On the 17 December 2009 the Rome I Regulation will replace the Rome Conven- tion. The United Kingdom and Ireland have opted to adhere to the Rome I Regula- tion. The Rome Convention therefore remains applicable only in cases which involve Denmark.
2.4.1 Rome Convention
At the present time in most European countries the proper law of the contract has to be determined in accordance with the so called Rome Convention. The Rome Convention has the force of law in the United Kingdom pursuant to Section 1 and Schedule 1 of the Contracts (Applicable Law) Act 1990 and in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, Portugal, Sweden and Spain. Subsequently Estonia, Latvia, Poland, Malta, Slove- nia, Hungry, Cyprus, Lithuania, Czech, Slovakia adhered. Its relevant provisions are as follows.
Article 3 (Freedom of Choice) provides:
1. A contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable for the whole or a part only of the contract.
Under a FIDIC contract the parties usually choose the applicable law to the contract.
This is what is suggested by Sub-Clause 1.4 and what usually happens by indication of the relevant law in the Appendix to Tender. However sometimes the parties to the contract ignore the fact that a country is split in different jurisdictions, such as is the case in the United Kingdom or the United States of America. In those cases the relevant jurisdiction instead of the relevant country must be indicated in order to determine the applicable law in a precise way, leaving no room for ambiguities.
In the absence of an express or implied choice of law by the parties, article 4(1) of the Rome Convention provides that the contract shall be governed by the law of the country with which it is most closely connected. Article 4(2) provides that, subject to the provisions of article 4(5), it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of the conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporat- ed, its central administration. Article 4(5) provides that article 4(2) shall not apply if the characteristic performance cannot be determined. Article 4(5) further provides that the presumptions in paragraphs (2), (3) and (4) shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country. Articles 4(3) and (4) have no application to the present case. They make provision for particular presumptions in relation to certain specified contracts.
Article 4 (Applicable Law in the absence of choice) provides:
1. To the extent that law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected. . .
2. Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or un-incorporate, its central administration. However, if the contract is entered into the course of that party’s trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated.
3. . . . 4. . . .
5. Paragraph 2 shall not apply if the characteristic performance cannot be deter- mined and the presumptions of paragraphs 2, 3 and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country.
However there is no unanimous position which prevails worldwide. Under the traditional conflict of laws rules in Florida (USA), it is well settled that “matters bearing on the validity and substantive obligation of contracts are determined by the law of the place where the contract is made (lex loci contractus),”5 whilst Colorado has adopted the “most significant relationship” approach of the Restate- ment (Second) of Conflict of Laws for resolving questions in contract cases.6In some jurisdictions such as in France the place where the works were carried out is the preferred most significant relationship in contract cases (Re´my-Corlay2001, p.670; Glavinis1993, note 646 et seq.).
It has been decided to replace the Rome Convention by a new EC Regulation, also referred to as the Rome I Regulation. The Regulation aims at converting the Rome Convention on the law applicable to contractual obligations into a Commu- nity Regulation and to modernise some of its rules. A final draft of the Rome I Regulation is already available. According to the new Regulation a contract shall be governed by the law chosen by the parties. The choice shall be made expressly or clearly demonstrated by the terms of the contract or the circumstances of the case.
To the extent that the law applicable to the contract has not been chosen, a contract for services shall be governed by the law of the country where the service provider
5Jemco, Inc v. United Parcel Service, Inc, 400 So.2d 499 (Fla.3d DCA 1981), review denied, 412 So.2d 466 (Fla.1982); Lincoln P. Tang-How, d/b/a Tang How Brothers, General Contractors v.
Edward J. Gerrits, Inc and others 961 F.2d 174.
6Wood Bros. Homes, Inc v. Walker Adjustment Bureau 198 Colo 444, 601 P.2d 1369 (1979).
has his habitual residence. However, where it is clear from all the circumstances of the case that the contract is manifestly more closely connected with a country other than where the service provider has his habitual residence, the law of that other country shall apply. Thus in principle the legal situation does not change in substance. It is however worth to note that the new Regulation does not exclude the option to choose a non state body of law such as the European Principles of Contract law or the Unidroit Principles on commercial contracts.
Sometimes mandatory rules do exist the respect for which is regarded as crucial by a country for safeguarding its political, social or economic organisation to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract. This type of rules prevails over the proper law of the contract. A good example for this type of rule is the French decennial liability according to art. 1792 et seq. French Civil Code, having been adopted by act of parliament in a number of other jurisdictions, such as Algeria, Angola, Belgium, Egypt, Luxemburg, Malta, Morocco, Spain, Romania, Tunisia, and the United Arab Emirates. The decennial liability has been enacted in order to guarantee the structural stability of building works, which is legitimised by public interest concerns. Whichever law the parties have agreed to apply to their contract, the decennial liability of the country where the site is located will apply.
2.4.2 Rome I Regulation
The Rome I Regulation slightly changes the existing conflict of laws rules as to contractual relationships. However, in principle the legal situation will be upheld.
According to Article 3 Rome I Regulation the parties to a contract may choose the applicable law. Consideration 13 of the new Regulation provides for a new option by stating that the Regulation does not preclude parties from incorporating by reference into their contract a non-State body of law or an international conven- tion. Hence it will be possible to submit the contract to the Unidroit Principles for commercial contracts or the European Principles of Contract Law (EPCL). Al- though it has already been said by Prof. Molineaux (1997, p. 55 et seq.), that the FIDIC forms of contract are widely used and that their dissemination has already developed a degree of commonality or constructionlex mercatoria, it is submitted that it will not be sufficient to refer to the FIDIC form of contract as such as they do cover all of the legal questions arising from a construction contract (Fig.2.1).
Choice of Law
Art. 3 (1) express
tacit
Proper Law of the contract
Fig. 2.1 Choice of Law
If the Parties did not choose the proper law of the contract, Article 4 Rome I Regulation applies. Therein a new system for the purposes of the determination of the proper law of the contract has been established, which distinguishes between nominate and innominate contracts. The proper law of the contract as to all types of contracts having been listed in Article 4 paragraph 1 Rome I Regulation shall be the one which has been ruled accordingly. In the case of an innominate contract the contract shall be governed by the law of the country where the party required to effect the characteristic performance of the contract has his habitual residence (Art.
4 paragraph 2 Rome I Regulation). Where it is clear from all the circumstances of the case, that the contract is manifestly more closely connected with a country other than that indicated in Article 4 paragraphs 1 or 2, the law of that other country shall apply. Finally, if the proper law of the contract cannot be determined pursuant to Article 4 paragraphs 1 or 2 Rome I Regulation, the contract shall be governed by the law of the country with which it is most closely connected.
As to construction contracts and consultancy agreements this will have the following effect:
According to Consideration no. 17 of the Rome I Regulation as far as the applicable law in the absence of choice is concerned, the concept of “provision of services” and “sale of goods” should be interpreted in the same way as when applying Article 5 of Regulation (EC) No 44/2001 in so far as sale of goods and provision of services are covered by that Regulation. By consequence all construc- tion contracts and consultancy agreements will have the nature of a service agree- ment (Kropholler2005, Art. 5 note 44) and they will be governed by the law of the country where the service provider has his habitual residence. Whether it will be possible to deviate from this rule depends on the merits of the case. If the contract is manifestly more closely connected to a country other than that indicated in Article 4 paragraphs 1 or 2 Rome I Regulation, it is still possible to apply the law of that country. In line with the famous German author Savigny it would be still possible to argue that a construction contract has its natural centre of gravity in the country
No Choice of Law
Art. 4 Nominate
contract Art. 4 (1)
Closer connection
Art. 4 (3)
Characteristic Performance Art. 4 (2)
Innominate contract
Reference to specific law
Closer connection
Art. 4 (3)
No characteristic Performance Art. 4 (4)
Closest connection
Fig. 2.2 Choice of Law without consent
where the works have to be executed. By the way it cannot be completely ignored that more or less all Civil law countries derive their concepts of a contract of letting and hiring from Roman law according to which the locator let the work to the conductor (locatio conductio operis) which meant that the employer placed the site in the hands of the contractor on which he was to expend his labour. This was and is still a main characteristic of a contract for works. To some extent the French decennial liability (see Art. 1792 et seq. Code Civil) shows that the place of working creates a particular responsibility for the stability of the structure also in order to protect the public. This finding constitutes the justification for this type of liability and underlines what Mr. Savigny said (Fig.2.2).