This dispute arose out of a contract between a French company (claimant) and an Austrian company (respondent), under which the respondent was required to supply and erect part of an installation to be built by the claimant for a third party.

'Both parties referred to the Convention on the Law Applicable to Contractual Obligations (Convention of Rome) of June 19, 1980 to determine the rules applicable to their contractual obligations (hereafter Rome Convention).

A.1. Issues governed by the applicable law under the Rome Convention

According to Article 1 of the Rome Convention, the rules of the Convention apply to contractual obligations in any situation involving a choice between the laws of different countries.

According to Article 1/2(f) of the Rome Convention, they do not apply in particular to "the question whether an agent is able to bind a principal, or an organ to bind a company or body corporate or unincorporate, to a third party".

From those provisions it appears that the Rome Convention does not give indications on the rules applicable to [the signatory]'s power or absence of power to bind [Respondent] when accepting the . . . Agreement. The law applicable to this question shall therefore be determined according to the rules of international law generally applied to this question, taking into account the conflicts of law rules of the place of arbitration (lex fori) and of the place of incorporation of the parties.

A.2. The law applicable to the contract

According to the Rome Convention, the law applicable to the contract shall govern the material (Art. 8) and formal validity (Art. 9) of the contract, its interpretation and performance, the consequences of nullity and breaches of the contract, as well as the assessment of damages (Art. 10).

A.2.1. In the absence of choice of law (as in the present case), the contract shall be governed by "the law of the country with which it is most closely connected" (Art. 4/1). It is assumed that the contract is most closely connected "with the country where the party who is to effect the performance which is characteristic of the contact has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or incorporate, its central administration" (Art. 4/2). Whenever the contract is to be performed "through a place of business other than the principal place of business", it will be subject to the law of this place.

A.2.2. The law applicable to the present contract therefore depends on:

(a) who is performing the activity which is "characteristic of the contract": [Claimant] or [Respondent],

(b) whether one of the companies has a "place of business" different from its principal one.

In addition it could be considered whether it "appears from the circumstances as whole that the contract is more closely connected with another country" (Art. 4/5 Rome Convention). In that case the law of that country could apply.

A.2.3. It is generally considered that in construction contracts the "performance which is characteristic of the contract" is made by the constructor, when the other party is only committed to pay the price (see R. Plender, The European Contracts Convention, London 1998, N. 6.09-6.18, especially 6.14 which refers to the origin of the rule as confirmed by Art. 117 Swiss Private International Law Act, 1987; also U. Villani, La Convenzione di Roma sulla legge applicabile ai contratti, Bari 1997, p. 2). The present case is somewhat different insofar as [Claimant] is not only to pay the agreed price, but to make a substantial contribution to the performance through providing all the necessary drawings and taking on the whole coordination an[d] supervision of the works. Both parties perform what could be qualified as characteristic obligation under contract.

[Respondent]'s place of incorporation is Austria, [Claimant]'s, France. Both Austrian and French law could be considered, unless the localisation of the performance corresponds to the definition of "a place of business other than the principal place of business" (Art. 4/2 in fine, Rome Convention).

A.2.4. Although [Respondent] had a substantial crew on the site under the direction of [Mr A] responsible for the performance of its obligation, this does not represent a "place of business" distinct from its Austrian headquarters. It clearly appears from the behaviour of [Respondent]'s representatives that the actual management of the company was in Austria. Whenever decisions (other than technical) were to be taken [Mr A] received instruction from the headquarters. The contracts were signed by [Mr B], who only came occasionally, or were brought to him for approval. The decision to leave the site was taken at the headquarters. The performance on site is not sufficient to justify the application of a different law on the basis Article 4/2 of the Rome Convention.

A.2.5. The situation is somewhat different for [Claimant], which actually had an important administration on site. Its general manager, [Mr C], was permanently on the site. Decisions, not only on technical matters, were taken on site and no instructions came f[ro]m the headquarters. There was certainly a center of management in [Italian town]. Still, important aspects of [Claimant]'s specific performance were dealt with by its central administration, such as drawings. It is not clear whether the contracts were drafted on site or in France, but there is no evidence that this task was influenced by the presence of [Mr C] in Italy. There does not seem to have been indication to third parties that [Italian town] was a "place of business other than" [Claimant]'s principal place of business.

A.2.6. The main reason to exclude Italian law as applicable is rather that according to Article 4/5 of the Rome Convention, the contract shows a closer connection to another law. Moreover, the parties obviously took no notice of the content of Italian law. Not even in their pleadings did they specifically refer to it, though it could have helped to identify the contract which is binding on the parties. The drafting of the different documents described as "contracts" or "agreements" does not give indication about the law on which they are based. It can reasonably be assumed that [Respondent]'s offer was based on its usual (i.e. Austrian, or German . . .) way of doing, and that [Claimant]'s draft contracts (including the final one) were rather inspired by French law (or international practice). But there is no reason to give a special importance to those implied considerations except insofar as they show no connection with Italian law.

Actually, two arguments should lead to connecting the agreement made between the parties to Austrian rather than French law:

(a) [Respondent]'s obligations under the contract are all characteristic of a construction contract, whereas [Claimant]'s obligations are only to a limited extent the characteristic ones,

(b) the choice of Austrian law allows to submit both the question of the material validity and conditions of conclusion of the contract and the existence of powers to represent [Respondent] (see infra at A.3) to the same legal system. This should help to avoid contradictions or inconsistencies.

Nevertheless, care shall be taken that this does not lead to solution which could be either impossible or illegal under French law.

A.3. The law applicable to [the signatory]'s powers to bind [Respondent]

The Respondent's argument that the . . . Contract is null and void is based on the fact that it was never signed on its behalf by somebody having powers to represent the company. This question is not subject to the law of the contract (Art. 1/2(f) Rome Convention).

A.3.1. It is generally accepted that the capacity of an agent or organ to bind a company is subject to the law of the place of incorporation of that corporate body. The capacity of [the signatory] to bind [Respondent] is therefore to be decided under Austrian law.

A.3.2. When the representative is acting outside the country of incorporation, consideration could be given to the law of the place where the agent or organ acted. This is intended to protect the local party, who is entitled to believe that the representative acts in conformity with the law he is used to. In this case this is very unlikely: [Claimant] never mentioned it knew specific conditions of Italian law which could have l[e]d it to believe that [the signatory] had powers to represent [Respondent]. Italian law will therefore not be applied.'