Evasion/Fraude it la loi and Avoidance of the Law
William Tetley, Q.C.*
“Evasion/fraude a la loP’ is the improper
manipulation of connecting factors by a party
or parties to a contract with the intention of
escaping a particular jurisdiction and the appli-
cation of a particular law. “Avoidance of the
law” accomplishes the same thing but does so
for a legitimate purpose. The concept of “eva-
sion of the law”, as it is known in common law
jurisdictions, or “fraude Li la loi”, as it is
known in civil law jurisdictions, forms a vital
part of all private international law, despite the
general absence of a formal recognition of its
existence.
This article comprehensively describes
evasionfraude t la loi through a survey of its
application and development in various civil
law and common law jurisdictions and the
Rome Convention, 1980. The author’s argu-
ment is that, rather than invoking evasion/
fraude a la loi indirectly, courts and legisla-
tures should openly recognize and apply the
concept using a consistent methodology.
Extensive reference is made to maritime law
for practical examples of the operation of the
evasion/fraude a la loi doctrine.
La
lation malhonnte des facteurs de rattachement
par une ou plusieurs parties 4 un contrat dans
le but d’6chapper h la juridiction d’un tribunal
et d’6viter l’application d’une loi particuli~re.
<
r6sultat, mais elle vise une fin lgitime. Le
concept de evasion of the lawx’ dans les juri-
dictions de common law et le concept de
o
civil font tous deux partie intgrante du droit
international priv6, bien que leur existence
n’ait pas fait l’objet d’une reconnaissance offi-
cielle.
Dans cet article, ‘auteur fait une description
drtaill~e du concept de <
loppement au sein de diverses juridictions de
common law et de droit civil, ainsi que selon la
Convention de Rome, 1980. L’auteur soutient
que, plutt qu’invoquer indirectement le con-
cept de
et les l6gislatures devraient ouvertement
reconnaltre ce concept et l’appliquer suivant
une mrthodologie approprire. Cet article fait
abondamment appel au droit maritime afin
d’exemplifier
‘application de la doctrine de
* Faculty of Law, McGill University. The author acknowledges the assistance of Robert C. Wil-
kins, B.A., B.C.L., in the preparation and correction of this article.
McGill Law Journal 1994
Revue de droit de McGill
To be cited as: (1994) 39 McGill L.J. 303
Mode de rfdrence: (1994) 39 R.D. McGill 303
McGILL LAW JOURNAL
[Vol. 39
Synopsis
Essential to All Conflicts Theory and Practice
The Plan of this Article
1.
H1.
HI. Definitions
IV. Component Parts and Characteristics
V.
Civil Law – Fraude t la loi
A. Elements
B. Sanctions
C. Fraude and Foreign Law
D. Fraude b la loi and Forum Shopping
E. Quebec Legislation
VI. Common Law – Evasion
A.
Introduction
B. United States
1. No General Doctrine
2. Avoidance of the Law
3.
4. Unconscionability and Equity
The Restatement Second, 1969 –
C. England
Interest Analysis
1. No General Doctrine
2.
3.
4.
5.
6.
English Public Policy and English Mandatory Rules
Evasion and Foreign Public Policy
Evasion of Foreign Mandatory Rules
Bona Fide and Not Contrary to Public Policy
J.J. Fawcett
D. Canada
E. Australia
1. Common Law
2. Australian Law Reform
3.
Interstate Contract Conflicts
International Contract Conflicts
4.
5. General Anti-Evasion Provisions
VII. Examples of Evasion/Fraude and Avoidance – Maritime Law
Introduction
A.
B. Choice of Law
Charterparties
1. Contracts in General
2.
3. Bills of Lading
4.
Sale of a Ship
19941
EVASION/FRAUDE A LA LOI
Floating Law Clauses
5. Marine Insurance Policies
6.
7. Hire of Seamen
8.
9.
10. Amiables Compositeurs
Flags of Convenience –
Lifting or Piercing the Corporate Veil
“Flag Shopping”
C. Choice of Jurisdiction –
“Courts of Convenience”
Jurisdiction Clauses in Charterparties
Jurisdiction Clauses in Towage Contracts
Jurisdiction Clauses in Bills of Lading
Lloyd’s Standard Form (LOF 1990)
1.
2.
3.
4.
5. Arbitration Clauses
6.
7.
8.
9.
Forum Shopping – Maritime Liens
Forum Shopping – Limitation
Floating Jurisdiction Clauses
Passenger Tickets
D. Recognition of Foreign Judgments and Jurisdiction
VIII. The Rome Convention, 1980 – Mandatory Rules and Public Order
Introduction
A.
B. Mandatory Rules in General
C. Article 3(3) – Mandatory Rules of the Sole Connected Law
D. Article 5(2) – Consumer Contracts
E. Article 6(1) – Employment Contracts
F. Article 9(6) –
G. Article 7(1) – Mandatory Rules of a Closely Connected Law
H. Article 7(2) – Mandatory Rules of the Forum
L Article 16 – Public Policy/Order
J. Article 21 – Other Conventions
K. Conclusion (Rome Convention, 1980)
Immoveable Property
Conclusion
I. Essential to All Conflicts Theory and Practice
“Evasion of the law”, or its civil law counterpart, “fraude d la loi”, is an
essential part of all private international law, appearing surreptitiously in vari-
ous forms in theory and practice and relied on subtly in various ways in the
decisions of the courts. Its influence may also be seen in the Rome Convention,
1980. Nevertheless, it is only partially acknowledged in the civil law, while its
‘Convention on the. Law Applicable to Contractual Obligations, 19 June 1980, EEC 80/934
(signed at Rome and in force as of I April 1991 for Belgium, Denmark, France, Germany, Greece,
Italy, Luxembourg, and the United Kingdom; as of 1 September 1991 for the Netherlands; as of
1 January 1992 for Ireland; and as of I September 1993 for Spain) [hereinafter Rome Convention,
1980].
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[Vol. 39
formal existence is rarely admitted in common law jurisdictions. Nor is the dis-
tinction between evasion/fraude, on the one hand, and “avoidance of the law”,
on the other, clearly drawn by courts and authors.
* The thesis of this article is that evasion of the law/fraude d la loi must be
openly recognized in the conflict of laws in common law, as well as civilian,
jurisdictions, instead of being invoked indirectly through the doctrines of public
order/policy, mandatory rules, governmental interest analysis or by the applica-
tion of the lexfori.
Much better is the proper consideration of evasion of the law/fraude d la
loi with a consistent methodology used to find the prolierly applicable law of
each juridical act when a conflicts problem arises.
11. The Plan of this Article
This paper first defines evasion/fraude, describes its component parts,
gives examples and then describes howfraude d la loi has been treated in civil
law jurisdictions and evasion of the law has been treated in common law juris-
dictions. Evasion/fraude is especially distinguished from avoidance of the law.
The Rome Convention, 1980 will then be examined, and finally, evasion/fraude
will be analyzed in the context of a consistent methodology which can be used
to solve all conflicts of law questions.
Throughout the paper references are especially made to maritime law, but
this should not surprise the reader because maritime law is not simply a branch
of law such as company law or estate law. Maritime law embraces most
branches of law, including the law of contract, tort and delict, insurance, com-
panies and persons. In its scope, maritime law approaches the completeness of
a legal system, like its two greatest sources, the civil law and the common law.
The comprehensive nature of maritime law makes it a good subject upon which
to base a conflicts theory.
Similarly, conflict of laws is a slice of all law and not a branch, touching
all subjects. By their universality and their international nature, maritime law
and conflicts are thus suited to one another.
Im. Definitions
Evasion of the law/fraude d la loi2 is the intentional and improper mani-
pulation of contacts (connecting factors) in order (i) to avoid invalidity under
the principle of public order/policy, (ii) to avoid a mandatorily applicable law,
or (iii) to avoid the most appropriate forum.
Avoidance of the law is the antithesis of evasion/fi’aude 6 la loi. Avoidance
is the acceptable arrangement of connecting factors, for a legitimate purpose, in
2See especially R.H. Graveson, Conflict of Laws: Private International Law, 7th ed. (London:
Sweet & Maxwell, 1974) at 170 (regarding evasion and applicable law and applicable jurisdiction),
174 (regarding evasion and public policy). See also F. Rigaux, Droit international privg, vol. 1:
Thgorie gingrale, 2d ed. (Brussels: Larcier, 1987) at 366-67.
1994]
EVASION/FRAUDE A LA LOI
an agreement, usually between two equal bargaining parties, in order to select
an applicable law or jurisdiction.
IV. Component Parts and Characteristics
Evasion of the law/ftaude 4 la loi can be invoked in the context of the three
main branches of conflict of laws: (i) choice of law, (ii) choice of jurisdiction,
and on occasion, (iii) recognition of foreign judgments, i.e. when a judgment is
not recognized because there has been evasion of the law and/or the proper
jurisdiction in obtaining that judgment,3 sometimes known as “fraude au juge-
ment”.
Evasion/fraude may be the act of one person (e.g. in a contract of adhesion
or standard form contract such as a bill of lading),4 of two persons (e.g. when
both parties to a divorce travel to another jurisdiction to avoid the applicable
imperative law),5 or of two parties against a third party (e.g. in the case of the
shipper and carrier so’contracting that the normal law of estoppel benefiting a
third party consignee of a bill of lading is not applicable).’
Evasion/fraude always involves: (a) the international public order/policy of
the forum, (b) the domestic public order/policy of the properly applicable law,
(c) a mandatory rule of the properly applicable law, or (d) the appropriate juris-
diction. Evasion/fiaude may occur at the time of the contract or other juridical
act or after it, as in the case of forum shopping.
Most importantly, evasion/fraude must be intentional and improper.
“Evasion” has long been recognized, even in common law countries, but
only in exceptional cases under an unclear theory. Thus it was said to be against
English public policy to enforce contracts which were “in certain circumstances
in breach or evasion of foreign law.”7
Evasion is improperly doing indirectly what one may not do directly and
is an essential part of any rational conflicts theory.
31ndyka v. Indyka, [1969] 1 A.C. 33 (H.L.). Graveson (ibid. at 318), however, described the use
of evasion of the law to oppose recognition of a foreign divorce judgment in Indyka v. Indyka as
an “unheralded innovation”. See, however, re marriage and divorce, Droit de lafamille – 1657,
[1992] R.J.Q. 2238 (Sup. Ct.); Astle v. Walton (1988), 44 D.L.R. (4th) 700, 10 R.F.L. (3d) 199
(Alta. Q.B.); Kern v. Kern (1989), 19 R.F.L. (3d) 350 (B.C.S.C.); Kornberg v. Kornberg (1990),
90 D.L.R. (4th) 554, 27 R.F.L. (3d) 94 (Man. Q.B.).
4A contract of adhesion is a document printed in advance, such as a coat check ticket or bus
ticket, to which only one party provides any input. A standard form contract is a prinfed contract
in which there are many blanks to be completed with information supplied by both parties. A bill
of lading is a standard form contract which usually favours the carrier. A charterparty is a standard
form contract which the parties negotiate more freely.
5The case of the princesse de Bauffremont (Cass. civ., 18 March 1878, S.1878.I.193 (Annot.
Labbd)) is an example.
Hague Rules, 1924 (infra note 15).
6Imperative under the second paragraph of article 3(4), added by the Visby Protocol, 1968 to the
7Graveson, supra note 2 at 174, 167. See in particular Foster v. Driscoll, [1929] 1 K.B. 470 at
521 (C.A.) [hereinafter Foster]; Regazzoni v. K.C. Sethia (1944) Ltd., [1958] A.C. 301, [1957] 2
Lloyd’s Rep. 289 (H.L.) [hereinafter Regazzoni).
McGILL LAW JOURNAL
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V. Civil Law – Fraude tla loi
A. Elements
Three elements must be present for there to befr-aude dt la loi in civil law
jurisdictions:8 (1) a conscious manipulation of conflict rules by a modification
of a connecting factor, (2) a subjective intention to improperly circumvent the
law, and (3) a law that is evaded.
As an illustration of the above elements, French civil law writers enjoy
referring to the case of the princesse de Bauffremont,9 one of the earliest deci-
sions on the question. Unable to obtain a divorce in France, the princess
acquired German nationality and believed that she had thereby acquired the
capacity to become divorced under German law. She was therefore divorced in
Germany and then remarried. Returning to France, the princess was dismayed
to learn that French law would recognize neither her divorce nor her remarriage.
B. Sanctions
Fraude d la loi has its roots in the Latin principle,fraus omnia corrumpit,0
or “fraud corrupts all”. Consequently, the sanction for an evasive tactic is nullity
of the resulting contract or juridical act,” or of an offending clause, at least as
regards the party responsible for the evasion.’2
One justification for enforcing such sanctions is the respect for, and adher-
ence to, domestic civil law. To use the example of Batiffol and Lagarde, if all
the contractual links of a transaction are with France, and the parties are nev-
ertheless able to incorporate a foreign law by reference, despite mandatoly
French provisions, the imperative nature of French law is undermined. 3 It is
noteworthy that, in this example, the law evaded was of the forum.
C. Fraude and Foreign Law
Traditionally, French courts do not invoke fr-aude di la loi in the case of
evasion of a mandatoryforeign law.’4 This, in my view, is not realistic. Suppose,
for example, that a bill of lading which is issued in France (where the Hague/
Visby Rules 5 are mandatory) contains a clause to the effect that a lower limit
SH. Batiffol & P. Lagarde, Droit international privi, vol. 1, 8th ed. (Paris: Librairie grnrrale de
droit et de jurisprudence, 1993) at 594.
9Supra note 5.
‘0A. Nussbaum, Principles of Private International Law (New York: Oxford University Press,
1943) at-129.
“Batiffol & Lagarde, supra note 8 at 600-601.
12y. Loussouarn & P. Bourel, Droit international privi, 4th ed. (Paris: Dalloz, 1993) at 290-91.
13H. Batiffol & P. Lagarde, Droit international privi, vol. 2, 7th ed. (Paris: Librairie gdnrale
de droit et de jurisprudence, 1981) at 274. See also Rigaux, supra note 2 at 367.
4Loussouarn & Bourel, supra note 12 at 288-90; Batiffol & Lagarde, supra note 8 at 598. See
also Cass. civ., 5 February 1929, S.1929.I.81 (Annot. Audinet). Rigaux (ibid. at 367) also indicates
that in Belgium, as well as in countries like Spain, Hungary and Yugoslavia, the provisions of
national laws on evasion only prohibit the displacement of the substantive law of the forum state.
15The Hague Rules (The International Convention for the Unification of Certain Rules relating
to Bills of Lading (Brussels, 25 August 1924), in force as of 2 June 1931 (120 L.N.T.S. 155)) were
1994]
EVASION/FRAUDE A LA LOI
on liability than that permitted by the Rules will apply (e.g. by the carrier invok-
ing a bill of lading jurisdiction clause). Enforcement of the bill of lading is then
intentionally sought before the courts of a foreign state to which the Hague/
Visby Rules do not apply. It should be evident to the forum court that to uphold
the bill of lading clause would be to assist in the evasion of the mandatory for-
eign law, i.e. the law of France, the place of issuance of the bill of lading and
of the shipment –
in effect, the properly applicable law.
Fortunately, there is a growing acceptance. in France thatfiaude i la loi is
equally applicable to an attempted evasion of a mandatory foreign law. The
trend seems strongest, however, where one foreign law has been avoided in
favour of another foreign law. 6
Fortunately as well, the Rome Convention, 1980 has come into force in
France. 7 Articles 3(3), 7(1) and 16 of the Convention will prevent the evasion
of foreign mandatory rules and international public order of the forum in at least
the most flagrant cases.’8
D. Fraude A la loi and Forum Shopping
Forum shopping is often looked upon with disfavour in the civil law and
has been described as trying to obtain indirectly what may not be obtained
directly. 9 One response to forum shopping is non-recognition of the resulting
foreign judgment,” which is a tacit recognition that forum shopping is a branch
of fi’aude d la loi.
However, where parties of equal negotiating strength agree to a clause call-
ing for suit in another jurisdiction as a judicial convenience to both, and not to
evade a law mandatorily applicable to either party, then this avoidance should
not be considered fi’aude a la loi.
E. Quebec Legislation
The new Civil Code of Quebec,2’ at article 3079, first paragraph, invokes
mandatory rules of another country and thus (amongst other things) provides
amended by the two Visby Protocols (The Protocol to Amend the International Convention for the
Unification of Certain Rules of Law relating to Bills of Lading (Brussels, 23 February 1968), in
force as of 23 June 1977; The Protocol Amending the International Convention for the Unification
of Certain Rules of Law relating to Bills of Lading (August 25, 1924, as Amended by the Protocol
of February 23, 1968) (Brussels, 21 December 1979), in force as of 14 February 1984 and as
amended are known as the Hague/Visby Rules.
16Loussouam & Bourel, supra note 12 at 289-90. For examples of contracts not upheld by
French courts because of an evasion of foreign law, see Cass. com., 7 March 1961, Bull. civ.
1961.111.112, No. 125.
‘7D~cret n 91-242 du 28fivrier 1991, J.O., 3 March 1991, 3072, Gaz. Pal. 1991. 1″ sem. Leg.
250.
180. Lando, “The E.E.C. Convention on the Law Applicable to Contractual Obligations” (1987)
24 C.M.L. Rev. 159 at 182; H. Gaudemet-Tallon, “Le nouveau droit international priv6 europ~en
des contrats” [1981] Rev. trim. dr. europ. 215 at 259.
19P. Mayer, Droit international privi, 4th ed. (Paris: Montchrestien, 1991) at 251.
20Ibid.
2 1S.Q. 1991, c. 64, adopted by the Quebec National Assembly on 18 December 1991, in force
1 January 1994. See also article 3111 which stipulates that foreign mandatory rules may apply even
REVUE DE DROIT DE McGILL
(Vol. 39
a basis for refusal of an express choice of law on the grounds of fraude dt la
1oi:
3079. Where legitimate and manifestly preponderant interests so require, effect
may be given to a mandatory provision of the law of another country with
which the situation is closely connected.
In deciding whether to do so, consideration is given to the purpose of the
provision and the consequences of its application.
The use of article 3079 in a case of fraude d la loi would depend on the
courts’ assessment of whether preventing the law of another state from being
evaded through the Quebec courts would qualify as “legitimate and manifestly
preponderant interests” of that state, in the circumstances of the case.
Evasion is specifically prohibited in consumer22 and employment con-
tracts,’ and non-marine insurance.24
VI. Common Law – Evasion
A.
Introduction
Either the doctrine of evasion of the law is said not to exist under the tra-
ditional common law or it receives little attention. This is understandable con-
sidering the subjective basis of evasion. For evasion to exist, there must be an
intention to manipulate a connecting factor in order to obtain an improper result.
Common law contracts, however, have an objective basis.’ To decide whether
a contract is valid in the common law, one looks objectively at the actual words
the parties employed, not subjectively at their motives at the time of contracting.
It is thus difficult for a common law judge to refuse to enforce a contract on the
grounds of the parties’ subjective intention to evade a law.
Other reasons have been offered for the minor role evasion plays in the
common law. Traditionally, common law judges construe statutes strictly 26 and
to a contract which has expressly invoked another law. See generally E. Groffier, La reforme du
droit international privi qu~bicois: Supplement au Pr6cis de droit international priv6 quibdcois
(Cowansville, Que.: Yvon Blais, 1993) at 23-30. See also Hague Convention on the Law Applica-
ble to Trusts, 1 July 1985, 23 I.L.M. 1389, art. 16(2); Hague Convention on Agency, 14 March
1978, Misc. 1977 29, Cmnd. 7020, 26 AJCL 438, art. 16; the Swiss Loifdd6rale sur le droit inter-
national privg of 18 December 1987, entered into force on 1 January 1989 pursuant to a decree
of the Swiss Federal Council of 27 October 1988 (FF 1988 1, S-56). For an English translation,
see J.C. Comu, S. Hankins & S.C. Symconides, “LSU Translation” (1989) 37 Am. J. Comp. L.
193. See also Compagnie Europ~ene des pitroles SA. v. Sensor Nederland B.V., [1983] Rev. cri.
dr. intemat. priv6 473 (Hague Dist. Ct.).
22Art. 3117 C.C.Q.
2Art. 3118 C.C.Q.
24Art 3119 C.C.Q. See generally Groffier, supra note 21 at 111-13.
25Nussbaum, supra note 10 at 130.
26D.P.P. v. Bhagwan, [1972] A.C. 60 at 82 (H.L.):
It is no offence under the law of England to do or to agree with others to do acts which,
though not prohibited by legislation nor criminal nor tortious at common law, are con-
sidered by a judge or by a jury to be calculated to defeat, frustrate or evade the purpose
or intention of an Act of Parliament. If it were otherwise, freedom under the law would
be but an empty phrase.
See also Graveson, supra note 2 at 171.
19941
EVASION/FRAUDE A LA LOI
.311
enforce those obligations that come within the letter of a statute.’ The common
law also insists that exceptions to private international law rules should be made
as seldom as possible, and that, out of fidelity to- the rule of law, judges should
limit their influence on the development of law. Furthermore, the common law
insists that acts and intentions (not motives) should be the elements of legal lia-
bility, and that the evasion doctrine is, in any event, contrary to the English ideal
of the connection between liberty and law.2
In particular, evasion of the law, in its widest application, requires the rec-
ognition of foreign mandatory rules and of international public order/policy.
The English courts have been reluctant to recognize these in the past, especially
foreign penal and revenue laws. 9
Despite the foregoing, the evasion doctrine exists in the common law, but
unfortunately, its application by the courts is rare and lacks consistency. Even
Graveson, who has been far-sighted on the subject, calls for legislation.”
B. United States
1.
No General Doctrine
It has been said that “there is no general doctrine of evasion of the law in
[the] U.S.A.,”‘ although examples of the courts sanctioning evasion abound. In
a discussion concerning avoidance of the application of the United States Car-
riage of Goods by Sea Act,3” Knauth noted that “our courts regard evasive
clauses as null and void.”’33 Rabel, for his part, has said that public policy fulfils
the role of the doctrine of evasion. 4 Certain American decisions recognize the
doctrine of evasion but only in respect of American law.”
27R.H. Graveson, “Comparative Aspects of the General Principles of Private International Law”
(1963) 109 Rec. des Cours 1 at 48.
2S1bid. at 50-51.
29For examples of non-recognition of foreign penal laws, see Huntington v. Attrill, [1893] A.C.
150 (P.C.); Banco de Vizcaya v. Don Alfonso de Borbon y Austria, [1935] 1 K.B. 140. For non-
recognition of foreign revenue laws, see Government of India v. Taylor, [1955] A.C. 491 (H.L.);
Brokaw v. Seatrain U.K. Ltd., [1971] 2 Q.B. 476, [1971] 1 Lloyd’s Rep. 337 (C.A.).
30Graveson, supra note 2 at 174: “The remedy for evasion is not to suspend the normal operation
of rules of private international law, but by legislation to prohibit acts of an evasive kind which
are unacceptable.”
3 1Graveson, supra note 27 at 53.
32Ch. 299, 49 Stat. 1207-13 (1936) (codified as amended at 46 U.S.C. App. 1300-15 (1988))
33A.W. Knauth, The American Law of Ocean Bills of Lading, 4th ed. (Baltimore: American
[hereinafter COGSA cited to U.S.C.].
Maritime Cases, 1953) at 161.
versity of Michigan, 1960) at 402-403.
34E. Rabel, The Conflict of Laws: A Comparative Study, vol. II, 2d ed. (Ann Arbor, Mich.: Uni-
35Rainbow Line Inc. v. MIV Tequila, [1973] Am. Marit. Cases 1431 at 1434-35 (2d Cir. 1973)
[hereinafter Rainbow Line Inc.]: “[‘]f there were any doubt on the choice of law point, it would
certainly be resolved against the United States citizen who wished to avoid its own country’s
laws.”; Lauritzen v. Larsen, 345 U.S. 571 at 589, [1953] Am. Marit. Cases 1210 at 1224 (1953)
[hereinafter Lauritzen cited to U.S.]; Chiazor v. Transworld Drilling Co., 648 E2d 1015 at 1019,
[1981] Am. Marit. Cases 2678 at 2683 (5th Cir. 1981), cert. denied 455 U.S. 1019, [1982] Am.
Marit. Cases 2107 (1982).
McGILL LAW JOURNAL
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2.
Avoidance of the Law
Ehrenzweig suggested that the American approach to the avoidance of
domestic rules is similar to that regarding tax “loopholes”:36.while avoidance of
laws receives no encouragement, it is not illicit.37 Ehrenzweig relies for support
on a dictum of Holmes J. in Bullen v. Wisconsin:
We do not speak of evasion, because, when the law draws a line, a case is on one
side of it or the other, and if on the safe side is none the worse legally that a party
has availed himself to the full of what the law permits. When an act is condemned
as an evasion what is meant is that it is on the wrong side of the line indicated by
the policy if not by the mere letter of the law.38
Nevertheless, there is a fine line between legitimate tax avoidance and tax
evasion. The problem is solved in most nations by very fine-tuned and explicit
tax legislation as to what can and cannot be done.
3.
The Restatement Second, 1969 –:- Interest Analysis
The Restatement Second, 196939 leaves open the door very slightly to the
doctrine of evasion. Paragraph 1-87(2)(b) is of note:
(2) The law of the state chosen by the parties to govern their contractual rights and
duties will be applied, even if the particular issue is one which the parties
could not have resolved by an explicit provision in their agreement directed
to that issue, unless …
(b) application of the law of the chosen state would be contrary to a funda-
mental policy of a state which has a materially greater interest than the
chosen state in the determination of the particular issue and which, under
the rule of 188, would be the state of the applicable law in the absence
of an effective choice of law by the parties.
The forum is thus left with the task of determining what would be a “fun-
damental policy” and a “materially greater interest”. While paragraph 187(2)(b)
does not expressly mention evasion, it does provide the forum with the means
of substituting another law for a law which would be contrary to a fundamental
policy.
Paragraph 187(2)(a) is also interesting. It requires the state of the parties’
expressly chosen law to have a substantial relationship to the parties or the
transaction.4″ In other words, the express choice cannot evade a law most
closely connected to the appropriate governmental interest.4′
One may also add that it is difficult to evade the law under a.governmental
interest analysis because of the right of the court to intervene and impose what
786 at 793 (C.A.), Denning M.R.
36A.A. Ehrenzweig, Conflicts in a Nutshell, 3d ed. (St. Paul, Minn.: WVest, 1974) at 82.
37The English attitude to tax avoidance is similar. See Re Weston’s Settlements, [1968] 3 W.L.R.
38240 U.S. 625 at 630-31 (1916). See also E.F. Scoles & P. Hay, Conflict of Laws, 2d ed. (St.
39Restatement (Second) of Conflict of Laws 2d (1969) [hereinafter Restatement Second, 1969].
4See e.g. Nedloyd Lines v. San Mateo Superior Court (Seawinds), 277 Cal. Rptr. 822 at 825,
Paul, Minn.: West, 1992) at 669-71.
[1991] Am. Marit. Cases 1442 at 1445 (Ct. App. 1991).
41See generally Restatement Second, 1969, supra note 39, 187, comment g.
1994]
EVASION[FRAUDE A LA LOI
it believes is the “fundamental policy” of the appropriate government as to the
proper law.
4.
Unconscionability and Equity
Evyasion in the United States is also closely connected to “unconscionabi-
lity” and “equity”, which pervade U.S. interest analysis. Thus, in MIS Bremen
v. Zapata Off-Shore Co., the U.S. Supreme Court ruled that forum selection
clauses may not be “unreasonable or unjust”, nor may they result in “fraud or
overreaching”. 2 Nevertheless, in Carnival Cruise Lines v. Shute,43 the majority
of the Supreme Court did not clarify whether this ruling applied generally or
only exceptionally in holding that forum selection clauses in ship passenger
tickets must be “freely bargained for”, must not “create additional expense for
one party” and must not “deny one party a remedy”.
C. England
1.
No General Doctrine
Prior to the enactment in the United Kingdom of the Contracts (Applicable
Law) Act 1990,” giving effect to the Rome Convention, 1980, the consensus
among English legal authorities was that the doctrine of evasion did notexist
in English law.4′
2.
English Public Policy and English Mandatory Rules
While evasion may not have been expressly invoked under English law,
results equivalent to those produced by the doctrine did arise, notably through
the effect of English public policy,46 because “[t]he English courts will refuse
to enforce any contract which they regard as contrary to English public policy
… They will refuse to do so even though the contract is governed by a foreign
law under which it is lawful.
47
Evasion of an English mandatory rule could even cause an English court
to refuse to invoke the foreign law expressly chosen by the parties if the closest
42407 U.S. 1 at 15, [1972] Am. Marit. Cases 1407 at 1418 (1972) [hereinafter MIS Bremen cited
to U.S.].
43499 U.S. 585 at 601, 113 L. Ed. 622 at 637, [1991] Am. Marit. Cases 1697 at 1709 (1991),
aff’d 934 F.2d 1091 (9th Cir. 1991), subsequent proceedings dismissed 804 F. Supp. 1525, [1993]
Am. Marit. Cases 584 (S.D. Fla. 1992) [hereinafter Shute cited to U.S.].
44(U.K.), 1990, c. 36.
45Graveson, supra note 2 at 170; Graveson, supra note 27 at 49; M. Wolff, Private International
Law, 2d ed. (Oxford: Clarendon Press, 1950) at 143; J.G. Collier, Conflict of Laws (Cambridge,
U.K.: Cambridge University Press, 1987) at 147; A.J.E. Jaffey, Introduction to the Conflict of Laivs
(London: Butterworths, 1988) at 143-44; L. Collins, ed., Dicey & Morris on the Conflict of Laws,
lth ed. (London: Stevens, 1987) at 1173 [hereinafter Dicey & Morris, llth ed.]; J.H.C. Morris,
The Conflict ofLaws, 4th ed. (London: Sweet & Maxwell, 1993) at 147. See, however, J.J. Fawcett,
“Evasion of Law and Mandatory Rules in Private International Law” (1990) 49 Cambridge L.J.
44.46Graveson, ibid. at 174.
47Collier, supra note 45 at 173.
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connection is with English law. As Jaffey has said, “Where however there is an
express choice of a foreign law in a contract which is most closely connected
with England, public policy can be used to prevent the evasion of an English
mandatory rule.”4
3.
Evasion and Foreign Public Policy
An English court would not directly refuse to uphold a contract because it
violated the public policy of a foreign state. It must be English public policy
which has been offended.49 Nevertheless, English public policy was invoked to
prevent the enforcement in England of contracts which, when performed, would
have directly violated the laws of friendly foreign states, even when English law
had been chosen or was arguably the proper law of the contract. 0
4.
Evasion of Foreign Mandatory Rules
In more recent times, some English courts have even recognized foreign
mandatory rules.5′
5.
Bona Fide and Not Contrary to Public Policy
Results equivalent to those obtainable through the application of an eva-
sion doctrine were also possible through the English courts’ acceptance of Vita
48Jaffey, supra note 45 at 157 [emphasis added]. See also Collier, ibid. at 148, 173.
49Jaffey, ibid. at 160; Graveson, supra note 2 at 170. See, however, Lemenda Trading Co. v. Afri-
can Middle East Petroleum Co. ([1988] Q.B. 448, [1988] 1 All E.R. 513, (1988] 1 Lloyd’s Rep.
361), where an English contract, which called for performance in Qatar of an act that violated the
public policy of both England and Qatar, was held unenforceable in England. See also P.M. North
& J.J. Fawcett, eds., Cheshire & North: Private International Law, 12th ed. (London: Butterworths,
1992) at 504.
50Ralli Bros. v. Compaiia Naviera Sota y Aznar, [1920] 2 K.B. 287, [1920] 2 Lloyd’s Rep. 550
(C.A.) [hereinafter Ralli Bros.]; Foster, supra note 7; Regazzoni, supra note 7; English v. Donnelly,
[1958] Sess. Cas. 494 at 500 (Ct. Sess., Scot.). See also the following Australian decisions: Golden
Acres Limited v. Queensland Estates Pty. Ltd., [1969] Qd. R. 378 (S.C.), aff’d on other grounds,
(sub nom. Freehold Land Investments v. Queensland Estates Ltd.) (1970), 123 C.L.R. 418 (Austr.
H.C.).
5 1Kahler v. Midland Bank, [1950] A.C. 24 (H.L.); Zivnostenska Banka National Corp. v. Frank-
man, [1950] A.C. 57 (H.L.), where Czech foreign exchange control regulations were applied by
the House of Lords to prevent the delivery of securities to their owners in England because Czech
law was the proper law of the contract. In Williams & Humbert Ltd. v. W & H Trademarks (Jersey)
Ltd. ([1986] A.C. 368 (H.L.)) foreign penal expropriation was recognized when property on for-
eign territory had been expropriated. The recognition of other foreign public laws is more contro-
versial. See Jaffey, supra note 45 at 247-48. Article VIII(2)(b) of the International Monetary Fund
(Bretton Woods) Agreement (1-22 July 1944, 2 U.N.T.S. 39), protecting the exchange control rules
of I.M.F. member-states in exchange contracts, is a rare example of an international convention
safeguarding the mandatory rules of a country other than the country of the proper law. See Lando,
supra note 18 at 209-10; D. Lasok & P.A. Stone, Conflict of Laws in the European Community
(Abingdon, Eng.: Professional Books, 1987) at 376-77. See also Furness Withy (Austr.) Pty. Ltd.
v. Metal Distributors (U.K.) Ltd. (The Amazonia), [1989] 1 Lloyd’s Rep. 403 (Q.B.), aff’d [1990]
1 Lloyd’s Rep. 236 (C.A.) [hereinafter Furness], where a charterparty clause providing for English
law and London arbitration was struck down because the incorporation by reference of the Aus-
tralian Sea-Carriage of Goods Act 1924 into another clause of the charterparty had the effect of
making Australian law the proper law of the contiact, and subsection 9(1) of that act applied com-
1994]
EVASION/FRAUDE A LA LOI
Food Products v. Unus Shipping Co.52 In this case, Lord Wright expounded the
important principle that contracting parties are free to choose the governing law
as long as “the intention expressed is bona fide” and the law chosen is not
against public policy.3 No English judge has ruled on the meaning to be
attached to bona fide in this context.’ Thus, a reliance on Vita Food could have
signalled the application of an evasion doctrine in England, although not in
name. Nevertheless, a number of authorities have found that bona fide should
mean that there must not have been evasion of a mandatory law: “As to the
requirement that the choice be bona fide, it is widely believed that it will not
be so if the sole reason for choosing the law in question was to avoid invalidity
under the law which would govern in the absence of a choice.”55
6.
J.J. Fawcett
One English author,56 just prior to England’s adherence to the Rome Con-
vention, 1980, recognized the problem caused by evasion of the law and
referred to the “ad hoc” approach of the English law at that time. 7 J.J. Fawcett
noted that English practice was to rely on statutes to prevent evasion –
for
example, the Unfair Contract Terms Act 1977s and the Carriage of Goods by
Sea Act 197159 –
and he called for some principle to deal with cases of evasion
“where there is unfairness and in cases where the national interest is affected.”‘ 6
He also called for the adoption of the “continental concept of mandatory rules”
as the best way to take account of unfairness and of the national interest in mar-
riage and contract cases of evasion.6′ Fawcett approvingly noted articles 3(3),
5, 6, and 7 of the Rome Convention, 1980 (which support the doctrine of eva-
sion), but he did not criticize the English reservation with respect to article
7(1).62 He thus gave support to the following principle:
1 (P.C.) [hereinafter Vita Food cited to A.C.].
pulsorily to all outbound shipments from Australia. See also Ocean Steamship Co. v. Queensland
State Wheat Board, [1941] 1 K.B. 402 (C.A.) [hereinafter Ocean Steamship Co.]; E.I. Sykes &
M.C. Pryles, Australian Private International Law, 3d ed. (Sydney: Butterworths, 1991) at 597.
52[1939) A.C. 277, [1939] 63 Lloyd’s Rep. 21, [1939] Am. Marit. Cases 257, [1939] 2 D.L.R.
531bid. at 290.
54J.H.C. Morris, The Conflict of Laws, 3d ed. (London: Stevens and Sons, 1984) at 273-74. Col-
lier (supra note 45 at 147) observes that it is not clear what Lord Wright’s dictum meant and notes
the traditional English rejection of the evasion doctrine.
55Jaffey, supra note 45 at 144. See also P.M. North & J.J. Fawcett, eds., Cheshire & North: Pri-
vate International Law, 1lth ed. (London: Butterworths, 1987) at 454; Morris, ibid. at 272. See also
North & Fawcett, eds., supra note 49 at 481, comparing the “bona fide and legal” doctrine of the
common law with the anti-evasion provision of article 3(3) of the Rome Convention, 1980, now
enacted as part of U.K. law by the Contracts (Applicable Law) Act 1990, supra note 44. See also
Australian Law Reform Commission, Choice of Law (Report No. 58) (Sydney: Law Reform Com-
mission, 1992).
56Fawcett, supra note 45. See also North & Fawcett” eds., 12th ed., ibid. at 480ff.
57Fawcett, ibid. at 50.
5s(U.K.), 1977, c. 50.
59(U.K.), 1971, c. 19.
6Fawcett, supra note 45 at 56.
611bid. at 57.
621bid. at 61. This reservation was made in subsection 2(2) of the Contracts (Applicable Law)
Act 1990 (supra note 44), by which the U.K. implemented the Rome Convention, 1980.
McGILL L4W JOURNAL
(Vol. 39
The application of a foreign law would be subject to the proviso that this is without
prejudice to the application of rules of English law which are mandatory, i.e. rules
of such socio-economic importance that they should apply regardless of the wishes
or actions of the parties. In this way, evasion of the law can be prevented in those
cases in which it is objectionable, but disregarded in those cases in which it is
not.
63
D. Canada
The doctrine of evasion has been deemed applicable in Canada,’ while at
least six Canadian judgments65 have accepted the “bona fide and legal” require-
ments of the English common law for an express choice of law, as expounded
in Lord Wright’s dictum in Vita Foodf Bonafide, in this context, has meant not
evading a mandatory provision of law:
But the chief qualification of the freedom to choose the proper law of the contract,
and the meaning to be attributed to the words “bona fide and legal” in the dictum
of Lord Wright, would seem to be that the proper law must not have been chosen
to evade a mandatory provision of the law with which the contract has its closest
and most real connection. 67
Four of the six cases accepting the “bona fide” restrictions indicate that a
bonafide choice is one that does not involve avoiding a mandatory law. 68 In the
other two judgments, bonafide was not defined by the court.69 The consequence
seems to be that, at least with respect to contracts, the evasion doctrine, as it
existed in English contract law before 1990, is being applied by Canadian com-
mon law courts. Canada, of course, is not a party to the Rome Convention, 1980.
James G. McLeod has enunciated a rule for the application of the doctrine
in Canada:
No court ought to give effect to a choice of law clause if the parties intended it
to apply solely to avoid the mandatory provisions of the system of law with which
the transaction had its most substantial and real connection. … It must be estab-
lished that the power to select was exercised for a proper purpose. … The choice
will be upheld if there are valid reasons for its selection. Where a seemingly
unconnected system of law is chosen or where the evasion of mandatory laws
occurs, such justification may be difficult. 70
631bid. at 62 [emphasis added].
64j.G. Castel, Canadian Conflict of Laws, 3d ed. (Toronto: Butterworths, 1994) at 555.
65Bank of Montreal v. Snoxell (1983), 143 D.L.R. (3d) 349, 44 A.R. 224 (Q.B.) [hereinafter
Snoxell]; Greenshields Inc. v. Johnston, [1981] 3 W.W.R. 313, 131 D.L.R. (3d) 234 (Alta. Q.B.),
aff’d [1982] 2 W.W.R. 97 (Alta. C.A.) [hereinafter Greenshields Inc.]; United Nations v. Atlantic
Seaways Corp., [1979] 2 F.C. 541, 28 N.R. 207 (C.A.) [hereinafter United Nations cited to F.C.];
Nike Infomatic Systems Ltd. v. Avac Systems Ltd. (1979), 8 B.L.R. 196, 16 B.C.L.R. 139 (S.C.)
[hereinafter Nike Infomatic Systems Ltd.]; Skeggs v. Whissell (1985), 63 A.R. 348 (Q.B.) [herein-
after Skeggs]; Avenue Properties Ltd. v. First City Development Corp. (1985), 65 B.C.L.R. 301
(S.C.), rev’d on other grounds (1986), 7 B.C.L.R. (2d) 45, [1987] 1 W.W.R. 249 (C.A.) [hereinafter
Avenue Properties Ltd.]. See generally W. Tetley, “Vita Food Products Revisited” (1992) 37
McGill L.L 292 at 306.
66Supra note 52 at 290.
67United Nations, supra note 65 at 555.
68Snoxell, supra note 65; Greenshields Inc., supra note 65; United Nations, ibid.; Nike Infomatic
69Skeggs, supra note 65; Avenue Properties Ltd., supra note 65.
70The. Conflict of Laws (Calgary: Carswell, 1983) at 478-79.
Systems Ltd., supra note 65.
1994]
EVASION/FRAUDE A LA LOI
McLeod adds that in Canada the onus is on the person seeking to uphold the
choice71 to show that it was made for a proper purpose (i.e. that he had “sound
commercial, financial or practical reasons” for choosing as he did, other than
evasion of the law).7″
E. Australia
1.
Common Law
Despite its English common law heritage, the concept of evasion of the law
was explicitly acknowledged in Golden Acres Limited v. Queensland Estates
Pty. Ltd.73 This was done on the basis of the “bona fide and legal” and public
policy limitations on party autonomy in contract, as expounded by Lord Wright
in Vita Food.74
Certain Australian statutes also serve the function of forestalling evasive
choice of law where local law would have been the proper law but for the
choice.75 Such statutory rules include section 67 of the Trade Practices Act
19747 6 section 7 and subsection 17(3) of the Contracts Review Act 1980,”7 and
sections 11 and 16 of the Carriage of Goods by Sea Act 1991.”7
2.
Australian Law Reform
In its report entitled, Choice of Law, the Australian Law Reform Commis-
sion recommended that “[t]he limitations on parties’ autonomy on the ground
of lack of bona fides should be replaced with rules to determine when parties
cannot choose to evade the operation of a mandatory law of the place of closest
connection. 79
3.
Interstate Contract Conflicts
Accordingly, the Law Reform Commission has recommended that in inter-
state contract conflicts within Australia, the mandatory rules (i.e. laws out of
in Australia, 5th ed. (Sydney: Butterworths, 1991) at 274.
7 11bid. at 482.
721bid. at 478.
73Supra note 50. See also Sykes & Pryles, supra note 51 at 598-99; P.E. Nygh, Conflict of Laws
74Supra note 52 at 290.
7SAustralian Law Reform Commission, supra note 55, para. 8.14.
76(Cmwth.), 1974, No. 51.
77(N.S.W.), 1980, No. 16. See also Nygh, supra note 73 at 276.
78(Cmwth.), 1991, No. 160. Section 11 of this act (in force as of 31 October 1991) effectively
makes the Australian Hague/Visby Rules applicable compulsorily to all outbound shipments from
Australia and renders ineffective any agreement to the contrary or which purports to oust the juris-
diction of Australian courts with respect to.outbound or inbound carriage of goods by sea disputes.
Section 16 of the same act establishes similar provisions in respect of the Hamburg Rules, which
are scheduled to come into force in Australia no later than 1994, under subsection 2(3). For similar
provisions, see section 9 of the former Sea-Carriage of Goods Act 1924 ((Cmwth.), 1924, No. 22),
giving effect to the Hague Rules in Australia. See also Nygh, ibid. at 275-76; Compagnies des Mes-
sageries Maritimes v. Wilson (1955-56), 94 C.L.R. 577 (Austr. H.C.); Ocean Steamship Co., supra
note 51; Furness, supra note 51. See also the New Zealand Sea Carriage of Goods Act 1940,
(N.Z.), 1940, No. 31, ss. 11A(l), l1A(2).
79Supra note 55, para. 8.13.
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[Vol. 39
which one may not contract) of the Australian state or territory having the clos-
est connection with the contract should apply.”0 This provision is somewhat akin
to article 3(3) of the Rome Convention, 1980, which prevents evasion of the
putative proper law.
4.
International Contract Conflicts
For international contract conflicts, the Commission has advocated a rule
similar, but not identical, to article 7(1) of the Rome Convention, 1980. Pursuant
to such a provision, the mandatory rules of the most closely connected country
apply. Mandatory rules, in this case, mean rules that cannot be derogated from
by contract and that override both the law chosen by the parties and the putative
proper law.”‘ Again, evasion of the most closely connected law is forestalled.
5.
General Anti-Evasion Provisions
Other provisions of the proposed Australian legislation which should aid in
combatting evasion of the law include the rules on public policy 2 and “unjust
or unconscionable” choice of law, 3 the rule precluding enforcement in Australia
of contracts calling for performance in a friendly foreign state of acts illegal in
any such state,” and certain statutory provisions regarding consumer protection
and fair trading. 5
VII. Examples of Evasion/Fraude and Avoidance – Maritime Law
A.
Introduction
Taking steps so that one law is applicable rather than another can be proper
or improper, acceptable or unacceptable, much like tax avoidance, which is
within the law, and tax evasion, which is not.86 “Evasionlfraude” is the term best
used to describe improper circumvention of the law, and “avoidance” is the term
for acceptable circumvention.
B. Choice of Law
1.
Contracts in General
Refusal to recognize or give effect to a particular juridical act because of
evasion/fiaude is a valid and important constituent part of conflicts theory and
practice. Most conflicts theories, however, also recognize the right of the parties
8 Ibid., paras. 8.34, 8.36. See also ibid., App. A (Draft amendments to Australia’s Judiciary Act,
1903 (Cmwth.)), s. 81G(8), App. B (Draft Uniform Choice of Lav Bill 1992 -for Australian States
and Territories), s. 9(8).
81Ibid., paras. 8.35, 8.36, App. A, s. 81G(9), App. B, s. 9(9).
82Ibid., paras. 4.6, 8.15, App. A, s. 81B(3), App. B, s. 4(3).
831bid., paras. 8.18-8.25, App. A, s. 81G(5)(b)(ii), App. B, s. 9(5)(b)(ii).
84Ibid., paras. 8.16-8.17, App. A, s. 81G(10), App. B, s. 9(10).
85lbid., paras. 8.60-8.76, App. A, s. 81H, App. B, s. 10.
“6Wolff, supra note 45 at 140: “[L]egal history in every country abounds in examples of the
‘inexhaustibility of the resource and cunning devoted to frustrating the law’.” See also Graveson,
supra note 2 at 174.
1994]
EVASION/FRAUDE A LA LOI
to expressly choose the proper law of the contractY Nevertheless, (i) the par-
ties’ intention in so choosing must be bona fide,” (ii) the law chosen must not
be contrary to public policy 9 (iii) nor contrary to an applicable mandatory law.’
Evasion often results when the “choice” has not been freely negotiated between
parties of reasonably equal bargaining power.
2.
Charterparties
A choice of law clause in most charterparties is not evasion of the law,
being bonafide and legal, and being between two informed parties of relatively
equal bargaining strengths; provided, of course, .that the consequence of the
clause is not to violate public policy/order or mandatory rules (which rarely
happens in the case of charterparties).9 1
3.
Bills of Lading
Most bill of lading clauses which invoke a carriage of goods by sea law
other than the mandatorily applicable Hague or Hague/Visby Rules92 of the
place of shipment are an evasion/fi-aude of the package/kilo limitation of the
carrier, unless a higher limit of responsibility of the carrier is invoked, which is
permitted under article 3(8) and article 5 of the Rules.9″
The rationale is that the Rules are mandatory, while the bill of lading is a
standard form contract which is not entered into freely. Rather, it is prepared and
signed by only one party and is usually issued after the ship sails.94
4.
Sale of a Ship
When two parties intend to sell a ship, one to the other, they may wish to
avoid the laws of one jurisdiction and to take advantage of the laws of another.
87See e.g. Restatement Second, 1969, supra note 39, 186; Dicey & Morris, 11th ed., supra note
45, Rule 180; L. Collins, ed., Dicey & Morris on the Conflict of Laws, 12th ed. (London: Sweet
& Maxwell, 1993) Rule 175(1) [hereinafter Dicey & Morris, 12th ed.].
8SVita Food, supra note 52 at 290.
9Ibid. See also Restatement Second, 1969, supra note 39, 187; Dicey & Morris, 12th ed., supra
note 87, Rule 2, Rule 182.
9Not all conflicts theories recognize mandatory foreign law. It is submitted that the mandatory
law of the state which has the closest and most real connection with the situation as a whole should
take precedence over the law chosen by the parties. That principle is the basis of the theory of
evasionlfraude.
9 1See, however, Furness (supra note 51), where the choice of English law provision of a char-
terparty incorporating by reference the Australian Sea-Carriage of Goods Act 1924 was set aside
as incompatible with the mandatory rule embodied in subsection 9(1) of that statute applying to
all outward shipments from Australia. Australian law was held to be the proper law of the contract
as a result of the statute’s incorporation by reference.
9 2Supra note 15.
93See The Hollandia, [1983] 1 A.C. 565, (sub nom. The Morviken) [1983] 1 Lloyd’s Rep. 1
[hereinafter The Hollandia cited to A.C.]. See also Ocean Steamship Co., supra note 51. See also
Indussa Corp. v. S.S. Ranborg, 377 E2d 200, [1967] Am. Marit. Cases 589 (2d Cir. 1967) [here-
inafter Indussa Corp. cited to F.2d], where a jurisdiction clause in a bill of lading, providing for
disputes to be settled in the country of the carrier’s principal place of business, was held to violate
subsection 3(8) of the U.S. COGSA (supra note 32, App. 1300ff) inasmuch as its effect might
reduce or lessen the carrier’s liability contrary to that subsection.
94W. Tetley, Marine Cargo Claims, 3d ed. (Montreal: Yvon Blais, 1988) at 84, 216-17.
McGILL LAW JOURNAL
[Vol. 39
They may therefore enter into the contract by travelling to a favourable jurisdic-
tion and signing the contract there. They may also sign “as of’ the new juris-
diction, or they may invoke the law of the new jurisdiction as solely applicable
to their contract. Another alternative is to first transfer the flag and registry of
the ship before signing.
If the ship or the parties are not subject to the mandatory law of the first
jurisdiction, then the choice of law and the entering into of a contract in the sec-
ond jurisdiction is not evasion of the law, provided that the choice was made for
a proper purpose not contrary to public policy.
5.
Marine Insurance Policies
Some marine insurance clauses promote evasion of the law because they
stipulate a law with little relation to the insured object or the risk, thus circum-
venting the properly applicable law of the contract. Such clauses are usually
unnecessarily favourable to the insurer and strongly unfavourable to the
assured. A “New York suable” clause may be just the opposite because Amer-
ican law is deemed applicable and generally favours the insured.9′
Although an insurance policy is a standard form contract, it is not always
drawn up by the insurer alone, except in life and non-commercial insurance. In
commercial and marine insurance, the insured is represented by brokers or
experienced staff, so that the contract is not necessarily unfavourable to the
insured. Evasion in such cases cannot be invoked unless it was carried out by
both parties to the detriment of a third party (e.g. another creditor, a bank, etc.).
It is noteworthy that the Restatement Second, 1969, at sections 192 and
193, limits the choice of the law by the parties only in the cases of life, fire,
surety or casualty insurance contracts.96
An underwriter, in any case, may strongly argue that the choice of a certain
jurisdiction, e.g. London, was not evasion because of the acknowledged exper-
tise and skill of the market there, with its brokers, agents, attorneys and courts.
6.
Floating Law Clauses
Floating choice of law clauses, which allow one party to a contract (e.g.
insurance contracts) to choose the applicable law after the event,97 lend them-
selves to evasion of the law and are, as well, invalid as being contrary to public
policy because no contract can exist in a “legal vacuum”. 9 “Service of suit”
clauses are similarly suspect.99
95M.A. Clarke, The Law of Insurance Contracts (London: Lloyds, 1989) at 16. See The Stolt
Marmaro, [1985] 2 Lloyd’s Rep. 428 (C.A.), where the clause was referred to, but the ratio as to
the validity of the clause is unclear.
96Supra note 39 at 586 (Introductory Note), 603 (comment e), 613 (comment e).
97Clarke, supra note 95. See also Capital Bank and Trust Co. v. Associated International Insur-
ance Co., 576 F. Supp. 1522 (M.D. La. 1984) [hereinafter Capital Bank & Trust Co.].
98Amin Rasheed Shipping Corp. v. Kuwait Insurance Co. (1983), [1984] A.C. 50 at 65, [1983]
2 Lloyd’s Rep. 365 at 370 (H.L.). See also The Armar (1980), [19811 1 All E.R. 498 at 505, [1980]
2 Lloyd’s Rep. 450 at 455 (C.A.); The Iran Vojdan, [1984] 2 Lloyd’s Rep. 380 at 385 (Q.B.).
99Clarke, supra note 95 at 16.
1994]
EVASION/FRAUDE A LA LOI
7.
Hire of Seamen
The hiring of seamen can result in evasion of the law because employers
often wish to enter into shipping articles under the laws of a particular nation
or under laws which permit lower wages and benefits.
In Rivadeneira v. Skibs AIS Snefonn,'” the signing of shipping articles by
an Ecuadorian seaman in the Royal Norwegian Consulate in New York was
noted, but the place of contract was neither commented on nor seemingly relied
on in the decision. The contract specifically incorporated Norwegian law by ref-
erence with respect to employment of the seaman on a Norwegian ship, which
was time chartered to a Nassau company with exclusive control “over the itin-
erary and carryings of the ship.””
It was held that Norwegian law, rather than
the Jones Act,” applied to the employment contract. Nor was Norwegian work-
men’s compensation deemed “repugnant to the laws and policy” of the United
States.’0 3
8.
Flags of Convenience –
“Flag Shopping”
Flags of convenience in the sixties were deemed an avoidance of the law.”
Today they are considered to be a source of evasion of the law because the flag
state has neither control over, nor a genuine link with, the shipowner. 15 As a
result there is considerable “flag shopping”, i.e. the choosing of flag states
which favour the shipowner in questions of crew pay, crew comfort and safety,
taxes and ship safety.
‘0’[1973] Am. Marit. Cases 485 (S.D.N.Y. 1973) [hereinafter Rivadeneira]. See also Tjonaman
v. AIS Glittre, 340 F.2d 290, [1965] Am. Marit. Cases 57 (2d Cir. 1965).
10IRivadeneira, ibid. at 486.
10246 U.S.C. App. 688 (1988).
103Rivadeneira, supra note 100 at 491, relying on Lauritzen, supra note 35 at 575. But see Bro-
din AIR v. Se/jan, [1973] Sess. Cas. 213, [1973] S.L.T. 198 (Ct. Sess.), where a U.K. statute was
held applicable to an industrial accident in Scottish waters although the proper law of the employ-
ment contract was Norwegian.
104See B.A. Boczek, Flags of Convenience (Cambridge, Mass.: Harvard University Press, 1962)
105See the Geneva Convention on the High Seas, 29 April 1958, 450 U.N.T.S. 82, 13 T.I.A.S.
2312, art. 5; United Nations Law of the Sea Convention, 10 December 1982, UN Doc.
A/Conf.62/122 and Corr. 1-11, 21 1.L.M. 1261, arts. 91(1), 94(1); United Nations Convention
on Conditions for Registration of Ships, 7 February 1986, UN Doc. TD/RS/CONF/23, 26 I.L.M.
1229, preamble, arts. 1, 5, 8, 9, 10; Restatement (Third) of Foreign Relations Law, 501 (14 May
1986).
at 26-63.
The U.K. tried to prevent “flag shopping” by its Merchant Shipping Act 1988 (U.K.), 1988, c.
12, s. 14, which restricted the registration of fishing vessels in the United Kingdom to vessels
owned, chartered, managed or operated by British citizens resident and domiciled in the United
Kingdom or by U.K. companies controlled by such persons. This was done to stop “quota hop-
ping”, whereby U.K. fishing quotas were “plundered” by fishing vessels flying the British flag but
lacking any genuine link with the United Kingdom. See R. v. Secretary of State for Transport ex
parte Factortame Ltd. (No. 3), [1991] 2 Lloyd’s Rep. 648 at 650 (E.CJ.), in which these restric-
tions were struck down, however, by the European Court of Justice as nationality discrimination
contrary to the Treaty of Rome, which established the E.E.C. The Court rejected the argument that
restrictions on registration of this type were justified under the “genuine link” doctrine embodied
in the above mentioned international conventions (ibid. at 667-68).
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9.
Lifting or Piercing the Corporate Veil
Evidence that flags of convenience are deemed to be evasion of the law is
seen in the modem attitude of the courts which “lift” the corporate veil” (to
determine the true control or genuine link)”7 or which, in some cases, “pierce”
the corporate veil (to find the shareholders responsible for the liability of the
company).0 8
10.
Amiables Compositeurs
If equity clauses are not generally permitted under the common law where
they replace the final authority of the courts on questions of law,” amiables
compositeurs are permitted under the civil law”‘ and specifically under section
28(3) of the UNCITRAL Model Law, 1985.”‘ Thus amiables compositeurs, who
decide questions without necessarily following the strict exigencies of the law,
are an example of avoidance (acceptable evasion) of the law.
In France, the Cour de Cassation” upheld a judgment against a shipowner,
described as such in Lloyd’s Registry, and looked behind the corporate veil (la
voile de l’apparence) and found that the ship manager and the chartering broker
were “soci6t6s de fagade sans r6elle autonomie” (shell companies without real
autonomy) owned by the shipowner.
C. Choice of Jurisdiction –
“Courts of Convenience”
1.
Jurisdiction Clauses in Charterparties
A jurisdiction clause in a charterparty calling for suit in other than what is
the most convenient jurisdiction to both parties is not evasion of the law,
the shareholders was set out in Salomon v. Salomon and Co., [1897] A.C. 22 (H.L.).
‘6The classic position of not being able to look behind or through the corporate entity to pursue
107Rainbow Line Inc., supra note 35; Florida Bahamas Lines Ltd. v. Barge Star 800, [ 1970] Am.
Marit. Cases 2189 at 2199 (5th Cir. 1970); Kuhr v. The Friedrich Busse, [1982] 2 F.C. 709, 134
D.L.R. (3d) 261 at 263 (T.D.); Lauritzen, supra note 35; Hellenic Lines Ltd. v. Rhoditis, 398 U.S.
306 at 310, [1970] Am. Marit. Cases 994 at 997 (1970); The I Congreso del Partido, [1981] 2
Lloyd’s Rep. 367 at 379, 383 (H.L.); Bergesen d.y. AIS v. Lindholm, 760 F. Supp. 976 at 988-89,
[1991] Am. Marit. Cases 2839 at 2853-54 (D. Conn. 1991); Win. Passalacqua Builders, Inc. v.
Resnick Developers South Inc., 933 F.2d 131 at 139-40 (2d Cir. 1991); M. Prusman Ltd. v. Ariel
Maritime Group, Inc., 781 F. Supp. 248 at 252-53, [1992] Am. Marit. Cases 1059 at 1065-66
(S.D.N.Y. 1991). See also Bordeaux, 13 June 1990, [1991] Dr. marit. fr. 174 (Annot. A. Vialard);
Cass. com., 12 February 1991, [1991] Dr. marit. fr. 315.
‘0 SThe distinction between “piercing” the corporate veil and “lifting” the corporate veil
was made by Slade L.J. in Adams v. Cape Industries plc, [1990] 2 W.L.R. 657 at 758-59, [1991]
1 All E.R. 929 at 1024-25 (C.A.). See also The Coral Rose, [1991] 1 Lloyd’s Rep. 563 at 571
(C.A.).
’09Clarke, supra note 95 at 16-17; Czarnikow v. Roth, Schmidt & Co., [1922] 2 K.B. 478 (C.A.).
See, however, Eagle Star Insurance Co. v. Yuval Insurance Co., [1978] 1 Lloyd’s Rep. 357 (C.A.).
“See art. 1497 N.C. proc. civ. (France); art. 944.10 C.C.P. (Quebec).
“‘Model Law on International Commercial Arbitration, 21 June 1985, UN GAOR, 40th Sess.,
Supp. No. 17, Annex I, UN Doe. A/40/17 at 81-93, 24 I.L.M. 1302 (adopted by the United Nations
Commission on International Trade Law (“UNC1TRAL”)).
” 2Cass. com., 28 November 1989, [1991] Dr. marit. fr. 290 at 291.
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because the clause is one of many making up the total agreement between two
relatively equal negotiating partners (provided, of course, that public policy or
a mandatory law is not being evaded).
2.
Jurisdiction Clauses in Towage Contracts
The test in the United States with respect to the validity of a jurisdiction
clause in a towage contract was stated by the Supreme Court as follows: that the
clause should be enforced unless “enforcement would be unreasonable and
unjust, or’… the clause was invalid for such reasons as fraud or overreaching,”
or enforcement would violate a strong public policy of the forum.” 3
3.
Jurisdiction Clauses in Bills of Lading
A jurisdiction clause in a bill of lading which calls for suit in a place which
has no real connection to the place of the contract or the ports of loading and
discharge, is usually an evasion of the jurisdiction, particularly when favourable
to the carrier who has drawn up the bill of lading. Such clauses are especially
questionable when the jurisdiction is one which would not normally apply the
properly applicable law of the contract.” 4
In The Hollandia,”‘ the House of Lords held that a clause in a bill of lading
invoking Netherlands law (which, at that time, consisted of the Hague Rules)” 6
in a shipment from England to the Netherlands Antilles was void as relieving
the carrier of responsibility, contrary to article 3(8) of the Schedule to the U.K.
Carriage of Goods by Sea Act 1971, l I’ the U.K. version of the Hague/Visby
3MIS Bremen, supra note 42 at 15 (a towage contract). See also Stewart Organization, Inc. v.
11
Ricoh Corp., 487 U.S. 22 (1988); Oman Refinery Company v. MT Bertina, [1993] Am. Marit.
Cases 147 at 148-49 (C.D. Cal. 1992).
n14Tetley, supra note 94 at 787-89. Criteria for granting a stay of proceedings where the contract
provides for foreign jurisdiction were laid down in The Eleftheria ([1969] 1 Lloyd’s Rep. 237 at
242 (Adm. Div.)). Among them was the defendant’s genuine desire to go to trial in the foreign
jurisdiction rather than the seeking. of procedural advantages. See also The Fehmarn ([1957] 2
Lloyd’s Rep. 551 at 556 (C.A.)) where a choice of jurisdiction clause in a bill of lading was held
void because the defendant’s motive had been to avoid the giving of security, and also because
England had stronger contacts with the dispute than did the U.S.S.R.
See also The Sennar (No. 2) ([1985] 1 Lloyd’s Rep. 521 at 527 (H.L.)) where the House of Lords
refused to permit the plaintiff to sue in England in order to avoid an inescapable time bar under
Sudanese law, when the bill of lading called for Sudanese law before Sudanese courts.
See generally Indussa Corp., supra note 93 at 203-204; Union Insurance Society of Canton, Ltd.
v. S.S. Elikon, 642 F.2d,721 at 724-25, [1982] Am. Marit. Cases 588 at 591-93 (4th Cir. 1981);
State Establishment for Agric. Prod. Trading v. MIV Wesermunde, 838 F.2d 1576 at 1580-8 1,
[1988] Am. Marit. Cases 2328 at 2334-35 (11th Cir. 1988); Underwriters at Lloyd’s of London
v. MIV Steir, 773 F. Supp. 523 at 527, [1992] Am. Marit. Cases 314 at 319 (D.P.R. 1991). But
see Fabrica de Tejidos La Bellata v. MIV Mar, 799 F. Supp. 546 at 560, [1993] Am. Marit. Cases
721 at 734-35 (D. St. Thomas and St. John 1992). See also Hoffman – La Roche, Inc. v. MIV
TFL Jefferson, 731 F. Supp. 109 at 112, [1990] Am. Marit. Cases 1393 at 1396-97 (S.D.N.Y.
1990).
“5Supra note 93. Compare with The Alnati case of the Netherlands Supreme Court (Hoge Raad
13.5.1966, (1967) 56 Rev. cri. dr. iriternat. priv6 522 (Annot. A.V.M. Struycken)).
“l6Supra note 15.
‘”Supra note 59.
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Rules.”‘ The jurisdiction provision of the same clause calling for suit in the
Netherlands was also void for the same reason.
4.
Lloyd’s Standard Form (LOF 1990)
Lloyd’s Standard Form of Salvage Agreement (LOF 1990)19 contains a
valid choice of law clause (English law) (clause l(g)) and a London arbitration
clause (clause 1(c)). The clauses are not evasion, not being contrary to the inter-
national salvage conventions of 191020 and 1989.2. (nor, it is presumed, to
applicable national laws) and being ordinarily entered into by equal parties who
understand the consequences. There is, of course, an escape hatch in both sal-
vage conventions, in both cases at section 7.
5.
Arbitration Clauses
An arbitration clause is merely a jurisdiction clause which specifies the
place of settling a dispute and stipulates that the hearing will be before arbitra-
tors. Such a clause is usually valid in charterparties, being entered into by equal
negotiating parties, but is “evasion” in bills of lading if the jurisdiction is not
convenient to the shipper/consignee, if the manner of arbitration is unfair or if
the properly applicable law of the contract is avoided.’
As a first condition, of course, an arbitration clause or jurisdiction clause in
a bill of lading must be clear. For example, a statement in a bill that “[a]ll the
terms, conditions and exceptions of the relative Charter Party are to be deemed
incorporated herein” was deemed not specific enough to have incorporated a sub-
charterparty arbitration clause into a bill of lading.”n
IISSupra note 15. See in particular The Hollandia, supra note 93 at 574, per Lord Diplock, who
said that a
narrow construction of art. I, r. 8 … would leave it open to any shipowner to evade
the provisions of art. mI, r. 8 by the simple device of inserting in his bills of lading
issued in, or for carriage from a port in, any contracting state a clause in standard form
providing as the exclusive forum for resolution of disputes what might aptly be
described as a Court of convenience, viz. one situated in a country which did not apply
the Hague-Visby Rules or, for that matter, a country whose law recognized an unfet-
tered right in a shipowner by the terms of the bill of lading to relieve himself from all
liability for loss or damage to the goods caused by his own negligence, fault or breach
of contract [emphasis added].
n 9See [1991] Lloyd’s Marit. Com. L.Q. 117 for the text of this agreement.
12023 September 1910, 37 U.S. Stat. 1658, 212 Cons. T.S. 187.
12128 April 1989 (signed in London, not yet in force). See [1990] 1 Lloyd’s Marit. Com. L.Q.
54 for the text of this convention.
122See e.g. Bulk Oil (Zug) A.G. v. Trans-Asiatic Oil Co. SA., [1973] 1 Lloyd’s Rep. 129 (Q.B.);
Iberian Tankers Co. v. Terminales Maracaibo, [1971] Am. Marit. Cases 644 (S.D.N.Y. 1971);
United Nations, supra note 65 at 349; Normandin Lumber Ltd. v. The Angelic Power, [1971] F.C.
263 at 269, 272 (T.D.); S.S. Maria Lemos, 268 F Supp. 456, [1967] Am. Marit. Cases 156
(S.D.N.Y. 1965). See also Tetley, supra note 94 at 611-13; Furness, supra note 51.
123Agro Co. of Canada v. The Regal Scout, [1984] 2 F.C. 851 at 863 (T.D.). See also The Anne-
field, [1971] 1 All E.R. 394 at 406, [1971] 1 Lloyd’s Rep. 1 at 4 (C.A.); The Emmanuel Coloco-
tronis (No. 2) (1981), [1982] 1 All E.R. 823 at 832, [1982] 1 Lloyd’s Rep. 286 at 293 (Q.B.); The
Rena K (1978), [1979] 1 All E.R. 397 at 404, [1978] 1 Lloyd’s Rep. 545 at 550 (Q.B. (Adm. Ct.)).
See generally Tetley, ibid. at 589-619, 781-820.
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6.
Forum Shopping – Maritime Liens
Forum shopping can be a classic case of evasion of the law. The ordering
of a ship by the mortgagee to Vancouver, Canada, to be arrested by the mort-
gagee in order to obtain Canadian jurisdiction, and not to a closer U.S. port, is
in my view an attempt to evade the properly applicable law of a ship repair con-
tract entered into freely in the United States. 12 4
Similarly, the ordering of a ship by the mortgagee to Singapore to be
arrested by the mortgagee in order to evade the properly applicable law of a ship
repair contract entered into freely in the United States is, again in my view, an
evasion of the law.”z
In Gulf Oil Trading Company v. Creole Supply,”6 a bank/mortgagee did not
advise U.S. bunker suppliers that the shipowner had defaulted on the ship mort-
gages. Bunkers were in consequence delivered to the ships, which the bank then
ordered out of U.S. jurisdiction, where there is a maritime lien for the supply
of bunkers, to the Bahamas, where there is no such lien under English law. In
a suit against the bank by the bunker supplier, the U.S. court ordered payment
of the cost of the bunkers on the grounds of unjust enrichment, thus indirectly
invoking evasion of the law and jurisdiction.
7.
Forum Shopping – Limitation
Forum shopping in order to obtain a higher limitation fund is common
practice and should be opposed. 7 As was said in M/V Swibon, where two
Korean ships collided on the high seas and suit was taken in the United States
because the limitation fund was higher in the United States than in Korea:
Additionally, applying the Korean limitation will discourage claimants from forum
shopping. Perhaps if claimants had believed there was no advantage to filing claims
here, this case would be in Korean courts, clearly the optimum forum from the
standpoint of judicial economy. 128
The Korean limitation fund was therefore applied by the U.S. court.
8.
Floating Jurisdiction Clauses
Clauses which permit one party to choose the jurisdiction for suit after the
dispute arises promote evasion of the law and of the jurisdiction. They are or
124The ship was so ordered in The Joannis Daskalelis (Todd Shipyards Co. v. Altema Compania
Maritinma), [1974] S.C.R. 1248, [1973] Am. Marit. Cases 176, [1974] 1 Lloyd’s Rep. 174.
125The ship was so ordered in The Halcyon Isle (Bankers Trust International v. Todd Shipyards),
11981] A.C. 221, [1980] 2 Lloyd’s Rep. 325, [1980] Am. Marit. Cases 1221 (P.C.).
126596 F.2d 515, [1979] Am. Marit. Cases 585 (2d Cir. 1979).
127M/V Arctic Explorer, 590 F. Supp. 1346, [1984] Am. Marit. Cases 2413 (S.D. Tex. 1984).
Forun non conveniens was applied by the U.S. court, sending the case back to Canada. See, how-
ever, The Titanic, 225 F. 747 (2d Cir. 1915), where certain claimants against the U.S. limitation
fund, established following the sinking of that ill-fated ship, were permitted to withdraw their
claims upon payment of court costs, although their motive for doing so was to file their claims
again in limitation proceedings in the United Kingdom where the potential of recovery would be
higher.
128596 F. Supp. 1268 at 1274, [1985] Am. Marit. Cases 722 at 730 (D. Alaska 1984).
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should be invalid, being contrary to public policy/order. Service of suit clauses 9
and New York suable clauses 3′ in marine insurance policies are examples.
9.
Passenger Tickets
Forum selection clauses in U.S. ship passenger tickets are not evasion of the
law according to the U.S. Supreme Court in Carnival Cruise Lines v. Shute, 3 ,
unless it can be shown that (i) they are “unreasonable and unjust”, (ii) they result
from “fraud or overreaching”, or (iii) that their enforcement would contravene “a
strong public policy” of the forum, according to the precepts in MIS Bremen)32
In such a case, the party contesting the clause must satisfy a “heavy burden of
proof’.
133
Thus, when a passenger entered into a cruise contract in the State of Wash-
ington, boarded the ship in Los Angeles and was injured off the western Mexican
coast, it was held that the passenger was obliged to sue in Florida in accordance
with the terms of the passenger ticket. 3 In particular, the Supreme Court noted
129Clarke, supra note 95 at 16. See also Capital Bank & Trust Co., supra note 97.
130Clarke, ibid. at 21. See The Stolt Marniaro, supra note 95; Montauk Oil Transportation Co.
v. Steamship Mutual Underwriting Association (Bermuda) Ltd., [1991] Am. Marit. Cases 1477
(S.D.N.Y. 1991).
131Supra note 43. The dissenting opinion formulated a general rule based on MIS Bremen (supra
note 42) to the effect that “the prevailing rule is still that forum-selection clauses are not enforceable
if they were not freely bargained for, create additional expense for one party or deny one party a rem-
edy” (ibid. at 601). The majority (7-2) downgraded the importance of free negotiation in the case
of a passenger ticket. See also Dempsey v. Norwegian Cruise Line, 972 F.2d 998 at 999 (9th Cir.
1992), where the reasonableness test in Shnte was applied to uphold a time for suit clause in a pas-
senger ticket. See also Cooper v. Carnival Cruise Lines, [1992] Am. Marit. Cases 2852 (S.D.N.Y.
1992); Goldberg v. Cunard Line Ltd., [1992] Am. Marit. Cases 1461 (S.D. Fla. 1992); Milanovich
v. Costa Crociere, S.P.A., 954 F2d 763, [1993] Am. Marit. Cases 1034 (D.C. Cir. 1992).
1321bid. See also Siegelman v. Cunard White Star Ltd., 221 F.2d 189 at 195, [1955] Am. Marit.
Cases 1691 at 1700 (2d Cir. 1955), where a choice of law provision in a passenger ticket was
upheld because there did not appear to be “an attempt … to evade American policy” [emphasis
added].
133Shute, supra note 43 at 595. Failure to provide the plaintiff with sufficient notice of the forum
selection clause prior to the contract can render the clause unenforceable. See Carnival Cruise
Lines, Inc. v. Superior Court, 234 Cal. App. 3d 1019,286 Cal. Rptr. 323, [1992] Am. Marit. Cases
320 (Ct. App. 1991). Likewise, fundamental unfairness (e.g. the lack of opportunity for the plain-
tiffs to reject the clause without forfeiting a large sum of money) has been held sufficient to render
the clause unenforceable. See Coma v. American Hawaii Cruises, Inc., 794 F. Supp. 1005, [1992]
Am. Marit. Cases 1787 (D. Hawaii 1992). See generally D.S. Blocker, “Recent Developments in
Jurisdiction, Forum Non Conveniens and Forum Selection Clauses” (1992) 5 U. San Francisco
Marit. L.J. 171 at 192-97.
134Shute, ibid. The U.S. Congress subsequently amended 46 U.S.C. App. 183c to protect the
right of a claimant to a trial by “any” court of competent jurisdiction (Pub. L. No. 102-587 (Title
III), 3006, 106 Stat. 5068 (1992)). Shute appears still to be good law, however, in respect of per-
sonal injury claims of passengers on ships which do not call at U.S. ports during the voyage. In
1993, Congress again amended 46 U.S.C. App. 183c by including a provision in the Coast Guard
Authorization Act of 1993 (Pub. L. No. 103-206, Title III, 309, 107 Stat. 2419 (1993)), deleting
the word “any”, which had just been added to 46 U.S.C. App. 183c by the 1992 amendment. The
legislative history of the 1993 amendment indicates, however, that although its effect was to restore
the wording of 46 U.S.C. App. 183c to exactly what it had been when Slite was decided, the
amendment’s purpose was not to re-establish the former law. Rather, the aim was to clarify that
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that Florida was not a “remote alien forum”’35 and that the carrier “has its prin-
cipal place of business in Florida and many of its cruises depart from and return
to Florida ports.”‘ 36
D. Recognition of Foreign Judgments and Jurisdiction
Evasion/fiaude can also be invoked to prevent a foreign judgment from
being recognized: (a) when the judgment was based on a law chosen as a result
of an evident case of evasion/fraude, or (b) when the judgment was rendered as
the result of a choice of jurisdiction arrived at through evasion/fiaude 37”
French examples seem to be more abundant. 3
The Civil Jurisdiction and Judgments Act 1982,’3 at subsection 32(1),
refuses recognition or enforcement of a foreign (overseas) judgment which arises
from proceedings in a foreign court under certain conditions, but these are not
cases of improper manipulation of connecting factors.
VIII. The Rome Convention, 1980 – Mandatory Rules and Public Order
A.
Introduction
The Rome Convention, 1980 applies to the whole gamut of mandatory rules
and public order with few exceptions and nuances, so that evasion/fiaude is
impliedly and even expressly prohibited in many cases.
B. Mandatory Rules in General
Mandatory rules under the Rome Convention, 1980 are dealt with in a pecu-
liar fashion in three general articles (articles 3(3), 7(1) and 7(2)), as well as in
three more particular provisions (articles 5(2), 6(1) and 9(6)). The articles on
mandatory rules do not form a unified whole but seem to have been drafted in
order to negotiate a settlement between different concepts of mandatory rules. It
is noteworthy that article 7(1) has been reserved under the Convention by the
United Kingdom, Germany, Luxembourg and Ireland.”4
Article 3(3) is an exception to the freedom of choice of law provision of arti-
cle 3(1). It effectively prohibits the parties to a contract from choosing the law
the plaintiff could not sue in any district whatsoever, but only in a limited number of districts (such
as the district in which the vessel operates, where the owner is doing business including the selling
of tickets or where the passenger boarded the vessel). See K.A. Franklin & D.A. Weldy, “Dark of
the Night Legislation Takes Aim at Forum Selection Clauses: Statutory Revisions in Reaction to
Carnival Cruise Lines, Inc. v. Shute” (1993) 6 U. San Francisco Marit. L.J. 259.
(Q.B.), aff’d [1983] 2 Lloyd’s Rep. 384, [1983] 1 W.L.R. 1026 (C.A.).
135Ibid. at 594.
136 Ibid. at 595.
137Traconzin SA. v. Sudan Oil Seeds Co., [1983] 1 Lloyd’s Rep..560, [1983] 1 W.L.R. 662
138Cass. civ. 1’, 7 January 1964, J.C.P. 1964.11.13590 (Annot. M. Ancel), 91 J.D.I. 302. See also
139(U.K.), 1982, c. 27.
14ONorth & Fawcett, eds., supra note 49 at 503. For the U.K. reservation, see the Contracts
Mayer, supra note 19, Nos. 382-84.
(Applicable Law) Act 1990, supra note 44, s. 2(2).
McGILL LAW JOURNAL
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of one country. Instead, it imposes the mandatory rules of another country where
“all the other elements”, at the time of the choice, are connected with that coun-
try. Mandatory rules are defined under article 3(3) as rules one may not contract
out of.
Article 7(1), on the other hand, allows the court, in its discretion, to give
effect to a mandatory rule of a third, closely connected country (i.e. a country
which is neither the forum state nor the country of the putative proper law), 4
even when there are elements connecting the contract with.one or both of those
countries.
Article 7(2) upholds the mandatory rules of the forum, which the court may
apply at its discretion.
C. Article 3(3) – Mandatory Rules of the Sole Connected Law
The basic choice of law rule of the Convention is found in article 3(1),
which provides that the contract is govemed by the law expressly or impliedly
chosen by the parties. Nevertheless, this rule is specifically subject to article 3(3),
which states:
The fact that the parties have chosen a foreign law, whether or not accompanied by
the choice of a foreign tribunal, shall not, where all the other elements relevant to
the situation at the time of the choice are connected with one country only, prejudice
the application of rules of the law of that country which cannot be derogated from
by contract, hereinafter called “mandatory rules”.
Article 3(3) ensures that the mandatory rules of a country cannot be con-
tracted out of by simply choosing a foreign law to govem a contract where all
the elements of the contract, apart from that choice, are connected to that country
alone.’42 For example, the U.K. Unfair Contract Terms Act 1977143 cannot be con-
tracted out of by merely choosing another system of law if all other contacts in
the situation are with the United Kingdom.
Article 3(3) is thus an evasion/fiaude i la loi provision which overrides an
express choice of law when a local mandatory rule of the sole connected law is
applicable.
141Dicey & Morris, 12th ed., supra note 87 at 1241-43.
142See C.G.J. Morse, “The EEC Convention on the Law Applicable to Contractual Obligations”
(1982) 2 Y.B. Eur. L. 107 at 124: “The real purpose of Article 3(3) is to prevent the parties ‘inter-
nationalising’ a domestic agreement to avoid mandatory rules.” See also P. Lagarde, “Le nouveau
droit international priv6 des contrats apr~s l’entr6e en vigueur de ]a Convention de Rome du 19
juin 1980” (1991) 80 Rev. cri. dr. intemat. priv6 287 at 301. See also Lando, supra note 18 at 182:
“Article 3(3) was drafted in order to disregard those choices which were made to avoid the appli-
cation of mandatory rules of a law governing a contract which has no significant foreign elements.”
See also P.M. North, “Reform, but not Revolution: General Course on Private International Law”
(1990) 220 Rec. des Cours 9 at 184:
This provision [Article 3(3)] will control the case where the choice of the foreign law
is made simply in order to evade mandatory rules applicable to an otherwise wholly
domestic contract. However, in very many international agreements it would be impos-
sible to say that the contract is, but for the choice of law clause, entirely connected With
one country, and so Article 3(3) is likely to be of fairly limited scope.
143Supra note 58. See P.R. Williams, “The E.E.C. Convention on the Law Applicable to Con-
tractual Obligations” [1981] Lloyd’s Marit. Com. L.Q. 250 at 257; Morse, ibid. at 123.
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D. Article 5(2) – Consumer Contracts
Article 5(2) specifically makes applicable certain mandatory consumer laws
of the consumer’s habitual residence, despite a contrary express choice of law in
a consumer contract. This is another anti-evasion/fiaude measure.
E. Article 6(1) – Employment Contracts
Article 6(1) has as its purpose the protection of employees against express
choice clauses in employment contracts.
F. Article 9(6) –
Immoveable Property
Article 9(6) protects against evasion of the international mandatory rules of
the situs of immoveable property.
G. Article 7(1) – Mandatory Rules of a Closely Connected Law
Article 7(1) of the Rome Convention, 1980 is of major importance and is as
follows:
When applying under this Convention the law of a country, effect may be given to
the mandatory rules of the law of another country with which the situation has a
close connection, if and in so far as, under the law of the latter country, those rules
must be applied whatever the law applicable to the contract. In considering whether
to give effect to these mandatory rules, regard shall be had to their nature and pur-
pose and to the consequences of their application or non-application.
Article 7(1) contemplates the mandatory rules of a third country and not of
the forum.”
Article 7(1), it should be noted, has three conditions for its application and
thus is not onerous: (i) there must be a “close connection” with the state to which
the mandatory law belongs; (ii) the law must be mandatory no matter which “law
is applicable to the contract”; and (iii) the court is still not obliged to apply the
mandatory rules but shall give consideration to their “nature and purpose and to
the consequences of their application or non-application.”
The evasion/fi-aude d la loi character of article 7(1), it should be noted,
could prevent evasion of international mandatory rules of a third state. 45
1440. Lando, “Party Autonomy in the EEC Convention on Obligations” in F. Rigaux, ed., The
Influence of the European Communities upon the Private International Law of the Member States
(Brussels: Larcier, 1981) 191 at 203. See also D. Jackson, “Mandatory Rules and Rules of ‘Ordre
Public”‘ in P.M. North, ed., Contract Conflicts (Amsterdam: North-Holland, 1982) 59 at 73; Dicey
& Morris, 12th ed., supra note 87 at 1241-43.
145Williams, supra note 143 at 258; North, supra note 142 at 191. It is noteworthy that article
7(1) owes its origins, at least in part, to the famous obiter dictum of the Netherlands Supreme Court
in The Alnati, supra note 115:
[I]n relation to contracts such as the one in the case at bar, it may happen that, for a
foreign State, observance of certain of these [mandatory) rules, even outside its terri-
tory, takes on such an importance that the Dutch judge must take account of them and
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[Vol. 39
The United Kingdom, Germany, Luxembourg and Ireland made reservations
to this provision,”4 which seems regrettable because closely connected foreign
mandatory laws should be recognized in principle. It is possible that the reserva-
tion may in the future prevent English courts from applying the principle of eva-
sion which already existed (implicitly, if not explicitly) in the common law.’47
The English reluctance to apply foreign public policy or foreign mandatory rules
or to invoke the evasion doctrine maintains the application of English law and
follows the much-criticized finding in Vita Food 4’ that the choice of the parties
could overcome the mandatory foreign law of the place of the contract. Article
7(1), it must be added, in fairness, has been opposed because it was deemed
unclear and likely to lead to confusion. 4 9
H. Article 7(2) – Mandatory Rules of the Forum
Article 7(2) guarantees that the forum’s mandatory rules may be applied
regardless of the law otherwise applicable. These mandatory rules include oblig-
atory forum court statutes such as the U.K. version 50 of the Convention on Lim-
itation of Liability for Maritime Claims, 1976. ”
Article 7(2) reads, “Nothing in this Convention shall restrict the application
of the rules of the law of the forum in a situation where they are mandatory irre-
spective of the law otherwise applicable to the contract.”
apply them in preference to the law of another State which might have been selected by the parties
to govern their contract … [translation].
146Such a reservation is permitted by article 22(1)(a) and was made by .the United Kingdom
under subsection 2(2) of the U.K. Contracts (Applicable Law) Act 1990 (supra note 44) when the
United Kingdom became a party to the Convention. Regarding the Act in general, see J. Young,
“The Contracts (Applicable Law) Act 1990” [1991] Lloyd’s Marit. Com. L.Q. 314.
147A. Philip (“Mandatory Rules, Public Laws (Political Rules) and Choice of Law in the E.E.C.
Convention on the Law Applicable to Contractual Obligations” in North, ed., supra note 144, 81
at 105) points out that the “common law” cases of Ralli Bros. (supra note 50) and Regazzoni (supra
note 7) provide good illustrations of the type of mandatory rules to which article 7(1) would have
applied. Lando (supra note 18 at 209) also points out how common law courts have hitherto shown
a greater willingness than civil law courts to consider foreign economic legislation (other than rev-
enue and penal laws). A.J.E. Jaffey (“The English Proper Law Doctrine and the E.E.C. Conven-
tion” (1984) 33 I.C.L.Q. 531 at 555) observes that the reservation to article 7(l) will mean that
the only way for English courts in the future to apply the mandatory rules of a country other than
that of the party rendering the characteristic performance, will be to rely on article 4(5) of the Con-
vention, on the basis that it appears from the circumstances as a whole that the contract is more
closely connected with another country.
148Supra note 52. See also North & Fawcett, eds. (supra note 49 at 504), who observe that
because of the U.K.’s reservation to article 7(l), it will be more difficult for U.K. courts to give
effect to the mandatory rules of friendly foreign states in future cases that are similar to Foster
(supra note 7). Only article 16 on public policy will be available to uphold such laws, but article
16 was not designed to uphold, but rather to negative foreign laws manifestly incompatible with
the public policy (ordre public) of the forum.
14 9Morse, supra note 142 at 147; Lando, supra note 18 at 214; Young, supra note 146 at 324;
Lagarde, supra note 142 at 324. See also North & Fawcett, eds., ibid. at 503.
’50Merchant Shipping Act 1979 (U.K.), 1979, c; 39, Sch. 4, Part I, art. 15. This U.K. statute
imposes itself on any limitation proceeding whatsoever, whenever limitation proceedings are taken
before a U.K. court.
15119 November 1976, U.K.T.S. 1990 No. 13, 16 I.LM. 606.
1994]
EVASION/FRAUDE A LA LOI
L Article 16 – Public Policy/Order
Article 16 is the public policy/order provision inherent in any system of con-
flict of laws. It permits refusal of the law of any country, but only if its applica-
tion is manifestly incompatible with the public policy/order of the forum: “The
application of a rule of the law of any country specified by this Convention may
be refused only if such application is manifestly incompatible with the public pol-
icy (‘ordre public’) of the forum.”
Here again, evasion/fr-aude d la loi can be counteracted, but this time by
invoking public order/policy of the forum.’52
It has been argued, however, that article 16 has no relationship to evasion
of the law’53 or that the connection is uncertain. 154
J. Article 21 – Other Conventions
Finally, article 21 provides, “This Convention shall not prejudice the appli-
cation of international conventions to which a Contracting State is, or becomes,
a party.”
Article 21 means, for example, that the Rome Convention, 1980 in no way
affects the operation and mandatory force of the Hague Rules,’55 the Hague/Visby
Rules,5 6 the Hamburg Rules 57 and the Multimodal Convention 15
‘ in their appli-
cation to the carriage of goods by sea. 51
K. Conclusion (Rome Convention, 1980)
The Rome Convention, 1980, by its provisions on mandatory rules and pub-
lic policy (ordre public), enshrines the principle of evasion/fi’aude
ii la loi
because these provisions require the active recognition of the mandatory rules of
the properly applicable law and the international public order/policy of the forum.
Conclusion
Evasion of the lawfiaude 6 la loi is an exception to the otherwise valid
choice of the proper law and may also be invoked in cases of choice of jurisdic-
tion and recognition of foreign judgments. Evasion/fiaude is the intentional
manipulation of connecting factors in order to improperly circumvent the manda-
152North & Fawcett, eds., supra note 49 at 503-504. Intended here, of course, is the international
public order/policy of the forum.
153Lando, supra note 18 at 182-83. Lando also notes that article 16 includes the public policy
of the European Community as part of the public policy of the forum (ibid. at 208).
’54Gaudemet-Tallon, supra note 18 at 259.
155Supra note 15.
1561bid.
157Adopted at Hamburg, 31 March 1978 and in force as of 1 November 1992.
158Adopted at Geneva, 24 May 1980 but not yet in force.
159Pp.R. Williams, “The EEC Convention on the Law Applicable to Contractual Obligations”
(1986) 35 I.C.L.Q. 1 at 16-17. See also the Danish Protocol to the Rome Convention, 1980, con-
ceming carriage of goods by sea.
McGILL LAW JOURNAL
[Vol. 39
torily applicable law of a juridical act or to sidestep applicable public policy or
to elude the most appropriate jurisdiction. It can also result in a forum court jus-
tifiably refusing to recognize a foreign judgment as having been reached improp-
erly.
Evasion/fi-aude depends on the facts in each case. Manipulation of connect-
ing factors equivalent to evasion is most likely to occur whenever there are
unequal bargaining positions, as in contracts of adhesion, such as ship passenger
tickets, or in standard form contracts, such as bills of lading and some insurance
contracts. In general, it can be said that choice of law clauses and forum-selection
clauses may lead to evasion/fr’aude if they were not freely bargained for and if
they create additional expense for one party or deny one party a remedy or
defence it would normally have.
Avoidance of the law is the acceptable arrangement of connecting factors,
for a legitimate purpose, in an agreement, usually between two equal bargaining
parties, in order to select an applicable law or jurisdiction.
The question of whether there has been evasion/fiaude should be considered
whenever the proper law is being determined in a conflict of law problem or in
every case of recognition of a foreign judgment.
