Caterpillar Financial Services Corporation v SNC Passion

Under Article 3(3) of the Rome Convention, a choice of foreign law is displaced only where all other elements relevant to the situation are connected with one country. The inquiry is wider than the elements relevant to the contract or to the mandatory rules relied on. An international financing transaction may therefore retain an express choice of law despite substantial connections with the borrower’s country. Relevant factors include the lender’s nationality, the place and currency of performance, connected contracts, the place of construction and delivery, and the chosen language and jurisdiction.

French banking rules protecting domestic consumers and regulating French banks do not apply to an international commercial loan merely because the borrower is French or the agreement was executed in France. If an agreement were invalid, restitution would ordinarily require repayment of the principal with interest reflecting the lender’s borrowing cost.

Caterpillar, a Delaware corporation acting through Tennessee and United Kingdom offices, lent €5,333,280 to SNC Passion, a French entity, to finance the construction of a catamaran in Singapore. The loan agreement was governed by English law and contained an English jurisdiction clause.

The defendant accepted its repayment default but contended that the agreement was void under mandatory French banking legislation. It relied on Article 3(3) of the Rome Convention, arguing that the transaction’s relevant elements were connected only with France. The court also considered the possible consequences if that argument succeeded, and whether the jurisdiction clause covered a restitutionary claim.

1. Jurisdiction and amendment. The defendant had accepted the court’s jurisdiction to determine the consequences of unenforceability by pleading an alternative restitutionary case. The jurisdiction clause was also wide enough to cover a restitutionary claim arising out of the loan agreement. Caterpillar was therefore permitted to amend its claim.
2. Article 3(3). The court treated Article 3(3) as an exception to the parties’ freedom under Article 3(1). The initial inquiry was whether all elements relevant to the situation, apart from the choice of law and jurisdiction, were connected solely with France. “Relevant elements” concerned the situation broadly, rather than only the contract or the mandatory rules invoked by the defendant.
3. The transaction had substantial non-French connections. Caterpillar was American; the vessel was built and delivered in Singapore; the shipbuilding contract was governed by English law and provided for London arbitration; advances were paid from the United States to Singapore; and repayments were to be made in London. The choice of English law was therefore valid and Article 3(3) did not apply.
4. French law. The court additionally found that the same result followed under French private international law. The loan was international in character. French banking legislation and the Code Monétaire et Financier were directed principally to domestic regulation, consumer protection and banking solvency. They did not apply to this international commercial financing under Article 7(1) or Article 6 of the French Civil Code.
5. The Commercial Chamber decision of 4 June 2002 was distinguishable because it concerned a domestic French loan, secured on French property, without an express choice of law. The Baciocchi decision was a more pertinent example of an express choice of foreign law determining the applicable law.
6. Alternative restitution. If the agreement had been void, the defendant would have had to restore the principal advanced. Interest would be payable on a restitutionary basis at a rate reflecting Caterpillar’s cost of borrowing the relevant euro sum. The court nevertheless gave judgment under the enforceable agreement for principal, interest, late charges and indemnity expenses, with costs to Caterpillar.