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      Mandatory rules in the European conflicts of laws and few remarks on limitations on acquisition of real estate in Poland

 

          The Rome Convention of 1980 on the law applicable to contractual obligations provides for the freedom of choice as basic rule for conflict of laws. The art. 3 sec.1 of the Convention states that “A contract shall be governed by the law chosen by the parties. (….) By their choice the parties can select the law applicable to the whole or part only of the contract”. This freedom of choice applies also to the contracts concerning the real estate, as far as the Convention applies (the Art.1 sec.2 point b excludes from the scope o the Convention rights in property arising out of a matrimonial relationship).

          Only in the absence of choice of law made by parties, the art.4 sec.1 provides for the applicability of the law of the country with which it is most closely connected. As to the principle, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of contract, his habitual residence, or, in case of a body corporate or unincorporated, its central administration. The art. 4 sec.2 provides further that, if the contract is entered into in the course of that party's trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated. If the characteristic performance cannot be determined then this rule would not apply

          However, this general principle is not decisive for real estate contracts. Art. 4 sec. 3 states that notwithstanding the general rule describe above, “to the extent that the subject matter of the contract is a right in immovable property or a right to use immovable property it shall be presumed that the contract is most closely connected with the country where the immovable property is situated”. It is worth noting, that it is only a presumption, which may be rebutted. This presumption shall be disregarded if it appears from the appears from the circumstances as a whole that the contract is more closely connected with another country, as art. Sec. 5 of the Convention has it. This is in contrast with some national rules on conflict of laws. For example Polish act on conflict of laws states that the law of the country in which the real estate is situated is the only one applicable to it, and choice of the parties is excluded.

          Most interesting are always exceptions to the rules. The limitations on the rule of freedom of choice provided by the Convention, relevant for this article, are provided in art. 3 sec.3 and art. 7 sec.1.

          Art. 3 sec.3 states that: “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 at the country which cannot be derogated from by contract, hereinafter called 'mandatory rules`. This provision refers to those national law provisions, which cannot be derogated by contract between the parties. Interesting point in this provision is that it suggests that the rules on choice of law provided for in the Rome Convention also apply in a purely internal situation, i.e. where all the other elements relevant to the situation at the time of the choice are connected with one country only. This seems to be the prevailing opinion, although some authors oppose it, pointing out that the art.3.3 may not “enlarge” the scope of applicability of the Convention determined in art. 1, which refers only to “situation involving a choice between the laws of different countries”.

          Despite this disputable point, it is clear that for the cross-border situations the mandatory rules referred to in art. 3.3 shall not be applicable if the law of another country is applicable, even though the parties would not be able to exclude them if they entered a contract governed by the law of the state in which they are binding. In other words, by contract parties cannot derogate the mandatory rules of given national system, but they may derogate the whole national system, thus derogating also the mandatory rules included herein.

          However, there is a special category of the mandatory rules, which may not be derogated from, even if another law of another country is chosen. These norms are referred to in French as normes fixant leur propre domaine d'application or lois de police, in German as zwingende Vorschriften or Eingriffsnormen. In English the distinction between the two types of mandatory rules is made by referring to those which may be derogated by contract as “contract-mandatory” and to those which may not as “conflicts-mandatory”.

          This second category is dealt with under art. 7 sec.1 of the Rome Convention, which states that: “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”. Practical example of this type of provision may be in art. 10 sec. 4 of the Polish Act on time-sharing agreements. This provision secures that if a given foreign national law did not provide the same level of protection to the acquirer of time-sharing right, then the Polish law would anyhow be applicable in certain circumstances (e.g. if the acquirer has domicile in Poland or the property is located in Poland). The question weather the Polish rules imposing obligation of a notary deed for real estate transaction may be seen as such conflict-mandatory rule has been answered by the Polish Supreme Court in negative, confirming that the form of the act will be governed by the law applicable to the contract and it is enough to observe the form as required by the foreign law (in the country in which the transaction is concluded). There were also special rules concerning heritage of agricultural farms which were deemed as mandatory by the Polish Supreme Court and which were abolished by the Polish Constitutional Tribunal.

          The conflict-mandatory rules may be found both in public and private law, but in any case they have to be in compliance with the Community law (see cases C-369/96 & C-376/96 and C-376/96 Jean-Claude Arblade, Arblade & Fils SARL and Bernard Leloup), Serge Leloup, Sofrage SARL). Therefore some limitations on acquisition by EU companies or citizens by the Polish Act on acquisition of real estate by foreigners may only apply within the transitional periods agreed in the Accession Treaty. As to the principle (of course there are exceptions!), the permission from the Polish Ministry of Internal Affairs is required from EU citizens for acquisition of agricultural land (this limitation will apply for 12 years from accession i.e. till 02.05.2016) and for acquisition of a second-house (this limitation will apply for 5 years from accession, i.e. till 02.05.2009).

 

Tomasz Kozlowski,

KRPIA Gluchowski Rodziewicz Zwara & Partners

t.kozlowski@kancelaria-sopot.pl