Iran Continental Shelf Oil Co & Ors v IRI International Corporation

Article 4 of the Rome Convention requires a purposive and internationally uniform approach, distinct from the former common-law enquiry into the proper law of a contract. In a mixed sale-and-services contract, the court identifies the characteristic performance and asks whether, under the contract, it was to be effected through a place of business other than the supplier’s principal place of business. Physical performance by that office is unnecessary. Contractual responsibility for arranging shipment and tendering documents may suffice. The Article 4.5 presumption is displaced only where the circumstances as a whole clearly demonstrate stronger connecting factors with another country. On the facts, the contract was governed by English law.

The Iranian claimant companies appealed from a preliminary-issue decision of Mr Justice McCombe dated 5 December 2001. The dispute arose from a contract under which IRI International Corporation agreed to supply and ship equipment from Houston for the refurbishment of an oil rig and to provide engineers for installation work.

The judge held that the parties had made no choice of governing law under Article 3 of the Rome Convention. Applying Article 4.2, he held that the contract was governed by Texas law and found no basis under Article 4.5 for another result. The claimants argued on appeal for English law, alternatively Iranian law. IRI maintained that Texas law applied, alternatively under Article 4.5. The central issues were the characteristic performance, the significance of IRI’s United Kingdom office, and whether the Article 4.2 presumption was displaced.

The appeal was allowed unanimously. Clarke LJ gave the leading judgment, with which Carnwath and Ward LJJ agreed.

1. Article 4 of the Rome Convention was to be construed purposively, having regard to its international character and the desirability of uniform interpretation. The enquiry was fundamentally different from the former common-law approach to the proper law of a contract.
2. For Article 4.2, the court first identifies the party effecting the characteristic performance. Payment was not characteristic performance. The contract comprised a CFR sale of goods and related services, and the relevant performance was the supply and delivery obligations identified by the judge. The court proceeded on that basis, although recognising that the relative importance of the services gave some scope for argument.
3. The phrase effected through a place of business was not confined to physical loading or delivery by that office. The contractual allocation of responsibility could suffice. Here, the purchase order required shipment to be arranged by IRI International UK; the English office was named in the contractual and letter-of-credit documents; and it arranged the carriage documentation and tender of documents for payment. The characteristic performance was therefore to be effected through IRI’s Sevenoaks office.
4. Article 4.5 permits the Article 4.2 presumption to be displaced only where the circumstances as a whole clearly demonstrate connecting factors with another country justifying that result. Texas had important connections, including the source and shipment of the goods and the location of IRI’s commercial operations. England nevertheless had the contractual branch connection and significant technical involvement. The evidence did not clearly demonstrate a closer connection with Texas. Iranian law was not advanced by either party as the alternative governing law on the appeal.

The contract was declared to be governed by English law. The appellants were awarded their costs of the appeal and 40 per cent of their costs below, payable forthwith, subject to an application for a stay. Permission to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division) — Allowed the appeal and declared that the contract was governed by English law: [2002] EWCA Civ 1024.
• High Court of Justice, Queen’s Bench Division — Mr Justice McCombe held on the preliminary issue that the contract was governed by Texas law under Article 4.2 and that Article 4.5 did not alter that result.