Commercial Choice of Law in Context: Looking Beyond Rome
| DOI | http://doi.org/10.1111/1468-2230.12115 |
| Published date | 01 March 2015 |
| Date | 01 March 2015 |
Commercial Choice of Law in Context: Looking
Beyond Rome
Manuel Penadés Fons*
English courts are frequently criticised for their flexible approach to the finding of implied choice
and the use of the escape clause in the context of the Rome I Regulation/Convention on the law
applicable to contractual obligations. This paper argues that such criticism is misplaced. Based on
empirical evidence, the article shows that those choice of law decisions are directly influenced by
their procedural context and respond to the need to balance the multiple policy issues generated
by international commercial litigation. In particular, English decisions need to be assessed in light
of three distinct factors: the standard of proof required at different stages of the procedure in
England, the national policy to promote England as a center for commercial dispute resolution
and the incentives to export English law in certain strategic industries. The use of implied choice
and the escape clause to achieve these ends constitutes a legitimate practice that does not frustrate
the aims of the EU choice of law regime.
INTRODUCTION
Choice of law for commercial contracts constitutes a discipline in its own right.
In judicial practice, however, it appears embedded as just a step in the wider
process of commercial litigation. It is difficult to develop a real understanding of
how choice of law operates if this context is overlooked. This paper uses English
case law to demonstrate the influence of national factors on the operation of
European instruments on the law governing commercial contracts. The aim of
the article is to offer a contextualised analysis that explains the rationale behind
judicial findings in the absence of an express choice of law and to justify certain
decisional patterns in English practice that could be seen as unjustified departures
from the aims of the EU in this field.
The rules for the determination of the law applicable to contractual obliga-
tions are currently contained, with some exceptions, in Regulation (EC) 593/
2008 (Rome I or RI).1This Regulation and the preceding Rome Convention
of 19802(Rome Convention or RC) are part of the private international law
corpus enacted by the EU to improve the efficiency of the internal market and
*University of Valencia. University of Warwick (as of January 2015). The author would like to thank
Ugljesa Grusic, Orla Lynskey and the anonymous referees for their valuable comments during the
drafting process. The usual disclaimer applies.
1 Regulation (EC) No 593/2008 of the European Parliament and the Council of 17 June 2008 on
the law applicable to contractual obligations, OJ 2008 L177/6. It only applies to contracts
concluded after 17 December 2009. Denmark is not included.
2 Convention on the law applicable to contractual obligations, OJ L266/1 of 9 October 1980. It
continues to apply to Denmark.
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© 2015 The Author. The Modern Law Review © 2015 The Modern Law Review Limited. (2015) 78(2) MLR 241–295
Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA
the mobility of its traders. In the eyes of the legislator, predictability in the field
of choice of law requires going beyond mere uniformity of rules and implies that
disputes on the law governing a contract are resolved with the same outcome
(and not only under the same rules) throughout the EU.3With this objective in
mind, the Rome I Regulation designs a choice of law mechanism that is
apparently simple, and therefore solid and predictable. In brief, it confers upon
parties the autonomy to choose the national legal system applicable to their
transaction (article 3). In the absence of such a choice, the Regulation provides
a set of rules leading to a national law, which can be displaced in favour of other
law only in exceptional circumstances (articles 4–8).4It is said that this ‘highly
predictable’ system guarantees ‘the general objective of th[e] Regulation, legal
certainty in the European judicial area’.5It follows that in addition to the
objectives pursued by each provision,6the application of the Regulation should
be guided by the aim of decisional uniformity. This discourse constitutes a
common thread in institutional and academic publications concerning European
conflict of laws.7
Despite this overarching purpose, the Rome I Regulation is not immune
from the circumstances in which judicial activity is exercised in every Member
State. The analysis of this influence requires a change from a statutory to a
functional approach towards the reading of the rules of the Regulation. Rather
than distinguishing between scenarios where a choice of law has been made and
those where such a choice is absent, a more realistic analysis would distinguish
between provisions which can be applied in a strict and straightforward manner
and provisions which require a holistic evaluation of the contractual relationship
and its surrounding circumstances in order to determine the applicable law.
Straightforward cases would include cases of express choice of law and the
usually uncontroversial objective connecting factors provided by article 4(1)/(2)
RI.8Findings on implied choice and recourse to the escape clause would fall
within the second category. An implied choice exists when an unexpressed
agreement between the parties is clearly demonstrated by the terms of the
contract and the circumstances of the case. The escape clause allows for the
displacement of the law indicated by the objective connecting factors when it is
clear from all the circumstances that the contract is manifestly more closely
connected with another country. Although the policy underlying the Rome I
3 Recital 6 RI.
4 The general regime is contained in art 4, whereas arts 5–8 focus on specific contracts.
5 Recital 16 RI. Similar ideas were contained in art 18 RC (uniformity in interpretation and
application).
6 Many provisions of the Rome instruments pursue the protection of substantive interests. The
definition of these interests was a concern primarily during the negotiation of the rules. However,
after their approval, uniformity in the application of the agreed solution constitutes the overriding
objective.
7 Providing an exhaustive overview of the relevant literature is a virtually impossible task. For a list
of some relevant publications see n 9 below.
8 Art 4(1) determines the governing law of seven categories of contracts. All other contracts are
covered by art 4(2), which directs to the law of the party conducting the characteristic perfor-
mance, ie the obligation that confers distinctive character to that contract vis-à-vis other kinds of
contract.
Commercial Choice of Law in Context
© 2015 The Author. The Modern Law Review © 2015 The Modern Law Review Limited.
242 (2015) 78(2) MLR 241–295
Regulation would favour the general application of the first hard-and-fast rules,
the latter category offers ‘gateways’ for judicial discretion which are inherently
more malleable.
Unlike their European counterparts, English judges have been criticised for
adopting an excessively flexible approach to the interpretation of these gateways,
thus departing from the predictability encouraged by the Union.9Such criticism
is ill-founded. This paper demonstrates that English practice offers a much more
nuanced combination of rigidity and flexibility that responds to the wider
regulation of commercial litigation in England and helps to internalise the
legitimate interests that converge in choice of law decisions. This context should
not be overlooked when analysing the operation of EU rules in the Member
States as otherwise there is a risk of creating an artificial division between the
objectives of the Union and that of its Member States.10
The findings produced in this article are based on an analysis of all reported
decisions rendered in England and Wales applying the Rome Convention and
Regulation in the absence of an express choice by the parties.11 It is in those cases
where the availability of the choice of law gateways makes it appropriate to
scrutinise the exercise of discretion by English courts and compare their practice
with the parameters set by the EU rules. This paper therefore first examines the
role and operation of implied choice and the escape clause within the European
choice of law regime. This analysis is based on legislative policy and a purposive
interpretation of the rules. Secondly, the article focuses on the application of the
Rome instruments by English courts, distinguishing between jurisdictional
and substantive determinations, and assessing the influence produced by the
requirements of proof in each type of procedure. Thirdly, the paper revisits the
outcome of these cases, and suggests that the pursuit of certain procedural
9 That criticism comes from academic sources (even in the UK) and from the EU Commission:
Green Paper on the conversion of the Rome Convention of 1980 on the law applicable to
contractual obligations into a Community instrument and its modernisation, COM(2002) 654
final, para 3.2.4.2; C. S. Okoli and G. Arishe, ‘The operation of the escape clauses in the Rome
Convention, Rome I Regulation and Rome II Regulation’ (2012) 8 JPIL 513, 517; J. J. Fawcett,
‘A United Kingdom Perspective on the Rome l Regulation’ in N. Boschiero (ed), La nuova
disciplina comunitaria della legge applicabile ai contratti (Roma I) (Rome: Giappichelli, 2009) 191, 209;
Z. Tang, ‘Law Applicable in the Absence of Choice: The New Article 4 of the Rome I
Regulation’ (2008) 71 MLR 785, 798; O. Lando and P. Nielsen, ‘Rome I Regulation’ (2008) 45
CMLR 1687, 1701; E. Lein, ‘The New Rome I/Rome II/Brussels I Synergy’ (2008) 10 Yb Priv
Intl L 177, 185; U. Magnus and P. Mankowski, ‘The Green Paper on a Future Rome I
Regulation: On the Road to a Renewed European Private International Law of Contracts’ (2004)
103 ZVglRWiss 131, 149; J. Hill, ‘Choice of law in contract under the Rome Convention: The
approach of the UK courts’ (2004) 53 ICLQ 325, 329.
10 It is not the purpose of this paper to offer a comparative analysis across European jurisdictions. The
Rome Convention/Regulation and their related official documents are taken as reference for the
study of English practice. Given that the United Kingdom has been traditionally the only Member
State criticised for its relaxed application of choice of law rules, this article aims at assessing the
correctness of those opinions and the reasons that motivate any identified departure from the
European point of reference.
11 To the knowledge of the author a comprehensive empirical analysis that provides statistical data
based on every available decision has not been conducted before. A methodology note and a list
of every identified decision are annexed to this article as Appendixes 1 and 2.
Manuel Penadés Fons
© 2015 The Author. The Modern Law Review © 2015 The Modern Law Review Limited. 243(2015) 78(2) MLR 241–295
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