts of sale, or other contracts for a consideration. As a result, ‘obligations arising therefrom, even where they consist in the payment of “maintenance”, are to be treated like other contractual obligations’.⁵⁵

7.36 In excluding ‘maintenance obligations’ from the Rome Convention under Article 1(2)(b), no attempt was made to define the concept, and the Giuliano–Lagarde Report effectively deferred to the meaning given to it in Article 1 of the 1973 Hague Convention. The Working Group’s intention was to extend the exclusion to ensure that where parties who were under a legal duty to maintain another entered into a contract in performance of that obligation, then the Rome Convention should not apply to that contract:

As regards maintenance obligations, within the meaning of Article 1 of the Hague Convention on the law applicable to maintenance obligations, the Group considered that this exclusion should also extend to contracts which parties under a legal maintenance obligation make in performance of that obligation. All other contractual obligations, even if they provide for the maintenance of a member of the family towards whom there are no legal maintenance obligations, would fall within the scope of the Convention.⁵⁶

Interpretation

7.37 Under Rome I, the concept of maintenance obligations will be interpreted in an autonomous manner, consistent with the objectives of the Regulation and the Rome Convention, and with Brussels Regime case law such as Van den Boogaard v Laumen⁵⁷ and Cavel v Cavel.⁵⁸ The Court is also likely to adopt an interpretation that is consistent with the subsequent Maintenance Regulation (4/2009/EC) which replaced Article 5(2) of the Brussels I Regulation,⁵⁹ and which adopts similar terminology to Rome I,⁶⁰ and also with any interpretation of the exclusion of maintenance obligations arising out of Article 3(1)(e) of the Brussels II bis Regulation (2201/2003/EC).⁶¹

7.38 In Van den Boogaard,⁶² the parties were married in the Netherlands in 1957. In 1980, as permitted by Dutch law, they entered into a separation of goods agreement, dividing their assets into approximately equal shares. In early 1982, the parties settled in the United Kingdom. In 1988, their marriage was dissolved by the High Court in London. Ancillary relief was awarded to the wife in the form of a capital sum in place of periodic maintenance payments, which included transfer of property to the wife and payment of a lump sum. The English court stated that it did not consider the separation of goods agreement to be relevant to its decision. The wife applied to have the order enforced in the Netherlands (p. 213) under the Brussels Convention 1968, and a preliminary reference to the Court was made to determine whether the order was excluded by Article 1 of the 1968 Convention as relating to ‘rights in property arising out of a matrimonial relationship’, or whether the order fell within Article 5(2) which stated that ‘matters relating to maintenance’ were covered by the 1968 Convention. The Court held that where the aim of the national court’s decision was to provide for one of the spouses, having taken into account the needs and resources of both parties, then it was an order for maintenance and it was irrelevant that payment was made as a lump sum, or that the property was to be transferred between spouses. The fact that the court making the order had chosen to disregard the marriage contract was also irrelevant in defining the nature of the order made and an order could be partially enforced if it could be clearly shown that part of it fell within Article 5(2).⁶³

7.39 ‘Maintenance’ will therefore include periodical payments made to a former spouse, partner, or child, and the concept includes lump sums payments as long as they are in place of periodical payments and take into account the needs of the parties. This is not the case if the lump sum payments merely represent the financial value of property that has been divided.⁶⁴

7.40 Excluded maintenance obligations will encompass:

(a) A contract entered into by a party who was under a legal duty to maintain another in performance of that obligation;⁶⁵ or
(b) A contract providing for the maintenance of a member of a family towards whom there was otherwise no legal duty to maintain.⁶⁶

7.41 This is likely to include obligations arising out of pre-nuptial and post-nuptial agreements, which are commonly accorded contractual status in Europe and Scotland.⁶⁷ In Granatino v Radmacher (formerly Granatino), the husband was French and the wife German, and the pre-nuptial agreement had a German choice of law clause. The Supreme Court did not consider any aspect of the Rome Convention in determining that the issues in that case were governed exclusively by English law: the relevance of German law and the German choice of law clause were that they clearly demonstrated that the intention of the parties was that the pre-nuptial agreement should, if possible, be binding on them.⁶⁸

7.42 Once excluded as a ‘maintenance obligation’ from the scope of the Rome I Regulation, the applicable law will be determined under the law of the forum court.⁶⁹ But the wording of Article 1(2)(b) of the Rome I Regulation is broader than maintenance obligations. The intention is to exclude all obligations that arise out of family or comparable relationships.

(p. 214) D. Matrimonial and Comparable Property Regimes

7.43 Article 1(2)(c) of Rome I excludes obligations arising out of matrimonial property regimes, and property regimes of relationships deemed by the law applicable to such relationships to have comparable effects to marriage from the Regulation.

7.44 In the English version of Article 1(2)(c), the phrase ‘matrimonial property regimes’ has replaced ‘rights in property arising out of a matrimonial relationship’ previously used in Article 1(b) of the Rome Convention. This is not intended as a change in substance but is to align the text with the Rome II Regulation. Both the French (‘les régimes matrimoniaux’) and German (‘die ehelichen Güterstände’) remain unchanged from the Rome Convention. The English text has been changed to return to a phrase that is closer to the literal English translation of the 1968 Brussels Convention.

Background

7.45 The 1968 Brussels Convention excluded ‘régimes matrimoniaux/die Güterstände’ from its scope because of contemporary differences between the Six Member States regarding rights in matrimonial property rights.⁷⁰ When the United Kingdom and Ireland were negotiating the 1978 Accession Convention, it was recognized that under their laws there was no equivalent legal concept to ‘régimes matrimoniaux’, and the concept was better described as ‘rights in property arising out of a matrimonial relationship’. Since the 1978 Accession Convention, the phrase régimes matrimoniaux originally translated into English as ‘marriage regimes’, was translated as ‘rights in property arising out of a matrimonial relationship’.⁷¹

7.46 In the United Kingdom and Ireland property rights between spouses were governed by the general civil law. This was in contrast to the legal systems of the continental Member States. Those States had tended to develop special legal provisions concerning relations between spouses that were outside their normally applicable civil codes. Their most important feature were comprehensive sets of rules governing spousal property rights. To further complicate matters, there were sometimes several regimes in each legal system. In a number of States, spouses had a choice between several matrimonial property regimes, ranging from a general ‘community of property’ to a strict ‘separation of property’.⁷²

7.47 Under the continental systems, the choice of a ‘property regime’ took the form of a ‘marriage contract’, which was a special legal concept not to be confused with the conclusion of the marriage itself. If the spouses did not make a choice of matrimonial regime in their marriage contract, then one set of rules governing property applied to them by law, known as the ‘statutory matrimonial regime’. In some legal systems, such as France and Belgium, the ‘matrimonial regime’ which existed at the beginning of the marriage could only be subsequently changed in exceptional circumstances. In others, such as Germany, the spouses could alter their matrimonial regime. In some States, different rules applied to different kinds of property.⁷³ Such matrimonial regimes were also not limited to relations between (p. 215) the spouses, but could include relations between parents and children: for example, in Italy (regarding claims relating to the ‘fondo patrimoniale’ under Article 171(3) of the Codice civile) and Germany, where German law recognized the concept of ‘continued community of property’ (‘fortgesetzte Gütergemeinschaft’) which formed a link between a surviving spouse and the issue of the marriage.⁷⁴

7.48 The Schlosser Report recorded that it was agreed in the Accession Convention negotiations, that:

[t]he expression ‘rights in property’ includes all rights of administration and disposal—whether by marriage contract or by statute—of property belonging to the spouses.⁷⁵

Rome Convention exclusion

7.49 Article 1(a) of the 1972 Draft Convention had suggested excluding ‘questions involving the application of rules of governing rights in property between husband and wife’, which in the original French was described as ‘en matière de regimes matrimoniaux’. Under Article 1(b) of the Rome Convention, the English version of the Brussels Convention terminology of ‘rights in property arising out of a matrimonial relationship’ was used ‘to obviate any possibility of misconstruction’.⁷⁶

Brussels Regime interpretation

7.50 The concept of ‘rights in property arising out of a matrimonial relationship’ in the Brussels Regime was considered by the Court of Justice in De Cavel. The Court held the term included not only property arrangements, specifically and exclusively envisaged by certain national legal systems in the case of marriage, but also any proprietary relationships resulting directly from the matrimonial relationship or the dissolution thereof.⁷⁷ The Court considered that disputes relating to the assets of spouses in the course of proceedings for divorce may, depending on the circumstances, concern or be closely connected with (1) questions relating to the status of persons; or (2) proprietary legal relationships between spouses resulting directly from the matrimonial relationship or the dissolution thereof; or (3) proprietary legal relations existing between them which have no connexion with the marriage. Disputes of the latter category were not excluded from the scope of the 1968 Brussels Convention, but those relating to the first two categories were.⁷⁸

7.51 The overlap with maintenance issues caused problems and arose before the Court in Van den Boogaard.⁷⁹ In Moore v Moore,⁸⁰ Lawrence Collins LJ, giving the judgment of the Court of Appeal, derived the following propositions from the Court’s decision in Van den Boogaard. First, whether a claim is for maintenance depends upon an autonomous interpretation of the term, and the label given to the claim by national law is not decisive: second, payment of a lump sum or transfer of property may be in the nature of maintenance if it is intended to ensure the support of a spouse; third, payment of a lump sum or transfer of property which serves only the purpose of a division of property or compensation for non-material damage (p. 216) is not in the nature of maintenance; fourth, a payment or transfer of property intended as a division of assets will concern ‘rights in property arising out of a matrimonial relationship’; fifth, whether a claim relates to maintenance will depend on its purpose, and in particular whether it is designed to enable one spouse to provide for himself or herself or if the needs and resources of each of the spouses are taken into consideration in the determination of its amount, or where the capital sum set is designed to ensure a predetermined level of income; sixth, where the provision is solely concerned with dividing property between the spouses, the decision will be concerned with rights in property arising out of a matrimonial relationship and will not therefore be enforceable under Brussels I.

7.52 The Court’s interpretation of the Rome I Regulation will likely be consistent with that approach.

Legislative development of Article 1(2)(c)

7.53 The Rome II Proposal excluded ‘non-contractual obligations arising out of matrimonial property regimes and successions’.⁸¹ The Rome I Proposal contained a similar exclusion when updating Article 1(b) of the Rome Convention. Draft article 1(2)(c) of the Proposal suggested excluding ‘obligations arising out a matrimonial relationship or a property ownership scheme which, under the law applicable to it, has similar effects to a marriage, wills and successions’. Overall, the change was intended to align the text with the work already done by the Council and the European Parliament on the proposed Rome II Regulation.⁸² In contrast to draft article 1(2)(b) of the Proposal, this text was not limited to ‘contractual obligations’.

7.54 After initial consultations, the text was revised in the Finnish Presidency’s 12 October 2006 amendments to read:

obligations arising out of matrimonial property regimes, property regimes of relationships deemed by ~~a matrimonial relationship or a property ownership scheme which, under~~ the law applicable to such relationships to have comparable effects to marriage it, and ~~has similar effects to a marriage~~, wills and successions[.]⁸³

7.55 The Presidency’s revisions to the text produced the version enacted in Article 1(2)(c). They were agreed at the Rome I Committee meeting on 26–27 October 2006.⁸⁴

In practice

7.56 Article 1(2)(c) is likely to be interpreted as narrower in scope than Article 1(2)(b). It is restricted to obligations ‘arising out of’ matrimonial or comparable property regimes, but is are not limited to contractual obligations. It is likely that Article 1(2)(c) will be interpreted as covering ‘all rights of administration and disposal—whether by marriage contract or by statute—of property belonging to the spouses’.⁸⁵ There remains some scope for legal relations between spouses/civil partners relating to property which have no connection with the marriage or civil partnership regimes, that could still fall within the material scope of the Rome I (p. 217) Regulation.⁸⁶ But given the broad scope of the family and comparable relationships exclusion in Article 1(2)(b) such cases may prove elusive.⁸⁷ The Commission’s subsequent proposals for draft regulations on jurisdiction, applicable law and the recognition and enforcement of decisions in (a) matters of matrimonial property regimes,⁸⁸ and (b) regarding the property consequence of registered partnerships,⁸⁹ appear to have run aground.

E. Wills and Succession

7.57 Article 1(2)(c) of the Rome I Regulation also excludes obligations arising out of ‘wills and succession’. All such obligations will be governed by the lex fori and not by the rules in the Regulation.

7.58 For obligations arising from the succession of persons who die on or after 17 August 2015, then for Member States, except Denmark, Ireland, and the United Kingdom, the applicable law will be determined by EU’s Succession Regulation (650/2012/EU) which applies from that date.⁹⁰ This declares the general rule is that the applicable law ‘to the succession as a whole’ shall be the law of the State in which the deceased had his habitual residence at the time of his death.⁹¹ This is subject to a rule of displacement in favour of another State with which the deceased was manifestly more closely connected at the time of his death,⁹² and also to the right of a person to choose the law of a State whose nationality he possesses (either at the time of choice or death) to govern his succession.⁹³

7.59 The concept of ‘wills and succession’ is not defined in Rome I, and the Court will adopt autonomous interpretations that are likely to be consistent with the autonomous definition found in the Succession Regulation, where ‘succession’ means:

succession to the estate of a deceased person and covers all forms of transfer of assets, rights and obligations by reason of death, whether by way of a voluntary transfer under a disposition of property upon death or transfer through intestate succession.⁹⁴

7.60 This includes all questions of testate and intestate succession, and all matters relating to the questions of a deceased’s personal capacity to make a valid will,⁹⁵ the validity and interpretation of any will and distribution of bequests under it, howsoever classified under national laws.

(p. 218) 7.61 There are limits. The mere fact that matters relating to a deceased’s estate form part of the background to the dispute does not mean the exception is engaged. Therefore, a compromise agreement of an arbitration dealing with a dispute as to whether assets outside an estate should be brought into account in order that one party should gain his fair share could not be termed a contract relating to ‘wills and succession’ under the Convention.⁹⁶

7.62 The Succession Regulation includes a will, a joint will, or an agreement as to succession under the concept of a ‘disposition of property upon death’.⁹⁷ The French concept of an ‘institution contractuelle’ concluded between spouses during the marriage will likely fall within the concept of ‘successions’ for the purposes of Rome I.

7.63 Questions of formal validity of any will requires its conformity with the internal law in force in the territory where it was executed or where at the time of execution or the testators death, he was domiciled or had his habitual residence, or in a State of which, at either of those times, he was a national.⁹⁸

Background

7.64 The 1968 Brussels Convention had excluded ‘wills or inheritances’ from its operation.⁹⁹ The Jenard Report explained that, in excluding matters relating to succession, the drafting committee had concurred in an opinion prepared by the International Union of Latin Notaries (‘UNIL’). When consulted, UNIL considered it necessary (and would become increasingly so as the Community developed) to facilitate the recognition and enforcement of judgments in matters relating to succession. Therefore, it was desirable for Member States to conclude a convention on that subject. However, UNIL also considered that first it was essential to unify conflict-of-laws rules. A Memorandum of the Permanent Bureau of the Hague Conference on private international law, showed there were fairly marked differences between the then Six Member States on matters of succession.¹⁰⁰

7.65 The Jenard Report noted that, unlike the preliminary draft of the Brussels Convention, the final version of the 1968 Convention did not expressly exclude gifts from its scope, though gifts would ‘of course be excluded in so far as they relate to succession’.¹⁰¹

7.66 The 1972 Draft Convention proposed that its applicable law rules should not apply to ‘wills, testate or intestate succession or gifts’.¹⁰² The Rome Convention adopted the more laconic terminology of revisions made by the 1978 Accession Convention to the 1968 Brussels (p. 219) Convention,¹⁰³ and excluded from its scope, ‘contractual obligations relating to…wills and succession’.¹⁰⁴

7.67 There was a desire not to interfere with the work of the Hague Conference, which would eventually produce the 1989 Law Applicable to the Successions to the Estates of Deceased Persons (‘1989 Succession Convention’).¹⁰⁵ The 1989 Succession Convention was not a success.¹⁰⁶ It has been signed by Argentina, Luxembourg, Switzerland, and the Netherlands, but only ratified by the latter.

7.68 The Schlosser Report noted that the expression ‘wills and succession’ in the revised Brussels Regime covered all claims to testate or intestate succession to an estate.¹⁰⁷ It included disputes as to the validity or interpretation of the term of a will setting up a trust, even where the trust takes effect on a date subsequent to the death of a testator. The same applied to proceedings in respect of the application and interpretation of statutory provisions establishing trusts in favour of persons or institutions as a result of a person dying intestate. The 1968 Brussels Convention did not, therefore, apply to any disputes concerning the creation, interpretation and administration of trusts arising under the law of succession, including wills.

7.69 It was noted that ‘disputes concerning the relations of the trustee with persons other than beneficiaries’, in other words ‘the external relations’ of the trust, came within the Brussels Convention.¹⁰⁸

7.70 The Giuliano–Lagarde Report indicated that contractual obligations relating to wills and succession, like the other exclusions in Article 1(a) and (b) of the Rome Convention,¹⁰⁹ were seen as matters of family law, and that the Rome Convention’s Working Group ‘intended this enumeration to exclude from the scope of the Convention all matters of family law’.¹¹⁰

7.71 The even more laconic term ‘successions’¹¹¹ was used in the Commission’s Rome II Proposal, with draft article 1(2)(b) excluding from the draft Rome II Regulation, ‘non-contractual obligations arising out of matrimonial property regimes and successions’. These were to be excluded for the same reasons as familial relationships under Article 1(2)(a).¹¹²

Legislative development

7.72 The new draft article 1(2)(c) in Commission’s Rome I Proposal maintained the Rome Convention’s exclusion of ‘wills and successions’. Again the obligations arising out of wills and successions were grouped in a way that showed their perceived link with family law matters. These obligations were general, and were not limited to ‘contractual obligations’. (p. 220) As with the other changes to the text of Article 1, this was to align its scope with the Brussels I Regulation and to reflect the work already done by the Council and the European Parliament on the proposed Rome II Regulation.¹¹³

7.73 The Portuguese delegation suggested a preference for splitting the matters in draft article 1(2)(c) into two; with a new, separate provision that excluded ‘obligations arising out of wills and successions’. This suggestion received no support. There was no recorded debate about this exclusion within the European legislature during the development of the Rome I Regulation. The text of draft article 1(2)(c) was revised in the Finnish Presidency’s 12 October 2006 revisions, but no change was made to the wills and successions part.¹¹⁴ This was agreed at the meeting of the Rome I Committee on 26–27 October 2006, and remained unchanged thereafter, and with the rest of Article 1 agreed in its final form at the meeting of JHA Committee on 19–20 April 2007.¹¹⁵ The Rome II Regulation has adopted a similar exclusion, in Article 1(2)(b), which refers to non-contractual obligations ‘arising out of matrimonial property regimes and successions’, adopting terminology of ‘successions’ that is closer to the French or Portuguese text of the Rome I Regulation than to the English language version.¹¹⁶

F. Negotiable Instruments

7.74 Article 1(2)(d) of the Rome I Regulation, excludes obligations arising under bills of exchange, cheques, promissory notes,¹¹⁷ and other negotiable instruments, to the extent that the obligations under such other negotiable instruments¹¹⁸ arise out of their negotiable character. This exclusion is in identical terms to Article 1(2)(c) of the Rome Convention. It reflects the same legislative intent as its predecessor, and will be interpreted in a manner consistent with the Rome Convention.

Recital (9)

7.75 The intepretation of Article 1(2)(d) is further explained by Recital (9):

(9) Obligations under bills of exchange, cheques and promissory notes and other negotiable instruments should also cover bills of lading to the extent that the obligations under the bill of lading¹¹⁹ arise out of its negotiable character.

7.76 Recital (9) reflects guidance on bills of lading in relation to Article 1(2)(c) of the Convention given in the Giuliano–Lagarde Report.¹²⁰

Terminology

7.77 In any Member State, such an ‘instrument’ is a document of title to money. It is:

the physical emodiment of the payment obligation, and its possession (with any necessary endorsement in favour of the possessor) is the best evidence of entitlement to the money it (p. 221) represents. The right to receive payment belongs to the holder for the time being, is exercised by production of the instrument to the obligee or his authorized agent and is transferred by delivery, with any requisite indorsement.¹²¹

7.78 Instruments may be ‘negotiable’ or ‘non-negotiable’. An instrument which is ‘negotiable’ is one that, by statute or mercantile usage, may be transferred by delivery and indorsement to a bona fide purchaser for value in such circumstances that he takes free from defects in the title of prior parties.¹²² The law governing such transfers is at the intersection of commerce and the law of property, where rights of ownership are contained in a special piece of paper.¹²³ The status of ‘holder in due course’ of a negotiable instrument is essentially that of a bona fide purchaser acquiring an overriding title.¹²⁴

7.79 Bills of exchange,¹²⁵ cheques,¹²⁶ and promissory notes¹²⁷ are all well-recognized documents of title to payment of money which are negotiable. Others include bearer bonds, bearer debenture, and treasury bills. A letter of credit is not.¹²⁸

(p. 222) 7.80 An instrument which is ‘non-negotiable’ is one which, although capable of being transferred by delivery and indorsement, can never confer on the holder a better right than was vested in the transferor.¹²⁹

7.81 A bill of lading is an instrument of international commerce, which performs several functions. This includes acting as an instrument of title to goods, which does not in itself embody ownership rights, but controls the giving of constructive possession, and this control can be transferred by delivery of the bill, with any necessary indorsement. A bill of lading is ‘negotiable’ in the sense of being transferable, ‘although it is not a negotiable instrument in the strict sense of being capable of giving the transferee a better title than the transfer has himself’.¹³⁰ In Refcomp SpA,¹³¹ the Court of Justice considered the concept of a bill of lading, in the context of the effect of jurisdiction clauses contained within them. Advocate-General Jääskinen said that:

the bill of lading is a receipt issued by a maritime carrier to a consignor of goods, known as a ‘shipper’, in recognition of the transfer of that freight and of the undertaking to deliver it on presentation of that document. It refers, in particular, to the principal conditions of the transport contract concluded between those parties, including any clause conferring jurisdiction. Under most legal systems of the Member States, which agree on this issue, it is also a negotiable, endorsable security which allows the owner to transfer the goods, en route, to a purchaser who becomes, as bearer of the bill of lading, the consignee of the goods and the holder of all the rights and obligations of the shipper in relation to the carrier. It seems to me that, although the bearer of the endorsed security is a third party in relation to the original transport contract, which it did not conclude, it is deemed to have agreed to the main content of that contract, in particular a jurisdiction clause, in so far as the applicable national law provides for the rights and obligations of the shipper to be transferred to it.¹³²

7.82 The Court of Justice agreed with the Advocate-General, holding that:

The scope of that case-law must, however, be assessed by taking account of the very specific nature of bills of lading which, as the Advocate-General explained in point 54 of his Opinion, is an instrument of international commerce intended to govern a relationship involving at least three persons, namely the maritime carrier, the consigner of the goods or shipper, and the recipient of the goods. Under most legal systems of the Member States which agree on this matter the bill of lading is a negotiable instrument which allows the owner to transfer the goods, en route, to a purchaser who becomes as bearer of the bill of lading, the consignee of the goods and the holder of all the rights and obligations of the shipper in relation to the carrier.¹³³

Background

7.83 Article 1(b) of the 1972 Draft Convention, prepared by the original Six Member States, had declared that the rules of private international law laid down in that convention ‘shall not apply…(b) to negotiable instruments (effets de commerce), such as bills of exchange, cheques and promissory notes’.¹³⁴ The 1972 Expert Group Report explained this excluded (p. 223) ‘the obligations arising from the issue and circulation of commercial paper (such as bills of exchange, cheques, and promissory notes)’,¹³⁵ and was justified because these matters were already regulated by agreements concluded at a wider international level.

7.84 The international agreements that the 1972 Expert Group had particularly in mind had been agreed by civil law countries in Switzerland in the 1930s. On 7 June 1930, three conventions on the unification of the law relating to bills of exchange had been signed in Geneva.¹³⁶ Three further conventions on the unification of the law relating to cheques were also signed at Geneva on 19 March 1931.¹³⁷ Substantively, the most important of these were the 1930 Geneva Convention providing for a Uniform Law for Bills of Exchange and Promissory Notes,¹³⁸ and the 1931 Geneva Convention providing a Uniform Law for Cheques.¹³⁹ The other Conventions dealt with conflict of law rules for both Bills of Exchange and Promissory Notes, and for Cheques,¹⁴⁰ and for provisions of national stamp legislation relating to these types of negotiable instruments.

7.85 Despite their titles there was a distinct lack of uniformity in applying these Conventions. Even those states who ratified the main 1930 and 1931 Geneva Conventions did so subject to detailed conditions, reservations and exceptions. In addition, there was the added problem that certain Member States of the Community regarded these obligations as non-contractual in nature.

7.86 Crucially, common law countries did not participate in the negotiation of these Geneva Conventions, and none have given effect to these Conventions.¹⁴¹ The common law rules relating to bills of exchange, cheques, and promissory notes were codified by Sir Mackenzie Chalmers in the Bills of Exchange Act 1882, ‘a model statute which was subsequently adopted throughout the common law world’.¹⁴² The 1882 Act remains on the Irish statute book.¹⁴³ Both the substantive and conflicts rules relating to these instruments in the United (p. 224) Kingdom and Ireland differed from those Member States whose laws were influenced by the Geneva Conventions.

Bills of lading excluded?

7.87 While excluding such matters from the proposed convention would not have caused much concern among those new Member States, questions arose on the position of bills of lading and transport instruments which were also ‘negotiable’. When reviewing the text of draft article 1(2)(b) of the 1972 Draft Convention, the Law Commissions observed that the concept of effets de commerce (translated as ‘negotiable instruments’) did not include bills of lading and similar documents. The Law Commissions considered there ‘may be a case for excluding contracts of affreightment from the present Convention. Bills of lading are already subject to considerable international regulation, and the effect on charterparties of the detailed choice-of-law rules in the Convention will require close study’.¹⁴⁴

7.88 Whether bills of lading were excluded by the language of draft article 1(2)(b) of 1972 Draft Convention caused some dispute. At the 1974 Copenhagen Colloquium, Professor Selvig argued that, as negotiable instruments, bills of lading were excluded by draft article 1(2)(b).¹⁴⁵ Professor Drobnig took the opposite view and considered that, from the history of the draft, and especially from its French text, bills of lading were not regarded as among those negotiable instruments excluded by draft article 1(2)(b).¹⁴⁶

The Rome Convention

7.89 Article 1(2)(c) of the Rome Convention made several changes to the 1972 Draft Convention text to clarify matters. Using the 1972 text as a template to demonstrate the changes, Article 1(2)(c) excluded from the Rome Convention:

(c) obligations arising under ~~negotiable instruments, such as~~ bills of exchange, cheques and promissory notes and other negotiable instruments to the extent that the obligations under such other negotiable instruments arise out of their negotiable character.

7.90 Article 1(2)(c) of the Rome Convention had two categories of exclusions. The first category was the exclusion of obligations arising out of bills of exchange, cheques, and promissory notes.¹⁴⁷ The Giuliano–Lagarde Report noted that:

In retaining this exclusion, for which provision had already been made in the original preliminary draft, the Group took the view that the provisions of the Convention were not suited to the regulation of obligations of this kind. Their inclusion would have involved rather complicated special rules. Moreover the Geneva Conventions to which several Member States of the Community are parties govern most of these areas. Also, certain Member States of the Community regard these obligations as non-contractual.¹⁴⁸

7.91 The Rome Convention did not try to define what might constitute a bill of exchange, cheque or promissory note. A bill of exchange had been defined in the 1930 Geneva Convention,¹⁴⁹ the 1931 Geneva Convention had done the same for a ‘cheque’,¹⁵⁰ and the 1930 Geneva (p. 225) Convention defined ‘promissory notes’.¹⁵¹ Given the division between the civil and common law traditions reflected in the absence of any common law country from the Geneva Conventions, and the Giuliano–Lagarde Reports treatment of how ‘other negotiable instruments’ were to be defined by the lex fori,¹⁵² a similar approach was probably intended in relation to those three concepts.

7.92 The second category of exclusions in Article 1(2)(c) covered ‘obligations arising under… other negotiable instruments to the extent that the obligations under them arise out of their negotiable character’. This exclusion was briefly explained:

If a document, though the obligation under it is transferable, is not regarded as a negotiable instrument, it falls outside the exclusion. This has the effect that such documents as bills of lading, similar documents issued in connection with transport contracts, and bonds, debentures, guarantees, letters of indemnity, certificates of deposit, warrants and warehouse receipts are only excluded by subparagraph (c) if, they can be regarded as negotiable instruments; and even then the exclusion only applies with regard to obligations arising out of their negotiable character.¹⁵³

7.93 Two further points were made by the Giuliano–Lagarde Report as regards this second category of excluded obligations from other negotiable instruments. First, ‘neither the contracts pursuant to which such instruments are issued nor contracts for the purchase and sale of such instruments are excluded’.¹⁵⁴ Second, ‘whether a document is characterized as a negotiable instrument is not governed by this Convention and is a matter for the law of the forum (including its rules of private international law)’.¹⁵⁵

Rome II

7.94 The Rome II Proposal included a provision at article 1(2)(c) in exactly the same terms as Article 1(2)(c) of the Rome Convention. The reasons for the exclusion were the same given in the Giuliano–Lagarde Report; namely that the Regulation was not the proper instrument for such obligations as the 1930 and 1931 Geneva Conventions regulated much of these matters and that these obligations were not dealt with uniformly in the Member States.¹⁵⁶

Rome I: legislative development

7.95 Draft article 1(2)(d) of the Commission’s Rome I Proposal contained an identical exclusion to Article 1(2)(c) of the Rome Convention, which also reflected the developments in the Rome II Regulation.¹⁵⁷ There has been no particular problems with the operation of the exclusion under the Rome Convention.

The bill of lading debate resumes

7.96 During the legislative development of the Rome I Regulation there were no problems, other than minor clarification matters, concerning the first category of excluded obligations arising under bills of exchange, cheques, and promissory notes. The problems arose again over bills of lading.

(p. 226) 7.97 At the first meeting of the Rome I Committee on 18 May 2006,¹⁵⁸ one delegation asked whether bills of lading fell into the category of other negotiable instruments in draft article 1(2)(d). It was also questioned whether the reference to ‘negotiable character’ referred only to other instruments or whether it also referred to bills of exchange, cheques, and promissory notes.

7.98 The Netherlands, who wished to exclude questions regarding maritime law, except for employment law, considered that under the Rome Convention it was ‘rather unclear whether and if so, to which extent a Bill of Lading’ fell within the exclusion of Article 1(2)(c) of the Convention. Since a bill of lading shared in many respects the same characteristics as the identified negotiable instruments which were excluded, the Netherlands wanted bills of lading excluded too.¹⁵⁹ Sweden thought there might be a need for further clarifications concerning bills of lading, and queries whether ‘there is a need to lay down more in detail what are the obligations that are deemed to arise out of the negotiable character of a bill of lading’.¹⁶⁰

7.99 The text of draft article 1(2)(d) was not revised in the Finnish Presidency’s 12 October 2006 text.¹⁶¹ But the Presidency noted the Netherlands and Swedish delegations comments in footnote 4 to their text which gives some guidance what was being understood might be excluded if bills of lading fell within the exclusion:

It is suggested that the present wording is intended to cover, for instance, bills of lading. Consequently, the relationship between an issuer and a transferee of a bill of lading would be excluded from the scope of the Regulation. Be that as it may, it should be further explored which categories of negotiable/transferable instruments should be excluded from the scope of the Regulation.

7.100 When the Presidency’s text was discussed at the Rome I Committee meeting on 26–27 October 2006. Two delegations (probably the Netherlands and Sweden) were in favour of change

Two delegations suggested broadening the scope of this exclusion. The proposal was either to exclude all maritime law issues or all transport contracts from the scope. Other delegations supported the text of the Presidency. Most agreed that the matter merited further consideration.¹⁶²

7.101 On 7 December 2006, the European Parliament suggested widening (or at least further clarifying) the concept of negotiable instruments to include those arising from contracts concerning financial instruments traded on a stock exchange/regulated market together with related property rights.¹⁶³ This amendment was not accepted by the Council.

7.102 When the text of draft article 1(2)(d) was next considered at the meeting of the Rome I Committee on 17 January 2007,¹⁶⁴ the Netherlands and Sweden maintained their position of a wish to exclude maritime transport law, or at least bills of lading from the scope of the Regulation. They were in a minority of two with the other delegations, (p. 227) indicating they could accept the Presidency’s text,¹⁶⁵ and the Commission’s original Proposal. A compromise was found, by agreeing to incorporate the guidance on bills of lading previously given in the Giuliano–Lagarde Report on the Convention into a Recital for the Regulation. Therefore, the text of Article 1(2)(d) remained unchanged in the German Presidency’s 2 March 2007 revisions to the Proposal.¹⁶⁶ But a footnote recorded that:

A new recital will indicate that subparagraph d) covers—inter alia—bills of lading to the extent that the obligations under the bill of lading arise out of its negotiable character.

7.103 That new recital was Recital (9), which was introduced near the end of the legislative process. However, the text of Article 1 was agreed at the meeting of Justice and Home Affairs Committee on 19–20 April 2007,¹⁶⁷ and it would remain the same throughout subsequent negotiations.

Article 1(2)(d) in practice

7.104 There has always been ‘an element of imprecision’ associated with this exclusion, with a potential for controversy,¹⁶⁸ even though that has not yet arisen in practice. In the light of the background and legislative development to the Regulation, the operation of Article 1(2)(d) appears to be as follows.

7.105 All obligations arising under bills of exchange, cheques, and promissory notes are excluded from the material scope of the Rome I Regulation under Article 1(2)(d), irrespective of whether the obligations arise out of their negotiable character. The latter requirement was limited to the second category of excluded, other negotiable instruments, outside the identified instruments in the first category. The legislative intention since the inception of the Rome project has to been to defer to existing international conventions relating to bills of exchange, cheques, and to promissory notes and to respect the differences between national laws.¹⁶⁹ It may even be doubtful in such circumstances whether the Court of Justice of the European Union (‘CJEU’) would even try to give an autonomous interpretation to the concepts of bills of exchange, cheques, and promissory notes.

7.106 The second category of ‘other negotiable instruments’¹⁷⁰ includes both other ‘instruments’ which confer title to money, such as bonds, debentures, guarantees, letters of indemnity, certificates of deposit and warrants, and documents such as bills of lading, and similar documents issued in connection with transport contracts, including warehouse receipts,¹⁷¹ but only to the extent that the obligations under such other negotiable instruments arise out of their ‘negotiable character’. Article 1(2)(d) only excludes those obligations arising from the ability of an instrument to transfer overriding title to a holder in due course; those obligations arising from their negotiable character ‘which are liable to affect substantive proprietary rights’.¹⁷² This will include disputes over obligations to pay under the (p. 228) instrument, such as a challenge to whether the person claiming payment is, in English terminology, a holder in due course,¹⁷³ or that the party to an instrument has been discharged from liability under the rules governing the operation of such an instrument. The law governing such matters will be determined by the law of the forum court rather than that otherwise indicated under Rome I.

7.107 Neither contracts pursuant to which such other negotiable instruments are issued, nor contracts for the purchase and sale of such instruments will be excluded from Rome I.¹⁷⁴ A contract of sale may require payment by a negotiable instrument, but that does not mean it is excluded under Article 1(2)(d).

7.108 A ‘bill of lading’ will be interpreted in accordance with the guidance in Refcomp SpA.¹⁷⁵ The obligations under a bill of lading that arise out of its ‘negotiable character’ that are excluded from the Regulation appear to be those that govern the ‘relationship between an issuer and a transferee of a bill of lading’, as noted in a footnote to draft article 1(2)(d) of the Finnish Presidency’s 12 October 2006 revisions.

G. Arbitration and Choice of Court Agreements

7.109 Article 1(2)(e) excludes ‘arbitration agreements and agreements on the choice of court’ from the material scope of the Rome I Regulation. This exclusion is in identical terms to Article 1(2)(d) of the Rome Convention and will be interpreted in the same way. Both are separable from any matrix contract in which they are found which remains subject, when appropriate, to the rules of the Regulation.

Arbitration agreements

7.110 An ‘arbitration agreement’ will likely be given an autonomous interpretation if required. This is likely to include any agreement conferring jurisdiction on an arbitration tribunal, whether it exists as a clause in a larger, matrix contract, or whether it is a separate agreement.¹⁷⁶ Any questions concerning the formation, validity, and effect of any arbitration agreement will not be governed by any law indicated under the Rome I Regulation but by the law selected by the lex fori of the Member State.¹⁷⁷ There are no harmonized European rules. In English law, whether the proper law of an arbitration agreement in a commercial contract was the governing law of the contract or the law of the arbitral seat is a matter of contractual interpretation, that depends on all the terms of the contract read in the light of the surrounding circumstances and commercial common sense.¹⁷⁸ In theory, this exclusion will not prevent arbitration clauses being (p. 229) considered in determining whether there has been an express or implied choice of law under Article 3(1) of the Regulation.¹⁷⁹

Choice of court agreements

7.111 The applicable law of a choice of court agreement will also not be selected by the rules in Rome I. In contrast to arbitration agreements, there is a harmonized European law regime to determine the formation, validity and effect of a choice of court of court agreement. Any such agreement will be subject to the autonomous rules of the Brussels Regime that require that an agreement conferring jurisdiction shall be either (a) in writing or evidenced in writing; or (b) in a form which accords with practices which the parties have established between themselves; or (c) in international trade or commerce in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to the contracts of the type involved in the particular trade or commerce concerned.¹⁸⁰

7.112 These formal requirements for choice of court agreements, that are now found in Article 25 of the Brussels I Recast (1215/2012), are to ensure that parties have actually consented to the choice of jurisdiction,¹⁸¹ a consensus that must be established ‘clearly and precisely’.¹⁸² Apart from formal agreements, such consent can include an oral agreement later confirmed in writing by one party to which the other raised no objection in sufficient time.¹⁸³ An agreement to terms containing a jurisdiction clause is sufficient, and it is not necessary for there to be an agreement specifically as to that jurisdiction clause.¹⁸⁴ Arguably, even a non-binding memorandum and an unsigned version of a contract might suffice as evidence of consensus.¹⁸⁵

7.113 Whether a person has consented to jurisdiction is an autonomous question of EU law that is not dependent on the applicable law of the contract.¹⁸⁶ Even before the Court’s decision in Refcomp, Professor Briggs had rightly identified that the CJEU had ‘gone out of its way’ to emphasize that the jurisdictional validity and effect of a jurisdiction clause is to be assessed by reference to the requirements of the Brussels Regime and not any national law; whether it be the putative applicable law of the contract or some other law.¹⁸⁷ Professor Brigg’s analysis was adopted by the Court of Appeal in Aeroflot-Russian Airlines v Berezovsky,¹⁸⁸ in relation to the equivalent provisions in Article 23 of the Lugano Convention 2007, where it was held that whether there was an agreement conferring that jurisdiction was to be determined by (p. 230) autonomous European law regime and not by applying Swiss law as the putative applicable law. In deciding that question of autonomous EU law, a national court must determine ‘whether the clause conferring jurisdiction upon it was in fact the subject of a consensus between the parties’.¹⁸⁹

Arbitration and the Brussels Regime

7.114 ‘Arbitration’ was excluded from the scope of the 1968 Brussels Convention,¹⁹⁰ because of the ‘already many international agreements on arbitration’.¹⁹¹ When this laconically expressed exclusion was considered during the 1978 Accession Convention negotiations, ‘two divergent basic positions which it was not possible to reconcile emerged’.¹⁹² The United Kingdom, in particular, considered it covered all disputes which the parties had effectively agreed should be settled by arbitration, including any secondary disputes connected with the agreed arbitration. The original Six Member States preferred a more limited view; with the arbitration exception only including proceedings before national courts if they referred to arbitration proceedings, whether concluded, in progress or to be started.¹⁹³ No resolution was reached, because it was left to Member States to deal with the problem in their implementing legislation.¹⁹⁴ It has been described by Advocate-General Kokott in The Front Comor as a dispute between ‘the Anglo-Saxon and the continental European schools of law’.¹⁹⁵

7.115 The Schlosser Report on the 1978 Accession Convention considered that ‘arbitration’ exclusion did not extend to every dispute affected by an arbitration agreement, but referred only to ‘arbitration proceedings’ and those court proceedings which are ancillary to arbitration proceedings, ‘such as the appointment or dismissal of arbitrators, the fixing of the place of arbitration, the extension of the time limit for making awards or the obtaining of a preliminary ruling on questions of substance’. Similarly ‘a judgment determining whether an arbitration agreement is valid or not, or because it is invalid, ordering the parties not to continue the arbitration proceedings’ was not covered by the 1968 Convention.¹⁹⁶ References from the United Kingdom over the scope of the exclusion would reach the Court in ensuing years. In the Atlantic Emperor¹⁹⁷ litigation, the Court held that the arbitration exclusion extended to litigation pending before a national court concerning the appointment of an arbitrator even if the existence or validity of an arbitration agreement was a preliminary issue in that case. In The Front Comor, although the Court was prepared to accept that (p. 231) English anti-suit injunctions issued to support English arbitration fell outside the arbitration exclusion,¹⁹⁸ they were still prohibited by the principle of mutual trust between Member States and effet utile.¹⁹⁹

Exclusion of arbitration agreements in the Rome Convention

7.116 For choice of law, the 1972 Draft Convention proposed excluding ‘arbitration agreements’.²⁰⁰ The Law Commissions considered this phrase was ‘somewhat ambiguous’:

Is it intended to exclude arbitration clauses (which may be a method of expressing a choice of law) or is it intended to exclude agreements relating primarily and not incidentally to arbitration? It can be argued that any agreement containing an arbitration clause would be excluded but presumably it is not the intention to exclude the entirety of an agreement just because it happens to contain an arbitration clause.²⁰¹

7.117 During the subsequent Rome Convention negotiations, there was again fundamental differences of approach between the common law and the civil law.²⁰² The civil law tradition saw arbitration agreements (and choice of court agreements) as essentially procedural in nature rather than contractual, and believed such agreements were already adequately regulated by international conventions, such as the 1927 Geneva Protocol On Arbitration Clauses,²⁰³ the 1927 Geneva Convention on the Execution of Foreign Arbitral Awards,²⁰⁴ the 1958 New York Convention and the 1961 European Convention on International Commercial Arbitration,²⁰⁵ and thought few problems had arisen in practice over the law that should apply to the validity of an arbitration agreement.

7.118 In contrast, certain delegations, notably the United Kingdom, proposed that arbitration agreements should not be excluded from the Rome Convention. They emphasized an arbitration agreement does not differ from other agreements as regards its contractual aspects, and the international arbitration conventions either did not regulate the applicable law, or were inadequate when they did, and had not been ratified by all the Member States. Even if they were, the problem would not be solved because these conventions are not of universal application. There was a lack of uniformity within the Community on this important matter in international commerce, which they believed called for the inclusion of arbitration agreements within the scope of the Convention.²⁰⁶

7.119 Other delegations, notably the German and French, opposed this view. They emphasized in particular (a) that any increase in the number of conventions in this area should be avoided; (b) that the severability of and independence of the arbitration clause was accepted (p. 232) in principle; (c) that the concept of ‘closest ties’ was difficult to apply to arbitration agreements; (d) that procedural and contractual aspects were difficult to separate; (e) that the matter was complex and the experts’ proposals put forward during the negotiations showed great divergence in views; (f) that since procedural matters and those relating to the question whether a dispute could be arbitrated would in any case be excluded, the only matter to be regulated by the Convention would be questions of party consent; and (g) that the International Chamber of Commerce (‘ICC’), regarded as having great experience in this field, had not felt the need for further regulation.²⁰⁷

7.120 The reference to the ICC is noteworthy, and may reflect an acknowledgment of the latter’s general scepticism towards ‘the irritating question’ of involving questions of applicable law when it came to the validity of arbitration agreements. The ICC’s International Commercial Arbitration Committee 1953 Report and preliminary Draft Convention,²⁰⁸ which played a key role in developing the 1958 New York Convention, had been disdainful about the idea. Since arbitration was always voluntary, it must be based on an agreement between the parties, evidence of which must be given so that the enforcement of the award can be granted. The ICC Committee therefore considered:

it would seem useless to open the irritating discussion on whether the arbitration agreement should be valid ‘under the law applicable thereto’. It is, on the contrary, far simpler to provide a more general provision under which the judge called upon to enforce the award shall be satisfied that there exists an agreement stipulating settlement of disputes by arbitration, if written evidence is supplied. In this way by requiring only that an ‘agreement’ be evidenced, a uniform rule is laid down which excludes the question as to the specific form which might be required by the law of the country of arbitration for arbitration clauses or submissions.²⁰⁹

7.121 This emphasis of focusing on what was necessary to evidence the existence of an arbitration agreement evidence rather than the applicable law is reflected in other arbitration conventions and model laws. The 1961 European Convention on International Commercial Arbitration,²¹⁰ the 1966 Council of European Convention Providing a Uniform Law on Arbitration, and the UNCITAL Arbitration Rules 1976,²¹¹ did not deal with questions relating to the law governing the arbitration.²¹²

7.122 The dispute in the Rome Convention Working Group over whether to include both arbitration and choice of agreements within the Convention was resolved by the fudge of suggesting a further investigation to report at an unspecified later date. An unidentified delegate proposed this matter should be studied separately and ‘any results embodied in a Protocol’. As a consequence they were excluded from the uniform rules of the Rome Convention, ‘subject to returning to an examination of these problems and of agreements on the choice of court once the Convention has been finally drawn up’.²¹³ No subsequent examination of these problems ever took place, and it was clear by 1981 it was ‘unlikely that they ever will’.²¹⁴

(p. 233) The intended scope of the arbitration exclusion

7.123 The exclusion of arbitration agreements from the Rome Convention did not relate solely to their procedural aspects, ‘but also to the formation, validity and effects of such agreements’.²¹⁵ Where the arbitration clause forms an integral part of a contract, the exclusion relates only to the clause itself and not to the contract as a whole.²¹⁶ The exclusion did not prevent such clauses being taken into consideration for the purposes of an express or implied choice of law under Article 3(1) of the Convention.²¹⁷

The exclusion of choice of court agreements under the Rome Convention

7.124 During the Rome Convention negotiations, a ‘lively debate’ occurred on the question of whether to exclude agreements on the choice of court. The majority of the Working Group favoured their exclusion because issues relating to choice of court agreement were procedural matters that formed part of the excise of a State’s authority in the administration of justice before its courts. As such, there was a concern that rules which would necessarily fetter a State’s authority in this regard might have endangered the ratification of the Convention. It was noted that rules on jurisdiction are a matter of public policy and there is ‘only marginal scope for freedom of contract’. The Working Group considered that ‘each court is obliged to determine the validity of the agreement on the choice of court in relation to its own law, not in relation to the law chosen. Given the nature of these provisions and their fundamental diversity, no rule of conflict can lead to a uniform solution’. The majority also argued that any rules created would be frustrated if the disputes were brought before a court in a third country. They considered that, within the Community, the most important matters that arose out of questions relating to choice of court agreements were the validity of the clause and its form where already dealt with in the prorogation agreements provisions of the Brussels Regime. The majority considered that other issues relating to jurisdiction agreements, notably those relating to consent, ‘did not arise in practice, having regard to the fact that Article 17 provides that these agreements shall be in writing’.²¹⁸ Those delegations that disagreed and considered choice of court agreements should be included within the Rome Convention, pointed out that ‘the validity of such an agreement would often be dealt with by the application of the same law that governed the rest of the contract in which the agreement was included and should therefore be governed by the same law as the contract’. The minority also argued that in some systems of law, an agreement as to a choice of court is itself regarded as a contract and the ordinary choice-of-law rules are applied to discover the law applicable to such a contract.²¹⁹

The convention’s exclusions in practice

7.125 When German legislators first incorporated the Rome Convention into German law, arbitration and choice of forum clauses were not excluded. This was because the German Bundesgerichtshof controversially considered such clauses to be ‘substantive contracts on procedural matters’.²²⁰ As a result, German legislators considered the ordinary choice-of-law (p. 234) rules should be applied to discover the law applicable to those contracts.²²¹ In France, a chamber of the Cour de Cassation applied the Rome Convention to determine the validity of an arbitration clause in Société Château Tour Saint Christophe c/Aström,²²² holding invalid a Swedish arbitration clause in an Swedish contract of employment, concluded in Sweden with a Swede who worked in France, to enable the former employee to bring proceedings in France.²²³

The Rome I Green Paper

7.126 The Rome I Green Paper (‘Green Paper’) raised the question of the exclusion of arbitration clauses and choice of forum clauses from the Rome Convention in rather half-hearted terms.²²⁴ The exclusion of arbitration agreements was ‘not a problem, as there are a number of treaties on the matter’. But they recognized that these treaties ‘more often concern the recognition and enforcement of arbitral awards than the law applicable to the arbitration agreement itself’. Similarly, as regards choice of court clauses, the Commission observed that ‘Article 23 of the Brussels I Regulation does contain material rules, directly laying down certain conditions for the validity of such clauses, but the Article does not settle all aspects of the matter’. No suggestions for reform were put forward. Instead, the Commission simply raised the question whether or not ‘one should envisage conflict rules applicable to arbitration and choice of forum clauses?’²²⁵

7.127 Although there was support from some stakeholders for the inclusion of arbitration agreements within the scope of the proposed Regulation,²²⁶ there was an overall reluctance from the majority to do anything that might interfere with the operation of the international conventions, and party autonomy.²²⁷ The European Economic and Social Committee (‘EESC’) favoured maintaining the Rome Convention exclusions, even though this was ‘at the cost of some erosion of the ambition of uniformity’.²²⁸

Legislative development of Article 1(2)(e)

7.128 The exclusions of arbitration and choice of court agreements were included as draft article 1(2)(e) in the Commission’s Rome I Proposal. There was no suggestion during the legislative development of Article 1(2)(e) that the exclusion of arbitration should be removed. The position was different regarding choice of court agreements.

7.129 During negotiations, Latvia suggested that the question of the applicable law for choice of court agreements should be further considered.²²⁹ Latvia noted, that under the 2005 Hague Convention on Choice of Court Agreements,²³⁰ the choice-of-law rules of the state (p. 235) of the chosen court would apply to the choice of court agreements. These rules may differ among the Member States. Therefore, having regard to the Hague Convention, it might be useful to discuss the question of applicable law on the choice of court agreements in order to provide harmonized and uniform rules.

7.130 For a short while, the Rome I Committee was split on the issue. At their 17 January 2007 meeting it was minuted that:

Several delegations suggested deleting the reference to choice of court agreements in [draft] Article 1(2)(e), thus including them in the scope of the future Regulation. Some delegations announced that they would be making written proposals. Other delegations preferred the text as it stood.²³¹

7.131 No delegation subsequently provided any (published) written proposals justifying the deletion of the exclusion of choice of court agreements from the scope of the Regulation, and draft article 1(2)(e) remained unchanged during the remainder of the Regulation’s legislative development. The Council agreed on the text of Article 1 at the meeting of the JHA Committee on 19–20 April 2007.²³²

H. Questions of Internal Company Law

7.132 Article 1(2)(f) excludes questions governed by the law of companies and other bodies, corporate or unincorporated, such as the creation, by registration or otherwise, legal capacity, internal organization or winding-up of companies and other bodies, corporate or unincorporated, and the personal liability of officers and members as such for the obligations of the company or body from the material scope of the Rome I Regulation. This is in identical terms to the exclusion in Article 1(2)(e) of the Rome Convention and will be interpreted in the same way.²³³

Interpretation under the Rome Convention

7.133 Under the Convention, the Working Group emphasized that ‘the [exclusionary] rule has been made flexible in order to take account of the diversity of national laws’ relating to companies, firms and other bodies.²³⁴ The scope of ‘the law of companies and other bodies’, was intended to not become bogged down in the niceties of national classification. The Giuliano–Lagarde Report considered the exclusion:

affects all the complex acts (contractual, administrative, registration) which are necessary to the creation of a company or firm and to the regulation of its internal organization and winding-up, i.e. acts which fall within the scope of company law.²³⁵

7.134 ‘Internal organization’ included the calling of meetings, the right to vote, the necessary quorum at such meeting and, the appointment of officers of the company or firm, etc. (p. 236) ‘Winding-up’ would cover either the termination of the company or firm as provided by its constitution or by operation of law, or its disappearance by merger or other similar process.²³⁶

7.135 The exclusion related to bodies, with or without legal personality, who could be either profit-making or non-profit-making.²³⁷ Having regard to the national law differences which existed, and the necessary flexibility this required, certain relationships would be regarded for the purposes of this exclusion as being within the scope of company law, or might be treated as being governed by that law (for example, société de droit civil, nicht-rechtsfähiger Verein, partnership, Vennootschap onder firma, etc) in some countries but not in others.²³⁸

7.136 The fact that an obligation was entered into by the officers or directors of a company or body as part of the management of its affairs did not necessarily mean it should be classified as ‘arising out of the law of companies and other bodies corporate and unincorporate’. Furthermore, juridical acts or preliminary contracts whose sole purpose is to create obligations between interested parties (ie promoters) with a view to forming a company or firm were not covered by this exclusion, and remained governed by the rules in the Convention.²³⁹

7.137 At the request of the German delegation the Rome Convention Working Group extended the Article 1(2)(e) exclusion to include the personal liability of members and organs, and also to the legal capacity of companies or firms. The Group did not adopt the proposal that mergers and groupings should also be expressly mentioned, most of the delegations being of the opinion that mergers and groupings were already covered by the existing wording.²⁴⁰

Legislative development

7.138 The Rome I Proposal introduced a revised draft article 1(2)(f), which purportedly combined Article 1(2)(e) and (f) of the Rome Convention. This was done by adding an additional phrase to the text of the Convention’s Article 1(2)(e), namely ‘the question whether a management body of a company or other body corporate or unincorporated can bind the company or body in relation to third parties’. The Explanatory Memorandum said draft article 1(2)(f) ‘combines the rules of point (e) and the company-law aspects of point (f) of the Convention’. The proposed revision produced a draft narrower in scope than a simple combination of the pre-existing exclusions in the Convention, as draft article 1(2)(f) related only to whether ‘the management body’ of a company or other body could bind the company etc in relation to third parties. This suggested a more limited exclusion than the broader concept of the ability of ‘organ’ to company or body to a third party. It also did not exclude questions of an ‘agent’ doing the same as Article 1(2)(f) of the Rome Convention had done. This was because of the Commission’s then proposal to create a special rule for agency in draft article 7 of the Rome I Proposal, discussed below under Article 1(2)(g).

7.139 After initial consultations, the Finnish Presidency’s 12 October 2006 text saw the word ‘unincorporated’ replacing the earlier ‘unincorporate’. After the abandonment of the Commission’s draft article 7, the new added text was removed in the German Presidency’s (p. 237) 2 March 2007 revised draft.²⁴¹ The result was the essential restoration of the Rome Convention position, which should form the basis of the interpretation of the Regulation.

The law of companies and other bodies

7.140 As under the Convention, the exclusion in Article 1(2)(f) is in two, connected elements. The first element concerns ‘questions governed by the law of companies and other bodies corporate or unincorporate’. Whatever the position was under the Convention, the Court is likely to give an autonomous interpretation²⁴² to the concept of the ‘law of companies and other bodies, corporate or unincorporated’ under the Rome I Regulation. That interpretation is likely to be consistent with the same conceptual grouping used in Article 19.²⁴³ It will encompass any entity with an independent legal identity separate from its individual membership. This will include all forms of corporate bodies, including a Societas Europaea (‘SE’),²⁴⁴ any form of partnership or equivalent (such as the Italian società semplice, the German offene Handelsgesellschaft, or the Dutch vennootschap onder firma),²⁴⁵ and unincorporated members clubs and associations that have legal identities.

7.141 The law governing those entities for the purposes of Article 1(2)(f) will be interpreted to include those questions governed by law that regulate the life and death of legal entity; from its conception, birth, (internal) life and death by winding up or dissolution, and its legal capacity to enter into contractual obligations.²⁴⁶

7.142 But it will not include preliminary contracts or juridical acts whose sole purpose is to create obligations between the promoters or other interested parties with a view to forming a company or other body.²⁴⁷

7.143 The reference to ‘legal capacity’ in Article 1(2)(f) is a ‘reference to limitations which may be imposed by law on companies and firms, for example in respect of the acquisition of immovable property’, but is not a reference to ‘ultra vires acts by organs of the company or firm’ which falls under Article 1(2)(g).²⁴⁸

The personal liability of officers and members

7.144 The second element of the exclusion in Article 1(2)(f) refers to ‘the personal liability of officers and members as such for the obligations of the company or body’. This element is undoubtedly concerned with any rules to permit a ‘piercing the corporate veil’, to make either or both the officers and/or members of the company or body personal liable ‘as such’ for the entities’ obligations. Piercing the corporate veil is lawful under EU. But what those (p. 238) obligations ‘as such’ are, and in what circumstances the officers or members might be personally liable for them, is a matter for national law, rather than EU law, and the national law which determines that question is not indicated by any rule in the Rome I Regulation.²⁴⁹

7.145 There may well be issues whether many of the mechanisms for piercing the corporate veil are non-contractual. In the jurisdiction case of ÖFAB,²⁵⁰ claims were made under Swedish company law by a creditor seeking to make a Netherlands domiciled director and the shareholders of a Dutch company jointly and severally liable for the debts of an insolvent Swedish company. Under Article 18 of Chapter 25 of the Swedish Law on limited liability companies,²⁵¹ members of the board of directors may be liable for the debts of the company where they fail to complete certain formalities to monitor the company’s financial situation when it no longer has sufficient funds to trade properly. The creditor also relied on case law of the Högsta domstolen (Swedish Supreme Court), which, by a derogation from the principle of limited liability, holds that the shareholders of a limited company, in exceptional circumstances²⁵² may also be liable for its debts.

7.146 The Court held the claims in ÖFAB were not based on matters relating to contract because they were ‘based not on an undertaking freely consented to by one of the parties to the other’ but on an allegation that a member of the board of directors of the insolvent company did not complete certain formalities intended to monitor the financial situation of that company, and its main shareholder neglected their legal obligations by allowing that company to carry on business even though it was undercapitalized and was forced to go into liquidation. Under the Swedish applicable law, that member of the board of directors and that shareholder may, if necessary, be held liable for the company’s debts.²⁵³ Where such actions are brought, they help first and foremost, the creditors to obtain the payment of claims. As such, the claims brought in ÖFAB, were seen as actions that sought to compensate the harm resulting from the (original) creditors not being paid for work done for the insolvent company.²⁵⁴ This action was therefore classified as a matter relating to tort, delict or quasi-delict for Article 5(3) of the Brussels I Regulation (44/2001), a classification expressly made ‘without prejudging the classification of other actions which may be brought against a member of the board of directors or a shareholder of a company’.²⁵⁵

Director’s duties

7.147 A related question arises under English law on the liability of a director or other officer for breach of duty. In Base Metal Trading Ltd v Shamurin,²⁵⁶ the appellants submitted that a director’s duty of care to a company was not one of the questions excluded by Article 1(2)(e) of the Rome Convention because this was not a matter of internal organization of the (p. 239) kind identified in the Article.²⁵⁷ Only one member of the Court of Appeal thought that the question of the liability of a director by virtue of his office fell within the exclusion in Article 1(2)(e) of the Convention.²⁵⁸ The majority²⁵⁹ decided the case on the basis that a tortious or equitable duty of care could not be characterized as a contractual obligation, and therefore fell outside the material scope of the Convention. On the facts of the Base Metal Trading the correctness of the Arden LJ’s view on Article 1(2)(e) has been forcefully challenged.²⁶⁰

7.148 This issue may have to be revisited again in the light of the creation of the Rome Regime. As Plender & Wilderspin point out, if a director’s liability is excluded from the Rome I Regulation by Article 1(2)(f), then logically it would be excluded on the same basis from the Rome II Regulation.²⁶¹ But if it is excluded simply because it gives rise a non-contractual obligation, then it would not.²⁶² Dicey, Morris, & Collins consider that the liability of directors by virtue of their office²⁶³ would appear to fall within the company law exception under both Rome Regulations: ‘[t]he exception would appear broad enough to encompass non-statutory (eg fiduciary and other equitable) duties owed by the director by virtue of his position as such’.²⁶⁴ However, the learned editors also consider that other duties owed by a director arising from performing other functions as an employee or adviser may give rise to contractual or non-contractual obligations that fall within the Rome Regime.²⁶⁵ Where the line should be drawn is likely to be a matter that may require the assistance of the Court of Justice.

7.149 A literal reading of this second element in Article 1(2)(f) suggests it is not drafted to exclude obligations arising out of the legal relations between members of an association and the association itself that arise because of their membership.²⁶⁶ Such obligations are likely to be contractual. In Peters,²⁶⁷ a Dutch building trade association sued in the Netherlands by a German corporate member for fees due under the rules of the association. The jurisdiction of the Dutch court depended on the relationship between the trade association and the German member being classified as a matter relating to contract. In almost all the legal systems of the Member States such a relationship was regarded as being ‘contractual in nature’.²⁶⁸ The principal exception was the law of the Netherlands itself. Under Dutch law, the formation of an association was a sui generis multilateral legal transaction, and the consequential relations deriving from membership of the association was also considered of a sui generis nature, or based on a so-called institutional concept. The member’s representatives argued therefore (p. 240) that an obligation owed to the association was not a matter relating to contract, and invoked Article 1(2)(e) of the (not yet in force) Rome Convention to support their claim, arguing that exclusion showed that the obligations laid upon the members of an association because of their joining it had no contractual basis and this was confirmed by the fact they were excluded from the Convention. This argument was challenged by both the Commission and the German government, who inferred from the existence of the exclusion suggested a fear that absent an express exclusion such obligations would fall within the sphere of application of the Convention by virtue of their contractual nature. Advocate-General Mancini thought the Commission and German governments’ interpretation lent support to his views.²⁶⁹ The Court, decided that membership of an association creates ‘close links of the same kind as those which are created between the parties to a contract’ as between the members of the association, and that consequently the obligations in question could be contractual for the purpose of the application of Article 5(1) of the Brussels Convention.²⁷⁰

I. Certain Questions of Agency

7.150 Article 1(2)(g) excludes from the scope of the Regulation, ‘the question whether an agent is able to bind a principal, or an organ to bind a company or other body corporate or unincorporated, in relation to a third party’.

7.151 This is a narrow exclusion of the rules for determining the applicable law of only one of the three legal relations that arise in a contract concluded by an agent acting on behalf of a principal with a third party; relationships that have both ‘internal’ and ‘external’ aspects.²⁷¹ These are the relationships between (a) a principal and their agent, (b) the agent and a third party and (c) the principal and the third party.²⁷² As was the case with the Rome Convention,²⁷³ only the first two of these relationships fall within the material scope of the Rome I Regulation, and any conflict-of-laws issues arising out of them are governed by the law indicated by the Regulation’s rules. It is the third relationship which is excluded from the material scope of the Regulation and the applicable law for that will be selected under national rules. For short-hand we can call it the ‘agency exception’.

7.152 The exclusion in Article 1(2)(g) is in almost the same terms as Article 1(2)(f) of the Rome Convention, and the legislative intention was that the solutions reached in the Convention should be retained. This was after the Commission had failed in their attempts to create an entirely new rule that would have seen the exclusion deleted. The interpretation of this exclusion is best understood by reference to its historical background and legislative development.

The exclusion in the Rome Convention

7.153 The 1972 Draft Convention contained no exclusion of any matters relating to contracts concluded by agents. Article 1(2)(f) appeared in the Rome Convention, and excluded from its scope:

(f) the question whether an agent is able to bind a principal, or an organ to bind a company or body corporate or unincorporate, to a third party.

(p. 241) 7.154 That exclusion was strictly limited. It affected only the relationship between the principal and third parties: ‘more particularly the question whether the principal is bound vis-à-vis third parties by the acts of the agent in specific cases’.²⁷⁴ It excluded issues where ‘the authority of the agent is in question’.²⁷⁵ This ‘narrow’²⁷⁶ exclusion was explained:

by the fact that it is difficult to accept the principle of freedom of contract on this point. On the other hand, principal-agent and agent-third party relationships in no way differ from other obligations and are therefore included within the scope of the Convention in so far as they are of a contractual nature.²⁷⁷

7.155 All other aspects of contractual obligations involving agents fell within the material scope of the Rome Convention was underlined by provisions of Article 9.²⁷⁸ Under the Rome I Regulation, Article 11 performs the same role.²⁷⁹

7.156 Article 1(2)(f) of the Convention also excluded ‘ultra vires acts of the organs of the company or firm’;²⁸⁰ presumably those which had resulted in contracts said to bind a company to a third party, though whether or not it achieved its objectives was the subject of some debate.²⁸¹ But the Article 1(2)(f) exclusion did not affect other aspects of ‘the complex field of agency’;²⁸² in particular, the relationships between the principal and the agent and the relationship between the agent and the third party, ‘except, of course, where the agent is sued by the third party for breach of warranty of authority and the agent pleads due authorization in defence’.²⁸³

7.157 The reference in the Giuliano–Lagarde Report to obligations arising out of these relationships ‘in so far as they are of a contractual nature’ hinted at considerable differences of characterization within the national laws of Member States. German law does not necessarily regard agency as a matter of contract law, but treats it as an obligation based under the general law to act lawfully.²⁸⁴

Background to the Rome Convention exclusion

7.158 The exclusion in Article 1(2)(f) of the Rome Convention accommodated the fundamental differences of approach between the civil law and common law traditions. This were illuminated by a magisterial study by Professor Schmitthoff, published in 1970.²⁸⁵ Written (p. 242) after international attempts to produce uniform laws on aspects of agency had failed to achieve widespread acceptance.²⁸⁶Professor Schmitthoff highlighted the civil law and the common law’s divergent theories of agency. He believed that there were three particular problems:

First, there exists a seemingly irreconcilable difference between the civil law and the common law in their theoretical approach to the concept of agency, a difference reflected in the theories of separation and identity, and this cleavage has produced considerable practical differences although both theories have to make concessions to commercial reality. Secondly, in the sphere of private international law, great uncertainty exists, particularly owing to the difficulty of delimiting the area of creation of authority which is governed by the law of internal relationship from that of the operation and effect of authority which is governed by the law of external relationship, but there is general agreement that the interests of the third party who relies in good faith on the authority of the agent must prevail if conflicting with those of the principal who has placed the agent into the position of acting for him. Thirdly, these difficulties are increased by considerable differences in the modern national legislations which aim at the protection of the direct agent and which have their raison d’étre in social considerations. The Guide to Commercial Agency prepared by the International Chamber of Commerce rightly states that ‘these matters are a fertile source of disputes in the field of international trade’.²⁸⁷

7.159 The first and second of these difficulties were the main drivers behind the exclusion in Article 1(2)(f) of the Convention.

7.160 The most characteristic feature of the theory of agency in civil law was the strict conceptual separation of the agent’s mandate (‘Auftrag’), ie the contract between the principal and the agent, from the agent’s authority (‘Vollmacht’), his power to bind his principal to a contract with a third party.²⁸⁸ These concepts (described in French law as ‘mandate’ and ‘representation’) describe ‘two substantially different aspects…Mandate points to the internal relations between two persons- the mandatory and the mandatory. Representation, on the other hand, points to the external aspects of the transaction, the relations of principal and agent toward third parties’.²⁸⁹ The theory of separation led some civil law systems, especially those influenced by the German Civil Code, to establish a ‘sharp distinction between the internal relationship of principal and agent and the general external power of the agent’.²⁹⁰ An important consequence of this theory of separation (or abstraction, ‘Abstraktheit der Vollmacht’)²⁹¹ in such civil law systems was that any limitation on the authority of the agent contained in (p. 243) his mandate with his principal was, in principle, ineffective in relation to his dealings with a third party. The ‘nullity of the underlying transaction (between principal and agent) will not affect the agent’s authority to bind the principal’.²⁹² Attempts to reconcile this theory with commercial reality and the development of new forms of commercial intermediaries proved ‘no easy task’.²⁹³ This resulted in the German Civil Code producing an elaborate classification of various kinds of agents; trying to give as detailed and precise a definition as possible of the extent of the authority of each category of agent to bind their principal to a contract with a third party. This produced fragmentation of the concept of agency, but without it ‘the theory of separation would have been unworkable’.²⁹⁴ German law, by 1970, had evolved at least 13 separate categories of agent (or intermediary) regulated by statute.²⁹⁵

7.161 The common law, in contrast, had adopted the doctrine of identity of principal and agent as its theoretical foundation of the concept of agency. The agent, as the alter ego of the principal, was duly authorized to act within the limits of his authority. The agent’s representation of the principal was a direct consequence of the mandate given to them by the principal and was inseparable from it. This was often expressed in the phrase qui facit per alterum facit per se.²⁹⁶ It resulted in a general concept of agency applicable to its various forms, which had avoided the complexities of the fragmentation found in civil law systems that had evolved because of the need to accommodate the doctrine of separation.²⁹⁷

7.162 The principal area of conflict between the two systems arose in questions of the agent’s authority (or lack of it) when contracts were concluded between an agent and a third party. At common law, if third party dealt with the agent who has exceeded his authority then, within specially crafted exceptions for a third party acting in good faith, the principal was not bound. The civil law, with the doctrine of separation, favoured the third party’s rights over that of the principal.²⁹⁸

7.163 The most serious difficulty from a choice of law perspective was deciding what law should determine an agent’s authority to bind a principal to a contract with a third party. That question was at the intersection between the purely internal relationship of principal and agent and the external relationship created by the agent’s purposed use of that authority in their dealings with a third party.²⁹⁹ But those two relationships may have (p. 244) resulted in contracts potentially governed by entirely different laws. So which law should govern the question of the agent’s authority vis-à-vis a third party? Adopting the internal law of the relationship between the principal and the agent would result in ignoring the external relationship created with the third party. Adopting the external law of the relationship created by the agent with the t

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7 Specific Exclusions

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

Michael McParland

(p. 203) 7 Specific Exclusions

Article 1(2)

A. Definition by Exclusion

B. The Status or Legal Capacity of Natural Persons

(p. 205) Background

Under the Rome Convention

Legislative development

Interpreting Article 1(2)(a)

Status

Lack of capacity

Incidental questions

C. Family and Comparable Relationships

Recital (8)

‘Obligations arising out of’

(p. 210) ‘Family relationships’

‘Comparable relationships’

Maintenance

Interpretation

(p. 214) D. Matrimonial and Comparable Property Regimes

Background

Rome Convention exclusion

Brussels Regime interpretation

Legislative development of Article 1(2)(c)

In practice

E. Wills and Succession

Background

Legislative development

F. Negotiable Instruments

Recital (9)

Terminology

Background

Bills of lading excluded?

The Rome Convention

Rome II

Rome I: legislative development

The bill of lading debate resumes

Article 1(2)(d) in practice

G. Arbitration and Choice of Court Agreements

Arbitration agreements

Choice of court agreements

Arbitration and the Brussels Regime

Exclusion of arbitration agreements in the Rome Convention

(p. 233) The intended scope of the arbitration exclusion

The exclusion of choice of court agreements under the Rome Convention

The convention’s exclusions in practice

The Rome I Green Paper

Legislative development of Article 1(2)(e)

H. Questions of Internal Company Law

Interpretation under the Rome Convention

Legislative development

The law of companies and other bodies

The personal liability of officers and members

Director’s duties

I. Certain Questions of Agency

The exclusion in the Rome Convention

Background to the Rome Convention exclusion