This article deals with an aspect of private international law that for many years fell outside the scope of European legislation. Conflict of laws-i.e. the rules that determine which national law should apply to a private law relationship with an international dimension such as a cross-border contract-was brought within the ambit of European law by the Treaty of Amsterdam in 1999, succeeded by the Treaty of Lisbon in 2009.1 In this field, as in many others since 1957, European Union law has become a source of law for member states, primarily through regulations and directives. [Page32:]

A key result of this development in conflict of laws was the adoption of Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the Law Applicable to Contractual Obligations (Rome I)2 (hereafter the 'Regulation'). The Regulation replaced the 1980 Convention on the Law Applicable to Contractual Obligations (hereafter the 'Rome Convention') and applies to contracts made after 17 December 2009. The Rome Convention continues to apply to contracts concluded before that date3 and for that reason we shall consider in this article both the Rome Convention and the Regulation. Unlike EU directives, the Regulation is binding in its entirety and directly applicable in all EU member states except for Denmark.4

The Rome Convention and the Regulation aim to increase predictability in international contract law by setting uniform conflict-of-law rules in all EU member states, so as to standardize the determination of applicable law, regardless of which national court in the EU has jurisdiction over the dispute.5

The purpose of this article is to draw the attention of the international business community and of potential parties in international litigation and arbitration to the new Regulation and, in particular, those provisions of the Rome Convention and the Regulation that impact upon international litigation in national courts of EU member states and possibly upon international arbitration (I), relating to a-national law (II), mandatory (III) and overriding rules (IV). No consistent and reliable case law on the interpretation of the Regulation is available yet. To illustrate our comments, we include, wherever possible, references to relevant practice observed in published ICC arbitral awards.

I. Applicability of the Regulation to international litigation and arbitration

A. Application by national courts in EU member states to international litigation

The Rome Convention and the Regulation are directed at EU member states (excluding Denmark) and their national courts, which have a duty to apply these instruments when identifying the law applicable to international contracts, i.e. contractual obligations in civil and commercial matters involving a conflict of laws.6 So, for instance, parties to proceedings in French or German courts relating to a dispute arising out of an international contract in civil and commercial matters will rely on the Regulation if their contract was made on or after 17 December 2009 and on the Rome Convention if it was made before. Application of the Regulation is the rule and it is excluded only if other EU legislation or an international instrument such as a treaty applies in the circumstances and lays down conflict-of-law rules relating to contractual obligations.7

B. Exclusion of arbitration agreements

Although arbitration is a legal process recognized by states as producing legal effects, the forum before which an international arbitration is conducted is not the equivalent of a national court established and governed by national law. Hence, international arbitral tribunals do not automatically fall within the scope of the Rome Convention and the Regulation, which, as mentioned above, are directed at EU member states and their national courts.

The Rome Convention and the Regulation expressly exclude from their scope only arbitration agreements,8 not the arbitration process as a whole. The expression 'arbitration agreement' is not defined, but it may be assumed that the exclusion covers any arbitration agreement, irrespective of whether it relates to a present or a future dispute. The exclusion has two main implications for national courts in EU member states. [Page33:]

Firstly, the provisions of the Rome Convention and the Regulation, including those relating to overriding mandatory provisions (see section IV below), cannot be relied on by a national court to determine the validity of an arbitration agreement.9 A similar line of reasoning was transposed to arbitration in an ICC case.10 Within the limited confines of this article it is not possible to go into the question of whether a legal instrument can be applied outside its stated scope in international arbitration.

Secondly, the courts of EU member states are under no obligation to apply the provisions of the Rome Convention and the Regulation for the purpose of determining the law governing arbitration agreements and are free to adopt whatever method they choose for this purpose. Most jurisdictions, like England,11 refer to a law applicable to the arbitration agreement. A contrasting, substantive approach has been championed by France, where the Court of Cassation has developed a number of substantive rules of private international law, which apply directly to certain aspects of international arbitration, to the exclusion of a foreign applicable law: the autonomy and the validity of the arbitration agreement,12 the Kompetenz-Kompetenz principle and especially its 'negative' effect.13 The recent reform of French arbitration law has not changed this case law with regard to international arbitration agreements, other than by codifying the absence of any particular formal requirement.14A similar substantive approach is also found in some ICC awards.15 It does not normally apply, however, if the parties have referred to a national law governing the arbitration agreement.16

C. Optional application of the Regulation and the Rome Convention by international arbitral tribunals in the European Union and beyond

Leaving aside the clear exclusion of arbitration agreements from the scope of the Rome Convention and the Regulation, neither of these two instruments states explicitly whether they apply to the determination of the law applicable to the merits of an international contract in a dispute referred to arbitration in the EU. They simply say, in a rather broad formulation, that they 'shall apply, in situations involving a conflict of laws, to contractual obligations in civil and commercial matters'.17 The lack of an explicit reference to arbitration was more understandable in 1980, when the Rome Convention was adopted, than it was in 2008 when the Regulation was adopted. In the intervening 28 years, international arbitration has become much more widely used. Yet even in 2008 EU member states probably had different views and have not taken an explicit position in the Regulation.

It is not inconceivable that at some time in the future the Court of Justice of the European Union (CJEU, former ECJ) might take a stance on this question. If so, it is highly unlikely that it would consider an arbitral tribunal in an international arbitration seated in an EU member state to be under a duty to apply the Regulation and its conflict-of-law rules, as this would disregard the prevailing view that an international arbitral tribunal has no lex fori and, unless the parties decide otherwise, is not bound by conflict-of-law rules in force in the state where the arbitration is seated (which are binding upon that state's national courts). The CJEU is more likely to consider that the Regulation may , rather than shall, be applied in international arbitrations seated in the EU, leaving the parties or, failing their agreement, the arbitral tribunal, with the option of either applying or not applying the Rome Convention or the Regulation to determine the law applicable to the merits of the dispute. [Page34:]

This optional approach ('Regulation may be applied'), which is appropriate and suited to international arbitration, should not be affected by the fact that the Regulation (but not the Rome Convention) contains in its preamble a confusing reference to consistency with two other regulations.18 Although consistency may be a desirable end in itself, the call for consistency here is problematic, because one of the two regulations to which the Regulation refers is Regulation 44/2001, which excludes arbitration as a whole (and not just arbitration agreements) from its scope.19 The grounds for this exclusion are debatable.20 In any event, it is at odds with, and should not prevail over, the Regulation's clear substantive provision excluding from its scope only arbitration agreements, not arbitration in its entirety. The precise wording of the exclusion in the Regulation makes it clear that only arbitration agreements fall outside the scope of the Regulation. Nothing in the Rome Convention and the Regulation prevents the use of either instrument to determine the law applicable to the merits in an international arbitration in the EU, but they do not say whether their provisions may , should or shall be applied by an international arbitral tribunal to such determination. As observed above, the may option is appropriate, leaving the application of those provisions to the choice of the parties or, failing their agreement, to the arbitral tribunal.

It should be noted that if the relevant rules allow the parties or, failing their agreement, the arbitral tribunal to choose the conflict-of-law rules in an international arbitration, parties and arbitral tribunals in international arbitrations seated outside the EU also have the possibility of opting for the Rome Convention or the Regulation.

D. Brief notes on the absence of a lex fori

It is generally accepted that, unlike national courts, international arbitral tribunals do not act on behalf of the state where they have their seat, have no lex fori properly speaking, and are under no duty to apply that state's conflict-of-law rules.21 However, not all national legislators necessarily have the same understanding of this view, so it would be wise not to place undue reliance on it for the sake of legal predictability in international arbitration. There may be times when the law of the state in which an international arbitration is seated attaches some consequences to the fact that the seat is in its territory. What these consequences are and the areas to which they apply (conflict of laws with regard to the substance of the dispute, but maybe also arbitrability, procedure, challenges against awards, etc.) require a jurisdiction-by-jurisdiction analysis, which is clearly beyond the scope of this article.

E. Determination of the law applicable to the merits in ICC cases

By way of a caveat, it should be noted that the remarks below do not touch on the complex issue of the application of the iura novit curia principle in international arbitration. In this regard, the Swiss Federal Tribunal recently observed that arbitrators may rule on the basis of rules of law other than those invoked by the parties unless the parties have stipulated otherwise.22

1. Application of Rome Convention as general principles of conflict of laws

There have been cases in which arbitral tribunals have referred to the Rome Convention in terms of general principles of conflict of laws.23 As instruments of EU law, it could be argued that the Rome Convention, and subsequently the Regulation, reflect a European perspective rather than the full range of perspectives that exist in comparative conflict of laws. Yet, the principles they embody can be regarded as universal, at least as far as party autonomy is concerned, including dépeçage and the possibility of a subsequent choice of law (see section II.A below). It is submitted, however, that their universality stops short of the Rome Convention's and, to a lesser extent, the Regulation's, provisions on overriding mandatory rules or lois de police (see section IV below).

There is no reason to discontinue the practice of referring to these instruments as an expression of general principles of conflict of laws. Admittedly, it may be some time before those provisions in the Regulation that depart from the Rome Convention (e.g. the new Article 9 on overriding mandatory rules (see section IV below)) are perceived as belonging to currently recognized general principles of conflict of laws.

Of course, if in their arbitration agreement or during the proceedings the parties expressly designate the Rome Convention or the Regulation as the applicable conflict-of-law rules,24 then these instruments will apply directly and there will be no need to justify their application by referring to their status as an expression of general principles of conflicts of laws. [Page35:]

2. Application of the Rome Convention and the Regulation in the context of the ICC Rules

The approach taken to determining the applicable law in the Regulation is different from that adopted in the ICC Rules of Arbitration, although the two approaches may lead to equivalent results. Article 21(1) of the ICC Rules of Arbitration.25 states that the parties shall be free to agree upon the rules of law to be applied by the arbitral tribunal to the merits of the dispute and that if they do not reach agreement the arbitral tribunal shall apply the rules of law which it determines to be appropriate. This approach is commonly referred to as the voie directe (direct route). Hence, if the parties fail to agree upon the applicable law, the arbitral tribunal may directly determine the appropriate applicable rules, or may-but is under no obligation to-use a conflict rule, such as that embodied in the Rome Convention or in the Regulation, to determine the system of law whose relevant rules are to be applied to the merits.26

3. Implementation of the parties' choice of law in ICC arbitrations

Below are some contrasting examples taken from published ICC cases.

a) Where the parties have agreed upon the rules of law to be applied to the merits of the dispute, these rules are to be applied. A published award provides an example of a case in which the parties had chosen Swiss law in a contract and another law in the related call for tenders. The arbitral tribunal decided to rule on the basis of principles of law presumed to form part of lex mercatoria . They included pacta sunt servanda , good faith, and the presumed expertise and professionalism of international traders. Applying principles of law is different from applying the substantive provisions of the chosen law, although this is not to say that the principles applied were not shared by the chosen law.27

b) There may be cases in which, despite having discussed a choice of law, the parties either fail to agree on their choice or make an unclear choice. In an ICC case falling into the first category, the arbitral tribunal decided to combine different conflict-of-law rules to determine the applicable law, i.e. those of the state in which the arbitration was seated and those of the states of which the parties were nationals. The result was a convergence towards Lebanese law, which the arbitral tribunal considered applicable.28

c) The third example concerns a case in which the parties agreed upon the applicable law in their contract but during the proceedings referred to a different law. The arbitral tribunal applied the latter as the chosen law And regardless of the fact that the first law chosen had an interesting rule in its constitution making the law that was chosen subsequently applicable in its legal system unless incompatible with the local law.29

Contract law generally allows parties to make a second contract modifying an initial contract, provided all the parties are identical and subject to certain requirements aimed at protecting third parties. Likewise, in the field of conflict-of-laws, the Rome Convention and the Regulation recognize a subsequent or 'second' choice of law by the parties. However, that second choice must not prejudice the formal validity of the contract or adversely affect the rights of third parties.30

d) Our final example is a case in which it was unclear whether or not the parties' agreement contained a choice of law. The clause in question was entitled 'Arbitration. Applicable Law and Court of Jurisdiction' and read, in part, 'English law shall apply to the arbitration process'. The tribunal pointed out that the title of the clause ('Arbitration') was not in itself decisive and referred to the provisions of the contract to conclude that English law had been chosen and applied to the merits.31[Page36:]

II. National and a-national law

A. Party autonomy

Both the Rome Convention and the Regulation uphold party autonomy. If the parties have expressed a choice of law, the 'contract shall be governed by the law chosen by the parties'.32 Furthermore, both instruments allow parties to choose: i) any law whatsoever (i.e. there does not necessarily need to be a link between the chosen law and the contract); ii) a law for the whole contract or for just part of it (dépeçage ); and iii) subsequently to choose a different law from that already chosen.33 'Law' here means a national system of law, as opposed to a-national rules of law, and its substantive provisions. Renvoi is here excluded, as it is in the Rome Convention and the Regulation, in keeping with the prevailing position in comparative conflict of laws in contract.

B. A-national law

The application of a-national law in international contracts has been widely discussed. Without reopening this debate, we simply wish to mention certain repercussions it has had in the European context.

The wording of the Rome Convention-'A contract shall be governed by the law chosen by the parties'-implies that only a national system of law can by chosen by parties as the applicable law.34 This includes international and (in the case of EU member states) EU law in force in that national legal system.

In 2005, the Commission put forward a proposal to revise the Rome Convention35 and suggested adding a second option allowing parties also to 'choose as the applicable law the principles and rules of the substantive law of contract recognised internationally or in the Community'.36 Although this wording left room for different interpretations, particularly of the expression 'recognised internationally', the Commission's report made it clear that the proposed provision was intended to 'authorise the choice of the UNIDROIT Principles, the Principles of European Contract Law or a possible future optional Community instrument, while excluding the lex mercatoria, which is not precise enough, or private codifications not adequately recognised by the international community'.

Ultimately, the Regulation was adopted by the Council and the Parliament without the Commission's proposal. The final text of the Regulation therefore reads: 'A contract shall be governed by the law chosen by the parties',37 as in the Rome Convention. The result is that party autonomy is protected, but the parties' choice is necessarily limited to a national system of law. If the parties were to choose a-national law alone, a court in an EU member state would in principle consider this not to be a valid choice of law under Article 3(1) and therefore apply the default rule of relevant objective criteria to determine the applicable law.38 This approach does not rule out the application of contractual practices, usages or a-national rules, but leaves it to the applicable law to determine whether and to what extent they are recognized as law and, in particular, as a source of contract law.

The preamble of the Regulation informs users that the Regulation 'does not preclude parties from incorporating by reference into their contract a non-State body of law or an international convention'. Regrettably, the preamble does not spell out: i) that, to be incorporated, the international convention must not already be applicable to and governing the contract into which it is to be incorporated; and ii) what the effects of 'incorporation' are. If incorporated into a contract, the relevant rules of the non-State body of law or the international convention become directly binding upon the parties and enforceable provided they and the contract in which they are incorporated are valid under the applicable law. Incorporation adds to the clauses of the contract; as such, it is fundamentally different from determining the applicable law to govern the contract, its clauses and its incorporated rules.39

Like the Regulation's other provisions, its refusal to allow a-national rules of law to be directly chosen to govern a contract applies to EU member states and their national courts in international litigation. Nothing in the Regulation says that it must apply in international arbitration too. [Page37:]

C. Natural justice

In international arbitration, the application of 'laws' or 'rules' of natural justice to the merits of a contract would appear to be rare. An example was however found in an ICC case in which six out of nine sales, supply and maintenance contracts contained such a choice by the parties. The arbitral tribunal construed the parties' agreement as excluding the application of a national legal system and applied the UNIDROIT Principles of International Commercial Contracts.40

III. Mandatory rules

A. Terminology and applicability

When negotiating deals, trading partners express their agreement in a contract, which sets out their rights and obligations in legal terms. If the contract is valid under the applicable law, such rights and obligations are confirmed at law and become binding and enforceable. However, the applicable law may restrict the parties' freedom to negotiate the terms of their contract by defining certain rules as mandatory. The concept of mandatory rules or public policy rules of law is known to most, if not all, legal systems.

The Regulation uses the expression mandatory rules, not public policy rules, and defines them as rules which cannot be derogated from by agreement.41 This definition is clear and unproblematic.

Under the Regulation, the mandatory rules applicable to an international contract are those found in the applicable law, which is either chosen by the parties or determined on the basis of objective criteria.42

However, there are two important exceptions:

i) If a contract is domestic in all respects other than the choice of a foreign law, the Rome Convention and the Regulation require national courts of an EU member state not to prejudice the application of the mandatory provisions of the law that would have otherwise applied if the parties had not chosen the foreign law.43

ii) To protect the 'weaker' party in a consumer contract or an individual employment contract, the Rome Convention and the Regulation provide for the application of the mandatory rules of the national law ordinarily applicable if the parties had not chosen a different law, where such mandatory rules afford better protection to the consumer or to employee in a particular dispute.44 Parties to an international contract should therefore be aware of any applicable mandatory rules which, if they prove to be more protective and have been disregarded during the drafting of the contract, could subsequently be relied upon to void the contract in full or in part or alter its terms.

B. Regulation's innovation with respect to European Union mandatory rules

The Regulation introduced a new rule whereby, in contracts made after 17 December 2009 in which all elements other than the choice of law that were relevant to the situation at the time the parties made their choice of law were situated in one or more EU member states, choice of a law other than that of an EU member state shall not prejudice the application of mandatory provisions of EU law 'where appropriate as implemented in the Member State of the forum'.45 In other words, if, in an international contract (i.e. one involving a conflict of laws), all elements are located in one or more EU member states, the parties cannot derogate from EU mandatory provisions by choosing the law of a non-member state, such as New York law, as the applicable law.

1. Application of the new rule

A distinction needs to be drawn between EU regulations and directives.

If the relevant mandatory provisions are part of an EU regulation, their application is straightforward: the provisions apply directly in the legal systems of all member states46 and will therefore apply uniformly regardless of the law applicable to the international contract. Hence, for instance, a French national court will apply the mandatory provisions of an EU Regulation to a contract subject to the law of a non-EU member state in the same way and with the same effect as an Italian or a German national court. [Page38:]

Directives, on the other hand, are binding only as to the result to be achieved, but leave national authorities free to decide on how and in what form the result is to be achieved.47 Therefore, a mandatory provision that originates expressly or implicitly48 from a directive will apply in the way in which it has been implemented by the EU member state where the court hearing the case is located. In our example, in a case being heard in France, what matters is the way the relevant mandatory provisions have been implemented, or enacted, in French law. The way they have been implemented in German law or Italian law will be irrelevant.

2. Time factor and the specificity of agency contracts

The new rule on EU mandatory provisions applies to all contractual obligations falling within the scope of the Regulation and therefore to contracts made after 17 December 2009. However, attention should be drawn to the fact that EU case law had already affirmed a similar rule in relation to self-employed commercial agents subject to Directive 86/653.49 The ECJ held that the protection granted by the Directive to an independent commercial agent carrying on his activity in an EU member state could not be excluded by the choice and application of the law of a non-member state, which in this particular case was Californian law.50

3. Differences of interpretation and outcome

Interestingly, a few weeks later the French Court of Cassation held that the French law implementing Directive 86/653,51 although part of public policy, was not 'overriding' in nature (see section IV below). It therefore could not exclude application by a French court of the law of a non-EU member state agreed upon by the parties, namely New York law.52

This example serves as a practical illustration of the divergence that may exist in the way EU directives and the national legislation adopted to implement them are interpreted by the courts. Here the divergence was between an EU court and a national court (i.e. 'vertical') rather than between two national courts (i.e. 'horizontal').

The Regulation's aforementioned new rule on the application of EU mandatory provisions serves also to immunize the application of such provisions to international contracts against any horizontal differences of interpretation between the courts of different EU member states and against differences in the implementation of a directive by national legislators. Priority is given to the forum state's interpretation and implementation of the EU legal instrument and of its mandatory provisions.

IV. Overriding mandatory rules

A. Some important clarifications

The expressions 'overriding mandatory provisions' and 'overriding mandatory rules', which were coined in quite recent times53 and are peculiar to conflict of laws, have been heavily overshadowed in many jurisdictions by the much older and more widely used expressions 'public policy rules' or 'public policy principles' (lex mercatoriarègles d'ordre public, principes d'ordre public) in substantive contract law and 'public policy exception' (lex mercatoriaexception d'ordre public international) in conflict of laws.

The coexistence of these three expressions, and especially the three distinct sets of rules which underlie them, has unsurprisingly led to some confusion and misunderstanding, which are likely to continue, though to a lesser extent. The following clarification appears necessary:54

i) Each national legal system determines, through law-making and the interpretation of existing law by the courts, those substantive provisions that are simply mandatory and those that are overriding as well as mandatory, and lays down the criteria upon which this distinction is made. Different systems do so with varying degrees of clarity and predictability.55

ii) Mandatory rules and overriding mandatory rules are substantive provisions, not conflict-of-law rules. Therefore, they lack the two elements typical of conflict-of-law rules: a legal category (contract, tort, property, etc.) into which to classify the cause of action, and a connecting factor for the category in question.

iii) A national overriding mandatory provision is applied lex mercatoriaunilaterally within a given legal system to matters that come within its scope, regardless of the conflict-of-law rule used by the national court to determine the applicable law, and regardless of the national law thereby determined and deemed to be ordinarily applicable for the cause of action in question. [Page39:]

iv) If the subject matter of a dispute falls within the scope of an overriding mandatory provision and this provision is applied, this excludes lex mercatoriaex ante the application of the relevant conflict-of-law rule and consequently an applicable foreign law. Unlike the public policy exception,56 an overriding mandatory provision does not exclude the application of the applicable foreign law lex mercatoriaex post, i.e. once it has been determined and its content has been ascertained by the forum's court.

v) When applied by a judge or an arbitral tribunal, an overriding mandatory provision covers only the issue or issues falling within its scope. All other aspects of the private law relationship remain subject to the ordinarily applicable law.

vi) Lastly, with regard to international contracts:

a) mandatory rules apply if they are part of the applicable law (with certain exceptions in in the European Union, see section III, A above),

b) while overriding mandatory provisions:

- always apply if they are part of the law of the forum;57

- generally apply if they are part of the applicable law (unless they are in conflict with the overriding mandatory provisions in force in the forum); and

- may apply or be given effect to if they are part of the law of a third state (see section IV, E below).

B. Regulation's improved terminology

Although addressed in the Rome Convention (Article 7), overriding mandatory provisions have suffered from inconsistency in the terminology used to refer to them. Unfortunately, not all language versions of the Rome Convention adopted in 1980 used specific terms for these provisions.58 This is a source of confusion and unpredictability. Reliance on the headings of Article 7 in, for example, the English, German and Italian versions leads to the mistaken impression that the provisions dealt with in this Article are just mandatory, not also overriding, and thus apply to an international contract only if they are part of the applicable law from the forum's perspective, whereas in fact, as overriding mandatory provisions, they are to be applied unilaterally and more widely (i.e. also if they are part of other legal systems), as described above.

Happily, the Regulation has brought some order into this confusion, by using specific terminology for the heading of Article 9, at least in five language versions.59

C. Increased predictability through an embryonic definition

The Rome Convention provided a definition, not of overriding mandatory provisions in themselves, but of their effect: a rule that, under the legal system to which it belongs, must be applied whatever the law applicable to the contract.60 The Regulation goes a step further by defining overriding mandatory provisions in themselves and not simply in terms of their effect on the ordinary operation of the conflict-of-law rules embodied in the Regulation. Although commendable, this endeavour has led to an embryonic rather than a comprehensive definition, which is hardly surprising given the complexity and sensitivity of the question and the variety of views across EU member states. The attempt to define overriding mandatory provisions began with the ECJ,61 which took its lead from the authoritative work of Francescakis.62 Out of this came the definition coined in the Regulation, which reads:

Overriding mandatory provisions are provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation.63[Page40:]

Although this definition is to be welcomed, the expression 'safeguarding a country's public interests' may mean different things in different jurisdictions. Also, 'public interests' may extend beyond a country's political, social or economic organization. The inclusion of 'such as' makes it clear that the three aspects mentioned do not cover everything that may come within public interest, all jurisdictions considered. This represents valuable flexibility given the universality of the Regulation and the Rome Convention: although they are applied only by the courts of EU member states, the law determined as applicable pursuant to their provisions may be that of any jurisdiction, within or outside the EU.64

Time will tell to what extent legal predictability has been gained through this definition, in comparison with the absence of any definition in the Rome Convention. The CJEU is likely to contribute to greater predictability through its interpretation of the definition in years to come. However, although welcome, greater predictability should be sought with caution: centralized interpretation by the CJEU should not overlook the fact that most overriding mandatory rules in contract law are currently of national-rather than EU or international-origin and therefore should not impose unnecessary rigidity and constraints upon national courts in the EU when interpreting such national substantive rules and defining their territorial application.

From this perspective and for the sake of completeness, it should also be observed that while overriding mandatory rules in contract law are mainly of national origin in whatever jurisdiction they are found, whether an EU member state or not, the priority given by the Rome Convention and the Regulation to the forum's overriding mandatory rules (see section E below), if any exist in relation to the matter at issue, makes the interpretation of the national rules of EU member states by their domestic courts particularly important. It is the authority and expertise of such national courts, not of the CJEU (whose mission is to ensure that EU law is observed in its interpretation and application) that will be key.65 Comparative conflict of laws generally confirms the priority of the forum's overriding mandatory rules outside Europe, too.

D. International construction contracts and subcontracts as an illustration of the need for predictability

The lack of a clear-cut definition of national overriding mandatory rules in several jurisdictions is likely to create uncertainty over the criteria to apply and whether a substantive provision ranks as simply mandatory or is also overriding. Statutory indications to this effect in national legislation would increase predictability, but lawmakers do not readily commit themselves on the extent to which the rules they have enacted will apply spatially in the future, preferring to leave the matter to the courts. This commonly results in flexibility and uncertainty, as is the case with the notion of public policy in comparative contract law.

The construction industry is a field in which contractual relations are notoriously complex, involving owners, contractors and subcontractors. The allocation of risk, liability and the entitlement to bring claims is a delicate matter, which helps to explain the frequent recourse to standard contracts-of FIDIC or others-designed to achieve an appropriate balance of interests. Experience has shown that this balance can sometimes be upset by uncertainty over the effect that will be given to a rule in light of changing or contrasting case law.

This has been seen in France in relation to subcontracts, which call for a particularly careful balance of interests and risk allocation. In two judgments, the French Court of Cassation made two contrasting readings of the same statute on subcontracting.66 In one decision it refused to characterize the statute's provisions on the protection of the subcontractor as overriding mandatory provisions67 whilst in the other it did the opposite.68 The first decision upheld the application of the foreign applicable law, which denied the subcontractor's entitlement to bring a claim directly against the owner. The foreign law was less protective than French law, which allows the subcontractor to claim directly against the owner where the main contractor fails to pay.69 In the latter decision the court applied the French substantive provisions as overriding mandatory provisions. The foreign law otherwise applicable was therefore ousted. This resulted in a form of protection for the subcontractor, which was doubly unexpected, as it was foreseen neither in the contract nor in the otherwise applicable law. [Page41:]

E. Interests of third states

In the event of a conflict between overriding mandatory provisions in the law of the forum and overriding mandatory provisions in the foreign law applicable to the contract, the Rome Convention and the Regulation resolve this conflict in favour of the former. This preference for the forum's law is no surprise and is consistent with comparative conflict of laws.70

In 1980 the Rome Convention introduced the novelty of allowing (but not obliging) courts in contracting states (other than those that had made a reservation under Article 22) to give effect, where appropriate, to the overriding mandatory provisions of a third state, i.e. a national legal system that has a close connection to the situation but is neither the applicable law (chosen by the parties or determined according to objective criteria) nor the law of the forum.71 This novelty has its importance in conflict of laws.72 A few years later Switzerland adopted a similar provision in its federal private international law.73

This innovative principle was maintained in the Regulation but its scope and operation have been substantially reduced in two respects. As a result, when ruling on disputes arising out of international contracts made after 17 December 2009, national courts in EU member states may give effect to overriding mandatory provisions in the law of a third country only in the following circumstances:

i) the overriding mandatory provisions must be part of the law of the country where the obligations arising out of the contract are to be or have been performed (hence excluding the law of any other country that has simply a close connection with the situation at issue); and

ii) the overriding mandatory provisions in question must render the performance of the contract unlawful (hence excluding any overriding mandatory provisions which have effects other than this on the contract).74

Like the Rome Convention, the Regulation gives the court discretion to decide whether to give effect to the overriding mandatory provisions in light of their nature and purpose and the consequences of their application or non-application.

F. Overriding mandatory provisions in international arbitration

As explained earlier, the Rome Convention and the Regulation apply to EU member states and their national courts, so neither their provisions nor the comments we have made on them above can be assumed necessarily to apply to international arbitration in the EU. In spite of the absence of a lex mercatorialex fori in international arbitration (see section I, D above), for the purpose of determining the law applicable to the merits of the dispute an arbitral tribunal may refer to the conflict rules of the country in which it has its seat, but has no duty to do so unless this is what the parties have agreed and requested.75 Also, the relationship between different sets of overriding mandatory provisions is not the same for an international arbitral tribunal as for a state court: no one set can be seen as part of the lex fori and therefore as prevailing over any other set belonging to the law of another country.

International arbitral practice shows the importance attached to the choices made by the parties in determining the rules applicable both to the merits of the contract76 and the validity of the arbitration agreement.77 Yet, other considerations may also enter into play, e.g. where an obligation arising out of the contract (valid under the chosen law) is to be performed in a country where performance would be illegal or prohibited.78 Overriding mandatory provisions prohibiting performance which belong to a legal system other than that chosen as the applicable law may be taken into account, given effect, or applied. They may be either applied as rules of law, or taken into account as a fact frustrating or otherwise affecting performance under the applicable contract law.79[Page42:]

The famous Mitsubishi v. Solor Motors judgment of the US Supreme Court80 emphasized that international arbitrators should examine genuinely relevant mandatory provisions of law that are not part of the law chosen by the parties or the law of the seat of the arbitration. Leaving aside the two issues of arbitrability and public policy as a ground for non-recognition or annulment of an award,81 and focusing on overriding mandatory provisions affecting the merits of the dispute, we note that the treatment of foreign overriding mandatory provisions in international arbitration (i.e. provisions that belong to a law other than that chosen by the parties or determined by the arbitral tribunal as the applicable law) reveals a concern on the part of several arbitral tribunals to balance the application of the law agreed upon by the parties with the objectives of safeguarding the interests of arbitration and rendering an enforceable award.82 This is a legitimate concern. The importance of taking account of the enforcement of an award is self-evident in international arbitration. It is emphasized in the ICC Rules of Arbitration.83 Some jurisdictions may object to the enforcement of an award if, when ruling on the merits, the arbitral tribunal has disregarded overriding mandatory provisions in force in the legal system of the jurisdiction in question. In practice, the determination of the jurisdiction(s) in which the recognition and enforcement of an international award may or will be sought at a later stage may be known to the arbitral tribunal in some cases, but subject to conjecture or unpredictable in others.

It seems fair to conclude that, other than searching for the balance mentioned above, there is no clear and easy answer to the complex issues raised by foreign overriding mandatory provisions in international arbitration. A case-by-case analysis in fact and in law is preferable to excessively dogmatic and unsubstantiated generalizations. The various approaches and criteria that have been adopted in arbitral practice generally reflect those that were codified in the Rome Convention in 1980.

In an ICC arbitration seated in Geneva between an Algerian company and a French company that was subject to insolvency proceedings in France and in which French law had been chosen as applicable to the merits, an arbitral tribunal reasoned in terms similar to those of the Rome Convention84 to justify applying as an overriding mandatory provision the French law rule which suspends any claim against the debtor brought by an individual creditor during the proceedings. It is interesting that the arbitral tribunal reasoned in terms of overriding mandatory provisions even though French law had been chosen by the parties as applicable to the merits of the contract and the debtor had its seat in France.

It will be interesting to see, and time will tell, whether and for how long international arbitral practice will continue to take account of and, where appropriate, give effect to the overriding mandatory provisions of any law closely connected to the situation in dispute, whatever their effect on the contract. When proceeding in this manner, arbitral tribunals align themselves with the Rome Convention and Swiss law85 models.86 Alternatively, they might be led to adopt a more restrictive approach modelled on the Regulation, which, while confirming the arbitral tribunal's power to take account of and give effect to overriding mandatory provisions, allows it to do so only where these form part of the law in force at the place of performance of the contractual obligation and render that performance unlawful.

Beyond their provisions on overriding mandatory rules, the Rome Convention and the Regulation as a whole are of great importance for international contracts. They always apply in international litigation before courts of EU member states, and in international arbitration apply if the parties or the arbitral tribunal choose to rely on either of them, regardless of where the arbitration is seated. In cases where they have not been chosen, it is likely that the practice of referring to either of them, or both, as a set of general principles of conflict of laws for contracts will continue.

1
Article 81(2) (ex Art.65 TEC) of the Consolidated Version of the Treaty on the Functioning of the European Union (Lisbon Treaty): '1. The Union shall develop judicial cooperation in civil matters having cross-border implications, based on the principle of mutual recognition of judgments and of decisions in extrajudicial cases. Such cooperation may include the adoption of measures for the approximation of the laws and regulations of the Member States. 2. For the purposes of paragraph 1, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall adopt measures, particularly when necessary for the proper functioning of the internal market, aimed at ensuring: (a) the mutual recognition and enforcement between Member States of judgments and of decisions in extrajudicial cases; . . .'

2
For a commentary, see P. Lagarde & A. Tenenbaum, 'De la Convention de Rome au règlement Rome I' (2008) lex mercatoriaRevue critique de droit international privé 727. The Bulletin has published a brief presentation by F. Marrella, 'The New (Rome I) European Regulation on the Law Applicable to Contractual Obligations: What has Changed? (2008) ICC ICArb. Bull. 87. A commentary of the Regulation by the author of the present article will be published in late 2012.

3
But not earlier than the date of entry into force of the Rome Convention in the state concerned (Rome Convention, Article 17).

4
See Preamble, paragraph 46.

5
Regulation, preamble, paragraphs 6 and 16.

6
Regulation, Article 1(1). Several important exceptions falling outside the scope of the Regulation are listed in Article 1(2).

7
Regulation, Articles 23 and 25.

8
Regulation, Article 1(2)e; Rome Convention, Article 1(2)d.

9
A Spanish commentator has suggested that the Rome Convention and presumably the Regulation could be used to determine the law applicable to a choice-of-court agreement (also excluded from the scope of the Rome Convention and the Regulation), apparently by considering the agreement part of the main contract which is not excluded from their scope. See S. Álvarez Gonzáles, 'The Spanish Tribunal Supremo Grants Damages for Breach of a Choice-of-Court Agreement' (2009) IPRax 529 at 531.

10
ICC case 6379 (1990), (1992) XVII Yearbook Commercial Arbitration 212 at 217, where the arbitral tribunal relied on this ground to reject the applicability of Article 7 of the Rome Convention invoked by the respondent to challenge the validity of the arbitration agreement (ignoring the fact that the Rome Convention was not applicable ratione temporis ).

11
The 1996 Arbitration Act has left the matter to the courts, which refer to a law applicable to the arbitration agreement. See D. St John Sutton, J. Gill, M. Gearing, lex mercatoriaRussell on Arbitration, 23d ed. (London: Sweet and Maxwell, 2007) at 82.

12
See Cass. civ., 7 May 1963, Gosset, (1964) Journal du droit international 82, then in particular Cass. civ.1re, 20 December 1993, Dalico, (1994) Revue de l'arbitrage 116. 'By virtue of a substantive rule of international arbitration law, the arbitration agreement is independent of the main contract in which it is incorporated directly or by reference, and its existence and effectiveness are appraised, subject to the mandatory rules of French law and international public policy, in accordance with the common will of the parties, without there being any need to refer to a state law.' (unofficial translation) The reservation made for mandatory rules of French law and international public policy raised understandable questions (see also H. Gaudemet-Tallon, ibid. at 124).

13
See E. Gaillard, 'La jurisprudence de la Cour de cassation en matière d'arbitrage international' (1997) Revue de l'arbitrage 697 at 707?712.

14
New Code of Civil Procedure, Article 1507. On the arbitration reform (Decree no. 2011-48, 13 janvier 2011), see C. Jarrosson & J. Pellerin, (2011) Revue de l'arbitrage 5; E. Gaillard & P. de Lapasse, Recueil Dalloz (2011) 175 ; P. Mayer, Droit & patrimoine no. 203 (2011) 30 ; G. Carducci, (2012) 28 Arbitration International 125.

15
e.g. ICC case 8910, (2000) lex mercatoriaJournal du droit international 1085.

16
e.g. ICC case 13921, (2009) lex mercatoriaJournal du droit international 1407.

17
Article 1(1).

18
Preamble, paragraph 7: 'The substantive scope and the provisions of this Regulation should be consistent with Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters . . . (Brussels I) and Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II) . . .' The latter Regulation contains a similar clause in its own preamble (paragraph 7).

19
Article 1(2)d.

20
See G. Carducci, 'Arbitration, Anti-suit Injunctions and lex mercatoriaLis Pendens under the European Jurisdiction Regulation (44/2001) and the New York Convention. Notes on lex mercatoriaWest Tankers, the Revision of the Regulation and Perhaps of the Convention' (2011) lex mercatoriaArbitration International 171.

21
See e.g. W.L. Craig, W.W. Park, J. Paulsson, International Chamber of Commerce Arbitration (Oceana, 2000) at 338. Recently, P.Mayer, 'Le choix de loi dans la jurisprudence arbitrale' in Le règlement communautaire « Rome I » et le choix de loi dans les contrats internationaux (Paris: Litec, 2011) 423.

22
Swiss Federal Tribunal, 9 February 2009, (2010) Revue de l'arbitrage 141.

23
Some examples may be found in the ICC International Court of Arbitration Bulletin vol. 19 no. 1 (2008) at 109?132.

24
Such designation should not be mistaken for a choice of law, which is a designation of substantive, not conflict rules.

25
References in this article are to the ICC Rules of Arbitration in force from 1 January 2012.

26
Article 21(2) adds: 'The arbitral tribunal shall take account of the provisions of the contract, if any, between the parties and of any relevant trade usages.'

27
ICC case 12456, (2010) Journal du droit international 1386 .

28
ICC case 12193, (2007) Journal du droit international 1276.

29
ICC case 10982, (2005) Journal du droit international 1256.

30
Article 3.

31
ICC case 13763, (2011) Journal du droit international 1174.

32
Article 3(1).

33
Article 3(1) and Article 3(2).

34
P. Lagarde, 'Le nouveau droit international privé des contrats après l'entrée en vigueur de la Convention de Rome du 19 juin 1980' (1991) Revue critique de droit international privé 287 .

35
Proposal for a Regulation of the European Parliament and the Council on the Law Applicable to Contractual Obligations (Rome I), 15 December 2005, COM (2005) 650 final.

36
The proposed provision then added: 'However, questions relating to matters governed by such principles or rules which are not expressly settled by them shall be governed by the general principles underlying them or, failing such principles, in accordance with the law applicable in the absence of a choice under this Regulation.'

37
Article 3(1).

38
Article 4. The same conclusion is reached by P. Mayer & V. Heuzé, lex mercatoriaDroit international privé, 10th ed. (Montchrestien, 2010) at 545.

39
See G. Kegel, lex mercatoriaInternationales Privatrecht, 7th ed. (Munich: Beck, 1995) at 484.

40
ICC case 7710 (1995) in J.-J. Arnaldez, Y. Derains, D. Hascher, lex mercatoriaCollection of ICC Arbitral Awards 2001?2007 (Kluwer Law International, 2009) 513.

41
Article 3(3) and Article 11(5)b.

42
Article 3 and Article 4.

43
Rome Convention, Article 3(3); Regulation, Article 3(3).

44
Rome Convention, Article 5(2) and Article 6(1); Regulation, Article 6(2) and Article 8(1).

45
Article 3(4).

46
Unless an EU regulation makes limits application to only certain member states.

47
Lisbon Treaty, Article 288.

48
Expressly, if the mandatory provision is expressly stated in the directive; implicitly, if the mandatory provision appears in national legislation enacted to achieve a result fixed by a directive.

49
Council Directive of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents.

50
Directive 86/653, Article 16 and Article 17. ECJ, 9 November 2000, Ingmar .

51
Law of 25 June 1991 (Code of Commerce, Article L.134-1).

52
Cass. com., 28 November 2000, lex mercatoriaSté Allium, (2001) Journal du droit international 511.

53
The first thorough analysis of such substantive provisions in conflict of laws was by W. Wengler, published in 1941.

54
For a detailed analysis of these distinctions, see G. Carducci, 'Norme di applicazione necessaria' (Overriding mandatory rules) in lex mercatoriaEnciclopedia giuridica italiana Treccani (Rome: Treccani, 2000).

55
For example, the German Federal Supreme Court (Bundesgerichtshof) has defined overriding mandatory provisions (in relation to Article 34 of the Introductory Law of the Civil Code (EGBGB), 13 December 2005, (2006) IPRax 272) as provisions that serve not only to protect and reconcile the conflicting interests of contracting parties and thereby purely private concerns but also to pursue the interests of public welfare. On this basis the court refused to characterize the provisions of the German consumer credit law as overriding rules.

56
Regulation, Article 21: 'The application of a provision of the law of any country specified by this Regulation may be refused only if such application is manifestly incompatible with the public policy (lex mercatoriaordre public) of the forum.'

57
Rome Convention, Article 7(2); Regulation, Article 9(2).

58
Distinctive expressions are used in French (lois de police ) and Spanish (leyes de policía ), but not in English (mandatory rules ), German ( zwingende Vorschriften) and Italian (disposizioni imperative e legge del contratto )

59
e.g. English (overriding mandatory provisions ), French (lois de police ), German (Eingriffsnormen ), Italian (norme di applicazione necessaria ) and Spanish ( leyes de policía).

60
Article 7(1).

61
ECJ, 23 November 1999, Arblade .

62
See especially P. Francescakis, 'Quelques précisions sur les lois d'application immédiate et leurs rapport avec les règles de conflit de lois' (1966) Revue critique de droit international privé 1 .

63
Article 9(1).

64
Article 2.

65
This observation does not cover the consideration to be given to the test of compatibility between the overriding mandatory rules of an EU member state and certain fundamental principles of EU law.

66
Law no. 75-1334, 31 December 1975 (Loi relative à la sous-traitance).

67
Cass. civ. 1re, 23 January 2007, Société Campenon Bernard Méditerranée, D.2007, 503.

68
Cass. Ch. mixte, 30 November 2007, Société Agintis; Cass. civ., 25 February 2009, Société Saint-Louis sucre , (2009) Revue critique de droit international privé 728.

69
Under the conditions set out in Article 12 of law no. 75-1334.

70
Rome Convention, Article 7(2); Regulation, Article 9(2).

71
Rome Convention, Article 7(1): 'When applying under this Convention the law of a country, effect may be given to the mandatory rules of the law of another country with which the situation has a close connection, if and in so far as, under the law of the latter country, those rules must be applied whatever the law applicable to the contract. In considering whether to give effect to these mandatory rules, regard shall be had to their nature and purpose and to the consequences of their application or non-application.'

72
A situation in which this possibility has proved useful is the fight against illicit trafficking of cultural property. Pursuant to Article 7 of the Rome Convention, national courts in contracting states may increase the international protection of stolen or illegally exported works of art by giving effect to relevant overriding mandatory provisions. On the complex interaction between overriding mandatory provisions and conflict of laws, see G. Carducci, 'La restitution internationale des biens culturels et des objets d'art' (Paris: LGDJ, 1997) at 314?339.

73
Article 19 of the Swiss federal statute on private international law of 18 December 1987. On whether it should be extended to an international arbitration having its seat in Switzerland, see F. Knoepfler, 'L'article 19 LDIP est-il adapté à l'arbitrage international? in Etudes de droit international en l' ;honneur de Pierre Lalive (Helbing & Lichtenhahn, 1993) 531; P. Karrer, in S.V. Berti et al ., eds., International Arbitration in Switzerland (Kluwer Law International, 2000) 515.

74
Article 9(3).

75
This formulation is different from, and in our view preferable to, 'The international arbitrator has no lex mercatorialex fori, to which he can borrow rules of conflict of laws' (ICC case 1512, (1976) I lex mercatoriaYearbook Commercial Arbitration 128 at 129).

76
e.g. ICC cases 2977, 2978, 3033 (1978), (1981) V Yearbook Commercial Arbitration 133; Court of Arbitration attached to the Chamber of Foreign Trade, Berlin, award of 28 January 1976 in which the arbitral tribunal applied the law chosen by the parties (GDR law) and rejected the application of FRG law and of the EEC Treaty (Art. 85), (1979) IV Yearbook Commercial Arbitration 197 at 198.

77
e.g. ICC case 6379 (1990), (1992) XVII Yearbook Commercial Arbitration 212; partial award on jurisdiction and admissibility in ICC case 6474 (1992), (2000) Yearbook Commercial Arbitration 279 at 283 (although the issue of mandatory law was raised with regard to jurisdiction rather than the merits, but the tribunal extended its reasoning to both issues).

78
For some examples, see W.L. Craig, W.W. Park, J. Paulsson, supra note 21 at 341.

79
This technique was envisaged by the arbitral tribunal in the German case mentioned supra note 76.

80
473 U.S. 614 (1985).

81
See e.g. Paris Court of Appeal, 22 October 2009, (2010) Revue de l'arbitrage (124): the violation of international public policy within the meaning of Article 1502-5 of the French New Code of Civil Procedure must be 'flagrant, real and concrete'.

82
On this important debate, which lies outside the confines of this short article, see P. Mayer, 'L'interférence des lois de police' in L'apport de la jurisprudence arbitrale, Proceedings of seminar of ICC Institute of World Business Law (1986), 31; P. Lalive, 'Ordre public transnational (ou réellement international) et arbitrage international' (1986) Revue de l'arbitrage 329; D. Hochstrasser, 'Choice of Law and "Foreign" Mandatory Rules in International Arbitration' (1994) 11:1 Journal of International Arbitration 57; S. Lazareff, 'Mandatory Extraterritorial Application of National Law' (1995) 11 Arbitration International 137; M. Blessing, 'Mandatory Rules versus Party Autonomy in International Arbitration' (1997) 14:4 Journal of International Arbitration 23; N. Voser, 'Mandatory Rules of Law as a Limitation on the Law Applicable in International Commercial Arbitration' (1996) 7 The American Review of International Arbitration 319; generally, C. Seraglini, Lois de police et justice arbitrale international (Daloz, 2001).

83
The ICC Rules require the ICC International Court of Arbitration and the arbitral tribunal to make 'every effort' to make sure that the award is enforceable at law. That duty, and the duty to act in the spirit of the Rules, apply only in matters not expressly provided for in the Rules (Article 41) and are to be read in conjunction with the provision on the exclusion of liability (Article 40). For a discussion of practice relating to these duties before the 2012 Arbitration Rules, see M. Bühler & T.H. Webster, Handbook of ICC Arbitration, 2d ed. (London: Sweet and Maxwell, 2008) at 491.

84
See ICC case 9163, (2005) Journal du droit international 1283: 'The arbitral tribunal has a duty to respect the overriding mandatory rules that apply directly and compulsorily to the situation in dispute when those rules have been enacted in the law of a state, the application of which in the particular case is both justifiable, on account of the purpose it serves and the interests it protects, and in keeping with the parties' expectations.'

85
See e.g. F. Knoepfler, supra note 73 at 541, who suggests that arbitral tribunals can be regarded as having this power too, no matter where they are seated, and that any risk of destabilization resulting from use of this method of reasoning would appear to be purely theoretical and not a ground for rejecting it.

86
When extended to arbitral tribunals, the model is generally extended to include concern for the enforceability of awards and safeguarding the interests of arbitration.