Rights And Obligations Of Parties Under An International Contract

A new law is coming this year to help decide what law applies in

a contract made between parties in different jurisdictions. Alan Ma

explains the implications for buyers

The rights and obligations of parties under an international

contract depend on which law governs their agreement. Consider the

situation in Print Concept GmbH v GEW (EC) [2001] where a

German firm agreed an exclusive deal to distribute an English

manufacturer's air-cooled drying systems.

The contract was made orally and no governing law was agreed.

Had German law been chosen, the English manufacturer would have had

to pay an indemnity to its customers. This would not have been

payable had the contract been governed by the law of England and

Wales.

Under the current law, the courts in England and Wales, like any

others in the European Union, will decide which law applies by

reference to the 1980 Rome Convention. This states that the parties

are free to agree the choice of law of the contract between

them.

Where no selection has been made or is possible, the law most

closely connected to the contract shall apply. Under the 1980

Convention, this is the law of the country of the contract's

"characteristic performer". For a goods or services

contract, the characteristic performance is the work done under the

contract.

In Print Concept v GEW, the distribution agreement

involved reciprocal obligations other than payment. The Court of

Appeal found that Print Concept's obligation under the contract

was to use its best endeavours to maximise sales in a

German-speaking country. The reciprocal obligation on GEW's

part was to supply products when ordered.

The court ruled that the characteristic performance of the

contract was the supply of the products, so the seller was the

characteristic performer. The laws of England and Wales applied and

no payment from GEW was required.

However, the current rule has been criticised for its

uncertainty. As a result, changes have been provided in the new EU

Regulation, commonly known as Rome I. So while buyers and suppliers

can continue to freely agree on which law should apply, Rome I sets

out specific rules to determine the applicable law when no choice

of law is made.

The applicable law is defined by reference to different types of

contracts including sale of goods/services, franchise and

distribution. For each type, Rome I specifies the applicable law,

replacing the current characteristic performance rule.

For some types, Rome I...