Bhargavy Ramesh - 518Srinivas Atreya – 519Varun Singh – 568

5th Semester

October 2011[Type the company name]

Unification of Private International Law [Type the document subtitle]

Introduction

Private international law is that part of the law of any State which comes into operation

when a court is called upon to determine a suit containing a foreign element. Such a foreign

element may exist, for instance, because a contract has been made or is to be performed in

another State or because the recognition of a divorce obtained by persons domiciled

abroad may arise. Since World War II, international trade has also grown exponentially and

with it the importance of international law. With increased business between different

nations, the need for increased harmonization of private laws has become apparent.

Harmonization, unification, codification and reform in international law have long been the

centre of international efforts to facilitate international transactions with lower costs to

enterprises and higher legal certainty. Private international law is one the instruments

regulating social relations in a situation of conflicting legal orders, in other words, social

relations with a foreign element.

If we trace back in history the attempt to unify international law the unification of private

law started on both sides of the Atlantic in the second half of the 19th century. When

scrutinized, the treaties concluded until World War I show that the matters regulated by

those treaties invariably transcended the traditional limits of private law as perceived in

those days. In a book published in 1894 and entitled “Étude de Droit International

Conventionnel” the author, who was secretary general of the International Office for

Intellectual Property in Berne at the time, lists what he calls diplomatic “arrangements also

called conventions” which serve to avoid conflict o f laws. The list comprises conventions

on maritime law, inland navigation, railway transport, postal and telegraph

communications, trade relations, customs and currency, and finally copyright and

industrial property. There is one important common feature about all these matters: All of

them affect national interests, and many of those conventions are not limited to provisions

dealing with private relations, but also contain regulations pertaining to public law. It is

perhaps even more appropriate to say that, in the treaties of the early years, the private law

content was considered as a kind of annexe to public law rules. Therefore, the use of the

international treaty suggested itself when it came to international unification.

This proposition can be further underpinned in respect of many areas mentioned above.

For instance, the protection of industrial property which was implemented by the Paris

Convention of 1883 in Europe and by two of the 1889 Montevideo Conventions in South

America. From the very beginning industrial property rights have been considered as a

kind of privilege granted by each sovereign state in respect of its own territory and not

reaching beyond. Consequently, the owner of a patent or trademark must strive for

protection in all states where he expects his invention or trademark to be profitable. For

the state authorities granting that protection to foreign applicants this raises the issue of

national treatment which is a matter of public law and the central issue covered by the

above mentioned conventions. Similar arguments can be made in respect of the Berne

Copyright Convention of 1886.

Another area of the law that has been the object of intensive unification efforts ever since

the end of the 19th century is private international law. The ambivalent nature of this

discipline is well-known. For continental legal theory in Europe it is part of private law

determining the applicable law in private relations. On the other hand, the theory of comity

of nations which is rooted in categories of public international law such as the sovereignty

of nations has had a strong impact on private international law in certain countries such as

the United States. Before World War I the diplomatic dimension of private international

law was perceived on the European continent much more clearly than it is today. Mancini,

the influential Italian scholar and foreign minister had declared three principles as

fundamental to private international law, two of them being state-related: freedom,

nationality and sovereignty. The application of foreign law was considered as a kind of

complaisance vis-à-vis the foreign state. Therefore the German ministry of foreign affairs

successfully objected to the adoption of bilateral conflict rules in the codification of German

private international law in the 1890s; conflict rules referring to foreign law were thought

to be a matter of diplomatic convention. In accordance with this view the first conventions

agreed upon by The Hague Conference on Private International Law in 1902 provided only

for the obligation of contracting states to apply the law of other contracting states. Contrary

to the modern Hague conventions, cases involving the law of non-contracting states were

not covered. Aspects of sovereignty also played an important role in the first conventions

on maritime private law which were prepared by the Comité Maritime International and

were concluded in Brussels in 1910.

As evident, uniform law conventions of the pre -World War I period invariably had a strong

public law dimension. The use of the international treaty as an instrument of unification

therefore was logical and may even have suggested itself. The private law content of these

conventions gradually increased in course of time. But the breakthrough towards pure

private law conventions did not happen until after the First World War. The first

convention that exclusively dealt with private legal relations was the Brussels Convention

on Bills of Lading of 1924 which is better known as the Hague Rules. It is significant that

the scope of application of this instrument is in no way related to the nationality of the

parties or the nationality of the ship, but only to the issue of a bill o f lading in a contracting

state. Further conventions of the interim period between World Wars I and II give evidence

of a clear distinction between private law and public law. This is true for the Warsaw

Convention on the International Carriage by Air and also for the various Geneva

Conventions of the early 1930s on cheques and bills of exchange where public law and

private law issues are dealt with in separate instruments.

In retrospective it is fair to say that the use of the international treaty as an instrument of

private law unification is the result of a long lasting process. The beginning was marked by

matters of a strong affectation of public interest and public law. In the course of 50 years of

treaty practice more and more turned to a subject of a purely private law nature. The use of

the treaty for the unification of private law has certain advantages, but it also produces

some tensions.

The first attempts on unification originated in the 19th century when The Hague

Conference on Private International Law was established1. The Hague Conference goes the 1 The first session of The Hague Conference took place already in 1893. On its seventh session in 1951 the Statute of the Hague Conference was adopted and its irregular meetings were converted into the international organization. The Czech Republic has been a member of the HC since 1993. Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters and Convention of 4 May1971 on the Law Applicable to Traffic Accidents belong among the most important deeds of the

traditional way of the Conflict of Laws2 and soon it was followed by the other similar

conventions. At the beginning of the 20th century The International Chamber of

Commerce, The International Institute for the Unification of Private Law (UNIDROIT) and

later on under the patronage of the United Nations, The UN Commission for International

Trade Law (UNCITRAL) were founded. Except for the directly applicable UN convention on

Limitation Period in the International Sale of Goods (1974) and the UN Convention on

Contracts for the International Sale of Goods (known as Vienna Convention of 1980), all

three initiatives went rather the way of alternative unification, notably in the form of

standardized contract terms (INCOTERMS), issued by the International Chamber of

Commerce), UNCITRAL model law, and UNIDROIT Principles of International Commercial

Contracts respectively3.

Fundamentally, there are two modes for the unification of private international law:

1. Unification of the internal laws of the countries of the world, and

2. Unification of the rules of private international law.

Unification of Internal Laws

The first step in the direction of unification of international laws was taken by the Bern

Convention of 1886 under which an international union for the protection of the rights of

authors over their literary and artistic works was formed. After the First World War an

International Institute for the Unification of Laws was formed. The Warsaw Convention of

1929 which was amended by the Hague Convention of 1955 is a very important landmark

in this direction. This convention provides for uniform rules on carriage of persons and

goods by air. Subsequently, the ‘Geneva Convention on International Carriage of Goods by

Road’ came into force in the 1956. The Geneva Conference of 1930 resulted in a

Conference. Significant amount of the drafts, however, never came in force because they were not ratified by the required number of states. Despite the fact, they are of considerable importance in the field of the PIL as they served as a source of inspiration to later achievements.

2 Traditional methods of the PIL are regulations via (I) conflict-of-law rules and (ii) directly applicable norms (treaties).3 They are usually overall named as lex mercatoria or transnational law commercial law. ROZEHNALOVÁ, N., op. cit. 6, p. 70. For closer explanation see ROZEHNALOVÁ, N., Transnacionální právo mezinárodního obchodu. Brno, 1994.

Convention on the Uniform Law of Bills of Exchange. An important contribution has been

made by the Rome Institute in conjugation with the Hague Conference in arriving at a

Convention in 1964 which establishes a uniform set of rules on international sales of goods

and also on the formation of contracts for such sales.

There have been successful attempts at unifying internal law at regional level especially in

the Scandinavian countries of Finland, Denmark, Norway and Sweden. All these countries

have signed conventions unifying several branches of law relating to bankruptcy, res

judicata and recognition of judgment and enforcement of decrees. In the United States of

America the Restatement of Private International Law is an analysis of accepted rules of

private international law which was made in order to resolve the acute problems of conflict

of laws which arises as a result of each state having its own private law. It does not

however binding on the states.

Unification of Private International Law

As a result of the basic ideological differences among the countries of the world, it is

difficult to achieve unification of all private international law. Considering the importance

of unification of rules of private international law, several attempts have been made to do

so and only few have met with success. In 1951 a permanent bureau of Hague Conference

was constituted which was done under a Charter and accepted by many countries.

Assistant secretaries belonging to different countries have been set up at The Hague. The

Hague Conference on Private International Law is an intergovernmental organization

which is charged with the progressive unification of the rules of private international law.

The Conference met for the first time in 1893 and became a permanent intergovernmental

organization in 1955. Since that time the Conference has adopted 35 Hague Conventions on

matters ranging from the service of judicial documents and the taking of evidence abroad

to child abduction and inter-country adoption. Its main functions are: to keep in contact

with the official and unofficial bodies, such as international law association, which are

engaged in the direction of unification of the rules of private international law and to

examine and prepare proposals for the unification of private international law.

The following are the other conventions dealing with unification of private international

law.

1. Convention on the Uniform Law of International Sale of Goods and Uniform Law on

the Formation of Contract for the International Sale of Goods, 1964

2. Convention on Jurisdiction, 1965

3. Convention on the Recognition of Divorces and Legal Separation, 1967

Furthermore, numerous inter-governmental and United Nations conventions and bodies

have been established over the years mainly in the field of international trade and policy.

The Hague Conference on Private International Law

The origin of the Hague Conference can be traced to the influence of the renowned Italian

jurist Pasquale Mancini. He submitted a report to the second session of the Institute of

International Law in Geneva in 1874 in which he advocated the unification of the rules of

the conflict of laws in the various national jurisdictions. The first Hague Conference on

Private International Law was convened by the Government of the Netherlands and held in

1893. The Conference originally held its sessions on an ad hoc basis, but subsequent

meetings took place with certain regularity though at long intervals. At its seventh session

in 1951, the Conference adopted its present Statute which entered into force on 15 July

1955 as a multilateral international treaty. According to article 1 of the Statute, it is the

objective of the Conference to work for the progressive unification of the rules of private

international law. These objectives are thus quite different from those of the Rome

Institute, which attempts to unify specified branches of substantive law of different

countries. The Statute provides in article 2 that countries which have taken part in one or

several sessions of the Conference and accept the Statute shall be members of the

Cnference. Other States may be admitted as members by decision of the majority of votes

cast by the participating members. In addition to the sixteen States which were

represented at the adoption of the Statute. Interestingly, none of the Latin American

countries participated, perhaps because they have their own arrangements for the

unification of conflict of laws rules, which are to be found in the Treaties of Montevideo and

the Bustamante Code. The method of operation of the Conference is to prepare draft

conventions for adoption by member States at the sessions of the Conference. The

Conference also promotes the signature and ratification of conventions prepared by it and,

where appropriate, the incorporation by States of the terms of these instruments into their

national legislation. These activities distinguish the Conference from the Rome Institute

and from certain other formulating agencies. While the earlier conventions deal mainly

with family law, some of the conventions adopted by the seventh to tenth sessions attempt

to unify conflict rules to international trade law. The most successful Hague Convention

pertaining to international trade law is the Convention on the Law Applicable to

International Sales of Goods of 1955. In 1958, The Hague Conference concluded an

arrangement with the United Nations similar to that which exists between the Rome

Institute and the United Nations, providing for co-operation, co-ordination and exchange of

information and documentation. As in the case of the Rome Institute, this arrangement was

made pursuant to resolution4

In India, The Ministry of Overseas Indian Affairs and the National Commission for Women,

as a part of their efforts to counter fraudulent marriages by non-resident Indians, finally

succeeded recently in persuading the Government of India to ratify the Hague Conference

on Private International Law. India's ratification of the Convention may facilitate the

mutual recognition of court orders of signatory countries on private law issues.

Inter-governmental organizations

The International Institute for the Unification of Private Law

The International Institute for Unification of Private International Law, which is generally

referred to as UNIDROIT or the Rome Institute, has its seat at Rome and was established by

a multilateral treaty in 1926 under the aegis of the League of Nations. Its purpose is to

study needs and methods for modernizing, harmonizing and co-coordinating private and in

particular commercial law as between States and groups of States and to formulate uniform

law instruments, principles and rules to achieve those objectives. It was set up in 1926 as

4 678 (XXVI) of 3 July 1958 of the Economic and Social Council.

an auxiliary organ of the League of Nations and the Institute was, following the demise of

the League, re-established in 1940 on the basis of a multilateral agreement, the UNIDROIT

Statute.

Membership of UNIDROIT is restricted to States acceding to the UNIDROIT Statute and

UNIDROIT's 63 member states are drawn from the five continents and represent a variety

of different legal, economic and political systems as well as different cultural backgrounds.

The Institute is financed by annual contributions from its member States which are fixed by

the General Assembly in addition to a basic annual contribution from the Italian

Government. Extra-budgetary contributions may be made to fund specific projects or

activities.

UNIDROIT has an essentially three-tiered structure, made up of a Secretariat, a Governing

Council and a General Assembly.

The Secretariat is the executive organ of UNIDROIT responsible carrying out its

work programme from day to day. It is headed by a Secretary-General appointed by

the Governing Council on the nomination of the President of the Institute. The

Secretary-General is assisted by a team of international civil servants and

supporting staff.

The Governing Council supervises all policy aspects of the means by which the

Institute's statutory objectives are to be attained and in particular the way in which

the Secretariat carries out the Work Programme drawn up by the Council. It is made

up of one ex officio member, the President of the Institute, and 25 elected members,

mostly eminent judges, practitioners, academics and civil servants.

The General Assembly is the ultimate decision-making organ of UNIDROIT: it votes

the Institute's budget each year; it approves the Work Programme every three

years; it elects the Governing Council every five years. It is made up of one

representative from each member Government. The Presidency of the General

Assembly is held, on a rotating basis and for one year, by the Ambassador of one of

the Organization’s member States.

The drafts prepared by the Institute formed the basis of conventions which have been

adopted by diplomatic conferences, the most notable being the Convention relating to a

Uniform Law on the International Sale of Goods (Corporeal Movables) and the Convention

relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods

(Corporeal Movables). They were concluded at the Diplomatic Conference on the

Unification of Law governing the International Sale of Goods convened by the Government

of the Netherlands and held at The Hague in April 1964. Draft conventions of the Rome

Institute relating to topics other than the sale of goods likely to be considered by

diplomatic conferences in 1967 include;

i. The draft convention on the contract for the international carriage of

passengers and luggage by road;

ii. The draft convention on the contract of international combined carriage of

goods;

iii. The draft convention on the contract of forwarding agency in the international

carriage of goods;

Apart from these proposals for the unification of particular topics of private law, the Rome

Institute is engaged in research into ways and means of advancing the task of unification. It

is, in particular preparing two studies: one on methods of unification and harmonization of

law, and the other on measures designed to ensure uniformity of interpretation of uniform

laws.

The United Nations

The United Nations has been engaged in activities in this field on a worldwide as well as on

a regional scale. The most important world-wide activities have been on the subject of

international commercial arbitration, industrial property legislation and transit trade of

land-locked countries. Activities on a regional scale have been performed by the United

Nations regional economic commissions, notably in the areas of standardization of trade

documents, international contracts and commercial arbitration.

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards of

1958

The growing intensity of modern international trade and the concomitant need to develop

facilities for arbitration caused the international business community to consider the

Geneva arrangements as inadequate. In response to this situation, the Economic and Social

Council, on the initiative of the International Chamber of Commerce, decided to convene a

diplomatic conference in New York to conclude a new Convention. The Convention there

adopted on 10 June 1958 is designed to supersede the Geneva arrangements and, at the

same time, to make more effective the international recognition of arbitration agreements

and the recognition and enforcement of foreign arbitral awards.

United Nations Regional Economic Commissions

The functions of the United Nations regional economic commissions, which have been

established in accordance with resolutions of the Economic and Social Council, are to assist

in raising the level of economic activity in their respective regions and to strengthen

economic relations on both an intraregional and an interregional level.

Economic Commission for Europe (ECE)

The activities of the Economic Commission for Europe (ECE) in the development of the law

of international trade have been primarily in the field of international contracts and

commercial arbitration. These activities have been initiated in most cases by the

Committee for the Development of Trade. In addition to its activities with respect to

international contracts and commercial arbitration, ECE through its Inland Transport

Committee, has engaged in efforts toward the simplification and standardization of export

documents and has concerned itself with the problem of insurance and re-insurance, of

trade in machinery and equipment, the improvement of payment arrangements and other

items. It also sponsors periodic consultations of experts in intra-European, and especially

East-West, trade. The two areas of concern dealt by the ECE have been the development of

a The ECE General Conditions of Sale and Standard Forms of Contract and the European

Convention on International Commercial Arbitration. Other initiatives include:

Economic Commission for Asia and the Far East (ECAFE),

Economic Commission for Latin America (ECLA),

Economic Commission for Africa (ECA)

United Nations Conference on Trade and Development (UNCTAD)

The United Nations has also instituted specialized agencies in the form of

International Bank for Reconstruction and Development (IBRD),

Inter-Governmental Maritime Consultative Organization (IMO),

The International Civil Aviation Organization (ICAO),

United International Bureaux for the Protection of Intellectual Property (BIRPI)

Unification of Private International Law in Europe: Europeanization of private

International Law

Perhaps the most concrete effort taken in the direction of Unification of Private

International Law when viewed from an international perspective has been the initiatives

taken by the European Community especially through the establishment of the European

Union. The European continent is a region with specific evolvement of law. The beginning

of the legal culture in Europe is associated with the legal system of ancient-Greek polis and

later with the Roman law which laid the foundations of so-called Ius Commune. It is

understood as uniform legal culture that survived till the era of national civil codes starting

in the 19th century. Although stemming from the Roman law, these national codices

reflected and reflect historical, social and political development of the individual states.

Thus they have necessarily distinguished themselves from the others not only in the

perception of particular legal institutes but also in conception of and attitudes to the whole

areas of law. After the dissolution of the great colonial powers and notably after the World

War II in the period of “reconstruction” of depleted Europe, exigency of mutual cooperation

arose especially in economic sphere. One of the first motions to integration was the

European Recovery Program, known as Marshall Plan (1947) for reconstruction of the

allied countries of Europe in years 1948 – 1952. The programme was followed by many

international conferences that brought into being number of international organizations.

Fast forward to the present era with the establishment of the EU, one of the overarching

goals of the European Union is the harmonization of private law as part of the development

of the internal market. The acquis communautaire refers to the body of European Union

(“EU”) law that must be adopted by each Member State upon joining the European Union.

A significant part of the acquis includes uniform commercial law, which is a tool in

developing the internal market. The harmonization of contract law among EU member

states has occurred thus far by the passage of directives and regulations which are the two

types of EU legislations.

In the process of so-called Europeanization the European private international law (further

“EPIL”) was formed within the European law (sometimes narrowed to the EC law) and

under the notion of Europeanization there may have been a shift of competences from the

intrastate to the European level. Contrary to Private international law the EPIL is not part

of any national legal system, but the international. It might be seen as a set of unified

conflict-of-law rules on a higher than national level, regulating relations with a “European”

element. Thus it bridges the differences between national legal orders for the needs of the

European market.

The attention to procedural issues of the EPIL – international jurisdiction, recognition and

enforcement of judgments – was paid already in the turn of 1960’s and 1970’s. The

question of unification of conflict-of-law rules was brought into play only in 1980’s. On its

ground and on the ground of the EU, number of crucial EPIL documents have been drafted,

the most notable being the Brussels Convention on jurisdiction and the enforcement of

judgments in civil and commercial matters (1968) and the Convention on the Service in the

EU Member States of Judicial and Extra-Judicial Documents in Civil and Commercial

Matters (1997).

The Convention on the Law Applicable to the Contractual Obligations (known as Rome

Convention of 1980) is considered to be the principal document of the EPIL. However, the

part dealing with the non-contractual obligations, nonetheless, never came in force and it

was only in late 1990’s that the European Group for Private International Law (EGPIL)

drafted a proposal for a convention on the law applicable to non-contractual obligations.

Although this proposal was never ratified, it stood as a cornerstone for further unification

work. After 1999, when the Treaty of Amsterdam came in force, the secondary Community

instruments (mainly directives, harmonizing the law of the Member States, but lately

regulations as well) have started to play more important role in the process of unification

of the PIL. The EC secondary law assures the unified application of the law in the European

area of justice.

The Amsterdam Treaty of 1997 which came into force in 1999 vested legislative

competence in the European Community (EC) in the areas of international civil procedure

and private international law by transferring the Title on visas, asylum, immigration and

other policies related to free movement of persons into the Treaty on European

Community (TEC). In 2009, the Lisbon Treaties, the Treaty on European Union (TEU) and

the Functioning of the European Union (TFEU) have inherited this competence and even

enlarged it to a certain degree.

Together they cover almost all major issues of international civil procedure and they

include a wide array of legal issues. They include:

Regulation of insolvency proceedings5.

5

Regulation (EC) No 1347/2000, Brussels II Regulation6, unified jurisdiction and the

recognition and enforcement of judgments in matrimonial matters and in matters of

parental responsibility for children of both spouses7.

Regulation (EC) 1348/2000 set in force unified rules on service of judicial and

extrajudicial documents. Among Member States, it replaces the Hague Service

Convention.

Regulation (EC) No 44/2001 better known as Brussels I Regulation replaced the

Brussels Convention unifying jurisdiction and the recognition and enforcement of

judgments in civil and commercial matters.

Regulation (EC) No 1206/2001 set in force unified rules on cooperation in the

taking of evidence, replacing the Hague Convention among Member States.

Regulation (EC) No 1896/2006 created a European order for payment procedure

facilitating cross-border recovery of uncontested claims

Regulation (EC) No 861/2007 governs small claims procedure.

Regulation (EC) No 664/2009 unified jurisdiction, applicable law, recognition and

enforcement of decisions and cooperation in matters relating to maintenance

obligations.

Unification of private international law by means of regulations only started in 2009,

covering only two, albeit important, areas.

Regulation (EC) No. 864/2007 of the European Parliament and the Council on the

law applicable to non-contractual obligations (Rome II Regulation) entered into

force.

Regulation (EC) 593/2008 of the European Parliament and the Council on the law

applicable to contractual obligations (Rome I-Regulation) entered into force.

Within only one year significant parts of the private international law relevant to

international business transactions have been unified. Many regulations covering other

areas of private international law will follow. Future developments include:

6 Replaced in 2003 by Council Regulation (EC) No 2201/2003.7 Council Regulation (EC) No 1346/2000

A Proposal for a Rome III Regulation would amend Regulation (EC) No 2201/2003

regarding jurisdiction and introducing rules concerning the applicable law in

matrimonial matters.

A Green Paper on matrimonial property regimes exists in preparation of a

Regulation on conflicts of laws in these matters, including the question of

jurisdiction and mutual recognition.

A Regulation on the private international law on succession and wills is prepared as

well. In 2005 the Commission issued a Green Paper on the private international law

on succession and wills. In October 2009 the Commission presented a proposal for a

Regulation on the private international law of succession and wills.

One of the most important steps sure is presented by the Principles of European Contract

Law formulated by Lando’s Commission. Its objective ought to be an introduction of

framework principles and rules for national courts as well as a motion for national

parliaments. Moreover, the Principles should serve as a bridge between the continental and

Anglo-American common law system.

The Study Group on a European Civil Code sets itself far more ambitious task. It has

responded to the Resolution of the European Parliament calling upon to formulate a

European Civil Code. This initiative combines the alternative methods of questing for

common principles and fundamentals in national legal orders and the traditional methods

as the final stage should lead to adoption of a binding, directly applicable document. The

form of the instrument is, however, still discussed. Some authors are convinced that a way

of total unification of substantive private law is under the present circumstances

burdensome and almost closed, and therefore the Code ought to go the time-tested way of

common principles. Others look further and assert that the EC has not enough legal power

to adopt any complex civil code. It would be necessary to limit the regulation only to

contractual and related issues hence this attempt would get stuck in a half way between the

unification and existing fragmented regulation in the national legal orders

Nowadays, the EPIL is considered as a means to achieve legal certainty which is necessary

more than ever, although there are different opinions of its successfulness and the ‘The

approximation of civil law and common law in Europe is no longer a “project of the future”

but very much an enterprise of the present’. The goal of unifying the law of international

civil procedure is not yet finished and Future developments will bring some refinement of

existing regulations and possibly cover more topics. However, within only a few years most

major areas of the law of international civil procedure were unified.

The European example of Unification can be viewed as a model for the rest of the world in

its attempt both individually and collectively due to significant advantages it presents.

Firstly, the parties profit from this new set of rules on private international law as

Uniformity will make their legal relationships easier and more efficient and predictability

will make their legal relationships safer. Secondly, for the same reasons as the parties, the

courts will profit too. While they may lose some power, they will be in a position to

efficiently determine the applicable law without detailed investigations. Thirdly, both

domestic and foreign lawyers may profit from having easier access to uniform private

international law. This is true for litigation lawyers and lawyers advising clients. Finally,

lawmakers worldwide may profit, though not necessarily by copying what has been

achieved within the EU but instead, while considering these developments when evaluating

modernization of their own PIL.

Private International Law in the Present Scenario: Conflict and Laws and the

Economic Downturn

Conflicts disputes increase correspondingly because so much commercial activity is

transnational. This is apparently verified by recent developments in London, venue for so

many commercial disputes. With the world’s leading economies in recession, 2009 saw an

increase of 20% on the previous year in claims initiated in the London Commercial

Court. 1,225 claim forms were issued, close to the average in the early years of the last

decade, and the highest number since 2002. More striking still, cases submitted to the

London Court of International Arbitration reached a record high in 2009, an annual

increase of almost 30%.3 Many of these claims are likely to have foreign elements. Most

commercial disputes in London involve foreign parties, or foreign laws, or foreign assets, or

parallel foreign proceedings, or acts or omissions abroad – often in combination.

Litigation can be generated by economic growth as well as by retrenchment. Transactions

multiply with economic expansion, increasing the potential for disputes. Some litigants

may also be more aggressive in pursuing or defending proceedings if cushioned by

prosperity from the risk of losing. But the risk of default is surely less when times are good,

when credit is cheaper, and transaction costs stable. Experience confirms that economic

crises spawn litigation. This is reflected in microcosm by the spike in claims in the London

Commercial Court in the late 1990s. 1,808 claims were initiated in 1999, explained in large

part by the implosion of the Lloyd’s insurance market.

Creditors become impatient in times of diminished liquidity. They are more likely to seek

recovery through litigation rather than forgive a debt or reschedule. There is also an

increased risk in a downturn that counterparties will default, or seek to escape

performance, as transaction costs rise with the increased price of services and materials,

and the scarcity of credit. But default is not always forced on obligors by pressures beyond

their control. Some may calculate that deliberate repudiation of their obligations, with the

risk of litigation, is preferable to adhering to a newly onerous bargain. With credit and

liquidity reduced many litigants may have a heightened sensitivity to the cost of funding

litigation and to the risk of losing in court. But economic adversity may also alter the

balance of risk, making the cost of litigation seem more attractive than the cost of

performance. Also, excuses for non-performance, such as incapacity, mistake, fraud, duress

or illegality, thus become important, with inevitable conflicts implications in cross-border

transactions. Disputes about the identity of the applicable law are the consequence. But this

will often be contractually agreed, forcing a defaulting party to argue that the contract is

unenforceable by reference to another law. As cross-border litigation increases, so does

reliance on overriding rules and public policy. A consequence may be more reliance on

overriding prohibitions against onerous interest provisions or exemption clauses, coupled

perhaps with pre-emptive litigation in courts where such prohibitions exist.9

Just as economic adversity encourages default, so it precipitates collateral litigation against

commercial partners, such as guarantors, insurers, and reinsurers, offering further

potential for cross-border litigation. Such collateral disputes often concern whether the

terms of a secondary contract incorporate those of a primary contract, not least terms

affecting jurisdiction, arbitration and choice of law. Allegations of fraud also increase with

economic stringency – as indeed does fraud – as trading conditions worsen and liquidity

deteriorates. Sellers misrepresent their products, straightened borrowers conceal their

circumstances to obtain finance, and traders lacking liquidity charge their assets (often

receivables) to different lenders to obtain funds. In cross-border disputes this highlights

the treatment of pre-contractual fault, and the vexed question of priority between

competing assignments of the same debt. Because fraud is often associated with attempts

to conceal assets, applications for transnational freezing and disclosure orders also become

more frequent.

Governments also tend to respond to economic crises with protective legislation,

increasing the legal regulation of businesses and markets, and restricting economically

sensitive transactions. The effect is to highlight the importance of conflicts rules governing

discharge and illegality, and in particular the treatment of supervening illegality in the

place of performance. Old questions may also arise concerning the effect of moratorium

legislation, and the expropriation of assets.

The landscape of litigation in the present downturn has novel features unconnected with

the economy, which may affect the incidence and nature of disputes. Two are special to

Europe but have particular significance for conflicts lawyers.

First, there are now enhanced techniques for reducing the financial risk of litigation,

making it more attractive – or less unattractive. The cost of litigation determines whether

to initiate or defend proceedings, and (importantly) where to do so. But the financing of

litigation has been transformed in recent years by the possibility of third party

funding. Evidence of the practice in London is scant. But a growing number of third party

investors are prepared to finance claims, conditional on a share of the proceeds if the claim

succeeds. In theory at least this possibility is especially appealing in a downturn, both to

claimants, whose ability to finance proceedings may otherwise be compromised, and by

investors, for whom the value of more conventional asset classes may seem uncertain.

Secondly, the popularity of arbitration has increased. Claims before the London Court of

International Arbitration rose significantly by 131% between 2005 and 2009, a trend

matched by other arbitral institutions. At least some of those disputes would once almost

certainly have been tried in court. One explanation is the perennial concern (not always

justified) that commercial litigation is excessively lengthy, complex, and costly by

comparison with arbitration. Another is the increasing tendency to include arbitration

clauses in species of contract which previously would have contained jurisdiction

agreements. This is especially so in financial transactions. Financial institutions are less

reluctant to arbitrate than convention once dictated. This partly reflects a desire to escape

the inflexibility of the Brussels jurisdiction regime, preoccupied as it is with avoiding

parallel proceedings even to the detriment of jurisdiction agreements. The consequence

has been an increase in hybrid clauses providing in the alternative for litigation or

arbitration.Given the prevalence of disputes between financial institutions in the

downturn, the sensitivity of the transactions involved, and concerns about media scrutiny,

parties faced with that choice may well favour arbitration. The effect is not, however, to

rule out litigation entirely. Arbitration often generates ancillary judicial proceedings, not

least concerning the restraint of foreign proceedings commenced in defiance of an

arbitration clause.

Thirdly, the downturn coincides with important changes in the European conflicts regime,

with the coming into force of both the Rome I and Rome II Regulations. It is perhaps

unfortunate that many of the conflicts issues which are likely to arise in the near future are

governed by novel provisions, causing uncertainty, and itself generating more litigation.

Foremost among these are Article 9 of Rome I (likely to become contentious as obligors

plead illegality to escape performance), and Articles 4 and 12 of Rome II (regulating the

likely crop of claims for mis-selling and negligent advice). It is especially regrettable that

Article 14 of Rome I remains unreconstructed and ambiguous, given that the assignment of

debts underlies so many contentious transactions.

Finally, any increase in litigation poses a challenge for the Brussels I Regulation, as

interpreted in such recent cases as Owusu, Gasser, Turner and West Tankers. The

inappropriateness of the Regulation for handling high-value, multi-jurisdictional disputes

has often been noted, and needs no elaboration here. But a proliferation of such disputes

can only impose further stress on a regime which destabilizes jurisdiction and arbitration

agreements, and militates against the allocation of cases to the most appropriate forum.

The Brussels regime may indeed have its own role in encouraging litigation, by inciting the

prudent to seize their preferred forum early so as to win the all-important battle of the

courts.

It is important to ask whether cross-border disputes will increase with the downturn. Any

rise in litigation or arbitration matters to the parties, and to the arbitrators, courts and

lawyers whose business is adjudication. It has a public policy dimension, concerning the

use of judicial resources. It also has economic effects. The cost of litigation and the ability of

parties to recover their commercial losses are financial consequences of the downturn as

much as those more commonly reported. The legal impact of any rise in cross-border cases

may also be significant, not least for private international law. Litigation creates law. The

more issues there are before the courts, the more the law evolves at the hands of the

judges. It is perverse to wish for more cases. But when they arise old questions are

answered, and new ones posed.

In the end, however, the importance of the downturn for private international law does not

depend entirely on the volume of cross-border disputes. It does not turn alone on the work

load of courts and arbitrators, or any increase in contentious conflicts questions, or even on

whether the parties disagree at all. Which court has jurisdiction, which law governs,

whether a judgment is enforceable, whether an injunction is available, are matters which

may frame the parties’ negotiations, or underpin the advice of lawyers to their clients. The

rules of private international law have a special importance in cross-border relations in

establishing both the procedural position of the parties and their rights and obligations –

matters of importance whether or not they are contested, and whether or not they go to

court or arbitration. One way or another, private international law has a role in managing

the effects of the downturn. One way or another, that role may be central.

BIBLIOGRAPHY

Articles/Reports

The Codification of Private International Law in Europe: Could the Community Learn

from the Experience of Mixed Jurisdictions by Aude Fiorni – ECJL

Uniform Private Law Conventions and the Law of Treaties by Jurgen Basedow

Europeanization and unification of private international law by Lenka Cervenková,

Progressive Development of the Law of International Trade : Report of the

Secretary-General of the United Nations,1966

A Guide on the Harmonization of International Commercial Law By Duncan Alford

Private International Law and the Downturn by Richard Fentiman

Books

Cheshire and North's Private International Law