Bill addresses problems on applicability of laws

Parliament has started the process for the ratification of an EU convention on the law applicable to contractual obligations in situations involving a choice between the laws of different countries.

A Bill for the ratification of the convention, signed in Rome in 1980, was moved in the House on Tuesday by Parliamentary Secretary Carmelo Mifsud Bonnici, who explained that this was a first step to a new code on private international law in Malta.

The purpose of the convention, he said, was to guide the courts when there was a foreign element in a contract and the courts had to decide which country's law was to be applied.

The convention, he said, had been signed by the other EU states and was necessary in view of EU membership for the purpose of uniformity.

The Bill laid down that when the parties indicated a law to govern their contract, that choice had to be applied unless there was another mandatory law which indicated otherwise.

The convention did not apply to a number of areas such as questions involving the status or legal capacity of natural persons, contractual obligations relating to wills and succession, rights in property arising out of a matrimonial relationship and rights and duties arising out of a family relationship, parentage, marriage or affinity including maintenance obligations in respect of illegitimate children.

Also excluded were obligations arising under bills of exchange, cheques and promissory notes, arbitration agreements, agreements on the choice of court and issues governed by the Companies Act. That included also the setting up of trusts and the relationship between settlors, trustees and beneficiaries.

The convention established uniform rules on the freedom of choice so that a contract could be governed by the law chosen by the parties. It laid down procedures on which law would apply in the absence of such a choice, Dr Mifsud Bonnici said.

The decision on the applicable law would be taken after consideration of various factors, notably the country to which the contract was most closely connected, where the company involved was based or where the parson was domiciled or resident.

In the case of consumer contracts, the convention laid down that a choice of law made by the parties may not result in depriving the consumer of protection afforded to him by the mandatory rules of law of the country where he was resident.

The same principle applied for work contracts, and when a choice of law was not made, the contract had to be regulated by the law of the country where the employee usually served out the contract. If the employee worked in several countries, according to the law of the country in which the contract was signed, Dr Mifsud Bonnici said.

Opposition justice spokesman Anglu Farrugia said the opposition agreed with this Bill since Malta had long had a problem with regard to interpretation whenever there were problems regarding private international law. There were instances where contradictory judgments were given and different legal argumentation was followed.

The Rome Convention was a step forward to reduce the possibility of contrary decisions on the same principles.

Dr Farrugia said Malta had a right to ratify the convention with reservations and it should do so to ensure that certain local issues were safeguarded, more so as Malta had not participated in the drawing up of the text.

The parties, should, for example have the right to choose which court to go to in case of disagreement on interpretation. He said that the Malta Centre of Arbitration was not efficient because the Nationalist government had left it without staff.

Trusts, he said, were among the areas which should be protected along with other aspects of the Companies Act.

One of the important principles of the convention was that parties were being provided with the freedom to choose. If they wanted to regulate choice they had the faculty to do so. Parties could agree on which law should apply to their contract. This would help avoid legal procedures in future. It was also establishing procedures in the event that a clear choice was not made.

Dr Farrugia warned that it was important for Maltese companies not to follow standard contracts because these sometimes included this choice, which would not be beneficial to the Maltese parties. It was important for one to ensure that in the case of litigation, the court closest to the operation was chosen.

The convention, he said, also spoke on contracts of employment. But in the absence of such a contract, which law would be applied? And while the convention spoke on contracts, how was the law to be applied when a contract was null?

The debate continues on Monday.