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Section 12. Science of law
https://doi.org/10.29013/ESR-19-11.12-88-94
Bashkim Preteni LL.M., Teaching Assistant at Civil Law Department Law Faculty of the University of Prístina, Kosovo E- mail: [email protected]
PRINCIPLE OF PARTY AUTONOMY IN CONTRACTUAL OBLIGATIONS UNDER ROME I REGULATION IN COMPARISON WITH KOSOVO CURRENT LAW AND FORTHCOMING DRAFT-LAW
Abstract. The aim of this paper is to analyse party autonomy under Rome I Regulation on the law applicable to contractual obligations in comparison with Kosovo law. During this analysis, similarities and differences of this regulation when compared to Kosovo law will be pointed out in order to make clear the position of the party autonomy principle under both jurisdictions. Due to the fact that Kosovo is not part of the mentioned regulation and has recently been in the process of adopting new legislation that has, as its legal base, EU developments in the field of private international law, it will be considered also the Kosovo Draft-Law on Private International Law. Moreover, special attention will be given to the limitations of the party autonomy that represents the central cornerstone of this very well-known principle.
Keywords: Private international law, party autonomy, contractual obligations, Rome I Regulation; Kosovo law.
I. Introduction legal divergences created as a consequence of every
Contractual relationships do not recognise the country having its own legal system. It is worth men-borders of the states. People move from one state to tioning that the unification of the contractual choice another and create different types of contracts outside of law rules started with the Rome Convention of of their national residence. It has to be admitted that 1980 [22] while the non-contractual obligations re-the effect of the contract is not the same under each mained under jurisdiction of national legal systems. jurisdiction (i.e., under German, French, Swiss, Aus- Recently, contractual and non-contractual obligations trian or Kosovo law). In previous times, nationalism are regulated with two EU Regulations: (i) Regulation also deeply reflected the contractual effects ofthe par- No 593/2008 on the Law Applicable to Contractual ties. This created dilemmas and problems with regard Obligations - called Rome I; and (ii) Regulation No to the effects (rights and duties) of the contractual 864/2007 on the Law Applicable to Non-Contractual parties. In the modern world, the harmonization of Obligations - called Rome II). It has to be mentioned contract law rules from an international perspective that these regulations have influenced the approach of is a very well-known process with the aim of avoiding the legal doctrine being subject ofdifferent legal com-
mentaries [11; 15; 16]. Pursuant to these regulations, currently contractual and non-contractual obligations are unified in the EU countries - excluding Denmark. In particular, these two regulations give a special legal space to the party autonomy - also known as freedom of choice' [20, 470], which is internationally recognised as a principle of contract choice oflaw [17, 20]. Furthermore, it should be noted that this principle can mostly be found in the general sections of national codifications in private international law despite the fact that other solutions were present [19, 138 et seq]. The freedom of choice in non-contractual obligations remain a topic for a forthcoming article as this paper covers only the contractual obligations.
From a historical point of view, party autonomy has not always been recognised. On the contrary, it has been met with doubts from public authorities and legal scholars. Nevertheless, we can summarise that four factors were crucial for the existence of this principle: (i) The principle of freedom of contract; (ii) Private parties actually enjoy an even greater autonomy on an international level; (iii) The legislator is the full and exclusive sovereign of his territory; (iv) The promotion of certainty and efficiency [14, 49-51].
Party autonomy under Rome I Regulation is widely recognised [3, 438]. Parties in principle have an unlimited choice. This is evident when making three decisions: (i) how to choose the law; (ii) when to choose the law; and (iii) which law to choose. This principle was previously regulated by Article 3 of the Rome Convention and there was a tradition. Nevertheless, the rule under Rome I has established some features that make such a solution extremely innovative, and party autonomy is the central legal tool chosen by the parties. However, this does not mean that there are not limitations. On the contrary, there are established several limitations that limit the party autonomy [18, 232].and which will be introduced in details in the below treatments.
Contrary to at the EU level, Kosovo as a non-member of EU and as a state in consolidation of all fields, also has its specificities in the legal system. A
very important sphere of the legal system is international private law, which is considered to be one of the most complex parts of legislation in Kosovo. After the destruction ofYugoslavia, Kosovo did not approve a new law but went ahead with the same law - Act on Resolving the Conflict of Law with the Regulations of Other Countries in Certain Relations [1]. In order to avoid this situation and modernise this field of law according to the new European legal trends, currently the initiative is being taken by the Government of Kosovo to promulgate the new Law on Private International Law [13]. This draft-law is approved by the Government and it is in the last procedure within the Assembly of Kosovo.
The Act on Resolving the Conflict of Law with the Regulations of Other Countries in Certain Relations (hereafter referred as: KPIL) provides different organisations of rules compared to Rome I Regulation. It is separated into six sections: (i) Basic principles (Article 1-13); (ii) Applicable law (Article 14-45); (iii) Jurisdiction and procedure (Article 46-85); (iv) Recognition and Enforcement of Foreign Decisions (Article 86-101) and (vi) Special provisions (102-108); Transitory and final provisions (Article 107- 109). As a result of this form of regulation, section two (applicable law) is the subject of this paper. However, in several cases it has to be connected with section one in which the general principles that are applicable also for the principle of party autonomy are found. Furthermore, as can be seen from the above treatments, the KPIL regulates both contractual and non-contractual obligations in the same section. Nevertheless, a distinction must be made with regard to the application of the party autonomy principle. The KPIL recognises party autonomy to contractual obligations contrary to noncontractual obligations in which this principle cannot be used. By contrast to this, it seems that the draft-law (hereafter referred to as: DKPIL) has as its base the above-mentioned EU regulations and is completely harmonised with regard to law which is applicable to contractual and non-contractual obligations.
This article will deal with party autonomy in contractual obligations, its limitations, as well as any differences and similarities between the mentioned EU Regulation (Rome I) and Kosovo law. Firstly, the Rome I Regulation will be illustrated and after this the situation under current Kosovo law will be pointed out and accompanied with the new trends according to the draft-law.
II. Party autonomy under the Rome I Regulation on the Law Applicable to Contractual Obligations
The most important conflict rules regarding contracts are found in the Rome I Regulations on the Law Applicable to Contractual Obligations. It should be noted that Rome I Regulation does not give the definition of the contractual obligations. Moreover, this concept has to be understood in line with national law [6, 206]. Pursuant to Article 1 of this regulation, it is determined that it shall apply in situations involving a conflict oflaws, to contractual obligations in civil and commercial matters, and it has four chapters and, in total, twenty-nine articles. The Rome I Regulation recognises the well-established principle of party autonomy, or the right of the parties to come to an agreement with one another on the legal system applicable to their contract, although there are certain restrictions [5, 123]. This principle of party autonomy states that parties may make a choice as to the applicable law [10, 344] and when a choice is made by the parties this should be decisive; only in situations in which no choice is made should courts resort to determining objective connections [17, 31]. This principle is very well described in Article 3 (1) of the Regulation that is called "freedom of choice" and states: A contract shall be governed by the law chosen by the parties. The choice shall be made expressly or clearly demonstrated by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or to part only of the contract".
Compared to this definition provided by Rome I, Article 19 of the KPIL determines a narrower concept
as shown by the following: "The law applicable to contracts shall be the law chosen by the parties, unless otherwise provided for in this law or in an international treaty". Contrary to this current regulation, under DKPIL Article 75 is clearly shown that the Rome I and DKPIL are identical, or in other words, the Kosovo draft-law is a copy-paste regulation ofArticle 3 (1) Rome I Regulation. It is worth mentioning that regional countries (i.e., North Macedonia) have also made the same solution taking the full regulation by Rome I Regulation. As a summarisation ofthe rules provided by these three acts, it is necessary to illustrate the following issues.
2.1. The law chosen by the parties
The wording "the law chosen by the parties" is determined by three mentioned legal acts and its meaning requires interpretation. In principle, under Rome I Regulation, it is considered that the parties can choose any existing legal system they wish (i.e., a system with widely known and particularly developed rules for the type of contract involved, a legal system they perceive as neutral, or simply a legal system they both happen to be familiar with) [5, 122]. The legal system has to be understood as a legal system of every state. It should be pointed out that parties cannot choose a non-state law, nor the principles and rules of the substantive law of contract recognised internationally or in the Community [14, 254]. Under Kosovo law, regarding these situations, there are no doubts that parties decide on the law that will govern for their contractual obligations. Such a conclusion is not treated under Kosovo legal doctrine which is very limited on this issue. However, in the author's opinion, as a consequence of similar regulation, the same legal approaches can be concluded for Kosovo law just as for the above-mentioned Rome I Regulation.
2.2. The way to choose the law
This regulation by Article 3 (1) of the Rome Regulation I, clearly gives the power to the parties in the choice of law for contractual obligation. Furthermore, under this article such a freedom to choose has to be made expressly or clearly demonstrated by
the terms of the contract or the circumstances of the case. This means that the choice can be made in writing or orally [23, 272; 12, 2] but it has to be made expressly, and this does not mean that the parties are totally free to choose the law, because they have to choose the law lawfully and effectively [2, 516].
So far, Article 10 (1) of Rome I determines that "the existence and validity of a contract, or of any term of a contract, shall be determined by the law which would govern it under this Regulation if the contract or term were valid". Moreover, in paragraph 2 it is mentioned that "nevertheless, a party, in order to establish that he did not consent, may rely upon the law of the country in which he has his habitual residence if it appears from the circumstances that it would not be reasonable to determine the effect of his conduct in accordance with the law specified in paragraph 1". In comparison to Rome I Regulation, under the KPIL the way in which the law has to be chosen is not regulated. By contrary, as can be seen by the above compared notes, the DKPIL has the same wording as the Rome I Regulation. Nevertheless, the situations under Rome I and DKPIL have to be valid also for the KPIL despite the fact that there is a lack of such a written requirement. From a forthcoming legal regulation, it has to be mentioned that the DKPIL Article 82 (1 and 2) provides an identical regulation to that ofArticle 10 (1 and 2) of the Rome I Regulation.
2.3. By their choice the parties can select the law applicable to the whole or to only part of the contract
Pursuant to the regulation provided by the last sentence of the Article 3 (1), parties are allowed to subject different parts of their contract to different legal systems. In such a way, the parties can achieve such a dépeçage (In English: splitting, in German: Spaltunt) by choosing different legal systems for different parts of the contract or by limiting their choice of applicable law to only a part of the contract [5, 124;21, 353].
This regulation is provided in an identical form in the last sentence ofArticle 75 (1) DKPIL. By contrast, the KPIL does not recognise such a rule and in fact it is an unknown solution under Kosovo law.
Nevertheless, from a legal and practical point of view, provided that such a choice is not forbidden, the solution to choose the law applicable to the whole or to only part of the contract [4, 303] can also be applicable under current law.
III. Restrictions to party autonomy
Despite the fact that Rome I has advanced party autonomy, this does not mean that the choice of law is unlimited. Some limitations (restrictions) have been mentioned (not treated) above. Inter alia, in this regulation some limitations are provided that are determined by:
- Article 3 (1, 3 and 4);
- Article 4;
- Article 6 (2);
- Article 8 (1);
- Article 9; and
- Article 21.
Pursuant to the legal characteristics, all these restrictions can be separated into three categories such as the following.
3.1. Restrictions under Article 3 (1), 3 (3 and 4), 6 (2) and 8 (1)
Firstly, there is a limitation or restriction regarding the chosen law that is foreseen in Article 3 (1) of Rome I Regulation. Such a regulation means that parties cannot choose rules of non-states, but are forced to choose the law of a country. The use of the word "any law" is generally understood as underlining the conclusion that the choice must be for the laws of state [6, 133] and not for non-state. This requirement is fully recognised also under Kosovo law as a consequence that, under Article 19, the selection oflaw is clearly mentioned and has to be interpreted as a law issued by a state. The same situation is determined under DKPIL Article 75 (1).
Another restriction is provided under Article 3 (3) that states: "Where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot
be derogated from by agreement". This is a restriction in the form of imperative norms [17, 73] and provides that the mandatory rules of a country will be applicable and will override any different rules in the law of another country [17, 74; 10; 345]. As can be seen in this regulation, the concept of mandatory rules is mentioned nowhere, so it can also be as ius cogens norms that cannot be changed from the agreement of the parties. Contrary to this situation covered by Rome I, under current Kosovo law this limitation is not applicable. Of course, the DKPIL provides the same regulation as the Rome I Regulation.
Another restriction is determined by Article 3 (4) which states: "Where all other elements relevant to the situation at the time of the choice are located in one or more Member States, the parties' choice of applicable law other than that of a Member State shall not prejudice the application of provisions of Community law, where appropriate as implemented in the Member State of the forum which cannot be derogated from by agreement." This paragraph is strongly linked with the restriction and foresees that the selection of the non-Member State law by the parties will not prejudice the application of Community law. In addition, both provisions are concerned with the situations in which a choice of foreign law is the only international element in an otherwise purely domestic relationship [14, 75]. In fact, this provision is focused on the protection provided by the Community law to those legal relationships that are closely connected to any Member State of European Community and its goal is to prevent the efforts of the party to avoid mandatory rules. As for this regulation, it should be noted that under both the KPIL and DKPIL, such a rule is not determined. In this situation it is necessary to explain the position of the DKPIL. In the author's opinion, such a lack of regulation is due to the fact that Kosovo is not a member of the EU, and such a rule would not help such a selection of the law.
Articles 6 (2) and 8 (1) that deal with consumer contracts and individual employment contracts provide other restrictions as a consequence of the
provisions that cannot be derogated by a contractual agreement. This solution is not allowed under current law contrary to the DKPIL which provides an identical regulation to the Rome I Regulation (Compare Rome I Regulation, Article 6 (2) and 8 (1) and KPIL, Article 80 (3) and 81 (1).)
3.2. Restrictions under Article 9
Party autonomy is also restricted by overriding mandatory provisions. The concept of mandatory provisions is provided by Article 9 (1) of Rome I. It is worth mentioning that the mandatory provisions are different in nature from the imperative norms. Consequently, recital number 36 of the Rome I Regulation states: "The concept of 'overriding mandatory provisions' should be distinguished from the expression provisions which cannot be derogated from by agreement' and should be construed more restrictively". Where overriding mandatory provisions have to be applied, the court will not be required to decide which law would be applicable; by contrast, the court will automatically apply mandatory provisions of the law of the forum [21, 379; 17, 75]. Despite this, where a mandatory rule of law other than the applicable law is applied, this will not mean that the parties' choice of law is invalid, rather that it remains effective for all substantive issues, excluding for those aspects covered by the mandatory laws [17, 75].
As for Kosovo law, it should be reaffirmed that the current law does not contain such a regulation. Nevertheless, the Kosovo legal doctrine supports such a regulation, but very often it is considered near the public order [4, 345]. Finally, the DKPIL recognises this regulation in its identical form as a limitation. However, as it is a law that regulates different aspects of private international law, this limitation is provided by DKPIL Article 15 in the section of general principles. Consequently, it should not be seen as a separate rule but rather as a common rule in the meaning of legal effects.
3.3. Restrictions under Article 21
Another restriction within Rome I regarding party autonomy is the issue of public policy
[7, 130-159] in the forum that is determined by Article 21 of Rome I. Pursuant to this regulation, it allows courts to refuse the application of provisions of the applicable law determined by contractual parties, in the case that such an application would not be in line with the public policy of the forum.
Under Kosovo law, such a restriction ofparty autonomy under the rules of public policy (ordre public) is recognised. Consequently, under Article 4 of the KPIL it is determined that: "The law of a foreign country shall not apply if its effects would be contrary to the fundamentals of the social system established by the Constitution of the Federal Republic of Yugoslavia". In this context, Yugoslavia does not exist anymore. Thus, in such a case the Constitution of the Republic of Kosovo has to be understood and which replaces the Constitution of the Federal Republic of Yugoslavia. Returning to the comparison of these two rules (Rome I and KPIL) with regard to public policy (order), generally we can conclude that there are no differences despite linguistic orientation, due to the fact that every state has its public policy. Lastly, the DKPIL provides an identical text to that of the Rome I regulation and there is therefore no comparison to be made between these two acts.
IV. Conclusion
Rome I is a big step forward towards the unification of private international law within the European Union. This regulation is directly in force in the EU and resolves almost all issues with contractual obligations, and a special place is given to the principle of party autonomy. The doctrine of party autonomy
has, since its introduction in the sixteenth century, evolved to become an internationally accepted conflict of laws principle. This principle now constitutes a fundamental choice of law rule. Compared to the aforementioned regulation, it has to be pointed out that under current Kosovo law that has been in force since the Yugoslavian time, the principle ofparty autonomy in contractual obligations is recognised, but its content with regard to this principle is much narrower compared to the Rome I Regulation. Recently, in Kosovo a new law has been drafted that is in the assembly and it seems likely that it will be approved very soon. Generally, we can conclude that with regard to the contractual obligations, the draft-law is a translation of Rome I and no difference between these three legal acts can be found.
Under Rome I, parties in principle have an unlimited choice of determine the applicable law, so party autonomy is known as dominant in the choice of law regarding contractual obligations. The parties can in fact choose any existing legal system they would like, pursuant to their legal interests. Nevertheless, there are also some restrictions on the party autonomy, for example concerning: (i) the choice of law made by the parties, (ii) the way in which the choice is made, (iii) the choice of law which must not contravene the application of the provisions that cannot be derogated from by agreement, in the event of a close connection with a single country, (iv) imperative norms of Community law, (v) overriding mandatory provisions, (vi) public policy of the forum and some other particular restrictions.
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