Court of Appeal clarifies that “mandatory rules” do not override chosen law in contracts with an international element

In two recent decisions, the Court of Appeal has clarified that Article 3(3) of the Rome Convention does not apply to override the chosen law where there is an international element to the contract. In both cases, defendants seeking to set aside interest rate swaps entered into under ISDA master agreements subject to English law were therefore unable to rely on mandatory rules in their home jurisdictions: Banco Santander Totta SA v Companhia de Carris de Ferro De Lisboa SA [2016] EWCA Civ 1267 and Dexia Crediop SPA v Comune di Prato [2017] EWCA Civ 428.

Article 3(3) provides that, where a law is chosen to govern a contract but all the other elements relevant to the situation are connected with another country, the choice of law will not prejudice the application of the mandatory rules of that other country. The Court of Appeal held that it was legitimate, when considering whether all elements were connected with another country, to look to elements pointing to the contract having an international aspect, rather than a purely domestic one.

The decisions provide some comfort for commercial parties regarding the risk of a foreign country’s mandatory laws being applied to contracts governed by English law (whether pursuant to Article 3(3) of the Rome Convention or the equivalent provision of the Rome I Regulation, which is in similar terms).

It remains to be seen what will amount to an “international element” in any given case. These decisions suggest this may include the use of international forms of documentation, the international nature of the market and the existence of related contracts entered into in another jurisdiction. Continue reading

European Parliament committee backs proposed Common European Sales Law

In a vote last week, the Legal Affairs Committee of the European Parliament approved by a large majority the European Commission’s proposal for a Common European Sales Law (“CESL”), which was published in October 2011. The proposal provides for a new set of contract law rules that can be chosen to govern cross-border contracts (see here for more detail). The Committee supports limiting the scope of the CESL to contracts involving distance selling, particularly online transactions.

The Commission’s press release describes the vote as a “real breakthrough”, saying it is an important signal from the European Parliament that the CESL is the right tool for cutting transactions costs and boosting cross-border online shopping. Removing barriers to cross-border trade is the key aim of the CESL proposal.

The proposal is opposed by the UK government, whose response last November concluded that there are fundamental flaws in both the principle and the practical operation of the CESL (see here for more detail). The UK response called on the Commission to reconsider its plans. The recent vote suggests, however, that there remains strong support for the proposal in the European Parliament.

Government response to proposal for a Common European Sales Law

The Government Response to the European Commission’s proposal for a Common European Sales Law (“CESL”), which was published on Tuesday (13 November), has concluded that there are fundamental flaws in both the principle and the practical operation of the CESL.

The key aim of the Commission’s proposal for a new set of contract law rules for cross-border contracts (click here for more detail on the proposal) was to remove barriers to cross-border trade. The evidence, however, suggests that the CESL will not promote cross-border trade and will be time-consuming and cumbersome to negotiate and implement.  The government calls on the Commission to reconsider its plans and to carry out a careful and specific review of the barriers to cross-border trade, considering the most appropriate solutions to them, before proceeding any further with negotiation of the proposal.  In the government’s view the harmonisation of consumer law is more likely to promote cross-border trade. Continue reading

House of Commons objects to proposed Common European Sales Law

The House of Commons has objected to the proposed Regulation to introduce a Common European Sales Law (see post) on the basis that it does not comply with the principle of subsidiarity. The House passed a resolution to that effect on 7 December, and has submitted to the European Commission, Council and European Parliament a reasoned opinion supporting its conclusion (click here to download a pdf). Continue reading

Proposed optional Common European Sales Law

On 11 October the European Commission published its proposed Regulation on a Common European Sales Law (download pdf here), aimed at facilitating cross-border transactions in the EU. If adopted, it will insert into the national laws of the 27 EU member states an alternative set of contract law rules which contracting parties could choose as the governing law for their cross-border transactions. Member states will also have the option of allowing the new law to be used for domestic contracts. Continue reading

Further developments on European contract law reform

On 16 February we reported on the European Commission’s Green Paper on policy options for progress towards a European Contract Law, which set out a number of options including its favoured proposal for the creation of an “optional instrument” of European contract law. As we explained, this would insert into the national laws of the 27 EU member states an alternative set of contract law rules which could be chosen by contracting parties as the governing law for their contract. Consultation on the Green Paper closed on 31 January 2011. Click here for more detail on the proposals.

Since then there have been two developments which suggest that there is significant momentum in Brussels for the development of an optional European contract law instrument, despite strong opposition from the UK government and legal community. Continue reading

European contract law reform consultation closes: where next?

In July last year the European Commission published a Green Paper on policy options for progress towards a European Contract Law, which argued that the current system of national laws operating in the internal market creates unnecessary complexity and hampers cross-border trade. It set out seven policy options, ranging from publishing the work of a group of experts looking at the issue through to a Regulation establishing a European civil code.

The Commission apparently favours the 4th option, which would see the creation of an optional instrument of European contract law. This so-called “28th regime” would insert into the national laws of the 27 member states an alternative set of contract law rules which could be chosen by contracting parties as the governing law for their contract. Continue reading