Bills of exchange circulate across borders. They expose economic players to a variety of national laws. When a document is drawn in one country, endorsed in another and payable in a third, which law applies? These questions require precise answers. The conflict of laws regime provides a framework for resolving these difficulties.
The international treaty framework
Attempts have been made to unify commercial paper law. The Geneva Conventions of 1930 and 1931 form the main basis.
The Geneva Conventions
Two fundamental conventions govern the matter:
- The Convention providing a Uniform Law for Bills of Exchange and Promissory Notes (LU Convention)
- The Convention on the Settlement of Conflicts of Laws (CDL Convention)
The first aims to harmonise national legislation. The second establishes specific rules for resolving persistent conflicts.
These texts have not been completely unified for several reasons:
- The failure of many countries, particularly in the English-speaking world, to sign up to the agreement
- Reservations made by signatory states
- Deliberate exclusion of certain issues (provision, capacity)
- Differences in case law interpretation
UNCITRAL and recent attempts
Faced with the limitations of the Geneva Conventions, the United Nations Commission on International Trade Law (UNCITRAL) drew up the Convention of 9 December 1988 on International Commercial Paper.
This text has not yet entered into force. It favours an approach inspired by Anglo-Saxon law, which is slowing down accession by States with a civil law tradition.
The diversity of legal systems persists. A complete guide to commercial paper makes it easier to understand these complex issues.
Conflicts over the validity of foreign exchange obligations
The validity of a commercial paper raises three main issues in international law: the capacity of the signatories, substantive requirements and formal requirements.
The capacity of signatories
The capacity of a person to bind himself by a negotiable instrument is governed by his national law. Article 2 of the CDL Convention confirms this classic rule in private international law.
The text does, however, introduce two caveats:
- If the national law refers to another law, the latter applies (first degree referral).
- A signatory who is incapable under his national law remains bound if he has contracted in a country whose law deems him capable.
This last rule favours the security of transactions to the detriment of the protection of incapacitated persons. It has been criticised and can be set aside by signatory states.
In the case of legal entities, the capacity to enjoy rights depends on the national law that grants them legal personality. Capacity to exercise rights (powers of representatives) is also governed by that law.
Basic conditions
The CDL Convention is silent on substantive conditions other than capacity. The ordinary law of conflict of laws applies.
Consent and cause are governed by the law of autonomy, i.e. the law chosen by the parties. In the absence of an explicit choice, there are two opposing criteria:
- The law of the place where the commitment is entered into (lex loci actus)
- The law of the place of payment (lex loci solutionis)
The majority of case law favours the law of the place of subscription. The advantage of this solution is that the form and substance of a chamber declaration are subject to the same law.
The law of autonomy governs :
- Vices and terms of consent
- The limits of the commitment (partial guarantee, special endorsement)
- The validity of no-warranty or no-charge return clauses
- The existence and validity of the cause
Formal requirements
Article 3 of the CDL Convention gives jurisdiction to the law of the place where the commitment was entered into (lex loci actus). This imperative principle is subject to two relaxations in order to preserve the validity of commitments:
- An engagement that is irregular under local law remains valid if it complies with the law of the place of a subsequent engagement.
- States may allow an undertaking given abroad by one of their nationals, in accordance with their national law but not with local law, to remain valid in respect of their other nationals.
These exceptions encourage the circulation of commercial paper by validating as many commitments as possible.
The place of signature is the actual place, not the place mentioned on the document. In the absence of any indication, elements such as the domicile or business establishment of the signatory are used to determine this.
Conflicts over the effects of currency obligations
The effects of foreign exchange commitments vary according to the status of the signatories. The CDL Convention makes a fundamental distinction.
The acceptor and underwriter of the promissory note
Article 4, paragraph 1, of the CDL Convention subjects the effects of the obligations of the acceptor of a bill of exchange or the subscriber of a promissory note to the law of the place where these securities are payable.
This solution is justified by the close link between the principal debtor's obligation and the place of performance. The Court of Cassation has confirmed this in several rulings.
The law of the place of payment determines :
- The extent of the principal debtor's obligation
- Exceptions enforceable against the bearer
- Remedies available once the limitation period has expired
- Payment currency
This rule also applies to partial acceptance, as specified in Article 7 of the CDL Convention.
Other obligations
Article 4, paragraph 2, of the CDL Convention subjects the effects of the obligations of the other signatories (drawer, endorsers, guarantors) to the law of the country in which they have signed.
This solution enshrines the principle of multiple connections. Each exchange undertaking is governed by its own law, independently of the other undertakings arising from the same instrument.
The law of the place of signature determines :
- The extent of the guarantee given by the signatory
- Exceptions enforceable against the bearer
- Recourse against the signatory
- Action for unjust enrichment after prescription
This mechanism can lead to the application of different laws to the various signatories of the same commercial paper. This complexity often justifies the use of a lawyer specialising in commercial paper law.
Disputes over the performance of foreign exchange obligations
The enforcement of foreign exchange obligations raises specific questions in international matters. Three aspects merit particular attention: provision, payment and remedies.
The provision
The advance represents the drawer's claim on the drawee. While its importance is paramount in French law, other legal systems give it a secondary role.
The LU Convention left this question to national legislation. Article 6 of the CDL Convention states only that "the law of the place where the instrument was created shall determine whether the holder of a bill of exchange acquires the claim which gave rise to the issue of the instrument".
The doctrine proposes a distributive application of the relevant laws:
- The law of the fundamental relationship between drawer and drawee determines the existence of the provision
- The law of the place of issue governs transmission to the bearer
This nuanced solution preserves the coherence of the legal system while recognising the diversity of national approaches.
Payment
Payment of an international trade bill raises issues of maturity, presentation and enforcement.
The CDL Convention entrusts the law of the place of payment :
- Payment regulations (article 7)
- Measures to be taken in the event of loss or theft (article 9)
- Part payment (article 7)
This solution is justified by the natural link between the place of performance of the obligation and the manner of its performance.
The currency of payment poses particular difficulties. Article 41 of the LU Convention addresses this by presuming that the parties refer to the currency of the place of payment, unless otherwise agreed.
These practical aspects determine the effectiveness of instruments such as the bill of exchange or the promissory note.
Cambodian remedies
Cambodian recourse relates to actions by the holder against guarantors in the event of default by the principal debtor.
Conditions of appeal
Article 8 of the CDL Convention makes the form and time limits of the protest subject to the law of the country where the protest is to be drawn up.
There are two reasons for this pragmatic solution:
- The protest is a procedural act linked to the territory in which it takes place
- The authorities that establish it naturally apply their own law
The law of the place where each guarantor is employed, in accordance with Article 4, paragraph 2, governs the cases in which appeals are lodged.
Exercise periods
Article 5 of the CDL Convention gives jurisdiction to the law of the place where the title was created to determine the time limits for exercising appeals.
This rule derogates from the principle of multiple connections. It aims to treat all guarantors equally, with some not benefiting from shorter time limits than others because of the law of the place where they are employed.
This provision only concerns recourse actions, not direct actions against the principal debtor, which are governed by the law of the place of payment.
Force majeure
Force majeure may excuse a delay in completing the formalities required to exercise remedies.
There are three opposing solutions for determining the applicable law:
- The law of the place where the title is created (article 5)
- The law of the place where the protest is drawn up (article 8)
- The law governing the conditions of recourse against each guarantor
The doctrine tends to favour a distributive application according to the aspect concerned: material conditions, formalities or legal effects.
Legal strategies in an international context
Faced with the complexity of conflicts of law, economic operators can adopt preventive strategies.
Choice of applicable law
Although private international law recognises the importance of party autonomy, this remains limited in the case of commercial paper.
The parties may nevertheless :
- Choosing the right place of issue
- Explicitly designate the law applicable to the fundamental relationship
- Stipulating international payment clauses
These strategic choices make it possible to anticipate certain conflicts of law.
Risk prevention clauses
Specific clauses can reduce the risks associated with conflicts of law:
- Choice of domicile clause
- Jurisdiction clause
- Currency of account and payment clause
- Hardship or indexation clause
These contractual stipulations are a useful addition to the legal regime governing commercial paper.
Impact of dematerialisation
La dematerialisation of commercial paper changes the approach to conflicts of law. Electronic documents of title raise specific questions:
- Location of issue and signature
- Determining the place of payment
- Application of formal rules
Act no. 2024-537 of 13 June 2024 introduces electronic transferable securities into French law, but its relationship with the rules of private international law remains to be clarified.
The effects of complacency in an international context
The effects of convenience raise particular difficulties in international law.
The classification of a bill of exchange as "of convenience" depends on criteria that vary from one legal system to another. The penalties for this practice also differ.
There are three potentially applicable laws:
- The law of the place of emission
- The law of the place of payment
- The law of the forum (court seised)
The majority of the doctrine favours the law of the place of issue for assessing the legality of the instrument. This solution is consistent with the general principle that substantive conditions are subject to the law of the place of the commitment.
Practical advice for companies
Companies operating internationally need to adopt a methodical approach to conflicts of law.
Preventive audit of practices
Before any international transaction involving trade bills, a preventive audit is essential:
- Identify the countries involved in issue, circulation and payment
- Check that these countries have signed up to international conventions
- Examine the specific features of their national legislation
This preliminary analysis helps to anticipate potential difficulties.
Appropriate documentation
The right legal documentation secures international transactions:
- Framework agreement governing commercial relations
- Clear stipulations on applicable law
- Specific information on the bills of exchange used
These precautions significantly reduce legal uncertainty.
Use of experts
The complexity of conflicts of law justifies the use of specialist advice:
- Expert in private international law
- Lawyer familiar with the relevant legislation
- Banking advisor familiar with international practices
They provide invaluable expertise in structuring transactions.
Securing your international transactions involving commercial paper requires specialised expertise. Our firm can help you identify the legal risks involved and develop appropriate solutions. Do not hesitate to contact our specialist lawyers for personalised advice.
Sources
- Geneva Conventions of 7 June 1930 (uniform law and conflict of laws)
- United Nations Convention of 9 December 1988 on International Commercial Paper
- French Commercial Code, articles L. 511-1 to L. 511-81
- Law no. 2024-537 of 13 June 2024 aimed at increasing business financing
- GIBIRILA D., Effet de commerce, Répertoire de droit commercial, Dalloz, January 2023
- CHÉMALY R., Conflits de lois en matière d'effets de commerce, Rec. cours La Haye, 1988
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