Conflict Of Laws The English Approach
In England, the courts invoke the principles of conflicts of laws set out in the Rome Convention on the Law Applicable to Contractual Obligations. Under Article 8, the ordinary rules in the convention apply to issues of illegality. Thus, if the proper law of the payment obligation is country Y, its moratorium will be given effect. Similarly with its freeze order.
What, however, if the proper law of the obligation is country X? Article 7(1) of the Convention confers a discretion to apply the mandatory rules of a foreign country with which there is a close connection, and consequently some European courts might give effect to the moratorium or freezeAs it was entitled to, the United Kingdom has excluded the application of Article 7(1). An English court must therefore resolve the issue in terms of other provisions of the Convention. Invoking Article 8, one would apply the proper law, the law of country X. If country X were England, English law would disregard the effect of the moratorium or freeze on the payment obligation.
One objection which the obligor might raise is that, although not ille gal in England, payment would be illegal by the place of performance. That could be said to be country Y in case 4, if that is where entity A, the obligor, has the bulk of its assets. With case 5 it might be said to be coun try Y, if payment is to be in the currency of country Y, and therefore would typically go through a clearing system there.
In English common law there was authority that illegality in a foreign place of performance would be given effect to, although the proper law was England. The matter, however, was contested.
In any event, country Y might not have been treated as the place of performance in case 4, even in the absence of express provision, since fulfilling the payment obligation would not necessarily have involved an act there. Nor might country Y have been treated as the necessary place of performance in case 5. Although payment in a country's currency is normally routed through a clearing system there, this need not always be the case. Payment may be effected through correspondent accounts elsewhere.
As far as the Rome Convention, which displaces the common law, is concerned illegality by the place of performance is not expressly mentioned.
Some European countries might apply the law of the place of performance under Article 7(1), as the mandatory law of a foreign country with which the situation has a close connection. Its exclusion from UK law means resort must be had to other provisions of the Convention. One possible basis for giving the law of the place of performance effect is Article 10 (2) :Tn relation to the manner of performance... regard shall be had to the law of the country in which performance takes place'. Two points should, however, be made: first, the phrase 'manner of performance' has a narrow remit, covering relatively minor matters, rather than the substance of the obligation (which, in cases 4 and 5, is payment itself). Secondly, the Article confers a discretion regard shall be had to the law of the place of performance, but it is not necessarily determinative.
Another possible basis for giving the law of the place of performance effect is Article 16, which provides that any law specified by the Convention may be refused application if that would be manifestly incompatible with the public policy of the forum.
Could a court regard illegality according to the place of performance as raising significant public policy considerations such as comity? It would seem not. The par ties have chosen another law to govern the transaction. Why should their expectations be undercut by the fact that other countries (country Y in our cases 4 and 5) subsequently introduced a moratorium or freeze? In any event, with both Articles 10(2) and 16, the common law reasoning as to where performance takes place may still be applicable. In other words, in both cases 4 and 5 performance need not be treated as occurring in the countries where it is illegal (country Y).
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