1

Conflict Of Laws Project

CONTRACTS AND NON CONTRACTUAL OBLIGATIONS

Submitted By
Aalim Khan (505) S.R.Iyalpari(527) Lakshmi Menon (529) Shravan Kumar Y (552) Shreyas B Bhushan (553) Shruti Kurup (555)

CONTENTS

Torts.3 Rome Regulation14 Negotiable Instruments..22 Maritime Law..27 Contracts and Non Contractual Obligation.33

TORTS
An interesting aspect to note about torts regarding the place it occupies in international law is that if the tort has been committed entirely locally, then lex loci delicti governs it, irrespective of the fact whether it has or does not possess some foreign element, such as both or one of the parties is domiciled or resident aboard or is national of another country.1 The foreign law is relevant only is some aspects. For example, if a tort of defamation has taken place in England against some local resident, then the English law would apply, but if it has been committed by or against an individual representing a foreign government, then the plea would be sustained or not depending on the law of the represented country. Under English Private International Law of torts, we may observe two distinct decisions, delivered almost a century apart, one in 1869-70 and the other in 1969-70. The entire realm of torts revolves around these two decisions. But before proceeding any further and analyzing cases, it would be pertinent for us to understand the theoretical foundations of the issue at hand. Choice of Law in Tort: Theoretical Models The three theoretical models that have been considered in respect of the choice of law in tort have been: (i) lex loci delicti - the law of the place where the tort was committed - a place that might be entirely fortuitous, having no close connection with law of the injured parties, e.g., an aircraft crash in Germany involving an aircraft made in America, which is operated by an American company and has British passengers as victims; (ii) lex fori - the law of the place where the tort is litigated - a model that might encourage forum shopping, i.e., seeking to litigate in the country having jurisdiction and the most favorable laws as far as the plaintiff is concerned; and (iii) The proper law of the tort, i.e., litigating in the country having the closest and most real connection with the tort. When the tort was committed in England, a consistent line of authority established that English law, alone, applied. The focus here accordingly, is on the development of the choice of law in tort when the tort has been committed abroad. Where the tort was committed abroad, a 'double actionability' test evolved from Phillips v. Eyre2. This requirement for 'double actionability' meant that to be actionable the act (tort) had to be unlawful both

1 2

Szalatnay Stacho v. Fink [1947] I K.B 1 (1870) LR 6 QB 1

4 in the country where the act was committed and under English law, which unduly favoured defendants. Choice of Law in Tort at Common Law When the Tort was Committed Abroad: (i) 1870-1971. In Phillips v. Eyre3 Willes J stated that: As a general rule, in order to found a suit in England for a wrong alleged to have been committed abroad, two conditions must be fulfilled. First, the wrong must be of such a character that it would have been actionable if committed in England. Secondly, the act must not have been justifiable by the law of the place where it was done. However, there was no consistency in the meaning of a 'wrong' alleged to have been committed abroad. (ii) Boys v. Chaplin4 The facts of Buys v. Chapliit were as follows. P was injured in a road accident in Malta caused by the admitted negligence of D. Both parties were normally resident in England, but were stationed in Malta at the time of the accident as part of H.M. Armed Forces. P sued D in England. The question arose whether damages were to be assessed by Maltese law (limited to f53 special damages in respect of financial loss directly suffered and expenditure necessarily incurred) or by English law (under which, in addition, he could recover f2,250 general damages in respect of pain, suffering and loss of amenities). The House of Lords unanimously allowed P to recover damages assessed according to English law. Unfortunately, it has proved exceedingly difficult to extract a ratio decidendi from the case. Lord Hodson5 said that the right to damages for pain and suffering was a substantive, not a procedural, issue and applying the rule of double reference in Phillips v. Eyre, P would fail in his claim for general damages.6 However, the interests of justice required some qualification of the general rule. Controlling effect would be given to the law of England which, because of its relationship with the occurrence and the parties, had the greater concern with the specific issue raised in the litigation. Lord Guest M took the view that the question in issue related to the quantification of damages, which was a question of procedural law to be decided by the lex fori. Lord Donovan, preferring not to make exceptions to the rule in Phillips v. Eyre, said that once an English court was competent to entertain an action under the rule in Phillips v. Eyre, it was right that it should award its
3 4

Supra Cheshire &North, Private International Law, (11th ed., 1987), 519-521; Carter, "Torts in English Private

International Law", (1981) 52 B.Y.B.I.L. 9, 24-25; Briggs, "What did Boys v. Chaplin decide?", (1984) 12 Anglo-Am. L.R 237.
5 6

At pp. 379-380. This conclusion was reached by Diplock L.J., dissenting, in the Court of Appeal: [1968] 2 Q.B. 1.

5 own remedies. Lord Wilberforce affirmed the basic rule requiring actionability as a tort under the lex fori plus the existence of civil liability as between the actual parties under the lex loci delicti. However, there were occasions when some qualification to this rule was required. In the present case, the issue whether recovery should be allowed under a particular head of damages required to be segregated from the rest of the case, related to the parties and their circumstances, and tested in relation to the policy of the local rule and of its application to the particular parties. Having done this, he felt that there was no reason why the English court should not apply its own rule of damages. Lord Pearson said that, under the rule in Phillips v. Eyre, the substantive law of England plays the dominant role, determining the cause of action, whereas the lex loci delicti plays a subordinate role, in that it may provide a justification for the act and so defeat the cause of action, but does not itself determine the cause of action. In the present case, there was no justification for Ds acts under Maltese law, so English law applied and P recovered in full. However, he also admitted that an exception to the general rule might be required in order to discourage forum shopping. Subsequent decisions have done little to clarify the status of the exception in Boys v. Chaplin. Although Lord Wilberforces speech has on the whole been the most favourably received, there are a number of unresolved questions. Can the exception apply when the parties are not from the same state? Will the exception, in addition to allowing the sole application of the lex fori, allow the application of the lex loci delicti alone or the law of a third country alone? Will the exception apply even where it has the effect of giving P less recovery than under the general rule, or no recovery at all? Will the exception apply to issues other than heads of damages, and if so, which issues? Clearly, the exception is uncertain in ambit and it is unclear what circumstances will justify its use. (iii) 1971- April 1996 (following Boys v. Chaplin [1971]. as extended in Red Sea Insurance v. Bouygues [1995].) for all torts other than Defamation. THE MODERN ENGLISH LAW Since an action in tort is an action in personam the English court acquires jurisdiction by the mere presence of the defendant within the jurisdiction or when under Order 11 Rule 1 [h] of the Supreme Court Rules a writ can be served on the defendant outside the jurisdiction. General rule With the exception of defamation which continues to apply the proper law test, s10 Private International Law (Miscellaneous Provisions) Act 1995 abolishes the double-actionability test, and s11 applies the lex loci delicti rule subject to an exception under s12 derived from Boys v. Chaplin7

(1971) AC 356

6 and Red Sea Insurance Co, Ltd. v. Bouygues8. Thus, it is no longer necessary for the case to be based on a tort actionable in England. The English courts must apply wider international tests and respect any remedies available under the "Applicable Law" or lex causae including any rules on who may claim (e.g. whether a personal representative may claim for a fatal accident) and who the relevant defendant may be (i.e. the English court would have to apply the applicable law's rules on vicarious liability or the identity of an "occupier" of land). The first step is for the court to decide where the tort occurred, which may be complicated if relevant events took place in more than one state. s.11(2) distinguishes between: actions for personal injuries: it is the law of the place where the individual sustained the injury; damage to property: it is the law of the place where the property was damaged; in any other case, it is the law of the place in which the most significant element or elements occurred. The first two tests seem to provide a workable balance between the interests of the claimant and the defendant by selecting the law of the place in which the claimant suffered the harm, but problems remain. In Henderson v. Jaouen9 there was continuing damage as the condition arising from original injury deteriorated. Similarly, in Roerig v. Valiant Trawlers Ltd.10, where the accident occurred on board an English ship, the main consequences in terms of loss were felt by the deceased's family in Holland (their habitual residence), not England. The third rule which will apply in economic torts, breach of privacy etc., requires a test comparable to the proper law. In Multinational Gas and Petrochemical Co. v. Multinational Gas and Petrochemical Services Ltd.11 negligent management decisions were based on financial reports prepared in England. Because the decisions were taken and the losses were sustained outside England, English law was not the most significant. In Metall and Rohstoff AG v. Donaldson Lufkin & Janrette Inc.12 action in New York induced a breach of contract in England where the loss was sustained, so English law was the more significant. Exceptional Rule In exceptional circumstances, the lex loci delicti rule is displaced in favour of another law, if the "factors relating to the parties" or "any of the events which constitute the tort" show that this other law will be substantially more appropriate. Suppose that an English employer sends an employee on a business-related journey to Arcadia. During the course of this journey, the employee is injured while
8 9

SA (1995) 1 AC 190 (2002) 2 AER 705 10 (2002) 1 Ll Rep 681 11 (1983) Ch 258 12 (1990) 1 QB 391

7 driving a car provided by the employer for this purpose. All the relevant connecting factors favor the application of English law except that the injury itself was sustained elsewhere. In Edmunds v. Simmonds13 it was held more appropriate to displace the lex loci delicti and to apply English law to the consequences of a road traffic accident in Spain involving two English friends who had travelled abroad for a short holiday and where the majority of the losses and expenses were suffered in England. In Morin v. Bonhams and Brooks Ltd.14 a bad buy was made in Monaco as a result of allegedly fraudulent information "fed" to the buyer in London. The case involved representations made about the qualities of a classic car auctioned by the defendants in Monaco and bought by the claimant who had received the brochure which made the alleged misrepresentations in England. He had, to a certain extent, relied on them in England, by arranging to travel to Monaco for the auction, and he had suffered loss in England where the car was found not to meet the description in the brochure. The car had, however, been subject to auction in Monaco where the bid sum was payable. The court held that the claimant's decision to bid and to commit himself to the purchase that was "by far the most significant" act, and that was done in Monaco. The judge offered the obiter dicta that had the claimant made a telephone bid from England, a different judgment would probably have been made. Defenses In an English action on a foreign tort double defenses are available to the defendants. (i) Any defence, whether substantive or procedural under the lex fori. (ii) any defence under the lex loci delicti with the exceptional on purely procedural defenses. In Phillip v. Eire15, apart from the general rule propounded by Wills J, it is evidently a case of defence available to the defendant under the lex loci delicti commissi. The case is an authority for the proposition that if the defendant is excused from his liability for the wrong by a retrospective law passed by the country where the the tortuous act was committed, then the English action against him would fail. The defendants can also avail any defence available to him under the lex loci delicti commissi at the time of the commission of the act. The Mary Moxham16 and the Waziristan17 are authorities for this proposition. Sayers v.International Drilling Co.18 lays down that if the defendants liability has been excluded or restricted by a valid term in a contract with the plaintiff, then it can be successfully pleaded as a defence to an action in tort. In this case the plaintiff, an Englishman entered into a contract of employment in England with a Dutch company engaged in off shore oil drilling, under which he was to be employed as a derrick man on one of the companys rigs off the Nigerian coast. One of the terms
13 14

(2001) 1 WLR 1003 (2003) 2 AER (Comm) 36 15 1970 6 Q.B. 1 16 1953 1 P.D. 107 17 1953 1 W.I.R. 1446 18 1971 3 All. ER 163

8 of the contract specifically provided that by virtue of his employment the plaintiff was not covered by the workmans compensation insurance or benefits under the laws of the united kingdom but could claim compensation out f the fund maintained by the company. Under the contract the plaintiff accepted this to be the exclusive remedy in lieu of any other claims, rights or actions whether at common law or any other statute of the United Kingdom. Whilst working on the companys oil rigs the plaintiff was injured following to the alleged negligence by the fellow employees. The plaintiff filed in action in the English court against the Dutch company for damages for the injuries caused to him on the account of the negligence. The issue was whether the contract was governed by the English law. The court held that the contract was governed by the Dutch law and not the English law. MARITIME AND AERIAL TORTSThe maritime and aerial torts are, by the nature of their location different from island torts. Maritime Torts- the maritime torts are these which are committed on the high seas. Tortuous acts on the high seas fall under the following category(i) Those acts which are confined to a single ship. Examples of such torts may be assault by a member of the crew on another or on a passenger or torts committed by a passenger against another or a member of a crew. They are governed by the law of the flag, as the ship is considered to be a part of the territory of the country the flag of which it flies. Thus if a tort is committed on the board of an Indian ship, the matter will be exclusively governed by the Indian law. But if an action is bought on such a tort in an English tort then the rule laid in the Boys v. Chaplin would apply. The only difficulty which arises is in respect of the meaning of the law of the flag in the case of a composite country. It has been, it is submitted rightly, suggested that it will be the law of the port of registry. (ii) Those acts which are external to a ship. These refer to those torts which affect person or property not on board of a ship. Such acts broadly may be of following types- (a) negligent navigation resulting in a collision with another ship. (b) negligent navigation resulting in some damages to the property of another such as when submarine cables are fouled, or when the crew of a fishing boat dispute as to the catch of another boat. In such cases it is obvious that the general rule cannot be applied. It is an established rule of English law that in such cases it is general maritime law, as applied by the Admiralty division of the high court applies whatever might be the law of the flag. In such a case the requirement is that the tortuous act must amount to tort by the English law and by general maritime law. Only then an action in an English court can be maintainable. This rule is not applied when a matter is covered by some international conventions to which England

9 is a party. In such a case the matter would be governed by the provisions of the conventions. Aerial TortsThere is no judicial authority in England or India on aerial torts. Aerial torts include torts committed on the board of an aircraft, collusions in the air between two aircrafts or damage caused to the life or property due to the crashing of the aircrafts. For the purpose of aerial torts, aircrafts includes any mechanical device capable of flight. In the absence of aerial torts, the law is sought to be developed either on the analogy of ship or motorcars. Then under international law, the territorial jurisdiction of the state extends to the air-space over land and territorial water. This implies that the aircraft is within the territorial jurisdiction of one state or the other over the air space over which it is flying, except when it is flying on high seas or over territorial nullius. On this basis it is asserted that whenever a tort is committed on an aircraft or whenever collusion occurs while a ship is flying over the air space of the country, then the locus delicti of the tort is that country. Therefore, the choice of the law lies with that country which is the locus delicti or the law of the country of the aircraft registration. In respect of torts committed when the aircraft is on high seas, the law applicable to maritime torts seems to be applied to aerial torts too through analogy. Thus, if a tort is committed on an English aircraft, the lex lici delicti would be the English common law, and in case of a collusion taking place between two or more planes, it would be the English maritime law. To some extend the matter is now governed by the international conventions, the Warsaw conventions 1929-1959 on air transport, the Chicago convention on international civil aviation, 1944 to which corresponds the English statutes of carriages by air act, 1961 and the civil aviation act, 1949. Article 28 of the convention on air transport deals with the choice of jurisdiction and lays down that an action for damages can be bought only in the court of the country where the carriage ordinarily resides, or has his principle place of business, or has an establishment by which the contract has been made, or at the place of the destination of the goods. Article 29 provides that the right of damages shall be extinguished if an action is not bought within two years. The period will calculate under the lex fori. Similarly the civil aviation act, 1949 lays down certain rules relating to aerial torts. Section 40(1) lays down that no liability shall be incurred for trespass of the air- space. Section 40(2) lays down that where material loss or damage is caused to any person or property on land or water by or by a person in, or an article or a person falling from an aircraft while in flight, talking off, or landing then damages shall be recoverable without proof of negligence or intension as if caused by a willful act, neglect or default of the owner of the aircraft.

10 Indian LawThe Indian private international law relating to the torts is in a nascent stage of development. It seems to be evident that as to the jurisdiction of the court, the rules laid down in the civil procedure will apply. It seems that in a case where a suit for compensation is filed for a tort committed abroad, the Indian court will entertain an action against a defendant who resides, carries on business or personally works for gain in India. The residence will also include the presence of the defendant within the jurisdiction of the court. In short, the court is free here also to give a wide meaning to the word residence. Thus in a pre independent case, the privy council held that the court at Quetta has jurisdiction to entertain an action against a defendant who resides in Punjab and carries on business in Quetta in the respect of a tort committed by him in Persia which follows English law. In the Kotah Transport Ltd. v. The Jhalawar Bus Service Ltd.19 a suit for damages was filed by the plaintiff company against the defendant company for damages caused to the plaintiff but by rash and negligent driving by the defendants driver. The main defence of the defendant was that the alleged tortuous act should constitute an actionable wrong not merely by the law of the Kotah state but also by the law of the Jhalawar state, the lex loci delicti commissi. The court after the examination of the tort of the Jhalawar state, found that there was nothing in the law of the state which justified the act of the defendant and thus the case was decided in favour of the plaintiff. CHOICE OF LAW FOR QUANTIFICATION OF TORT DAMAGES In discussing choice of law for determining damages for torts, it is necessary to distinguish between heads of damages and quantification of damages under those heads. Heads of damages list the items for which a court or jury may award damagesmedical expenses, lost wages, pain and suffering, punitive damages, and perhaps others. Quantification of damages measures the proper amount under each allowable headhow much for pain and suffering? It is also necessary to focus on the meaning of substantive and procedural as those terms are used for choice of law. For substantive issues a court applies the forums choice-of-law rule to select the applicable law. Procedural in conflicts jargon is simply shorthand for saying that the forums rule applies. Procedural is a term used in many contexts. It may refer to the rules that govern the workings of the forums courtspleading, preserving objections for appeal, discovery. In the United States it may refer to a federal courts freedom to apply a federal rule when the court has subject-matter jurisdiction because of the parties diversity of citizenship and is applying state, not federal, law to substantive issues. Or, as indicated above, a procedural issue might be one for which the forum court will not engage in its usual choice-of-law analysis, but will simply apply its own rule.
19

1960 Raj. 224

11 Justice Frankfurter said it as well as anyone: Matters of substance and matters of procedure are much talked about in the books as though they defined a great divide cutting across the whole domain of law. But, of course, substance and procedure are the same key-words to very different problems. Neither substance nor procedure represents the same invariants. Each implies different variables depending upon the particular problem for which it is used. Therefore, in deciding when to apply the procedural label in the context of choice of law, the question is: what justifies a forum in insisting on applying its local rule when under the forums choice-of-law rule the law of another jurisdiction applies to all substantive issues? The proper standard is one that balances the difficulty of finding and applying the foreign rule against the likelihood that applying the forums rule will affect the result in a manner that will induce forum shopping. Pleading, serving process, preserving objections for appeal, and similar issues relating to the day-today operation of courts are properly labeled procedural for choice-of-law purposes. Flouting those rules will affect the outcome, but an attorney is not likely to choose one forum over another to take advantage of such housekeeping provisions. Discovery rules require more balancing. A forum that permits massive pre-trial discovery is likely to attract plaintiffs. U.S.-style discovery is one of the reasons that American forums are magnets for the aggrieved and injured of the world. Nevertheless, it would be unthinkable to require U.S. judges and lawyers to learn and apply foreign discovery rules. Discovery is properly labeled procedural for choice-of-law purposes. What about damages? Heads of damages, the items that a court or jury may include in computing the amount awarded to the plaintiff, are universally regarded as substantive. If the forums choice-of-law rule for torts points to a Mexican state, that Mexican states law determines the heads of damages. Quantification of damages under these heads, however, is regarded as procedural and forum standards apply. The standard rule treating quantification of damages as procedural makes no sense. Quantification is the bottom linewhat all the huffing and puffing at trial about. The American devotion to jury trials in civil cases and the tendency of American juries to award fabulous damages are the primary reasons that foreign plaintiffs attempt to litigate their cases in U.S. courts. I have opposed this silliness but the windmills show little sign of weakening. The United States Supreme Court has indicated the direction to take. Gasperini v. Center for Humanities, Inc held that federal courts exercising diversity jurisdiction must apply the law that gives rise to the claim for relief to determine whether a jury verdict awards excessive damages. Other U.S. courts have not taken this hint that quantification of damages is too important for a procedural label. One bit of sanity that survives in this choice-of-law madness is that courts regard statutory limits on recovery as substantive. They apply these limits

12 when their choice-of-law rules select the tort law of the jurisdiction where the statute is in force. In Harding v. Wealands, however, the House of Lords, construing the Private International Law (Miscellaneous Provisions) Act 1995, has rejected even this limit on the procedural label when quantifying damages. Now to turn to that opinion. HARDING V. WEALANDS Mr. Harding, an Englishman, and Ms. Wealands, an Australian, began a relationship in Australia. She moved to England to live with him. Ms. Wealands returned to Australia to attend a family wedding. He later joined her for a holiday and to visit her parents. While she was driving in New South Wales (NSW) with Mr. Harding as a passenger, she lost control and the vehicle turned over. He was badly injured and became tetraplegic as a result of the injury. Ms. Wealands owned the vehicle and carried liability insurance issued by an Australian company. Both Mr. Harding and Ms. Wealands returned to England. A NSW statute places limits on compensation for various damages including lost earnings and non-economic damages, and in other ways restricts recovery. Under NSW law the plaintiff would recover about thirty percent less than under English law. The United Kingdom Private International Law Act 1995 abolished the double actionability choice-of-law rule for torts and created a presumption that that the law of the place of injury governs unless it is substantially more appropriate to apply some other law. Section 14(3)(b) states that the statute does not authorize questions of procedure in any proceedings to be determined otherwise than in accordance with the law of the forum. Mr. Harding sued Ms. Wealands in the High Court of Justice in London. That court ruled that English law determined the damages. Justice Elias gave two reasons: (1) the NSW caps on damages were procedural; (2) even if damages were substantive it was substantially more appropriate to apply English law because the parties were living together in a settled relationship and resident in England, and the costs of alleviating the consequences of the accident will be borne in England. The Court of Appeal allowed the appeal and applied Australian law. The judges of the Court of Appeal agreed that it was not more appropriate to apply English law if the NSW statutory caps on damages were substantive, but they split 2-1 on the issue of whether the caps were substantive, the majority voting for the substantive classification. With five Law Lords participating, the House of Lords unanimously allowed the appeal and restored the judgment of the trial court on the ground that quantification of damages is procedural. Lord Hoffman stated that he found no ambiguity in the meaning of procedure as used in section 14(3)(b) of the Private International Law Act 1995. Procedure in English private international law had always included all issues relating to quantification of damages. The only authority that statutory limits on recovery are substantive is found in one of the leading English treatises on conflict of laws:

13 But Mr. Palmer, who appeared for the defendant, submitted that in English private international law a limit or cap on the damages recoverable is regarded as substantive. There is, it is true, some authority for this proposition. The 7th edition (1958) of Diceys Conflict of Laws edited by Dr. JHC Morris, contained the statement, at p 1092, statutory provisions limiting a defendants liability are prima facie substantive; but the true construction of the statute may negative this view. Lord Hoffman rejected this statement in Diceys treatise as too widely stated because the case cited by Dicey is only authority for the proposition that a contractual term which limits the obligation to pay damages for a breach of contract or a tort, or a statutory provision which is deemed to operate as such a term, qualifies the substantive obligation. Contrary to the House of Lords holding in Harding, the Private International Law Act 1995 did not compel depriving the defendant of statutory limits on damages under the law of the place of wrong. If the result in Harding is correct it is because, in the wording of the Act, it was substantially more appropriate to apply English law because of the relationship between the parties and their residence in England. The real harm of the House of Lords decision is that it makes it less likely that courts will change the standard rule that characterizes quantification of damages as procedural, and therefore determined by forum criteria. This standard rule should change to accord with a functional view of procedural in the context of choice of law. This functional view would preclude the procedural label for any rule that is likely to affect the result in a manner that would invite forum shopping unless it would be unreasonably difficult for local lawyers and judges to apply foreign law to the issue. More undesirable still is that Harding v. Wealands extends the procedural characterization of quantification of damages to the one area where U.S. and Australian courts have had the good sense not to apply itstatutory limits on recovery. Fortunately, Harding may have a short life in the United Kingdom. A draft Regulation of the European Parliament and the Council on the Law Applicable to Non-Contractual Obligations, referred to as Rome II, which seems ready for enactment in 2007, includes among the issues governed by the Regulations choice of law rules the existence, the nature and the assessment of damage or the remedy claimed. This language appears broad enough to include quantification of damages. If so, this would constitute a desirable reversal of the standard rule treating quantification of damages as a procedural matter to be resolved under forum standards. The United Kingdom has agreed to be bound by Rome II.

14

ROME REGULATIONS
ROME I REGULATION -Brief Overview This Regulation applies to contractual obligations in civil and commercial matters in the event of a conflict of laws. It does not apply to revenue, customs or administrative matters, or to evidence and procedure. Nor does the Regulation apply to the obligations relating to the following: a natural persons status or legal capacity, family relationships, matrimonial property regimes, negotiable instruments such as bills of exchange, cheques and promissory notes, arbitration and choice of court, law of companies and other corporate or unincorporated bodies, the binding of a principal or a company to a third party, trusts etc. Any law indicated in this Regulation should be applied, even if it is not that of a Member State. Freedom of choice The parties to a contract are to choose the governing law. It may be applied to only a part or the whole of the contract. Provided that all the parties agree, the applicable law may be changed at any time. If the law chosen is that of a country other than that relating most closely to the contract, the provisions of the latter law need to be respected. If the contract relates to one or more Member States, the applicable law chosen, other than that of a Member State, must not contradict the provisions of Community law. Applicable law in the absence of choice Where the parties have not chosen the applicable law for contracts for the sale of goods, provision of services, franchises or distribution, it will be determined based on the country of residence of the principal actor carrying out the contract. For contracts concerning immovable property, the law of the country where the property is located is applied, except in the cases of temporary and private tenancy (maximum six consecutive months). In such cases the applicable law is that of the landlords country of residence. In the case of sale of goods by auction, the law of the country of the auction will apply. With regard to certain financial instruments governed by a single law, the applicable law will be that law. If none, or more than one of the above rules apply to a contract, the applicable law will be determined based on the country of residence of the principal actor carrying out the contract. If, however, the contract is related more closely to another country than provided by these rules, the law of that country will be applied. The same applies when no applicable law can be determined.

15 Rules applicable to specific contracts For the following types of contract, the Regulation lays down options for the selection of applicable law and determines the law to be applied in the absence of choice: 1. Contracts for the carriage of goods in the absence of choice, the applicable law will be that of the country of residence of the carrier, provided that this is also the place of receipt or delivery, or the residence of the consignor. Otherwise, the law of the country to which the delivery will be made will apply; 2. Contracts for the carriage of passengers the applicable law may be chosen from either the country of residence of the passenger or carrier, the country where the central administration of the carrier is located, or the country of departure or destination. In the absence of choice, the law of the country of residence of the passenger will apply, provided that it is also the place of departure or destination. Yet, if the contract is more closely related to another country, then the law of that country will apply; 3. A consumer contract between consumers and professionals The law applicable is that of the country of residence of the consumer, provided that this is also the country where the professional carries out his/her activities or to which his/her activities are directed. The parties may also, based on freedom of choice, apply another law, as long as it provides the same level of protection to the consumer as that of his/her country of residence; 4. Insurance contracts in the absence of choice, the applicable law will be that of the country of residence of the insurer. However, if the contract is more closely related to another country, that countrys law will apply; 5. Individual employment contracts the applicable law may be determined on the basis of the freedom of choice principle, provided that the level of protection granted to the employee remains the same as with the applicable law in the absence of choice. In the latter case, the law governing the contract will be that of the country where, or from where, the employee carries out his/her tasks. If this cannot be determined, the applicable law will be that of the country where the place of business is located. However, if the contract is more closely related to another country, that countrys law will apply.

Scope of the law applicable The law this Regulation determines as applicable to a contract will regulate interpretation, performance, penalties for breaching obligations, assessment of damages, termination of obligations, instructions for actions, and penalties for invalid contracts. The Community law that establishes

16 conflict-of-law rules for contractual obligations relating to particular matters takes precedence over this Regulation, except in the case of insurance contracts. The Commission will submit a report on the application of this Regulation to the European Parliament, the Council and the European Economic and Social Committee by 17 June 2013. The Regulation will apply to contracts that are concluded as from 17 December 2009. Background The Vienna Action Plan of 1998 acknowledged the importance of harmonised conflict-of-law rules in the implementation of the mutual recognition principle for decisions in civil and commercial matters. The joint Commission and Council programme of 2000 provides measures for this harmonisation. The Hague Programme of 2004 reasserted the importance of pursuing work on conflict-of-law rules for contractual obligations, with its Action Plan providing for the adoption of the Rome I proposal. This ensuing Regulation replaces the Rome Convention of 1980 on the law applicable to contractual obligations, transforming it into a Community instrument and modernising it.

ROME II REGULATION A Summary This Regulation defines the conflict-of-law rules applicable to non-contractual obligations in civil and commercial matters, including product liability, negotiorum gestio (acts relating to the affairs of another person) and culpa in contrahendo (non-contractual obligations arising out of dealings before the conclusion of a contract). Applicable from 11 January 2009 in all Member States except Denmark, it does not attempt to harmonise the substantive law of the signatories in the field of non-contractual obligations, but only their conflict-of-law rules, so that, no matter where in the EU an action is brought, the rules determining the applicable law will always be the same. As a general rule, and in order of priority, the law applicable is: the law of the country where the damage occurs, the law of the country where both parties were habitually resident when the damage occurred, the law of the country with which the case is manifestly more closely connected than the other countries. It authorises the parties to choose, by mutual agreement, the law that will be applicable to their obligation. Specific rules are provided for certain domains, e.g. product liability and intellectual property, and certain domains are excluded, notably revenue, customs and administrative matters, the liability of the State, and matrimonial and family relationships.

17

Defining the applicable law: harmonising conflict-of-law rules in the EU When the Rome II Regulation comes into application (11 January 2009), it will apply to events giving rise to damage that occur after it came into force (20 August 2007). The law applicable to non-contractual obligations under this Regulation governs: the basis and extent of liability, including the persons who may be held liable, the grounds for exemption from liability; the limitation or division of liability, the existence, nature and assessment of damage and the remedy claimed, the measures that the court may take to prevent or end injury or damage and provide for compensation (within the limits of national procedural law), the transferability of the right to seek compensation, including by succession, the persons entitled to compensation for damage sustained personally, liability for the acts of another person, extinction of obligations, and the rules relating to prescription or limitation based on a period of time. As a general rule (Article 4), the law applicable to a non-contractual obligation arising out of a tort/delict is the law of the country in which the damage occurs, regardless of the country or countries in which indirect consequences of the event may occur. There are, however, two major exceptions: (1) When the defendant and the claimant are both habitually resident in the same country at the time when the damage occurs, it is the law of that country that applies. (2) When the event is manifestly more closely connected with a different country (e.g. deriving from a pre-existing relation between the parties, such as a contract), it is the law of that country that applies. The Regulation is of universal application: that is, the law specified is applied whether or not it is the law of a Member State. The Regulation does provide for some freedom of choice: the parties are free to choose the law applicable to a non-contractual obligation either by common agreement after the event giving rise to the damage or, between business people, by an agreement freely negotiated before the event giving rise to the damage. The choice must be explicit or evident from the circumstances, and must not prejudice the rights of any third party. This freedom of choice does not apply to infringements of intellectual property (see below), and cannot be invoked when all the elements relevant to the situation relate to a country other than the one chosen. Similarly, Community law overrides the law of a non-EU country, chosen by the parties, when all the elements of the situation are located in one or more EU Member States. For unjust enrichment, including undue payments, the applicable law is that governing a pre-existing relation between the parties, e.g. a contract or a harmful event closely connected with the unjust enrichment. If there is no such relation, but both parties were habitually resident in the same country where the event giving rise to the unjust enrichment occurred, it is the law of that country that applies.

18 Failing that, the applicable law is that of the country in which the unjust enrichment occurred or, if the event is manifestly more closely linked with another country, the law of that other country. This also applies to negotiorum gestio (the law governing an existing relation between the parties, or failing that the law of the country of habitual residence, or failing that the law of the country in which the acts were performed or, finally, the law of the country with which the matter is most closely connected). As regards culpa in contrahendo (non-contractual obligations arising out of dealings before the conclusion of a contract), the applicable law is that governing the contract (regardless of whether the contract was actually concluded or not). The concept of culpa in contrahendo is autonomous for the purposes of the Regulation, and should not necessarily be interpreted in the sense of national law. If the law cannot be determined, the applicable law is that of the country in which the damage occurred, or failing that the law of the country where both parties are habitually resident or of the country most closely associated with the event. The Regulation makes specific provision for certain domains: 1. Product liability. The law of the habitual residence of the person sustaining the damage at the time the damage occurred, if the product is marketed in that country; otherwise, the law of the country in which the product was purchased; otherwise, the law of the country in which the damage occurred, if the product is marketed there. However, if the defendant could not foresee the marketing of the product in one of the other countries as above, the law applicable is that of his habitual residence. If the harmful event is closely connected with a different country, then it is the law of that country that is applicable. 2. Unfair competition and acts restricting free competition. For non-contractual obligations resulting from an act of unfair competition, the applicable law is that of the country in which competition or the collective interests of consumers are or are likely to be affected, unless the act affects only the interests of a specific competitor, in which case the general rule laid down in Article 4 applies. For non-contractual obligations resulting from an act restricting free competition, the applicable law is that of the country in which the market is or is likely to be affected. When this applies to more than one country, a claimant suing in the domicile of the defendant can choose the law of that country, provided that the market in that country is affected. A claimant suing more than one defendant in the court of the defendant's domicile can choose the law of that court only if the act restricting competition affects the market in that Member State. 3. The law applicable in these cases cannot be derogated from by an agreement under Article 14 of this Regulation, which allows the parties to choose the law applicable to a non-contractual obligation by common consent.

19 4. Environmental damage. The general rule applies, unless the claimant chooses to base his action on the law of the Member State in which the harmful event occurred. 5. Infringement of intellectual property rights. The law applicable to a non-contractual obligation resulting from the infringement of an intellectual property right is that of the country for which the protection was sought. There can be no derogation to this provision. 6. Industrial action. The law applicable to a non-contractual obligation relating to the liability of a worker, employer or professional association resulting from damage caused by a strike or lock-out, whether in progress or after the event, is that of the country in which the industrial action is taken.

Matters excluded This Regulation does not apply to revenue, customs or administrative matters, to the liability of the State, or to non-contractual obligations arising out of: family or similar relations, including obligations of maintenance, matrimonial property regimes and similar, wills and successions, bills of exchange, cheques, promissory notes and other negotiable instruments, the law of companies, in relation to e.g. their creation and legal capacity, liability of members, etc. relations between the settlers, trustees and beneficiaries of a trust created voluntarily, nuclear damage, violations of privacy and rights relating to personality, including defamation. Relationship with existing international conventions The Regulation does not affect the application of international conventions governing non-contractual obligations to which one or more Member States are parties. Article 29 of the Regulation provides that the Member States are supposed to notify the Commission of such conventions by 11 July 2008 at the latest. After that, the Member States are required to notify the Commission of all denunciations of such conventions. That is why this article is applicable from 11 July 2008, while the Regulation as a whole is applicable from 2009. Between Member States, the Regulation overrides conventions concluded exclusively between them to the extent that these concern the matters it covers. Review Not later than 31 December 2008 the Commission will present a study on the situation in the field of the law applicable to non-contractual obligations arising out of violations of privacy and rights relating to personality, as regards the freedom of the press and freedom of expression in the media.

20 Not later than 20 August 2011 it will report on the application of this Regulation and may then put forward any necessary amendments. Given below is very recent yet an important case decided under the Rome II Regulation Bonsall v. Cattolica Assicurazioni [Winchester County Court 2010] Interiura UK was instructed to handle a claim on behalf of the Italian motor insurer of a vehicle that had been travelling between Pompeii and Sorrento in Italy in June 2008. An Italian registered car had been driving on the wrong side of the road when it had a head on collision with an Italian-registered coach full of British tourists on a holiday excursion. The resulting collision left many passengers on the coach injured and suffering a financial loss. Claims were made by the passengers under the 5th Motor Directive and ROME II in England via Interiura UK. Interiura UK held instructions to handle the claim from the passengers on a without prejudice basis as representatives of the coach insurer. As passengers, they were considered innocent parties and liability was not raised in issue. The defendant insurers stance on this matter, and therefore Interiura UK's stance, was that Italian law applied for establishing liability and that Italian law applied when assessing and valuing quantum. As expected however, some of the claimants were of the opinion that English law should apply when assessing damages as the claimants were resident in the England, although it was accepted that Italian law applied when agreeing liability. Interiura UK argued that the Rome II applied to this case and that quantification of damages had to be dealt with under Italian law as per Article 31 and 32 of Rome II. Article 31 states that the Rome II principle shall apply to events which result in damage after its 'entry into force' (20.08.2007). This refers to the application in time. Article 32 refers to the date of application and states that the regulation shall apply from 11th of January 2009. These 2 articles are not very clear and rather ambiguous. This has therefore led to different interpretations of the articles and the date of application of the Rome II regulations and different arguments have been put forward in order to support each opinion. This in essence is the reason this matter proceeded to trial. The claimant, Mr Bonsall, decided to be the first to litigate in order to ask the court to decide under which law damages should be assessed. The proceedings were brought into the English forum as the claimant was resident in England. Interiura UK's solicitors, acting on behalf of the defendant insurer, maintained to the court that any quantification of damages dealt with after 11th of January 2009 should be assessed under Italian law, as per Rome II, even if proceedings were issued before or after this date, and even if the accident occurred before this date. The claimant's solicitors argued that Rome II does not apply at all to this accident as it only applies to accidents that occurred on or after 11th of January 2009 (and this collision occurred in 2008) or for those matters when proceedings were issued after 11th of January 2009. It is noteworthy that neither party denied that proceedings in this trial were issued on 9 January 2009, before the date specified in Article 32.

21 The claimant argued that the only sensible interpretation of Rome II is that it relates to acci-dents that occurred on or after 11th of January 2009. Otherwise, as was their argument, there will be cases such as this very one where after 19th of January 2007 until 11th of January 2009, one law will apply and then after 11th of January 2009 Italian law will apply which is not conducive to smooth case handling or court cases. The claimant also argued that there may be a case at trial where expert evidence is given on 10th of January 2009, the case is then adjourned until 11th of January 2009, and then different expert evidence would be needed as a different law would now apply. This of course would lead to a shambles in the court. The claimant also included in their argument some publications and articles that had been produced on this very issue by various barristers and judges. One of these experts, Professor Briggs (of Oxford University), is of the opinion that Article 31 states that the Rome II regulation applies from 11th of January 2009, but that from this date accidents which occurred on or after 20th of August 2007 fall under Rome II and should be handled as such. This is the opinion that the judge presiding over the trial took, as he stated that if Article 31 and Article 32 are to be interpreted in exactly the same way, it would say as such in the Rome II agreement itself. The judge's final words were '...it seems perfectly logical to be able to interpret the regulations as saying that it applies to events which occurred on or after 20th of August 2007, but that the law in force applies from 11th of January 2009. In my judgment, the applicable law in relation to the quantification of damages in this case is Italian law as the quantification will take place after 11th of January 2009 and the defendant's argument succeeds'. Under English law, once the judge's decision is made, the claimant can appeal against it if they disagree with the judge and they feel that they still have a case to disprove the judge. If the claimant or defendant decided to appeal, another trial would be heard, presided over by a different judge, usually from the 'Court of Appeal'. However it is interesting that in this case, the third party decided to not to appeal this decision. This could of course have been for many reasons, economical reasons being the most likely. Interiura UK / the defendant insurers were awarded costs for the action as they were the successful party. The judge's final decision has therefore now become the 'substance' for future claims that would fall under a similar argument of valuation of damages under a Rome II case. The case law sets precedent and can be used to argue or defend a future case. This is a substantial advantage and as English levels of damages are amongst the highest in Europe, this could lead to a significant saving for European insurers when dealing with a claim against them by a UK resident from an accident that occurred abroad. It allows for accurate reserving to be placed on such cross-border incidents and thus avoid claims leakage and overspend.

22

NEGOTIABLE INSTRUMENTS
Negotiable instruments can be defined as unconditional orders or promise to pay, and include checks, drafts, bearer bonds, some certificates of deposit, promissory notes, and bank notes (currency). Exchange of goods and services is the basis of every business activity. Goods are bought and sold for cash as well as on credit. All these transactions require flow of cash either immediately or after a certain time. In modern business, large number of transactions involving huge sums of money takes place every day and so, it is quite inconvenient as well as risky for either party to make and receive payments in cash. Therefore, it is a common practice for businessmen to make use of certain documents as means of making payment. Some of these documents are called negotiable instruments. Negotiable instruments, such as, bills of exchange, cheques, promissory notes, etc. have been of great importance ever since the human beings embarked on trade and commerce. In 1930-31, six international conventions relating to negotiable instruments were signed in Geneva in order to unify national laws relating to negotiable instruments.

In the days of ever increasing international trade and commerce, negotiable instruments have become one of the most significant types of contracts in international law. Since a negotiable instrument represents a debt, it is regarded as a species of tangible property. The greatest importance of negotiable instruments lies in the fact that they are negotiable. In the case of Simmons vs. London Joint Stock Bank20, the nature and characteristics of a negotiable instrument were summarised as; A negotiable instrument payable to bearer is one which, by custom or trade (or under statute) passes from hand to hand by delivery, and the holder of which for the time being, if he is a bona fide holder for value, has good title, notwithstanding any defect in the title of the person from whom he took it. The most striking feature of a negotiable instrument is that the series of contracts, which are entered into by the parties give rise to several rights and liabilities which are different and distinct from each other. Thus, the fundamental question that arises is that: are these series of contracts to be regarded as one single transaction and therefore governed by a single law, or are these to be regarded as a series of transactions; each of which is governed by a different law, i.e. by several laws? Great Britain and India adopt, as a general rule the several laws theory.

It seems to be an established rule that the negotiability of a foreign negotiable instrument depends on the fact whether it is so recognised by the custom or law of the country where it is sought to be enforced. The conflict of law rules regarding negotiable instruments have been codified in the English statute, Bills of Exchange Act, 1882 and in the Indian statute, Negotiable Instruments Act, 1881. The

20

(1891) 1 Ch. 270 on appeal , (1892) A.C. 201

23 provisions of both these statutes are comprehensive but not exhaustive. Thus, they have been supplemented by judicial decisions also.

English Law:-

If a transfer of negotiable instrument has been made abroad and its validity is disputed in an English action, the court is confronted with a problem of choice of law. What the choice should be depends upon the manner in which it is analysed. It may be regarded as raising a question of form or interpretation to be governed by the Bills of Exchange Act, 1882; or as the transfer of a chattel, in which case the law of situs will be applicable; or as an assignment of contractual right and therefore subject to the law governing the contract. The common law authorities which preceded the Bills of Exchange Act, 1882, show a marked tendency to determine the validity of an endorsement by the law which governs the original contract of the acceptor or the maker. The relevant sub-sections of the Bills of Exchange Act, 1882 are as follows:

Where a bill drawn in one country is negotiated, accepted, or payable in another, the rights, duties, and liabilities of the parties thereto are determined as follows: (1) The validity of a bill as regards requisites in form is determined by the law of the place of issue, and the validity as regards requisites in form of the supervening contracts, such as acceptance, or indorsement, or acceptance supra protest, is determined by the law of the place where such contract was made. Provided that: (a) Where a bill is issued out of the United Kingdom it is not invalid by reason only that it is not stamped in accordance with the law of the place of issue. (b) Where a bill, issued out of the United Kingdom, conforms, as regards requisites in form, to the law of the United Kingdom, it may, for the purpose of enforcing payment thereof, be treated as valid as between all persons who negotiate, hold, or become parties to it in the United Kingdom. (2) Subject to the provisions of this Act, the interpretation of the drawing, indorsement, acceptance, or acceptance supra protest of a bill, is determined by the law of the place where such contract is made.

The question now is whether these sections are concerned with the subject of transfer at all, and whether it is possible to ascertain from them the legal system that determines the validity and effect of an indorsement, or of a delivery, of a negotiable instrument.

There have been only three relevant cases since the Act of 1882 relating to this matter. The first of these was Alcock vs. Smith21. In this case, a bill of exchange, drawn by and on English firms, and

21

(1892) 1 Ch. 238

24 payable in England to the order of X, was endorsed and delivered in Norway by X to Y. While in the hands of Y, it was seized by a judgement creditor in Norway, and in the due course of Norwegian law was ultimately sold by public auction to Z. In fact, Z had no title to the bill by English law, but, according to the Norwegian law, the property was duly passed to him as a result of the sale. In an action subsequently brought in England, it was held that the effect of transactions in Norway must be governed by Norwegian law, and therefore the title acquired there under by Z must prevail over one which by English law would have been stronger. It can be seen that the judgement paid little heed to the statutory provisions, but, in general applied Norwegian law as the law of the place of acting. It was held that the word interpretation in section 72(2) was wide enough to cover the legal effect of a contract and that therefore statutory effect had been given to the principle of the application of the law of place of acting. In the Court of Appeal, however, no reliance was placed on the Act. The second case was Embiricos vs. Anglo-Austrian Bank22. The facts of this case were as follows: A cheque on a London bank was drawn in Romania in favour of the plaintiffs, who specially endorsed it there to a firm in London and placed it in an envelope addressed to that firm. The cheque was stolen from the envelope in Romania by the clerk of the plaintiffs. Three days later, the cheque, bearing an indorsement which purported to be that of the London firm, but, which was in fact a forgery, was presented for payment at a bank in Vienna. The Vienna bank cashed the cheque in good faith, indorsed it to the defendants, who were their London agents, and the latter collected the amount from the bank on which the cheque was drawn. The plaintiffs then sued the defendants in damages for conversion. Austrian law provided that, notwithstanding the theft and forgery, the Viennese bank acquired a good title to the cheque and judgement was given in favour of the defendants. Thus, in this case, the tile that was acquired under the law of the country where the instrument was situated at the time of transaction was upheld by the English court.

Again, Austrian law was chosen as being the law of the place of acting, and again the judgements attributed only trifling importance to the Bills of Exchange Act, 1882. However, Section 72, which was only a secondary consideration in the above two cases, however, played a decisive part in Koechlin et cie vs. Kestenbaum23. In this case, a bill of exchange was drawn in France by X on the defendants in London to the order of Y, who was Xs father. It was accepted, payable in London, by the defendants. The bill was indorsed not by the payee, Y, but by X, and was then transferred for value to the plaintiffs in France. Xs indorsement was affixed on behalf o, and with the authority of, Y. On presentment, the defendants refused payment, on the ground that the bill did not bear the signature of Y by way of indorsement.

22 23

(1905) 1 K.B. 677. (1927) 1 K.B. 616, on appeal, (1927) 1 K.B. 889

25 English law requires that a bill payable to the order shall be endorsed by the payee, or by an agent who expressly signs pro the payee. French law, however, permits a valid endorsement to be made by an agent in his own name, provided that he so acts with the authority of the payee. Therefore, whether the plaintiffs were entitled to payment depended on whether the validity of the endorsement was to be determined by English or by French law.

BANKES LJ held that the proper law to govern the validity of a transfer had been definitely settled by the Bills of Exchange Act, s.72, in favour of the law of the place of acting, here, French law. In his opinion, this legal system was deliberately applied by the Court of Appeal in the Embiricos case long after the passing of the Act. The bill, he said, was drawn and indorsed in France in a form recognised by the French law, and therefore it became valid in England by virtue of section 72(1).

It is necessary in stating the law with regard to the transfer of negotiable instruments to deal with both inland and foreign bills of exchange. An inland bill is one which is both drawn and payable within the British Isles, or one which is drawn within the British Isles upon some persons resident there. The Bills of exchange Act, 1882, expressly provides that when such a bill is endorsed in a foreign country, the indorsement shall, as regards the payer, be interpreted according to the law of the United Kingdom. This also confirms the decision in Lebel vs. Tucker24, and means that the acceptor of an inland, as contrasted with a foreign, bill is liable only to holders who claim under an indorsement valid by English law. The enactment, however, is expressly confined to the liability of the payer. The rule regarding a foreign bill is that whether a transfer is valid or not is determined by the law of the place where the transfer is effected, i.e. in the words of the Act, where the contract is made. Thus, anyone dealing with a foreign bill of exchange will be in an inferior position as compared to the person dealing with an inland bill, as the former might find substituted for the person to whom he was originally liable as acceptor not merely a person to whom the transfer was valid according to English law, but, also a person to whom the transfer would have been good if made according to the law of the country in which it was made.

Though the result of this distinction is scarcely satisfactory to the commercial world; it certainly shows how important it is that as wide unification as possible of the internal laws relating to negotiable instruments should be effected.

24

(1867) LR 3 QB 77

26 Indian Law:In India, Chapter 16 entitled Of International Law, of the Negotiable Instruments Act, 1881 deals with the Indian conflict of law rules relating to negotiable instruments. These rules are not exhaustive and have to be supplemented by the general rules of private international law.

The Negotiable Instruments Act, 1881, unlike its English counterpart (s.72 of Bills of Exchange Act, 1882); is silent on formalities. However, s.136 of the Act says that an instrument made outside India will be valid as to the formal validity if it is valid as to form under the Indian law, even if it is invalid under the foreign law. The Indian law does not contain any exception on the lines in which it is contained in proviso (a) to sub-section (1) of s.72 of the Bills of Exchange Act, 1882. The Indian courts follow the law as it prevailed in England before the passing of the Bills of Exchange Act, 1882.

A negotiable instrument which is not void but merely unenforceable under the foreign law for want of proper stamping is formally valid under the Indian law if it is valid otherwise. On the other hand, if for want of proper stamp the instrument is void under the foreign law, then no action is maintainable on such an instrument in an Indian court. Thus, section 136 of the Negotiable Instruments Act, 1881 lays down the rule that the invalidity of an instrument under foreign law does not render it invalid as to the subsequent contracts entered into in India provided the instrument is formally valid under the Indian law. However, the provision of the section is confined to persons who become parties to the instrument by acceptance or indorsement in India. It would not cover a case where a person is sought to be made liable on the instrument when he had become a party to it in any other country.

Section 134 of the Negotiable Instruments Act, 1881 deals with the material validity of negotiable instruments. It says that: In the absence of a contract to the contrary, the liability of the maker or the drawer of a foreign promissory note, bill of exchange or cheque is regulated in all essential matters by the law of the place where he made the instrument, and the respective liabilities of the acceptor and endorser by the law of the place where the instrument is made payable.

According to the illustration appended in the section; where a bill of exchange was drawn by A in California, where the rate of interest is 25 per cent, and accepted by B, payable in Washington, where the rate of interest is 6 per cent. The bill is indorsed in India and is dishonoured. An action is brought on the bill against B in India. He is liable to pay interest at the rate of 6 per cent only; but, if A is charged or made liable as a drawer, A is liable to pay interest at the rate of 25 per cent.

Thus, it is evident that the Indian law makes a distinction between the liability of the maker or drawer and the acceptor or endorser. In the former case, it is the lex loci actus, that is the law of the place

27 where the instrument is made, which governs the material validity of the instrument, while in the latter case, it is the lex loci solutionis, i.e. the law of the place where the instrument is made payable, which governs the essential validity.

As to the definitions of inland instrument and foreign instrument given under the Indian Negotiable Instruments Act, 1881 and the definition of inland bill and foreign bill given in the English Bills of Exchange Act, 1882, there is a marked resemblance. Section 2 of the Indian statute defines an inland instrument as: A promissory note, bill of exchange or cheque drawn or made in India and made payable in or drawn upon any person resident in India shall be deemed to be an inland instrument. A foreign instrument is defined as: Any such instrument not so drawn, made or made payable shall be deemed to be a foreign instrument. In Kidston vs. Seth Brothers25, BUCKLAND J. expressed the view that a bill drawn upon a resident of India is an inland bill irrespective of the fact as to where it was drawn. It is respectfully submitted that this is not correct. A bill drawn outside India will be a foreign instrument. One of the distinguishing features of inland instruments and foreign instruments id that the latter mist be protested for dishonour when so required by the law of the place where they are drawn, while the former need not be.

MARITIME LIENS
1) Civilian origins of maritime liens

Maritime liens constitute a distinctive and historic feature of modern admiralty law. Their roots stretch far back to the maritime law of the ancient world and particularly to the medieval European lex maritima, which, as part of that body of customary, transnational mercantile law (the lex mercatoria), governed the relations of merchants who travelled by sea with their goods in the Middle Ages. Originally purely oral, this customary sea law was gradually committed to writing in the medieval sea codes, which were generally collections of judgments rendered by merchant judges, accompanied by some loosely-formulated principles thought to be useful in future cases of the same kind. Of these early codifications, the most important was probably the Rles of Olron, dating from the late twelfth century and composed on the Island of Olron (off Bordeaux), then the centre of the wine trade between Aquitaine and England. The influence of the Rles gradually extended along the whole Atlantic coast of Europe, southwards to Spain, northwards to England and Scotland and eastwards to the ports of Flanders and the Hanseatic League, as far as the Baltic coast. Two other important codifications were the Consolato del Mare, a collection of judgments rendered by consuls who dispensed maritime justice in the Western Mediterranean, and the Laws of Visby, which rely heavily
25

1930 Cal. 692

28 on the Rles of Olron and were first printed in Copenhagen in 1505. These three major Rules eventually influenced the drafting of the Ordonnance de la Marine of 1681 under Louis XIV, and later the later commercial codes of France and other civilian jurisdictions.

These early sea codes contained provisions relating to what today are known as maritime liens. Even in England, the civil law origin of admiralty law, including the law of maritime liens, was recognized at Doctors' Commons, the admiralty court, where doctors of civil law trained at Oxford and Cambridge decided maritime cases until Doctors' Commons was dissolved in 1858.

2) Characteristics of maritime liens

Maritime liens became clearly defined in the civil law as "maritime privileges" ("privilges maritimes" in French) and this character was recognized in common law courts. Sir John Jervis in The Bold Buccleugh, accordingly defined "maritime lien" in the following terms in 1851:

"Having its origin in this rule of the Civil law, a maritime lien is well defined by Lord Tenterden, to mean a claim or privilege upon a thing to be carried into effect by legal process; and Mr. Justice Story... explains that process to be a proceeding in rem... This claim or privilege travels with the thing, into whosesoever possession it may come. It is inchoate from the moment the claim or privilege attaches, and when carried into effect by legal process, by a proceeding in rem, relates back to the period when it first attached."

In the United States, the great Justice Joseph Story had been the first to use the term "maritime lien" twenty years earlier in The Nestor. As a privilege, the maritime lien was recognized to be a right in the property of another. Gorell Barnes, J., in The Ripon City, declared: "... a lien is a privileged claim upon a vessel in respect of service done to it, or injury caused by it, to be carried into effect by legal process. It is a right acquired by one over a thing belonging to another a jus in re alien. It is, so to speak, a subtraction from the absolute property of the owner in the thing."

An even more complete characterization of maritime liens was given by Scott, L.J. in The Tolten, who, also alluding to its nature as a civilian privilege, continued:

"The essence of the 'privilege' was and still is, whether in Continental or in English law, that it comes into existence automatically without any antecedant formality, and simultaneously with the cause of action, and confers a true charge on the ship and freight of a proprietary kind in favour of the 'privileged' creditor. The charge goes with the ship everywhere, even in the hands of a purchaser for

29 value without notice, and has a certain ranking with other maritime liens, all of which take precedence over mortgages."

In consequence, one may say that a traditional maritime lien is a secured right in the "res", i.e., in the property of another (ordinarily the ship, but sometimes the cargo, freight and/or bunkers as well), deriving from the lex maritima and the civil law; which arises with the claim, without registration or other formalities; which travels with the vessel surviving its conventional sale (although not its judicial sale); which remains inchoate until it is enforced by an action in rem; and which, when so enforced, gives the lienor's claim priority in ranking over most other claims, notably ship mortgages. In this sense, the maritime lien is a very different animal from the common law possessory lien, (or the similar possessory lien of the shipbuilder and ship repairer) which are purely a rights of retention of another's property until a debt relating to that property retained is paid. Those rights are lost if the creditor loses possession of the property in question.

II. Maritime Liens as Sources of Conflicts of Law

In order to understand conflicts of law in the realm of maritime liens and related maritime claims, one must first become a "comparativist", in order to grasp the differences between the competing national laws. In fact, any study of the conflict of laws presupposes a comparative law analysis. Similarly, comparative law cannot be studied exhaustively without examining the conflicts rules of the jurisdiction in question, because those rules are themselves part and parcel of that national law. Conflicts of maritime lien laws are easy to perceive through the lens of comparative law.

1) The differing scope of "maritime liens"

In England and Commonwealth countries, the term "maritime lien" applies only to a select group of maritime claims, being seamen's wages, master's wages, master's disbursements, salvage, damage (caused by the ship), bottomry and respondentia. These are known as "traditional maritime liens".

Other maritime claims resulting from services supplied to the ship or damages done by the ship, notably claims for "necessaries" provided to the vessel (e.g. bunkers, supplies, repairs, and towage), as well as claims for cargo damage, for breaches of charterparty and for contributions of the ship in general average, do not give rise to "traditional maritime liens" in the U.K. and Commonwealth countries, but only to "statutory rights in rem". The latter are simply rights granted by statute to arrest a ship in an action in rem for a maritime claim. Unlike traditional maritime liens, statutory rights in rem do not arise with the claim; they do not "travel with the ship" (i.e. they are expunged if the vessel is sold in a conventional sale before the action in rem is commenced on the claim concerned); and

30 they rank after, rather than before, the ship mortgage in the distribution of the proceeds of the vessel's judicial sale.

In the United States and civil law jurisdictions (e.g. France), however, claims for necessaries, cargo damage and general average, among others, are granted full status as maritime liens by the relevant national legislation, and/or by international conventions binding those States,thus resulting in conflict of laws when such claims are asserted in maritime proceedings before United Kingdom and Commonwealth courts, where they have no maritime lien status according to the lex fori.

2) Other maritime claims

To understand maritime lien conflicts, one must also be familiar with a few other categories of maritime claim. First come "special legislative rights", a category of claim (not always recognized by maritime law authors) arising under modern national statutes, particularly with respect to harbour and dock dues, wreck removal and pollution. These statutes confer upon governments or their agencies special rights such as detention and sale of the ship, often coupled with a right of priority on the sale proceeds. In other cases, the statutes provide expressly for certain claims to be secured by a maritime lien with a very high priority. Such rights usually outrank even the costs of arresting and selling the ship, as well as the "traditional" maritime liens. They are also sanctioned by international conventions on maritime liens and mortgages.

Another type of maritime claim consists of the costs of seizing or arresting the ship and of preserving it pending the completion of the suit and its judicial sale. In France, such law costs (frais de justice), as well as the costs of the judicial sale and the distribution of the proceeds, and the costs of maintenance of the vessel under seizure (custodia legis), are treated as conferring a privilge maritime (maritime lien) superior to other maritime liens enumerated in Law No. 67-5. In the U.K., Canada and the U.S., on the other hand, costs of arrest and sale and expenses in custodia legis do not constitute "traditional" maritime liens, but are understood as a separate class of maritime claim, outranking such liens. And, of course, there are ship mortgages, which almost always compete with the other categories of maritime claim for priority when a ship is sold in a judicial sale.

III. The United Kingdom - The Lex Fori

1) The Halcyon Isle decision

As a result of the Privy Council's 1980 decision in The Halcyon Isle, it is now settled that the lex fori alone governs the recognition and ranking of foreign maritime liens in the United Kingdom. The

31 decision arose out of the repair of a British ship subject to a ship mortgage in a Brooklyn, New York shipyard. The vessel sailed away withoutpaying for the repairs. The mortgage was then registered, no notice of the mortgage ever having been given to the repairman. The mortgagee ordered the ship to Singapore, where English law prevailed, and had it arrested, resulting in competing claims by the mortgagee and the repair yard to the proceeds of the judicial sale. The majority three of the five Law Lords who decided the case, reversing the Singapore Court of Appeal, refused to recognize as maritime liens any claims which differed from the six "traditional" maritime liens recognized in England. In consequence, the ship repairer's claim ranked below that of the mortgagee, because the repairman's U.S. maritime lien for repairs (being one type of "necessaries" supplied to a ship) was not a maritime lien in England, but was secured there by a mere statutory right in rem which did not travel with the ship and which ranked after the mortgage. One senses in this attitude a quest for an easy and predictable solution, perhaps mixed with a tinge of traditional English disdain for foreign law. From a more juridical standpoint, the majority decision was based on the notion that maritime liens, in the conflict of laws, are "procedural" remedies, rather than "substantive" rights. Speaking for the majority in The Halcyon Isle, Lord Diplock held that maritime liens involve "... rights that are procedural or remedial only, and accordingly the question whether a particular class of claim gives rise to a maritime lien or not [is] one to be determined by English law as the lex fori." Very different is the minority view of the Lords Salmon and Scarman who dissented. Citing various precedents, and in particular the English Court of Appeal's decision in The Colorado29 (which involved a conflict of ranking between a French ship hypothque and a claim for repairs done in Wales), they held:

"A maritime lien is a right of property given by way of security for a maritime claim. If the Admiralty court has, as in the present case, jurisdiction to entertain the claim, it will not disregard the lien. A maritime lien validly conferred by the lex loci is as much part of the claim as is a mortgage similarly valid by the lex loci. Each is a limited right of property securing the claim. The lien travels with the claim, as does the mortgage and the claim travels with the ship. It would be a denial of history and principle, in the present chaos of the law of the sea governing the recognition and priority of maritime liens and mortgages, to refuse the aid of private international law."

The substantive character of maritime liens was thus properly understood as grounded in the very nature of the concept itself as a property right, emanating from the lex maritima and the civil law. The two dissenting Law Lords therefore held that the proper law (or lex causae) of the foreign maritime lien merited recognition, even if the domestic law denied maritime lien status to the equivalent claim arising in England. They cited various authorities for their view, including the decision of the Supreme Court of Canada in The Ioannis Daskalelis, which will be reviewed below.

32

2) Weaknesses of the lex fori rule

To a large extent, this procedural/substantive debate about maritime liens reflects the fact that in England, maritime claims are not codified. No statute expressly states that such and such a maritime claim gives its creditor a maritime lien. Rather, the pertinent statute, the Supreme Court Act 1981,32 at sect. 20(1) and (2), merely sets forth a list of maritime claims subject to the Admiralty jurisdiction of the High Court of Justice, some of which are secured by maritime liens and others of which are secured, if at all, by mere statutory rights in rem. This fixation with jurisdiction-oriented statutory drafting hearkens back to the centuries of conflict between the High Court of Admiralty and the common law courts in England, as well as to the historic importance of the forms of action in that country. Such a "jurisdictional" approach reinforces the "procedural" view of maritime liens in the conflicts thinking of English jurists. In addition to the misconstruing the maritime lien as a procedural remedy rather than a substantive property right, the majority decision invites forum shopping. It also defeats the expectations of necessariesmen, who should be entitled to assume that when they conclude and perform contracts for supplying or repairing a vessel in a jurisdiction like America that grants them the status and priority of maritime lienors, their claims, arising out of such contracts, will be honoured as full-fledged maritime liens throughout the world, even in countries where the same claim would have a different character and a lower priority. The lex fori rule of The Halcyon Isle rather thinly veils an exaggerated solicitude for protecting mortgagees (usually large banks) from the claims of ship suppliers. New conflicts rules should not, however, be crafted so as to favour banks at the expense of other claimants against the proceeds of the "forced sale" of an arrested vessel. Nor should the lex fori be permitted to displace the law of the jurisdiction most closely connected with the parties and their transaction, which in this case was quite clearly American law.

3) The influence of The Halcyon Isle

The Halcyon Isle has had an unfortunate effect on judicial thinking outside the U.K., particularly in some of the countries of the Commonwealth and in some former British colonies, where English admiralty law still prevails. In South Africa, for example, in Transol Bunker B.V. v. M.V. Andrico Unity,a Panamanian ship obtained supplies in Argentina at the request of the charterers (thus giving rise to a maritime lien in Argentina). When the vessel was later arrested in South Africa, that country's Supreme Court, Appellate Division, held that it lacked jurisdiction in rem (which went even further than the Privy Council in The Halcyon Isle, where at least jurisdiction was accepted), because English law as at November 1, 1983 (as declared in The Halcyon Isle) did not

33 recognize a maritime lien for necessaries. The closer connection of the case to Argentina was ignored, in reliance on a jurisdictional incorporation of a foreign (English) law based on the narrow (and controversial) three-totwo ruling of the Privy Council. The Cyprus Supreme Court, in Hassanein v. The Hellenic Island26, found, again relying on The Halcyon Isle, as well as earlier precedents, that a claim for bunkers supplied to the vessel in Egypt, which claim enjoys maritime lien status there under national law, could not be recognized in preference to the claim of a Singapore-registered first preferred mortgage against a Singapore ship. The reason was because the Cypriot Courts of Justice Act 1960 imported into Cyprus English Admiralty law as of August 15, 1960, which law then recognized no such lien. In The Betty Ott v. General Bills Ltd.27, New Zealand's Court of Appeal also invoked The Halcyon Isle in refusing to recognize an Australian ship mortgage as equivalent to a ship mortgage registered in New Zealand, simply because the mortgage had not been registered in New Zealand (and this, despite the very similar terms and conditions governing ship mortgages and their registration in Australia). In consequence, the Australian mortgage was subordinated to an equitable charge resulting from a debenture issue. The Betty Ott judgment underlines to what absurd lengths the principle of The Halcyon Isle can lead. The Privy Council's majority decision nevertheless continues to be invoked in New Zealand's case law. Unfortunately, Australia itself joined the club of Halcyon Isle jurisdictions in 1997, when its Federal Court, in Morlines Maritime Agency Ltd. & Ors v. The Skulptor Vuchetich28, rejected the necessaries claim of a U.S. container lessor under a lease agreement, although the contract itself expressly provided for a maritime lien to secure the claim. No such lien could qualify for recognition in Australia, where, as the Court held, only the six "traditional" English maritime liens existed. Singapore, as well as Malaysia, have also referred to The Halcyon Isle in recent decisions, some of which, however, are purely domestic maritime law judgments not involving any conflicts.

MIXED

ISSUES

INVOLVING

CONTRACTUAL

AND

NON

CONTRACTUAL OBLIGATIONS
Contracts No element of the law is more confusing than that under the conflict of laws and the conflict between the places of making and performance of a contract where such places are not the same. This confusion is mainly caused as a result of the existence of a number of choice of law that courts have

26 27

[1989] 1 C.L.R. 406 (Cyprus Supr. Ct.). [1992] 1 N.Z.L.R. 655 (N.Z. C.A.). 28 1998 AMC 1727 (Fed. Ct. Aust. 1997).

34 developed and applied over the years in contract cases. Law governing contracts apply to the parties regardless of the fact that which conflict of laws rule is applied. Courts have recognized that there may be a false conflict. To resolve a conflict of law issue, the court must determine whether there is a true conflict exists between the application of differing states laws. Under general conflict of laws principles, if the laws of the two jurisdictions produce the same result on a particular issue presented, then there is a false conflict. Under this condition, the court must avoid the choice-of-law question29 and apply the presumptive local law. If a true conflict of laws exists, a court must then determine which state has the greater interest in the application of its law30. Under the most significant relationship test used in choice of law cases, courts must take into account31

Place of the alleged contracting or where the relationship is centered; Place of negotiating the alleged contract; Place of the alleged performance; Place of the subject matter; and Place(s) of incorporation and business of the parties.

It can be seen that courts have abandoned the traditional conflict-of-laws rules. Instead, courts adopted the rules regarding the rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which has the most significant relationship to the transaction and the parties. This rule is known as significant relationship rule. In addition to being referred to as the significant relationship rule, this is also referred to as the center-of-gravity theory, the interest weighing or choice-influencing theory, the grouping of contacts theory. Under this rule, courts apply the law of the state with the most significant or substantial contacts with the parties and the transaction underlying the lawsuit in the absence of a valid contractual choice of law. One of the traditional conflict-of-laws rules that many courts abandoned in favor of the significant relationship rule is that the construction and validity of a contract are governed by the law of the place where it is made. It is to be noted that some courts have stated that the parties to a contract may effectively agree as to that state whose law will govern the validity, construction, interpretation, and effect of the contract. Some courts have reasoned that there is no justification for precluding parties to a contract from

29

Underhill Inv. Corp. v. Fixed Income Disc. Advisory Co., 319 Fed. Appx. 137, 140 (3d Cir. Del. 2009) Hammersmith v. TIG Ins. Co., 480 F.3d 220 (3d Cir. Pa. 2007) ] Underhill Inv. Corp. v. Fixed Income Disc. Advisory Co., 319 Fed. Appx. 137, 140 (3d Cir. Del. 2009)

30 31

35 stipulating that the laws of any jurisdiction must govern the rights and obligations of the parties, if they are not against public policy. Other Non-Contractual Obligations

As noted initially, negotiorum gestio as such is not known to the common law, indeed he who performs anothers duties or renders him services might well be regarded an officious intermeddler, to whom no compensation is due Culpa in contrahendo, which the German migr Friedrich Kessler sought to introduce into American legal thought,104 also never took hold. Appropriate cases were solved with a variety of constructs drawn from both tort and contract law (e.g., estoppel, a concept originating in equity jurisprudence).

The common law did, of course, address unjust enrichment. The theoretical bases of solutions, however, were equally varied. It is a welcome feature that the Rome-II Regulation deals with all three. The solutions are consistent with its other provisions. For negotiorum gestio, Art. 11(1) selects the law of the underlying contract or tort relationship. When this does not furnish a solution, subsequent paragraphs refer to the common habitual residence, then to the place where the act was performed, and ultimately pick up the escape clause of Art. 4(3). For culpa in contrahendo (Art. 12), the primarily applicable law is that which governs the contract or would have governed it if it had come about. Failing a resolution, Art. 12(2) then picks up Art. 4 in its entirety.106 Art. 10 for unjustment enrichment follows a similar pattern, selecting first the law governing the underlying relationship, failing that the common domicile (as in Art. 4(2)), then the place where the enrichment took place, and ultimately once again the escape clause of Art. 4(3).

Public Policy and Mandatory Rules

There are at least two problems of interpretation. Do they differ qualitatively, i.e. what is the threshold for their application, and when are rules of the forum (or another legal systems) mandatory? Art. 26 provides that the law of a country applicable under the Regulation may be refused only if such application is manifestly incompatible with the public policy of the forum. The Introductory Recital para. (32), further speaks of exceptional circumstances. Both the exceptional nature of the exception and that the threatened national policy is deeply held are common ground among legal systems, One of the classic formulations in the United States is Judge (later Justice) Cardozos: The courts are not free to refuse to enforce foreign rights at the pleasure of the judges, to suit the individual notion of expediency and fairness. They do not close their doors unless help would violate

36 some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal.32

The concept of mandatory rules is one of the most difficult (and uncertain) in European conflicts law. In contrast to the Rome Contracts Conventions Art. 7(1), Art. 16 only addresses the mandatory rules of the forum (= Art. 7(2)) of the Rome Convention). The title of Art. 16 refers to overriding mandatory provisions, emphasis added), its text speaks of forum rules that are mandatory irrespective of the law otherwise applicable to the non-contractual obligation. There are no definitions or illustrations.

In the practice under the Rome Contracts Convention, a distinction has evolved between mandatory rules of the forum that are local (and would not apply in the face of an otherwise applicable foreign law) and those that are international. Perhaps the use of the qualifier overriding in the title of Art. 16 is meant to reflect and continue the differentiation. It seems that, as in the case of the public policy exception, each state decides for itself which of its rules are internationally mandatory. Application of the forums own rule, without the possibility of a different resolution elsewhere, may raise, just as in the public policy case, the due process concerns (from the American perspective) noted above.

The Rome-II Regulation is a major achievement, unifying for the first time the conflicts law for noncontractual obligations of 26 of the ECs 27 Member States. There are shortcomings, as there were bound to be, both in coverage (e.g., defamation, media delicts) and in drafting that may lead to interpretative difficulties (e.g., with respect to quantification of damages and review of punitive damages). Over thirty years ago, efforts failed to produce a conflicts convention dealing, in one instrument, with both contracts and non-contractual obligations because of disagreement on the noncontractual obligations part. The result was the Rome Convention on contracts conflicts. Now, conflicts law with respect to noncontractual obligations has overtaken contracts and is binding Community law in the form of the Rome-II Regulation. To preserve the historical record, a Rome-I Regulation on contracts conflict is nearing completion. An important factor for the successful completion of the work on Rome-II was, no doubt, acceptance of the realization that not everything could be regulated or formulated to everyones satisfaction at the same time. The Communitys conflicts law thus is not complete. Indeed, the shortcomings noted in the main text and in the preceding paragraph are major: resolution of the defamation (and media liability) issue is very much needed; the current state of the quantification-of damages issue is wholly unsatisfactory (because of the forum shopping it will surely entail), but also quite an intractable puzzle, as discussed: hence, the inclusion of Art. 30, calling for a general review in four years and for
32

Loucks v. Standard Oil Co. of New York, 224 N.Y. 99, 120 N.E. 198 (1918)

37 the completion of a study on the omitted subject of defamation by the end of 2008. How well Rome-II addresses conflicts problems within its coverage will evolve over the next four or more years as a result of legislative amendment or correction and the emergence of case law, especially by the European Court of Justice that will shape its interpretation. As it stands, the Regulation fits well within the traditional European conflicts system while providing some added flexibility and by breaking new ground for some legal systems by making special provisions, fitted to the needs and interests at stake in particular areas of law for specific non-contractual .