CONFLICT OF LAWS: CONTRACT

This part contains the rules of English law relating to jurisdiction and choice of law for claims relating to contracts. By "jurisdiction" is meant whether the English courts will hear the claim. By "choice of law" is meant which law the English courts will apply to the substance of the dispute. Caution is advised before relying on a summary in this complex area.

The relevant rules on jurisdiction are to be found principally in:

The relevant rules on choice of law are to be found principally in:-

Jurisdiction –Brussels Regulation: Regulation 1215/2012 lays down rules concerning jurisdiction other than within the United Kingdom in civil and commercial matters (but excluding revenue, customs and administrative matters, the liability of the State for acta iure imperii and matters concerning status, insolvency, social security, arbitration, maintenance, wills and succession).

Article 4 of the Regulation provides that generally persons domiciled in an EU Member State shall, whatever their nationality, be sued in the courts of that Member State. This general rule is however subject to important exceptions.

Of particular relevance to contractual claims are the rules on special jurisdiction in s.2 of the Regulation. By art.7(1), a person domiciled in a Member State may also be sued, in matters relating to a contract, in the courts for the place of performance of the obligation in question. In the case of sale of goods/services, unless otherwise agreed, the place of performance is the place in a Member State where the goods/services were or should have been delivered/provided. In Kolassa v Barclays Bank Plc (C-375/13) [2015] C.E.C. 753, the CJEU considered that art.5(1) of Regulation 44/2001 (now art.7(1) of Regulation 1215/2012) did not apply to the relationship between the issuer and the transferee holder of a bearer bond without the issuer having freely assumed an obligation towards that holder. In Brogsitter v Fabrication de Montres Normandes EURL (C-548/12) [2014] 2 W.L.R. 1600, the CJEU considered the meaning of "matters relating to a contract" for the purposes of art.5(1) of Regulation 44/2001 (now art.7(1) of Regulation 1215/2012). (Old) art.5(1) is engaged where the conduct complained of may be considered a breach of the terms of a contract, which may be established by taking into account the purpose of the contract. Even though the claim may be classified under domestic law as a tort claim, it may fall within art.5(1).

Article 8 of the Regulation addresses proceedings related to existing claims. Of particular relevance to contractual claims are the rules that a person domiciled in a Member State may also be sued:

  • on a counter-claim arising from the same contract or facts on which the original claim was based, in the court in which the original claim is pending;
  • in matters relating to a contract, if the action may be combined with an action against the same defendant in matters relating to rights in rem in immovable property in the court of the Member State in which the property is situated.

There are also provisions relating to jurisdiction in matters relating to insurance (s.3), consumer contracts (s.4) and individual contracts of employment (s.5), which depart from the general rule set out above.

There are certain types of claim listed in art.24 for which, despite the rules set out above, certain courts have exclusive jurisdiction, such as proceedings which have as their object rights in rem in immovable property (which are to be determined in the courts where the property is situated), certain company proceedings (which are to be determined where the company has its seat) and proceedings concerned with the registration or validity of IP rights.

Where the jurisdiction of one court is established in accordance with the above rules, any other court shall decline jurisdiction (art.29(3)).

Jurisdiction in relation to a defendant who is not domiciled in a Member State is determined by reference to domestic law, unless there is a relevant jurisdiction agreement (art.25) or the case involves one of the special categories listed in art.24 of the Regulation (immovable property, patents, etc.). See the separate article on Conflict of laws: jurisdiction agreements for further details.

Jurisdiction – Lugano Convention: The Lugano Convention is in very similar terms to Regulation 44/2001 (the predecessor to Regulation 1215/2012). Signatories are the European Union, Iceland, Norway and Switzerland.

Jurisdiction – Within the United Kingdom: Within the United Kingdom (i.e. as between England/Wales, Scotland and Northern Ireland), jurisdiction is determined by reference to the rules in Sch.4 to the Civil Jurisdiction and Judgments Act 1982, which bear similarities to and are modelled on Regulation 44/2001 (the predecessor to Regulation 1215/2012). In particular, para.1 provides the general rule that persons domiciled in a part of the United Kingdom shall be sued in the courts of that part. Paragraph 3(a) provides that a person domiciled in a part of the United Kingdom may, in another part of the United Kingdom, be sued, in matters relating to a contract, in the courts for the place of performance of the obligation in question. Of note are the special provisions relating to jurisdiction over consumer contracts (paras 7-9), individual contracts of employment (para.10) and prorogation of jurisdiction (i.e. jurisdiction agreements) (para.12).

Jurisdiction – Other: Outside the scope of the provisions outlined above, the English court has jurisdiction to entertain a claim in personam against a defendant present and duly served with the claim form in England, as well as against a defendant who submits to the court's jurisdiction.

Outside the scope of the provisions outlined above, the English court may also grant permission to serve a claim form on a defendant out of the jurisdiction of England and Wales, in accordance with the rules of court in Pt 6 of the Civil Procedure Rules (CPR), specifically CPR 6.36.

The court will not grant permission unless satisfied that England and Wales is the proper place in which to bring the claim: CPR 6.37(3). The applicant for permission must explain why the claimant believes that the claim has a reasonable prospect of success and set out the ground in para.3.1 of CPR Practice Direction 6B which is relied on.

Paragraph 3.1 of CPR Practice Direction 6B lists various general grounds for service out of the jurisdiction, including for example where the claim is made for a remedy against a person domiciled within the jurisdiction. Of particular relevance for present purposes are the grounds listed under the heading "claims in relation to contracts", namely where:

  • a claim is made in respect of a contract where the contract
    • was made within the jurisdiction,
    • was made by or through an agent trading or residing within the jurisdiction,
    • is governed by English law, or
    • contains a term to the effect that the court shall have jurisdiction to determine any claim in respect of the contract;
  • a claim is made in respect of a breach of contract committed within the jurisdiction;
  • a claim is made for a declaration that no contract exists where, if the contract was found to exist,

it would comply with the conditions set out in (1).

A defendant can ask the English court to decline jurisdiction on the grounds that the English court is not a convenient forum (forum non conveniens).

Choice of Law – Rome I Regulation: Regulation 593/2008 (sometimes called the "Rome I Regulation") sets out choice of law rules applicable to contractual obligations in civil and commercial matters (art.1(1)) where the relevant contract was concluded after 17 December 2009 (art.28). It does not apply to revenue, customs or administrative matters. There are other specific exclusions from its scope, including notably status, matrimonial property, negotiable instruments, arbitration agreements, choice of court agreements, questions of company law, agency, certain aspects of trusts law and certain insurance matters (art.1(2)).

The general rule is set out in art.3(1): a contract shall be governed by the law chosen by the parties. However, where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement (art.3(3)).

In the absence of express or clear choice, art.4 provides a method for determining the law governing the contract.

Article 4(1) lists rules for specific types of contract, in particular:

  • A contract for the sale of goods shall be governed by the law of the country where the seller has his habitual residence (art.4(1)(a)).
  • A contract for the provision of services shall be governed by the law of the country where the service provider has his habitual residence (art.4(1)(b)).
  • A contract relating to a right in rem in immovable property shall be governed by the law of the country where the property is situated (art.4(1)(c), subject to the exception in 4(1)(d)).
  • A franchise contract shall be governed by the law of the country where the franchisee has his habitual residence (art.4(1)(e)).
  • A distribution contract shall be governed by the law of the country where the distributor has his habitual residence (art.4(1)(f)).
  • A contract for the sale of goods by auction shall be governed by the law of the country where the auction takes place, if this can be determined (art.4(1)(g)).

Article 4(2) states the default rule if none of the above provisions apply: 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.

However, where it is clear from all the circumstances of the case that the contract is manifestly more connected with a country other than that indicated by art.4(1) or 4(2), the law of that other country shall apply (art.4(3)).

Where the law applicable cannot be determined in accordance with the above rules, the contract shall be governed by the law of the country with which it is most closely connected (art.4(4)).

There are special rules applicable where the law applicable has not been expressly or clearly chosen in relation to:

  • Contracts of carriage (art.5).
  • Consumer contracts (art.6).
  • Insurance contracts (art.7).
  • Individual employment contracts (art.8).
  • Nothing in the regulation restricts the application of the overriding mandatory provisions of the law of the forum (art.9).
  • The existence and validity of a contract or term is determined by the law which would govern it if valid (art.10(1)).

Choice of Law – Rome Convention: The Rome Convention, which appears at Sch.1 to the Contracts (Applicable Law) Act 1990, continues to apply to choice of law issues relating to contractual obligations before the Rome I Regulation came into effect (i.e. contracts concluded before 18 December 2009) and (seemingly) to the contracts of insurance where the risk is situated outside the European Union which are excluded from the scope of the Rome I Regulation.

The provisions of the Rome Convention are similar to the Rome I Regulation but there are some important differences. For example, the specific rules in art.4(1) of the Rome I Regulation are new, as are the specific rules for insurance contracts in art.7, and the rules on giving effect to overriding mandatory rules are of narrower scope.

Hague Conference principles on choice of law: On 19 March 2015, the Hague Conference on Private International Law approved principles on the choice of law in international contracts.