Law in the absence of choice

In the event of failure by the parties to a contractual relationship to choose a national system of substantive law to regulate contracts involving a foreign element, the provision of the Rome Convention Article 4, paragraph 1 states the applicable law. In literature on private international law, it is stressed that such cases of failure to choose are relatively frequent. [footnote 112 ] The reasons for this as provided by the authors are as follows:

ignorance in matters of conflict of substantive law, ignorance of the rules for applying the law applicable in contracts involving an international element, the reluctance to negotiate on the choice of a national system of substantive law because of concerns that

negotiations in this case could have a negative impact on negotiations on matters relating to the basic contract. [footnote 113 ]

The rules of private international law applicable in the Member States of the European Economic Community are generally not governed by the principles for resolving conflict of law. I attempted to demonstrate in Part 1 of Volume 2 of the book the above matter has been left by the state and judiciary to the doctrine of private international law. The case of Belgium, France, and Germany indicates that the courts of any disputed matters arising under the contract, in which there were foreign elements, strive to establish a hypothetical willingness of the parties.

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Based on such findings the courts drew the conclusion that there was an expressed intention of the parties to submit to the substantive contract law in force in the country.

[footnote 114 ] The German judiciary and private international law doctrine has sought the hypothetical consent of the parties (hypothetischer-Parteiwille), which is based on facts or circumstances that can be verified. [footnote 115] Jurisprudence in the UK was of the view that if the parties do not express a clear desire to have the relationship succumb to the national rules of substantive law applicable to the contract, the provisions of the legal system, which remains with the contract for the “closest and most real connection”

prevails. [footnote 116 ] Slight exceptions to this rule were evident in the Italian Maritime Code provisions, which, in the case of a conflict of national substantive labour law, the employment contract with a foreign element comes under the law of the country under whose flag the ship is sailed, or the country where the vessel was registered. Outside Italy, the Benelux countries in Article 13 contained in the 1969 Benelux Treaty decided to solve the conflict of substantive laws problem by selecting the national system of law, which was most related to the contract. [footnote 117 ]

Legal certainty demanded the adoption of uniform rules for deciding on the choice of law in case of conflict of norms of substantive law of two or more national systems, which could be used to regulate contractual relations with a foreign element in those cases where the parties of the relationship have not waived their right to choose the applicable law. The deciding determinant in indicating the appropriate legal system adopted in Article 4, paragraph 1 of the Rome Convention is so far unspecified, that it guarantees the court freedom in resolving disputes arising from the contract issues involving an international element. It is limited by legal presumptions formulated by the provisions of Article 4, paragraphs 2-5 of the Rome Convention. [footnote 118 ] Prior to the analysis of

presumptions laid down in Article 4, paragraph 2 in connection with paragraph 5 of this Convention, the construction of the dépeçage referred to earlier, is also possible if the parties to the contract do not have to choose the law. In such cases where the various parts of the contract exhibit an equally intense “closest relationship” with the substantive law of two or more countries, part of the contract, which can be separated from the rest of this agreement, demonstrating a closer relationship with the law of another state, may be granted an exception to be governed by the provisions in force in that country (Article 4, paragraph 1 in fine).

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“Part of the agreement” listed in that provision should be distinct in nature from other parts of the contract. Separability can be understood as that part of the contract, which meets the requirements regulated in Article 4, paragraph 1 of the Convention obtaining the status of a separate agreement. Such was the nature of the contract clauses entered into the contract of employment for non-competition agreement, and on material responsibility for entrusted property agreements. Contracts bearing the autonomous clauses that can be treated as a separate agreement is an exception to the generally accepted practice, therefore, the intention of the legislature must be upheld that any part of the agreement could be considered as a separate contract. In such a case when this separate part is submitted to therefore separate provisions, these parts cannot enter into conflict with the other provisions of this contract. [footnote 119 ] The proposal to divide the contract into parts is consistent with the provision of Article 3, paragraph 1 of the Rome Convention and the dépeçage concept. According to the Convention parties are free to separate the

contract into parts by deciding that each of the separate parts will be governed by separate regulations of different Member States. The only difference in the contract, which I see between the provisions of Article 3, paragraph 1 and Article 4, paragraph 1 of the Rome Convention, is expressed in the attitude of the European legislator to the possibility of separating a contract of obligations. According to the provision of Article 3, paragraph 1 dépeçage is treated as a rule. By contrast, Article 4, paragraph 1 of this Convention shall be construed as a distribution agreement to have an exception to the rule of contract law across the country indicated by using the determinants specified in that provision.

Provision of Article 4, paragraph 1 of the Convention gives no indication of how the

authorities would apply this standard to determine the law most closely associated with the contract to the law of a specific country. Had this provision not been completed by the standards containing a directive enabling them to identify the basis of this relationship between contracts involving a foreign element and the provisions of national law which, because of appearing in a contract with the foreign element in conflict with the standards of other national legal system may be considered that the collisions of standards of the substantive law of the Rome Convention are governed by the same method, used by the British courts, which require that between the provisions of applicable law and contracts there were the closest and most real relationships. In Article 4, paragraph 2 of the

Convention presumptions were formed – with reservations under Article 4, paragraph 5 of the Convention – to be careful of contracts most closely connected with the law of the state, according to which the party is resident requiring that party to meet the characteristic

performance of that agreement.

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If this obligation rests with the company, association or legal person, an indicator used by Article 4, paragraph 2 of this Convention is the location of the head office of one of these entities. In such cases where a contract has been entered into by an entity or business party, obligated to fulfil the characteristic performance, Article 4, paragraph 2 of the Convention requires to be aware that such an agreement is most closely connected with the law of the country in which is located the principal place of business of the party responsible for the implementation of the characteristic performance. Where, in

accordance with the provisions of the contract for specific performance is to be fulfilled by another company, Article 4, paragraph 2 of the Rome Convention takes the position that the contract is most closely connected with the country in which that company is located.

The presented presumptions, indicating the closest relationships within the meaning of the legislature between the place of residence, the seat of the principal place of business and location of businesses required to fulfil the characteristic performance under the particular agreement, facilitates the parties and dispute settlement bodies under that agreement to use the provisions of a particular national systems of substantive law that meets the requirements laid down in the conflict of law standards without having to make an

individual assessment (individualising method), which would take the form of analysis of various factors indicating the existence of associations or their lack of agreement with one of two or more competing countries. Presumptions of law laid down in the Article 4,

paragraphs 2-4 of the Convention, relieve the parties and the court of the obligation to make such an analysis.

A decisive determinant for the selection of the national system of substantive law specified using one of the allegations as listed in Article 4, paragraph 5 of the Rome Convention, is the closest relationship entered into with the party on whose duty it is to fulfil the specific performance. The concept of characteristic performance of a regulated contract of obligations, in which there are foreign elements is used in the Swiss private international law. [footnote 120 ] However, for many authors dealing with private international law, the concept is strange, because the doctrine of the law considers that a contract involving a foreign element should be governed by national legislation of the country in which the obligations under this agreement are being implemented. [footnote 121 ] This approach is an important innovation in the private international law and the authors of the report – commentary to the Rome Convention are aware of this. They write that the grounds on

which the concept of “characteristic performance” is based, are not entirely unknown to some experts. This commentary, however, is not endorsed by any footnote. The authors are trying to make their own assumptions of this legal structure. The concept of

“characteristic performance” is associated with a more general idea that a more valid role should be allocated to the function of the agreement and how it fulfils that function in the economic and social life of the country.

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In their view, the concept of “characteristic performance” combines a contract of

obligations and the legal relationships created on the basis of the social and economic environment. According to M. Giuliano and P. Lagarde, the agreement and the relationship of obligations are part of that environment. [footnote 122 ] Since the report’s authors did not develop the argument, it is difficult to know what assumptions are being put forth when attempting to analyse the characteristic performance of the various types of contract obligations. The same authors of the report admit that the concept of characteristic performance does not provide major difficulties in analysing obligations arising from unilateral acts. However, the Rome Convention (“Rome 1”) is governed by the principle of resolving conflicts arising out of the substantive rules of contractual obligations. In

contracts usually based on the principle of equivalence of benefits in response to one of the parties is the payment in cash for operations already performed, services performed, and tangible or intangible goods produced. The principle adopted in the law is the

obligation to pay remuneration for activities that the report’s authors regard as the

“essence” (centre of gravity) of the socio-economic functions performed by the specified contract of obligations. M. Giuliano and P. Lagarde, with effect emphasise that the

remuneration paid in exchange for the execution of the provision stipulated in the contract cannot be any point of reference for identifying the characteristic features of the

obligations. Indeed remuneration is paid in all cases of various obligations performed. This means that the basis for determining the characteristic performance can only be specified in the contract by the obligations of either party in rem. This eliminates the possibility of using determinants as defined in Article 4 of the Convention to such agreements, when both parties are required to carry out on their behalf certain services or benefits of a particular type. Each of the performances made for the other party under the contract has a definite monetary value. It is taken into account when making the settlement agreement between the parties. However, none of the parties to such an agreement are required to make cash payments to the other party for services rendered or goods supplied. Barter

trade, involving the supply of goods of a specified value in exchange for another commodity which has a similar value, used in contracts in which there are foreign elements could not be governed by the conflict rules laid down in Article 4 of the

Convention because of the difficulty in establishing which single party bears the obligation of characteristic performance. Since the parties to such an agreement do not use currency in trading, exchanging instead goods and/or services that are usually treated by their trading partners as the core of the socio-economic function, to solve conflict rules of substantive law it would be appropriate to use other determinants than those listed in Article 4, paragraphs 1 and 2 of the Rome Convention.

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The contract has a close relationship to the law of both countries, and the presumption set out in Article 4, paragraph 2 of the Convention cannot be used to establish which

relationship is the “closest” because each party is required to meet the characteristic performance. Indeed, none of the parties is required to pay in cash for the performance carried out by the other party of the contract in which there are foreign elements. A lack of possibilities to make use of the presumptions laid down by the international legislature in Article 4, paragraph 2 of the Rome Convention, obliges the contracting parties and the courts to determine which of the parties of the contract has a stronger relationship with the law of one of the two countries. Arguments presented are not establishing the value of the determinant listed in Article 4 of the Convention. Presumption laid down in Article 4,

paragraph 2 of the Convention need not be strictly applied. The provision of Article 4, paragraph 5 of the Rome Convention relieved the entities responsible for resolving

disputes from applying Article 4, paragraph 2 of the Convention if the characteristic of the obligation to provide a regulated agreement cannot be determined or where as a whole it is made obvious that the contract is more closely connected to another country. The arguments presented above apply to agreements, where each party is required to render services or goods for the other party, and also in part to pay remuneration for services and delivered goods. Article 4, paragraph 2 of the Rome Convention does not in practice apply to contracts concluded within Member States that are not expressed at all or partially regulated in cash.

An employment contract, in which there are foreign elements always defines the employer’s obligation in cash, in the form of remuneration for work performed by the employee. For this reason characteristic performance may occur in the obligation entailed in the contract of employment the employee has entered into. Specific features of the

employment relationship, distinguishing the work provided under the contract of

employment, working or professional activities involving the provision of certain services is subordinated to personal performance of a particular type of work as agreed to in the contract of employment for employers and at the risk of the employer, and under his direction at the time frame set by the employer. From the above definition that the

characteristic feature of the obligations specified in the contract of employment, in which there are foreign elements, the worker is required to perform work personally for the employer and under his direction, in a place designated by the employer and within the time frame set by the employer. The most characteristic features of the obligations of a regulated contract of employment is the worker’s obligation to carry out work as instructed.

If Article 7, paragraphs 1 and 2 of the Rome Convention was applicable to labour relations, a critical determinant to identify the relevant national regime of substantive labour law in the event of a conflict of this branch of law would be the usual residence of the employee.

Depending on whether the employee performs his work at the place of residence or whether he regularly travels between the town in which the employee resides in and the place he works in, the appropriate labour law, which regulates the employment contract, is the law of the place of residence or place of work.

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In obligatory labour relations involving a foreign element there could never be the application of the presumption of a company, association or legal person pointing to the head office of these entities, because those institutions in the employment relationship may occur only as an employer. The employer, on the other hand, in accordance with the concept of Article 4, paragraph 2 of the Convention of fulfilling the characteristic

performance of any obligation, which could be recognised as meeting the performance, does not fulfil it. Individual labour law provisions require the employer to pay wages to the employee for work done. Other obligations imposed on employers by the national

legislature, in principle, cannot be regarded as a tangible benefit of having the nature of donations to the value defined benefit assets. I write “in principle,” because the employer may be required by the national legislature to satisfy the social needs of employees. Such an obligation is often held by employers, subject to their assets for social purposes.

[footnote 123 ] There is no duty on the employer to facilitate staff in raising their

professional skills. In the latter case, the legal basis for the employer’s obligations and an obligation corresponding to the employee’s entitlements to certain monetary benefits and in kind constitutes the agreement to supplement the general education or vocational

training, the improvement of professional qualifications. In exchange for relieving the employee by the employer from performing certain duties can be the application of a set working time, providing relief and training leave or unpaid leave, or to pay the costs of training and reimbursement of expenses related to participation in training sessions. This is an agreement which is separate from the contract of employment. In addition, the employer is governed by the Agreement and shall pay an employee or compensate in the form of payment. For this reason, they do not meet the requirements to be considered to provide specific provision within the meaning of Article 4, paragraph 2 of the Rome Convention.

Another presumption set out in Article 4, paragraph 2 of this Convention does not apply to employment contracts. It refers to an agreement concluded in the framework of a

professional or business party. Such an agreement may not include an employee, but only the person providing services in the ordinary course of business or employer. Thus, the indication on the basis of the presumption of law appropriate to the location of main

professional or business party. Such an agreement may not include an employee, but only the person providing services in the ordinary course of business or employer. Thus, the indication on the basis of the presumption of law appropriate to the location of main