“CONFLICTS OF LAWS AND PRINCIPLES OF CONTRACT:
APPLICABILITY IN INTERNATIONAL CONTRACTUAL AGREEMENTS”
CHAPTER I
INTRODUCTION
Ideally,
any international commercial contract should include a choice of law clause- a
clause stipulating the law applicable to the contract, such as English law. So
that in case of conflict of laws, the court may know or decide which law should
be applicable to the contracting parties or State. In the early stages of the
international trade and commerce, there came into existence a body of rules,
generally called the law of merchants, which regulated most of the aspects of
international trade and commerce give rise to problems of conflict of laws, it
was inevitable that a body of conflictual rules should develop and regulate the
commercial activities whenever they have a foreign element. Since every
commercial activity is ordinarily preceded by a contract, the main problem of
private international law is of determining the governing law of contracts. The
contract must be construed in accordance with its governing law is almost
self-evident. The aim of the court, when called upon to interpret a contract is
to discover the intention of the parties. Accordingly, the governing law
determines what terms or trade usages are to be implied in to the contract and
what meaning is to be attributed to technical, legal or commercial terms.
Conflict of laws- as we all know, is a part of
English law which deals with foreign element. When a commercial contract is
made between two contracting states of different nationality, then the term
“conflict of laws” comes in front and then court has to decide- what law should
be the ‘proper law’ for enforcing the contract and it is court who has to see
whether the contract terms reflects about any choice of law clause or a thing
that shows which law should be applicable on the international contract.
In
the present globalization there exist so many international agreements relating
to international trade law. These agreements will apply only, when the parties
are signatory to the such an agreements, the main problem here arises, is there
lack of consistency in applicability of international agreements in the
countries own law, that is the domestic or private law of a country.
Theoretically there is no conflict between the laws of the countries. But when
these agreement are being applied in practical, then the problem arises. Such a problem may be the consistency between
laws of different laws of countries.
In the modern private international law of
most countries, the mooted point is whether the same law should apply to the
formation of contract as well as to the effect of contract. It is also debated
whether all aspects of the formation of contract should be governed by the same
law or whether some aspects could be governed by one law and other aspects by
another law. The theory that is gaining almost world-wide support and
acceptance is the theory of proper law of the contract.
Along
with the development of an appropriate theory of law applicable to
international contracts at national level, there have been attempts at
developing uniform law applicable to all international contracts at
international level, though not with much success. Then in 1939 the institute
of international law at Rome prepared a draft relating to the contracts of
commercial transaction. After that different conference or conventions were
held in relation to this. After along time , a convention held i.e. Rome
convention and the intention of this convention was to create at least a
harmonized if not a unified body of law which can be effectively apply to
contractual obligations. These international agreements touch the problem only
on the fringe, and therefore solution to the problem only on the fringe, and
therefore solution to the problem of conflict laws in commercial contracts has
to be found by the private international law of each individual country.
As
above said the law relating to sale contracts varies from state and any
uncertainty also in respect of rights and obligations of the parties to the
contract and the available remedies in the event of dispute. The purpose of
this research is to find out how the conflict of laws can be applied to
international contractual obligations.
CONFLICTS OF LAWS – CONCEPT AND MEANING
DEFINITIONS
OF PRIVATE INTERNATIONAL LAW OR CONFLICT OF LAWS
In the words of Cheshire: “ Private International Law,
then, is that part of law which comes into play when the issue before the court
affect some facts events or transaction that is so closely connected with a foreign
system of law as to necessitate recourse to that system.”
In the words of Dicey and Morris, English private
international law is that branch of law of England which “ consist of rules
which do not directly determines the rights and liabilities of particular
persons but which determines the limits of jurisdictions to be exercised by the
English courts and also the choice of body of law, whether domestic law of
England or the law of any foreign country by reference to which English courts
are to determine different matters brought before them for decision.”
Conflict of laws, private
international law, or international law (private), in common
law systems cvx, is that
branch of international law and
international interstate law that regulates all lawsuits involving a "foreign" law element where
different judgments will result depending on which jurisdiction's laws are
applied as the lex causae or you
can say as the branch of English law known as the conflict of laws is that part
of the law of England which deals with cases having foreign element. By a
“foreign element” is meant simply a contract with some system of law other then
the English law.
Such a contract may exist, for example, because a contract was made or to be
performed in foreign country, or because a tort was committed there, or because
property was situated there, or because the parties are not English.
In civil law systems, private international law is a branch of the
internal legal system dealing with the determination of which state law is
applicable to situations crossing over the borders of one particular state and
involving a "foreign element" , (collisions of law, conflict of
laws). Lato sensu it also includes international civil
procedure and international commercial arbitration (collisions of jurisdiction, conflict of
jurisdictions), as well as citizenship
law (which strictly speaking is part of public
law).
There are two major streams of legal thought on the
nature of conflict of laws. One group of researchers regards Conflict of Laws
as a part of international law, claiming that its norms are uniform, universal
and obligatory for all states. This stream of legal thought in Conflict of Laws
is called "universalism". Other researchers maintain the view that
each State creates its own unique norms of Conflict of Laws pursuing its own
policy. This theory is called "particularism" in Conflict of Laws.
1)
Private international law
"sensu stricto" comprising conflict of laws rules which determine the
law of which country (state) is applicable to specific relations.
2)
Private international law
"sensu lato" which comprises private international law "sensu
stricto" (conflict of laws rules) and material legal norms which have
direct extraterritorial character and are imperatively applied (material norms
of law crossing the borders of State) - usually regulations on real
property, consumer law, currency control regulations, insurance and banking regulations.
In common law systems, conflict of laws, firstly, is
concerned with determining whether the proposed forum has jurisdiction to adjudicate and is the appropriate venue for dealing with the dispute, and, secondly, with
determining which of the competing state's laws are to be applied to resolve the dispute. It
also deals with the enforcement of foreign
judgments.
Its three different names — conflict of laws, private
international law, and international private law — are generally
interchangeable, although none of them is wholly accurate or properly
descriptive. The term conflict of laws is primarily used in jurisdictions
of the Anglo-Saxon legal tradition (United States, England, Canada, Australia,
etc.); private international law is used in France (droit
international privé) as well as in Italy, the Spanish-speaking and
Portuguese-countries and Greece; international private law is used in
Germany and the other German-speaking countries (internationales Privatrecht)
Within local federal systems where inter-state
legal conflicts require resolution, (such as in the United
States), the term conflict of laws is preferred
simply because such cases are not an international issue. Hence the term conflict
of laws is a more general term for a legal process for resolving similar
disputes, regardless whether the relevant legal systems are international or
inter-state, though this term is also criticised as being misleading in that
the object is the resolution of
conflicts between competing systems rather than
"conflict" itself. The term conflict of laws
is usually used by common law countries, while for civil law countries the term
private international law is more appropriate. The term private international
law was coined by American lawyer and Judge Joseph
Story, but was abandoned subsequently by common law
scholars and embraced by civil law lawyers.
CHAPTER II
PRINCIPLES OF CONTRACT AND CHOICE OF LAW BY
PARTIES TO CONTRACT
The choice
of law or proper law for the contract is the main system of law applied to
decide the validity of most aspects to the contract including its formation,
validity, interpretation, and performance. This does not deny the power of the
parties to agree that different aspects of the contract shall be governed by
different systems of law. But, in the absence of such express terms, the court
will not divide the proper law unless there are unusually compelling
circumstances. And note the general rule of the lex fori which applies the provisions of the proper law as it is
when the contract is to be performed and not as it was when the contract was
made.
The parties
to a valid contract are bound to do what they have promised. So, to be
consistent, the Doctrine of Proper Law examines the parties'
intention as to which law is to govern the contract. The claimed advantage of
this approach is that it satisfies more abstract considerations of justice
if the parties are bound by the law they have chosen. But it raises the
question of whether the test is to be subjective, i.e. the law actually
intended by the parties, or objective, i.e. the law will impute the intention which reasonable men in
their position would probably have had. It cannot safely be assumed that the
parties did actually consider which of the several possible laws might be
applied when they were negotiating the contract. Hence, although the courts would
prefer the subjective approach because this gives effect the parties' own
wishes, the objective test has gained in importance. So the proper law
test today is three-stage:
1.
it is the law intended by the parties
when the contract was made which is usually evidenced by an express choice of law clause; or
2.
it is implied by the court because
either the parties incorporated actual legal terminology or provisions specific
to one legal system, or because the contract would only be valid under one of
the potentially relevant systems; or
3.
if there is no express or implied
choice, it is the law which has the closest and most real connection to the
bargain made by the parties.
It is only
fair to admit that the task of imputing an intention to the parties in the
third situation presents the courts with another opportunity for uncertainty
and arbitrariness, but this overall approach is nevertheless felt to be the
lesser of the available evils.
Express
selection
When the
parties express a clear intention in a formal clause, there is a rebuttable
presumption that this is the proper law because it reflects the parties'
freedom of contract and it produces certainty of outcome. It can only be
rebutted when the choice is not bona fide, it produces illegality, or it
breaches public policy. For example, the parties may have selected the
particular law to evade the operation of otherwise mandatory provisions of the
law which has the closest connection with the contract. The parties are not
free to put themselves above the law and, in such cases, it will be for the
parties to prove that there is a valid reason for selecting that law other than
evasion.
Implied
selection
When the
parties have not used express words, their intention may be inferred from the
terms and nature of the contract, and from the general circumstances of the
case.
For example, a term granting the courts of a particular state exclusive
jurisdiction over the contract would imply that the lex fori is to be
the proper law. This has been repeated by the court of appeal and has
been approved expressly at least by one of the opinions in the House of Lords.
Closest
and most real connection
In default,
the court has to impute an intention by asking, as just and reasonable persons,
which law the parties ought to, or would, have intended to nominate if they had
thought about it when they were making the contract. In arriving at its
decision, the court uses a list of connecting factors, i.e. facts which have an
unambiguous geographical connection, and whichever law scores the most hits on
a league table created from the list will be considered the proper law.
The current list of factors includes the following:
4.
the language in which the contract
documents is written;
5.
the format of the documents, e.g. if a
form is only found in one relevant country, this suggests that the parties
intended the law of that country to be the proper law;
6.
the currency in which any payment is to
be made;
7.
the flag of any ship involved;
8.
the place where the contract is made
(which may not be obvious where negotiations were concluded by letter, fax or
e-mail);
9.
the place(s) where performance is to
occur;
10.
any pattern of dealing established in
previous transactions involving the same parties; and
11.
where any insurance companies or
relevant third parties are located.
Dépeçage
Problems
There are
many problems affecting this area of law, but two of the most interesting are:
A.
Incapacity
through age
States
approach the issue of intentionality from two related, but distinct,
conceptual directions:
1.
liability in which the law holds individuals
responsible for the consequences of their actions, and
2.
exculpability in which fundamental
social policies exclude or diminish the liability that actors would have
incurred in different circumstances.
Many states
have policies which protect the young and inexperienced by insulating them from
liability even though they may have voluntarily committed themselves to unwise
contracts. The age at which children achieve full contractual capacity
varies from state to state but the principle is always the same. Infants
are not bound by many otherwise valid contracts, and their intention is
irrelevant because of the legal incapacity imposed on them by the state of the domicile
(the lex domicilii)
or nationality
(the lex patriae).
This recognises a set of social values that requires exculpation even though
there is relevant action and consent freely given.
Equally,
states have an interest in protecting the normal flow of trade within their
borders. If businesses had constantly to verify the nationality or domicile of
their customers and their ages, this might slow down business and, potentially,
infringe privacy legislation. Hence, conflicts of public policy can emerge
which complicate the choice of law decision and invite forum
shopping, i.e. traders will always seek to sue infants with whom
they have contracts in those states which accord priority to commercial
interests, while children will seek the avoidance of liability in the courts
which protect their interests. This would be achieved during the characterization stage by classifying the
issue as status and its incidents rather than contract
because a party's status and lack of capacity would be in rem.
B.
Mistake,
misrepresentation, etc.
In many
states, fundamental mistakes, misrepresentations and similar defects may make a
contract void ab initio,
i.e. the defect is so serious that it prevents an agreement from ever coming
into being. If this happens, every term in the contract including the express
selection of the proper law, would be unenforceable. This raises the
question of whether the lex fori should operate a policy of saving the
validity of contracts wherever possible. Suppose that a contract would be valid
under many potentially relevant laws but not under the putative proper
law, and that, until problems arose, the parties have acted in good faith
on the assumption that they will be bound by the agreement, some courts might
be tempted to ignore the apparent proper law and choose another that
would give effect to the parties general contractual intentions.
English
law
In English law,
the Contracts (Applicable Law) Act 1990 formally incorporates the Convention
on the Law Applicable to Contractual Obligations the "Rome Convention") opened for signature
in Rome on 19th June 1980 and signed by the United
Kingdom on 7th December 1981; the Convention on the Accession of
the Hellenic Republic to the Rome Convention (the "Luxembourg
Convention") signed by the United Kingdom in Luxembourg on 10th April
1984; and the first Protocol on the Interpretation of the Rome Convention by
the European Court (the "Brussels Protocol") signed by the United
Kingdom in Brussels on 19th December 1988.
Choice
of law-
Choice of law is a procedural stage in the litigation of a case
involving the conflict of
laws when it is necessary to
reconcile the differences between the laws of different legal jurisdictions,
such as states, federated
states (as in
the US), or provinces. The outcome of this process is potentially to
require the courts of one jurisdiction to apply the law of a different jurisdiction in lawsuits arising from, say, family law, tort or contract. The law which is applied is sometimes referred to
as the "proper law".
Choice of law rule
Courts
faced with a choice of law issue have a two-stage process:
1.
the court will apply the
law of the forum (lex fori) to all procedural matters (including,
self-evidently, the choice of law rules); and
2.
it counts the factors that
connect or link the legal issues to the laws of potentially relevant states and
applies the laws that have the greatest connection, e.g. the law of nationality (lex
patriae) or domicile (lex
domicilii) will define legal status and capacity, the law of the state in which land is situated (lex
situs) will be applied to determine all questions of title, the law
of the place where a transaction physically takes place or of the occurrence
that gave rise to the litigation (lex loci actus) will often be the
controlling law selected when the matter is substantive, but the proper
law has become a more common choice.
For example, suppose that Alexandre who has a French
nationality and residence in Germany, corresponds with Bob who has American
nationality, domicile in Arizona, and residence in Austria, over the internet. They agree the joint purchase of land in
Switzerland, currently owned by Heidi who is a Swiss national, but they never
physically meet, executing initial contract documents by using fax machines, followed by a postal exchange of hard
copies. Alexandre pays his share of the deposit but, before the transaction is
completed, Bob admits that although he has capacity to buy land under his lex
domicilii and the law of his residence, he is too young to own land under
Swiss law. The rules to determine which courts would have jurisdiction and
which laws would be applied to each aspect of the case are defined in each
state's laws so, in theory, no matter which court in which country actually
accepts the case, the outcome will be the same (albeit that the measure of
damages might differ from country to country which is why forum shopping is
such a problem). In reality, however, moves to harmonize the conflictual system have not reached the point
where standardization of outcome can be guaranteed.
Choice of law clause-
A choice
of law clause or proper law clause in a contract is one in which the parties
specify which law
(i.e. the law of which state or nation if it
only has a single legal system) will be applied to resolve any disputes arising
under the contract.
If all the
parties and the relevant factual elements affecting formation, validity, and
performance are geographically located in the same state, it will be obvious
that, if the contract is silent on the point, the local municipal law (usually
called the lex loci contractus, i.e. the law of the place where the
contract was made) will be applied as the law governing substantive issues. The
lex fori,
i.e. the law of the local forum court, will be applied to procedural matters
(such as evidentiary rules, etc). But, as people and transactions now more
frequently cross state lines both physically and electronically, it becomes
necessary to consider which law will be applied in the event of a dispute. Should
the laws be the same, the question will be academic. But, if the laws are
sufficiently different that the judgment will change depending on which law the court applies, the issue
of choice of law
becomes highly significant.
As an
application of the public policy of freedom of contract, the parties have autonomy
to make whatever bargain they want. Thus, in principle, the parties are free to
nominate any law as the proper law of their contract even though there
may be no other connection between the substance of the obligations and the law
selected. However, such clauses could be used as a device to evade
the application of a mandatory provision of law within a relevant legal system.
Consequently, most states will not honour choice of law clauses unless they are
seen to have been included on a bona fide basis. If the clause is recognised as
a good faith term, the 'forum state' must apply the nominated proper
law to resolve the dispute.
Contracts
and choice of law
The choice
of law rules for contracts are more complicated than the law affecting other
obligations because they depend on the express or implied intentions of the
parties and their personal circumstances. For example, questions as to whether
a contract is valid may depend on the capacity of the parties to enter into a
contract. This could be decided by reference to the lex domicilii, lex
patriae or habitual residence of the parties, or for policy reasons, by
reference to the lex loci contractus. But, if the contract was made
electronically, where the contract was actually made must first be decided
either by the lex fori or the putative proper law depending on the forum
rules. There may also be problems if the parties selected the place where the
contract was made in the hope of evading
the operation of some mandatory provisions in another relevant law.
On the other
hand, deciding matters relating to performance will usually depend on
the lex loci solutionis. Another unique characteristic of contracts is
that the parties can decide which law should apply for most purposes, and
memorialize that decision into the contract itself (see forum selection clause and choice of law clause) — although not every
jurisdiction will enforce such provisions. For the harmonising
provisions on contractual obligations in EU law,
see the Rome Convention (contract).
CHAPTER III
INTERNATIONAL CONTRACTS- SCOPE AND LIMIT
International
Commercial contracts (terms) (Incoterms)is that how traders can use them in
buyer or seller contracts to make clear who is responsible for the goods at
each point of the transport process. The guide also explains the benefits of
using Incoterms and what each Incoterm means for the buyer and seller, as well
as offering sources of further help and advice for traders.
MEANING
Incoterms
or international commercial terms (contracts) are a series of international
sales terms that are widely used throughout the world. They are used to divide
transaction costs and responsibilities between buyer and seller and reflect
state-of-the-art transportation practices. They closely correspond to the U.N.
Convention on Contracts for the International Sale of Goods.
Incoterms
deal with the questions related to the delivery of the products from the seller
to the buyer. This includes the carriage of products, export and import
clearance responsibilities, who pays for what, and who has risk for the
condition of the products at different locations within the transport process.
Incoterms are always used with a geographical location and do not deal with
transfer of title.
They are
devised and published by the International Chamber of Commerce
(ICC). The English text is the original and official version of Incoterms 2000,
which have been endorsed by the United Nations Commission on International
Trade Law (UNCITRAL).
Authorized translations into 31 languages are available from ICC national
committees.
PURPOSE AND SCOPE OF
INCOTERMS
The purpose
of Incoterms is to provide a set of international rules for the interpretation
of the most commonly used trade terms in foreign trade. Thus, the uncertainties
of different interpretations of such terms in different countries can be
avoided or at least reduced to a considerable degree.
Frequently,
parties to a contract are unaware of the different trading practices in their
respective countries. This can give rise to misunderstandings, disputes and
litigation with all the waste of time and money that this entails. In order to
remedy these problems the International Chamber of Commerce first published in
1936 a set of international rules for the interpretation of trade terms. These
rules were known as "Incoterms 1936". Amendments and additions were
later made in 1953, 1967, 1976, 1980, 1990 and presently in 2000 in order to
bring the rules in line with current international trade practices.
It should be
stressed that the scope of Incoterms is limited to matters relating to the
rights and obligations of the parties to the contract of sale with respect to
the delivery of goods sold (in the sense of "tangibles", not
including "intangibles" such as computer software).
It appears
that two particular misconceptions about Incoterms are very common. First,
Incoterms are frequently misunderstood as applying to the contract of carriage
rather than to the contract of sale. Second, they are sometimes wrongly assumed
to provide for all the duties which parties may wish to include in a contract
of sale.
As has
always been underlined by ICC, Incoterms deal only with the relation between
sellers and buyers under the contract of sale, and, moreover, only do so in
some very distinct respects.
While it is
essential for exporters and importers to consider the very practical
relationship between the various contracts needed to perform an international
sales transaction - where not only the contract of sale is required, but also
contracts of carriage, insurance and financing - Incoterms relate to only one
of these contracts, namely the contract of sale.
Nevertheless,
the parties' agreement to use a particular Incoterm would necessarily have
implications for the other contracts. To mention a few examples, a seller
having agreed to a CFR - or CIF -contract cannot perform such a contract by any
other mode of transport than carriage by sea, since under these terms he must
present a bill of lading or other maritime document to the buyer which is
simply not possible if other modes of transport are used. Furthermore, the
document required under a documentary credit would necessarily depend upon the
means of transport intended to be used.
Second,
Incoterms deal with a number of identified obligations imposed on the parties -
such as the seller's obligation to place the goods at the disposal of the buyer
or hand them over for carriage or deliver them at destination - and with the
distribution of risk between the parties in these cases.
Further,
they deal with the obligations to clear the goods for export and import, the
packing of the goods, the buyer's obligation to take delivery as well as the
obligation to provide proof that the respective obligations have been duly
fulfilled. Although Incoterms are extremely important for the implementation of
the contract of sale, a great number of problems which may occur in such a
contract are not dealt with at all, like transfer of ownership and other
property rights, breaches of contract and the consequences following from such
breaches as well as exemptions from liability in certain situations. It should
be stressed that Incoterms are not intended to replace such contract terms that
are needed for a complete contract of sale either by the incorporation of
standard terms or by individually negotiated terms.
Generally,
Incoterms do not deal with the consequences of breach of contract and any
exemptions from liability owing to various impediments. These questions must be
resolved by other stipulations in the contract of sale and the applicable law.
Incoterms
have always been primarily intended for use where goods are sold for delivery
across national boundaries: hence, international commercial terms. However,
Incoterms are in practice at times also incorporated into contracts for the
sale of goods within purely domestic markets. Where Incoterms are so used, the
A2 and B2 clauses and any other stipulation of other articles dealing with
export and import do, of course, become redundant.
INCORPORATION OF INCOTERMS INTO THE CONTRACT
OF SALE
In view of
the changes made to Incoterms from time to time, it is important to ensure that
where the parties intend to incorporate Incoterms into their contract of sale,
an express reference is always made to the current version of Incoterms. This
may easily be overlooked when, for example, a reference has been made to an
earlier version in standard contract forms or in order forms used by merchants.
A failure to refer to the current version may then result in disputes as to
whether the parties intended to incorporate that version or an earlier version
as a part of their contract. Merchants wishing to use Incoterms 2000 should
therefore clearly specify that their contract is governed by "Incoterms
2000".
THE STRUCTURE OF INCOTERMS
In 1990, for
ease of understanding, the terms were grouped in four basically different
categories; namely starting with the term whereby the seller only makes the
goods available to the buyer at the seller's own premises (the "E"
-term Ex works); followed by the second group whereby the seller is called upon
to deliver the goods to a carrier appointed by the buyer (the "F"
-terms FCA, FAS and FOB); continuing with the "C" -terms where the
seller has to contract for carriage, but without assuming the risk of loss of
or damage to the goods or additional costs due to events occurring after
shipment and dispatch (CFR, CIF, CPT and CIP); and, finally, the "D"
-terms whereby the seller has to bear all costs and risks needed to bring the goods
to the place of destination (DAF, DES, DEQ, DDU and DDP). The following chart
sets out this classification of the trade terms.
Group E
Departure
|
|
Group F
Main carriage unpaid
|
|
Group С
Main carriage paid
|
|
Group D
Arrival
|
|
Further,
under all terms, as in Incoterms 1990, the respective obligations of the
parties have been grouped under 10 headings where each heading on the seller's
side "mirrors" the position of the buyer with respect to the same
subject matter.
These are the various terms used in international contracts-
Recently the ICC changed basic aspects of the
definitions of a number of INCOTERMS, buyers and sellers should be aware of
this. Terms that have changed have a star alongside them.
EX-Works
One of the simplest and most basic shipment arrangements places the minimum
responsibility on the seller with greater responsibility on the buyer. In an
EX-Works transaction, goods are basically made available for pickup at the
shipper/seller's factory or warehouse and "delivery" is accomplished
when the merchandise is released to the consignee's freight forwarder. The
buyer is responsible for making arrangements with their forwarder for
insurance, export clearance and handling all other paperwork.
FOB (Free On Board)
One of the most commonly used-and misused-terms, FOB
means that the shipper/seller uses his freight forwarder to move the
merchandise to the port or designated point of origin. Though frequently used
to describe inland movement of cargo, FOB specifically refers to ocean or
inland waterway transportation of goods. "Delivery" is accomplished
when the shipper/seller releases the goods to the buyer's forwarder. The
buyer's responsibility for insurance and transportation begins at the same
moment.
FCA (Free Carrier)
In this type of transaction, the seller is responsible
for arranging transportation, but he is acting at the risk and the expense of
the buyer. Where in FOB the freight forwarder or carrier is the choice of the
buyer, in FCA the seller chooses and works with the freight forwarder or the
carrier. "Delivery" is accomplished at a predetermined port or
destination point and the buyer is responsible for Insurance.
FAS (Free Alongside Ship)*
In these transactions, the buyer bears all the
transportation costs and the risk of loss of goods. FAS requires the
shipper/seller to clear goods for export, which is a reversal from past
practices. Companies selling on these terms will ordinarily use their freight
forwarder to clear the goods for export. "Delivery" is accomplished
when the goods are turned over to the Buyers Forwarder for insurance and
transportation.
CFR (Cost and Freight)
This term formerly known as CNF (C&F) defines two
distinct and separate responsibilities-one is dealing with the actual cost of
merchandise "C" and the other "F" refers to the freight
charges to a predetermined destination point. It is the shipper/seller's
responsibility to get goods from their door to the port of destination.
"Delivery" is accomplished at this time. It is the buyer's
responsibility to cover insurance from the port of origin or port of shipment
to buyer's door. Given that the shipper is responsible for transportation, the
shipper also chooses the forwarder.
CIF (Cost, Insurance and Freight)
This arrangement similar to CFR, but instead of the
buyer insuring the goods for the maritime phase of the voyage, the
shipper/seller will insure the merchandise. In this arrangement, the seller usually
chooses the forwarder. "Delivery" as above, is accomplished at the
port of destination.
CPT (Carriage Paid To)
In CPT transactions the shipper/seller has the same obligations found with CIF,
with the addition that the seller has to buy cargo insurance, naming the buyer
as the insured while the goods are in transit.
CIP (Carriage and Insurance Paid To)
This term is primarily used for multimodal transport.
Because it relies on the carrier's insurance, the shipper/seller is only
required to purchase minimum coverage. When this particular agreement is in
force, Freight Forwarders often act in effect, as carriers. The buyer's
insurance is effective when the goods are turned over to the Forwarder.
DAF (Delivered At Frontier)
Here the seller's responsibility is to hire a
forwarder to take goods to a named frontier, which usually a border crossing
point, and clear them for export. "Delivery" occurs at this time. The
buyer's responsibility is to arrange with their forwarder for the pick up of the
goods after they are cleared for export, carry them across the border, clear
them for importation and effect delivery. In most cases, the buyer's forwarder
handles the task of accepting the goods at the border across the foreign soil.
DES (Delivered Ex Ship)
In this type of transaction, it is the seller's
responsibility to get the goods to the port of destination or to engage the
forwarder to the move cargo to the port of destination uncleared.
"Delivery" occurs at this time. Any destination charges that occur
after the ship is docked are the buyer's responsibility.
DEQ (Delivered Ex Quay)*
In this arrangement, the buyer/consignee is
responsible for duties and charges and the seller is responsible for delivering
the goods to the quay, wharf or port of destination. In a reversal of previous
practice, the buyer must also arrange for customs clearance.
DDP (Delivered Duty Paid)
DDP terms tend to be used in intermodal or
courier-type shipments. Whereby, the shipper/seller is responsible for dealing
with all the tasks involved in moving goods from the manufacturing plant to the
buyer/consignee's door. It is the shipper/seller's responsibility to insure the
goods and absorb all costs and risks including the payment of duty and fees.
DDU (Delivered Duty Unpaid)
This arrangement is basically the same as with DDP,
except for the fact that the buyer is responsible for the duty, fees and taxes.
These are the various International Trade
contracts. In relation to these whenever dispute occurs then conflict of laws
comes in front and then court has to decide which law will be applicable in
that dispute.
CHAPTER IV
CONFLICT OF LAWS AND PROPER LAW OF CONTRACT
In a
Conflicts lawsuit, one or more state
laws will be relevant to
the decision-making process. If the laws are the same, this will cause no
problems, but if there are substantive differences, the choice of which law to
apply will produce a different judgment. Each state therefore produces a set of rules to
guide the choice of law, and one of the most significant rules is that the law
to be applied in any given situation will be the proper law. This is the
law which seems to have the closest and most real connection to the facts of
the case, and so has the best claim to be applied.
All laws, to
a greater or lesser extent, are reflections of the public policies of the state that enacted them.
The more important the policy to the society,
the greater the claim of the relevant law to be applied. Thus, if laws exist to
protect citizens,
the law of the place where loss or damage is sustained might have a strong
claim to apply: e.g. in a traffic accident, two cars collide because of faulty
maintenance and both drivers are injured — the local laws exist to provide some
degree of protection for all those who use the roads in that state, setting
minimum standards for the design and maintenance of vehicles, specifying what
levels of insurance
should be carried, setting the minimum age and qualifications for the right to
drive, etc.
But
the problem with accepting the claim of any one state to have its law apply is
that the result may be somewhat arbitrary. So, in the example given, if neither
driver had a residence in the state, and the cars were both maintained outside the
state, the laws of other states may have an equal or better claim to apply. The
advantage of the proper law approach is that it builds in flexibility
rather than offering a mechanical rule. Suppose that there is a contract
between an Italian
company and an English
partnership
for the sale of goods made in Greece
to be shipped from Belgium
on a ship flying the flag of Panama
to a Swedish
port. Adopting a rule such as the lex loci contractus, i.e. apply the
law of the place where the contract was made, might actually select a law
having no other connection with the substance of the bargain made by the
parties. Similarly, picking the lex loci solutionis, i.e. the law
of the place where the contract is to be performed, may prove to be equally
irrelevant, assuming that there is only one place where performance is to
occur: in the example, there is manufacture in Greece, delivery to Belgium,
loading in Belgium, carriage on the high seas, and unloading in Sweden. So, if
the contract does not make an express selection of the law to apply (see choice of law clause), the parties
are deemed to have chosen to be bound by the law with which the contract has
the closest and most real connection.
The meaning of proper law of
contract
Many
contracts also provide for what should be done when parties have dispute in the
future, they either prescribe arbitration or designate courts of some place to
resolve the dispute. But what is the law that will be used to judge the conduct
of the parties if a dispute arises in relation to the contract. Normally in a
domestic contract, i.e. one between two persons of the same country the
applicable law will usually be that of country that they belong to. For
instance if a Indian company based in Bombay agrees to erect a power plant in
Karnataka, the applicable law will necessarily
be Indian law. However it is also generally accepted in most
jurisdictions that parties to a contract, involving an international transaction
are free to choose the law that is to be used as the point of reference in
either interpreting the contract or resolving the disputes that arise and perhaps
in even determining whether the contract is a valid one that binds the parties
to the dispute. This condition by the parties of the law that will govern their
relationship is called the proper law of contract.
LORD
ATKIN in formulating the doctrine of proper law of contract observed:
“The legal principles, which are to guide an
English court on the question of the proper law, are now well settled. It is
the law, which the parties intended to apply. Their intention will be
ascertained by the intention expressed in the contract, if any, which will be
conclusive. If no intention be expressed, the intention will be presumed by the
court from the contract and the relevant surrounding circumstances.”
In
this regard the statement of Lord McNair, the former President of the
International national courts of justice is also important:
…
It is often said that the parties to contract make their own law, and it is, of
course, true that, subject to the rules of public policy and order public, the parties are free to
agree upon such terms as they may choose. Nevertheless, agreements that are
intended to have a legal operation (as opposed to a merely social operation)
create legal rights and duties, and cannot exist in vacuum but must have a
place within a legal system which is available for dealing with such questions
as the validity, application and interpretation of contracts, and generally for
supplementing their express provision….
In
a case Rhodia Ltd v. Neon Laboratories Ltd,
the appellants are English companies and the respondent is an Indian company.
An agreement was entered into between the English company to give exclusive
marketing and distributing rights in India, Sri Lanka, Bangladesh and Nepal to
the latter, of the goods manufactured in India by the former. The parties in
this case have expressly intended the contract to be governed by and construed
in all respects in accordance with the English law with only limitation that
the intention of the parties must be bonafide
and should not be opposed to public policy. Court in this case held that the
purport of Articles 15.1 and 8.1
of the respective agreements, the parties have expressly intended the contract
to be governed by and construed in all respects, including the formation
thereof and performance there under, in accordance with the English law.
Therefore, to my mind, English law will be the “proper law” of the subject
agreements. In other words, the parties to the subject agreements have
expressly intended their contract to be governed by the English legal system.
The proper law of the contractual
relationship between the confirming bank and the beneficiary
Under English
common law the relationship between the confirming bank and the beneficiary
(seller) was accepted to have its closest and most real connection to the country
where the branch at which payment was to be made to the seller was situated. The
proper law was thus the law of the country of the confirming bank. According to
Dicey and Morris, the position remains unchanged under the Rome Convention.
This view was also expressed obiter in the Bank of Baroda case.
It is the confirming bank which effects the characteristic performance either
by (a) providing the banking service of confirmation; or (b) undertaking to pay
the beneficiary upon the presentation of conforming documents.
Therefore, in the context of the relationship between the confirming bank and
the beneficiary, the presumption contained in article 4(2) of the Rome
Convention leads to the application of the law of the country of the confirming
bank.
Where
there is no express choice, the proper law, the law governing the performing
obligations of the parties, may be uncertain, if the parties have not made an
express choice, in which case the proper law is determined, where the seat of
arbitration is in England or wales, by the ordinary rules governing the
ascertainment of the proper law of any contract. Those rules are set out in the
Rome Convention on the law applicable to contractual obligations, and apply to
dispute under contracts between nationals of the states, which are signatories
to the Rome Convention.
CHAPTER V
CONVENTION ON THE LAW APPLICABLE TO CONTRACTUAL
OBLIGATIONS (ROME CONVENTION)
In Conflict of
Laws, the Rome Convention is the Convention on the Law
Applicable to Contractual Obligations and it
opened for signature in Rome on 19th June 1980. The intention is to create at
least a harmonized if not a unified body of law applicable
on contractual obligations.
The
Convention on the law applicable to contractual obligations was opened for
signature in Rome on 19 June 1980 for the then nine Member States. It entered
into force on 1 April 1991. In due course, all the new members of the European
Community signed the Convention. When the Convention was signed by Austria,
Finland and Sweden, a consolidated version was drawn up and published in the
Official Journal in 1998. A further consolidated version was published in the
Official Journal in 2005 following the accession of ten new Member States to the
Convention.
The
Convention applies to contractual obligations in situations involving a choice
of laws - even where the law it designates is that of a non-contracting State -
with the exception of:
1.
questions involving the status or legal
capacity of natural persons;
2.
contractual obligations relating to
wills, matrimonial property rights or other family relationships;
3.
obligations arising under negotiable
instruments (bills of exchange, cheques, promissory notes, etc.);
4.
arbitration agreements and agreements on
the choice of court;
5.
questions governed by the law of
companies and other corporate and unincorporate bodies;
6.
the question of whether an agent is able
to bind a principal to a third party (or an organ to bind a company or body
corporate or unincorporate);
7.
the constitution of trusts and questions
relating to their organisation;
8.
evidence and procedure;
9.
contracts of insurance which cover risks
situated in the territories of the Member States (re-insurance contracts are
covered, however).
The signatories
to a contract may choose the law applicable to the whole or a part only of the
contract and select the court which will have jurisdiction over disputes. By
mutual agreement they may change the law applicable to the contract at any time
(principle of freedom of choice).
If the
parties have not made an explicit choice of applicable law, the contract is
governed by the law of the country with which it is most closely connected,
according to the principle of the proper law (place of habitual residence or
place of central administration of the party performing the contract, principal
place of business or place of business responsible for performing the
contract). However, specific rules apply in two cases:
1.
where the contract concerns immovable
property, the law applicable by default is that of the country in which the
property is situated;
2.
where the contract concerns the
transport of goods, the applicable law is determined according to the place of
loading or unloading or the principal place of business of the consignor.
To protect
the rights of the consumer, the supply of goods or services to a person is
covered by special provisions, according to the principle of the protection of
the weaker party. Unless the parties decide otherwise, such contracts are governed
by the law of the country in which the consumer has his habitual residence. In
no circumstances may the choice of law work to the disadvantage of the consumer
or deprive him of the protection afforded by the law of his country of
residence where it is more favourable. These rules do not apply to contracts of
carriage or contracts for the supply of services in a country other than that
in which the consumer has his habitual residence.
In the case
of employment contracts one of the following will apply:
1)
the law of the country in which the
employee habitually carries out his work;
2)
the law of the country in which the
company which employed the worker has its place of business;
3)
the law of the country with which the
employment contract is most closely associated.
If the
parties decide to select another law to apply to the contract, this choice may
not be at the expense of the protection of the worker.
Present or
future provisions of Community law will take precedence over the terms of the
Convention, in particular as regards the choice of law relating to contractual
obligations in relation to particular matters.
If, once the
Convention has entered into force, any Member State wishes to adopt new rules
on the choice of law for a particular category of contract within the scope of
the Convention or become a party to an international convention in this field,
it must inform the other signatories. Each of these States has six months in
which to respond and, if it so wishes, ask for consultations. If no reply has
been received within six months or if no agreement has been reached in
consultations within two years (one year in the case of a multilateral
convention), the requesting State may amend its law or accede to the
Convention.
The
Convention will remain in force for ten years. It will then be tacitly renewed
every five years and may be denounced by one of the signatory States.
Two
protocols on the interpretation of the Convention by the Court of Justice of
the European Communities were signed in 1988. A third protocol, signed in 1980
and supplemented in 1996, authorises Denmark, Sweden and Finland to retain
their national provisions concerning the law applicable to the carriage of
goods by sea.
Four joint
declarations were appended to the Convention:
1)
in 1980 a number of Member States
stressed the importance of measures adopted by the Community on choice of law
rules being consistent with the terms of the Convention;
2)
they also raised the possibility of
conferring jurisdiction for interpreting the Convention on the Court of
Justice;
3)
in 1988, after the two protocols had
been signed, an exchange of information between the Member States and the Court
of Justice on judgments relating to contractual obligations was proposed.
In Conflict of
Laws, the Rome Convention is the Convention on the Law
Applicable to Contractual Obligations and it
opened for signature in Rome on 19th June 1980. The intention is to create at
least a harmonised if not a unified body of law within
the European
Union.
The
uniform rules for contractual obligation under Rome convention-
Express
selection
Article 3
states the general rule that the parties to a contract have freedom of choice
over the Applicable Law. To exercise this choice either express words may be
used or the intention should be demonstrated with reasonable certainty by the
terms of the contract or the circumstances of the case.
The law
chosen may apply to the whole or only a part of the contract, and the choice is
not irrevocable. The parties can at any time agree to change the Applicable Law
and any such variation will not prejudice the formal validity of the agreement
nor adversely affect the rights of third parties.
Where all
the elements of a contract, at the time of its conclusion, are connected with
only one country, Article 3 may not be used to used to evade
the mandatory provisions of the that state (Article 3(4)).
To establish
a choice demonstrated with reasonable certainty, there must have been a
"real choice". That the parties would have chosen a particular law is not sufficient.
The court will take into account both the terms of the contract and the
circumstances of the case.
The Guiliano-Lagarde
Report gives three examples of situations where a real choice may be
demonstrated with reasonable certainty:
1)
Standard form contracts
The report gives as an example a Lloyd’s policy of marine insurance.
2)
Jurisdiction and arbitration
agreements
Implied
selection
If there is
no express choice, Article 4 provides that the contract shall be governed by
the law of the country with which it is most closely connected. If the
agreement is severable, two Applicable Laws may be selected. For these
purposes, it is presumed that the contract is most closely connected with the lex
loci solutionis, i.e. the law of the place where the contract is to be
performed, or the law of the habitual residence of the person who is to
perform, or, in the case of a body corporate or unincorporate, where its
central administration is located. However, if it is a commercial or
professional contract, the Applicable Law will be the law of the place 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 except that there is a rebuttable presumption:
where
the subject matter of the agreement is immovable property, the lex situs
will apply; and contracts for the carriage of goods and charter-parties are
governed by the law of the place in which, at the time the contract is
concluded, the carrier has his principal place of business if that is also the
place in which loading or discharge is to occur or the place where the
consignor has his or her principal place of business,.
A
call was also made for all new Member States of the Community when signing the
Rome Convention to accede to the protocol on the interpretation of the
Convention by the Court of Justice.
CHAPTER
VI
CONCLUSION
While
applying the conflict of laws to the contractual obligation different problems
arise in case of proper law or choice of law etc.
In
case of choice of law or proper law, I want to say that proper law is primary
system of laws which governs most aspects of the factual situation giving rise
to the dispute. This does not imply that all the aspects of the factual
circumstances are necessarily governed by the same system of law, but there is
a strong presumption that this will be the case. So, the process of legal
analysis undertaken by the courts in each case identifies all the facts that
have a specific geographical connection, e.g. where the parties reside or their
businesses operate, where any agreement was made, where relevant actions were
performed, etc. Once all the relevant connecting factors have been identified,
the law of the state that has the greatest number of connections will be the
proper law. This is only one problem, there are many other problems also which
are as follows:
1)
In case of conflict, one sovereign wishes to apply
his own law to a juridical relation arising on his territory, while another
wishes to throw around his own subject, who is one of the parties to the relation, the protection of his
personal law. This give rise to problem of conflict of laws in its application
in contractual obligations. It may create biased decisions.
2) The another problem is
that, the traditional choice of law rules produce unsatisfactory decisions because
mechanical precepts whose hard and fast connecting factors indiscriminately invoke foreign law must
inevitably produce hardship.
3) One more problem is that lawyers has showed
lack of interest in the preparation and submission of private international law
aspects in their cases. In India this is major problem in cases of conflict of
laws. It is unfortunate that no positive steps have been taken for introducing
the subject of Private International Law in more and more law colleges in
India.
The
solution to these problems which I think is that some more and new researches
has to go in order to understand the implication of conflict of laws. So, that
some kind of harmonisation of laws may be achieved. Because the incapacity of
the old laws to tackle the modern needs is not adequate, keeping in view the
changes in technology and other provisions governing contracts. So that the law
is equally implemented between different parties to the contract. This kind of
uniformity will not only enhance the confidence of people in the contract. But
it will also bring about certainty in the laws of the countries. This will also increase in interaction
between parties belonging to different countries both the areas of commercial
contracts and other contracts. Certainly there will be enormous increase in
international trade. Therefore the nation must make a sincere attempt to bring
about harmonisation different conflicting laws of the different countries.
BIBLIOGRAPHY
BOOKS
1.
Cheshire, Private International Law (2004).
2.
Dicey, Morris & Collins, The conflict of laws (2006)
3.
Carr, Indira and Stone, Peter, International Trade Law (2005)
4.
Diwan, paras, Private International Law,
Deep & Deep Publication (1988)
5.
Sreekantan, K, Private International
law, Academy of legal publication (1978)
Vikram
Raghavan “The proper law of contract : Are there any lessons to learn from the
Rome convention?” Vol.23-24, Indian
Social Legal Journal (1997-98).
McNair,
“The General Principles of Law Recognised by Civilised Nations”33 British Yearbook of International Law (1957).
7.
Ryder Rodney D. “Contracts, the Choice
of Law and International commercial Arbitration”, Vol.2, Company law journal (1999).
9.
Diwan, paras, Private International Law,
Deep & Deep Publication, 1988.
Cheshire, Private International Law p.5 (2004).
Dicey and
Morris, Conflict of Law p-5 (2006)
Dicey, Morris
& Collins, The conflict of laws p-3(
2006)
Like any other legal subject, the conflict of
laws has its technical terms, some of which mush now be explained. The rules of
the conflict of laws are, traditionally, expressed in terms of judicial concept
or categories and localizing elements or connecting factors.
The lex causae is a convenient
shorthand expression, the law (usually but not necessarily foreign) which
governs the question. It is used in contradistinction to the lexi fori, which always means the
domestic law of the forum, i.e. (if the forum is English) English law. The lex causae may be more specially denoted by a variety of
expressions, usually in latin, such as the lex
domicilii (law of domicile), lex partriae (law of nationality), lex loci contractus (law of the country where a contract is made), lex loci solutionis (law of the country
where a contract is to be performed or where a debt is to be paid), lex loci delicti (law of the country
where a tort is committed), lex situs (law
of the country where a thing is situated), lex
loci actus (law of the country where a legal act takes place) etc. are
used.
See per Lord
Widgney, L.J. Miller v. Whiteworth Street Estates, (1969)1
W.L.R.377, at 383, on appeal (1970)2 W.L.R.728.
Carr, Indira
and Stone, Peter, International Trade Law
p 5-52 (2005)
Vikram Raghavan
“The proper law of contract : Are there
any lessons to learn from the Rome convention?”, Indian Social Legal
Journal, Vol.23-24,1997-98.
Rex v. international Trustee for the
Protection of Bond Holders AG(1937)AC500,at529.
McNair, The General
Principles of Law Recognised by Civilised Nations.33British Yearbook of
International Law 1 at 7(1957).
The parties
entered into another agreement on the same lines of understanding and
stipulated art 8 and art 15 of the former agreement verbatim.
Dicey and
Morris Conflict of Laws 1426
Bank of
Baroda v Vysya Bank Ltd [1994] 1 Lloyd’s Rep 87.
Dicey and
Morris Conflict of Laws 1426. Van Niekerk and Schulze International
Trade 221 also
accept the general rule that this relationship
is governed by the law of the country where the
confirming bank is situated.
Ryder Rodney D.
“Contracts, The Choice of Law and International commercial Arbitration”, Vol.2,
Company law journal (1999).
"This
Article does not permit the court to infer a choice of law that the parties
might have made where they had no clear intention of making such a choice"
(Guiliano-Lagarde Report).
Egon
Oldendorff v. Liberia Corp, 1 Lloyd’s Rep 380 (1996)
