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Unification of Private International Law

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Bhargavy Ramesh - 518 Srinivas Atreya 519 Varun Singh 568 5th Semester October 2011

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. 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 tude 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 With increased business between different nations, the need for increased harmonization of private laws has

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 19 th 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--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 Comit 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 established 1. The Hague Conference goes the traditional way of the Conflict of Laws 2 and soon it was followed by the other similar conventions. At the beginning of the 20 th century The International the Chamber of Commerce, The International Institute for the Unification of Private Law (UNIDROIT) and later on under the patronage of 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
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 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).

(INCOTERMS), issued by the International Chamber of Commerce), UNCITRAL model law, and UNIDROIT Principles of International Commercial Contracts respectively3. Fundamentally, there are two modes international law: 1. 2. Unification of the internal laws of the countries of the world, and Unification of the rules of private international law. for the unification of private

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 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
3

They are usually overall named as lex mercatoria or transnational law commercial law. ROZEHNALOV, N., op. cit. 6, p. 70. For closer explanation see ROZEHNALOV, N., Transnacionln prvo mezinrodnho obchodu. Brno, 1994.

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 nonresident 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
4

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

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 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 Organizations 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. ii. iii. The draft convention on the contract for the international carriage of passengers and luggage by road; The draft convention on the contract of international combined carriage of goods; 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 reinsurance, 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 A communautaire refers to the body of European Union (EU) law that must be adopted by each Member State upon joining the European Union. 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 1960s and 1970s. The question of unification of conflict-of-law rules was brought into play only in 1980s. 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 1990s 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.

Regulation

(EC)

No

1347/2000,

Brussels

II

Regulation 6,

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 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.
6 7

the

Brussels

Convention

unifying

jurisdiction

and

the

recognition and enforcement of judgments in civil and commercial

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

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: 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 Landos 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 worlds 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 Lloyds 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 precontractual 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 crossborder 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 crossborder 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 Cervenkov, 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