International In-house Counsel Journal Vol. 8, No. 29, Autumn 2014, 1 Bounds and Pitfalls When Splitting the Choice of Law ANDREAS SCHØNBECK Attorney-at-law, Vestas Wind Systems A/S, Denmark The paper outlines, from a Danish law perspective, the possibilities available to the parties to a contract, pursuant to the Rome Convention and the Rome I Regulation, to split the choice of law between the laws of different states. In this connection it is stated where the bounds for the possibility of splitting are assumed to be found and which pitfalls the parties ought to take into account when contemplating splitting. It is concluded that even when splitting may be deemed largely possible, the parties may want take a cautious approach to this exercise. 1. Introduction For most in-house lawyers dealing with international contracts is a daily and ordinary task. In the multi-state context where the contract has a connection to more than one jurisdiction the parties will almost inevitably discuss by which law the contract will be governed, and hence what law should apply in case of disputes or litigation. In this regard, international private law becomes part and parcel of handling international contracts. This area of law contains inter alia1 the rules relating to the question of what law governs a particular international dispute (lex fori or lex arbitri depending on whether it is a court or arbitration case), irrespective of whether the dispute is based on a contractual or delictual claim. The focus of this paper will be contractual claims between the parties to an international contract. Moreover, the paper will approach the topic from the angle of Danish law. International private law is an area of law of great complexity. As no uniform rules apply globally to the choice of law in international contracts, one will have to navigate between regional rules, but even on a regional basis the relevant rules can differ from state to state, often leaving practitioners with a Gordian knot of legislation to be untangled before it is even possible to dig into the actual substance of the dispute in question. 2. The Rome Convention and the Rome I Regulation For a long time there has been significant cooperation between the member states of the European Union (EU) with a view to implementing uniform rules to apply when designating the applicable law of a dispute. This is undertaken to avoid the disadvantages of a regime where each state applies its own exclusive rules (lex fori or lex arbitri) which are not rooted in a regional set of rules. Within the EU, cooperation in the area of choice of law of international private law has resulted in two sets of rules: the Rome Convention2 (Convention) and the Rome I 1 International private law also encompasses the international venue rules, i.e. the rules designating the state in which the proceedings under an international dispute should take place. 2 The Convention on the Law Applicable to Contractual Obligations, June 19 1980. International In-house Counsel Journal ISSN 1754-0607 print/ISSN 1754-0607 online 2 Andreas Schønbeck Regulation3 (Regulation). The latter was intended to supersede the former. Albeit, since Denmark, as the sole remaining member state, has not yet implemented the Regulation, the Convention continues to be the set of rules to consult if Danish private law is lex fori or lex arbitri. Hence, as this paper approaches the topic from a Danish law perspective, it will deal with the possibility of splitting the choice of law both in terms of the Convention and the Regulation. 2.1 The parties’ autonomy One of the basic principles under both the Convention and the Regulation is the parties’ autonomy with respect to the choice of the applicable law of the contract. This autonomy can be exercised in case the parties do not want to rely on the regulation under the Convention or Regulation, according to which the forum court or arbitration will designate the applicable law. In the Convention, the parties’ right to choose the applicable law of the contract is set out in article 3. The article states in its first and second sentence that ‘[a] contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case’. From this can be inferred that the parties have a relatively unfettered right to make their choice of law as long as the choice at least can be ‘… demonstrated with reasonable certainty by the […] circumstances of the case’.4 It could thus be held, that the threshold for a choice of law being upheld is to be considered fairly low. In the Regulation, the parties’ autonomy appears in article 3 of the Regulation, according to which, ‘[a] contract shall be governed by the law chosen by the parties. The choice shall be made expressly or clearly demonstrated by the terms of the contract or the circumstances of the case’. This shows that the Regulation contains more demanding requirements to the parties’ choice of law, in comparison to the Convention. In any case, the assessment of whether the parties’ choice of law has in fact been agreed will have to be made in accordance with lex fori or lex arbitri, which with regard to the Convention and the Regulation will be pursuant to article 3 (4) and article 3 (5) respectively. Subsequently, the assessment of the validity of such choice of law is subject to the designated law (lex contractus). Irrespective of whether the choice of law is made pursuant to the Convention or the Regulation, it is relevant to keep in mind that the designated law does not have to be the law of a member state of the EU nor a state that has ratified the Convention or the Regulation, as applicable. It should further be noted, that the fact that the parties have designated the venue for the handling of any disputes will not, as such, be sufficient to assume that they thus also indirectly have made a choice of law that meets the requirements set out in the Convention or the Regulation, as applicable. Such fact will merely be included as one of the relevant factors. 3 The Regulation of the European Parliament and of the Council, 17 June 2008 on the law applicable to contractual obligations. 4 Furthermore, the choice of law can be agreed after the contract comes into force, and it can later be changed by a new agreement between the parties. Also, it is not required that the parties have any affiliation with the designated law, although it is required that the law is the law of a state. Choice of Jurisdiction 3 2.2 Agreed splitting of the choice of law As a consequence of their autonomy in respect of the choice of law, the parties are also entitled to agree [1] that the designated law will not govern the whole of the contract or [2] that more than one designated law will apply to the contract. This possibility to split the choice of law is labelled dépeçage or rather agreed dépeçage in order to distinguish the term from the situation where the splitting of the choice of law is done by the court.5 In the Convention, the splitting option follows from its article 3 (3) according to which the parties by their choice ‘… can select the law applicable to the whole or a part only of the contract’. In the Regulation the splitting option follows from its article 3 (3) which is identical to the equivalent provision in the Convention. It should be noted, that although the Hague Convention6 does allow for the parties to make an agreed choice of law, the convention lacks the splitting option as found in the Convention and the Regulation. Therefore, the Hague Convention will not be taken into account in this paper. As a minimum, the parties’ agreed splitting of the choice of law pursuant to both the Convention and the Regulation must follow the formal general requirements to the agreed choice of law per se. But the actual extent to which the splitting of the choice of law can be carried out cannot be derived from these formal requirements. Neither do any such bounds explicitly appear from the content of the relevant articles in the Convention or the Regulation, because a verbatim understanding of those articles merely suggests that the splitting can be done without limitation or restriction. However, such objective interpretation of the parties’ right to split the choice of law is not accurate, as both legal scholars, as well as the essential Giuliano/Lagarde-report7, suggest that the splitting does have to respect certain limits. Some legal scholars are of the opinion that agreed dépeçage should only be allowed exceptionally and that the unity of the applicable law of the contract thus should be preserved unless the splitting is carried out between various contracts within the same contractual complex, cf. section 3.1 below.8 These scholars are consequently dismissive of a splitting within the same contract, cf. sections 3.2 and 3.3 below. This approach to the dépeçage principle can be described as reticent and conservative. Despite the above cautious approach to the splitting of the choice of law in a contract, it is predominantly the view among legal scholars, that the splitting can take place almost without restriction as long as the split does not mean [1] that the application of the respective designated laws does not lead to contradictory results or [2] that the same issue is governed by more than one law.9 Such restrictions seem logical and can be accepted without further ado.