The Identification of Appropriate Law in International
Contract Obligations and the Rome Convention Application
Analysed on the Example of the England and Wales
Court of Appeal Decision in the Case Raiffeisen
Zentralbank Österreich AG v. An Feng Steel Co

by: Ginka Tchervenkova

Table of Contents

1. The conflict of laws and problems associated to it  3

1.1. Selecting the proper approach for the identification of appropriate law 3
1.2. The nature of the issue in the case as a key element for the situs determination and the appropriate law identification  4
1.3. Determination of the connecting factor for the identification of appropriate law 7
1.4. The international precedence of law and the appropriate law identification  9

2. The Case: RAIFFEISEN ZENTRALBANK ÖSTERREICH AG v. AN FENG STEEL CO. LTD AND OTHERS 11

2.1. Facts of and proceedings in the case 11
2.2. Court’s decision  11
2.3. Legal background and considerations of the court for the justification of its decision 12

3. Court’s decision in the RAIFFEISEN ZENTRALBANK ÖSTERREICH AG v. AN FENG STEEL CO. LTD AND OTHERS Case in the light of the problems in relation to the proper identification of appropriate law as outlined in Part 1. 15

3.1. Approach taken by the Court of Appeal for identification of the appropriate law.. 15
3.2. The nature of the issue in the case as a key element for the situs determination and the appropriate law identification  18
3.3. The assignment as a link to the connecting factor and the identification of appropriate law .21
3.4. Art. 12 of the Rome Convention 1980 and the identification of appropriate law 23

BIBLIOGRAPHY  26

APPENDICES  28

Appendix A: Chronology of the facts in the case   28
Appendix B: EC Convention on the Law Applicable to Contractual Obligations (Rome 1980), Art 12 33
Appendix C: Legal Terminology  34
 

1. The conflict of laws and problems associated to it

Conflict of law issues in international matters make cross-border contracts a complex undertaking. Thereby, the problems arising in regard to the identification of the appropriate law can be outlined as a central group of problems in a situation of conflicting domestic laws that relate to a particular legal issue with international dimensions.

1.1. Selecting the proper approach for the identification of appropriate law

The first difficulty in regard to the proper identification of appropriate law is associated with the general absence of an unified and internationally recognised approach that should be followed by national bars of the respective instance when dealing with cross-border issues and when making their decisions. On the basis of a considerable variety of possible, recommendable, and justified approach options in a particular situation there is still no widely shared opinion at international legal level what is indeed the proper approach that should be applied. Some legal views prescribe as a well- founded approach the involvement of a process comprising a couple of stages (see Staughton LJ, cited in Par. 26 of the case presented in Part 2 below). As examples of such process stages can be mentioned: characterisation of the issue nature and its components; selection of the rule of conflict of laws; laying down the connecting factor between the particular issue and the legal framework outlined by the selected rule of conflict of laws; and identification of the law system, to which the connecting factor relates. It is stressed that if adopting a multi-stage approach when identifying the law appropriate to a given case an important requirement represents the carrying out the whole process in a broad internationalist spirit in accordance with the principles of conflict of laws of the respective forum (Par. 28). As a next key requirement it is then emphasised that the overall aim pursued herewith should be not just the identification of a possible appropriate law but furthermore the identification of the most appropriate law to govern the respective particular issue. On this way, it should be avoided a mechanistic application of law that could disregard the consequences. However, the multi-stage approach for identification of the appropriate law should not be regarded as exclusive and inflexible. It is therefore underlined that the process stages may be redefined or modified, new categories may be added, and new rules may be integrated into it if that turns necessary for achieving the overall aim of identifying the most appropriate law that should be employed to a specific particular case.

While some legal views recommend the multi- stage approach as the justified one for the identification of appropriate law, other legal perceptions rather deny it by stressing the impossibility of taking each step of such a process in isolation (see Auld LJ, cited in Par. 28 of the case presented in Part 2 below). The representatives of this viewpoint tend to rely on a kind of inter-play or even circularity of the stages in the process of selecting the right law. Thereby, it is often emphasised the need to look beyond the formulation of a particular claim in order to identify the true issue or issues thrown up by that claim and its defence. That in turn would enable the more correct and more precise identification of both the proper approach to a given case and the applicable law to it. However, such a process would require a parallel exercise in classification of the relevant rule of law. As a leading principle is then underlined the need to setting an overall aim which should be achieved. The latter should reflect the striving for establishing a community between the various legal systems rather than the ignorance of one or some of them and the related hereto simultaneous placing of a second one at an overruling position. When pursuing the establishment of such kind of community of legal systems it is important that the thus selected and properly employed approach and the related to it identification of appropriate law should not be constrained by particular notions or distinctions of a certain domestic law or of a competing system of law, which may well have no counterpart in the others’ legal systems. The scope of issue definition is stressed as a second requirement. It is emphasised that the issue in the case should not be outlined too narrowly if wishing to avoid the indirect linking and subjecting of the particular case to a certain domestic law and hence to avoid on that way a choice of law, which may turn inapplicable under the other legal systems (Par. 28).

1.2. The nature of the issue in the case as a key element for the situs determination and the appropriate law identification

Regardless of which perceptional basis will be chosen as a methodological and conceptual approach when identifying the appropriate law, a second group of problems arises when the analysis of a certain case reaches the stage of characterising the nature of the issue raised by that case. In other words, it is about the correct identification of the leading right-obligation relationship, i.e. the one of primary position as between the parties in the case, and the outlining of the respective subordinate ones. As the various relation lines that may reveal themselves as implicated in contemporary cross-border legal disputes very often refer to different domestic laws, the right answer to this question can often be crucial for the whole outcomes of a case. The main difficulty when identifying what legal relation is the decisive leading one, and what are the subordinate ones, consists in the complexity of nowadays private international matters, which often represent a combination of different in their quality subgroups of civil law. Thus, the G. Tchervenkova: The Identification of Appropriate Law and the Rome Convention overlapping of contractual and proprietary aspects of the issue raised by certain proceedings reveal the interdependency character of today’s globalised international reality. In a case, for instance, of a voluntary assignment in regard to insurances whereby assignor, assignee and debtors come from different countries there would arise two parallel lines of obligations. The first one will refer to the obligations by whic h the parties as per their covenant relations are bound to each other. The second one will refer to the tangible and intangible rights arising for each of them from their interdependency, especially with respect to the effects from the particular insurance case. Whereas the first line of obligations would enhance the contractual aspects of the issue in the case, the second one would place on a primary position the proprietary rights of the parties and could suggest, under particular circumstances, the justification of third party’s tangible or intangible rights whereby the third party’s claims could be both non-derived from the assignment and/or the insurance contract itself, and at the same time legally founded and grounded. The different nexus in each of these two perspectives for analysing the nature of the issue in the particular case would then turn the question on the nature of the issue actually into a question of a choice between different options for selecting the right situs when identifying the appropriate law – e.g. the proper law of the (insurance) contract or the lex situs of the (insurance) claim.

Conflict of law rules generally dictate the application of lex rei sitae or lex situs, the law of the place where the subject matter is situated. In the simple, traditional paradigm, the lex situs in a situation of third party’s indemnity rights against a debtor is the law of the jurisdiction where the debtor is registered. However, the international jurisprudence acknowledges the existence of other options, too, that should be taken into consideration when deciding on the question of identification of applicable law. Thus, the law of the assignor’s place of residence or business, and the law governing the contract of assignment represent alternatives of equal legal weight (Par. 25). Another option that has been widely recommended is the lex fori. “Many writers agree that it is the lex fori which, on principle, matters. The reason for this is that the conflicts rule which provides for the connecting factor appertains to the lex fori.” (Spiro 1982: 47)

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