Characterisation, or characterization, in conflict of laws, is the second stage of the procedure to resolve a lawsuit that involves foreign law. The process is described in English law as Characterisation,MacMillan v Bishopsgate Investment Trust plc WLR 387 or classification within the English judgments of the European Court of Justice.C-359/14 and C-475/14 Ergo Insurance SE (2016) ECLI:EU:C:2016:40 It is alternatively known as qualification in French law.
It is used to determine the correct choice of law rules based on the circumstances of the case, primarily relating to matters of property. This is to reconcile differences between laws of different legal jurisdictions. The objective of characterisation is to determine the nature of the action brought by the defendant in order to determine what relevant rules of applicable law apply. This may result in applying laws which differ from the lex fori. Additional factors make this determination not necessarily a simple process as the incidental question and renvoi can make determining the initial point of reference difficult. The leading authorities in England and Wales are Macmillan Inc v Bishopsgate Investment Trust plc (No 3) WLR 387 and .
Overview Characterisation is one of the key elements in demarcating the choice of law and jurisdiction issues. The first stage is for the court to determine if it has jurisdiction, if appropriate, to avoid forum shopping. Once the forum court decides that it has jurisdiction to hear the case, it must characterise or classify the cause(s) of action, this relates to choice of law matters. That is regarded as the most important and difficult problem in conflict of laws as trade and travel between states have become the norm. The effects of broken promises, defective goods, traffic accidents and marital squabbles are no longer confined to the sovereign territory of one particular state or nation. This is especially complicated because domestic laws usually operate to satisfy domestic interest. Various causes of actions and their respective remedies differ depending on the state. This derive from historical and political circumstances. The addition of the Rome I and Rome II Regulations to the European Union conflict of laws regime is designed to determine the choice of law which applies to situations where commercial or civil matters of broken promises, defective goods, traffic accidents, etc. with a party which is domiciled in a Member State.
The role of characterisation within an international private law adjudication might be highlighted if understood within the simplest example of the sale of a bicycle by A to B. The transaction has both contractual and proprietary elements. Different jurisdictions will characterise the matter in different ways depending on their own laws. As is crucial within the international private law context, it is the responsibility of the adjudicating court to determine the proper law and subsequently apply it.
For example, in English law, two separate methods for characterising the cause of action exist. The first, are commercial and civil matters relating to contractual and non-contractual obligations. The Rome Regulations determine choice of law rules in said matters by providing an allocative framework for characterisation. By contrast, the second method is that of the common law rules, applying to matters of property, marriage, and matters which fall outside the Rome Regulations. In Macmillan Inc. v Bishopsgate Investment Trust plc 1 ALL E R 585, Auld LJ. accepted that "the proper approach is to look beyond the formulation of the claim and to identify according to the lex fori the true issue or issues thrown up by the claim and the defence". In both cases, characterisation depends on determining the applicable law to the set of facts in order to determine the choice of law. This is often done in reference to the lex causae, the "law of the causes". However, the lex causae would, under certain circumstances, be problematic for determining the facts of the case.
Characterisation of issues vs. characterisation of laws
Characterisation in the conflict of laws can be applied both to issues in dispute in a particular case, and in relation to particular foreign laws.
Issues Typically in a dispute which has a cross border element, where an issue arises between the parties the court will characterise the nature of that dispute, and the characterisation or classification of the issue will thereby point to the correct choice of law rule to apply. Although the characterisation process is a fundamental part of the conflict of laws, cases where characterisation is disputed are relatively rare. In most cases the proper characterisation is applied almost "without thought".
In English law two of the most celebrated cases where classification was disputed were the leadings cases of Macmillan Inc v Bishopsgate Investment Trust plc (No 3) WLR 387 and Raiffeisen Zentralbank Österreich AG v Five Star General Trading LLC EWCA Civ 68.
In Macmillan the issue was which party had the greater priority claim to certain shares - the mortgagee of the shares, or the innocent third party who had been defrauded by the mortgagor. The mortgagees argued that the issue was properly characterised as an issue of property law (in which case the law of the situs would apply), whereas the defrauded victims argued it was an issue of the law of restitution (in which case the law of the place of enrichment was argued to apply). The Court of Appeal held that the issue of who had priority to title to the shares was an issue of property law.
In RZB v Five Star General Trading LLC EWCA Civ 68 the issue was who had a better claim to the proceeds of a marine insurance policy - the banks to whom the insurance policy had been mortgaged, or a third party who had obtained an attachment over the policy following a collision at sea. The third party argued that the issue was a matter of property law (in which case the law of the situs - which in this case was France - should apply, and they would prevail). The banks argued it was a matter of the law of contract (in which case the governing law of the contract - English law - would apply). The Court of Appeal held that the issue should properly be characterised as a matter of contract.
Foreign laws The English courts will often seek to characterise a rule of foreign law to determine whether or not it applies to the dispute before them. For example, in Huber v Steiner (1835) 2 Bing (NC) 202 the court had to consider the nature of a rule of French law which prohibited the bringing of an action on a promissory note (which was governed by French law) after five years. The court held that the rule of French law was procedural rather than substantive, and that as such it did not apply in the proceedings before the English court as procedural matters were to be determined by English law. Similarly, in Re Maldonado P 223 a Spanish domiciliary had died intestate with no living heirs. Under Spanish law the state would inherit as 'ultimate beneficiary'. The English court had to decide whether the Spanish law was properly characterised as a rule of succession (in which case it would apply, as the law of the deceased's domicile) or a rule of property law (in which case it would not apply, as the relevant property was located in England and title was determined by the lex situs). The court characterised the Spanish law as a rule of succession and applied it.
Decision on law to be applied Although it may appear logical to allow the whole of the lex causae, including its characterisation rules, to apply, it actually produces a circular argument: the lex causae is to apply to the process of characterisation before the process of characterisation has led to the choice of the relevant lex causae. Certain exceptions to the application of the Lex Causae are outlined below.
Thus, the conflict rules of the lex fori, the domestic law of the forum, (i.e. the court dealing with the case,) are usually applied even if, in extreme cases, the application of only the substantive provisions of the foreign law by the forum court could produce a judgment that neither the lex causae nor the lex fori would normally have produced. Nevertheless, there are several cases when characterisation is not made by the lex fori: choice of law clause (lex voluntatis), such as those regulated by Article 4 of the Rome II Regulation subsequent characterisation (which is a problem of the lex causae) real estate or immovables (when lex situs applies) renvoi unknown legal institutions law of nationality (when lex patriae applies) international treaties
Process The court is required to analyse the pleadings prepared by the parties and to assign each component element to the most appropriate juridical concept or category. The rules of any given system of law are arranged under different categories, addressing procedure, status, contract, tort, divorce, nullity etc. For each category, there is one or more choice of law rules. Thus, for example, all questions as to the status of a person before a court (a minor or adult, legitimate, legitimated or illegitimate, married or not, mentally incapacitated or not, bankrupt or not etc.) will all be governed by the person's personal law, the law of nationality (the lex patriae) or habitual residence in a civil law state, or the law of domicile (the lex domicilii) in a common law state.
In English law, the complete application of Characterisation is limited in commercial and civil matters by the Rome I and Rome II Regulations which provides a framework for categorisation of said matters within the European Union regime. English common law characterisation has resultantly become limited to all matters which do not fall within Rome Regulations (matters which are not civil and commercial matters). This includes matters of property and marriage.Pippa Rogerson, Collier's Conflict of Laws, Fourth Edition, Cambridge University Press, 377 Staughton LJ Macmillan Inc v Bishopsgate Investment Trust WLR 387, Para 391-392 sets out three stages
This means that in England, the specific legal problem will be governed by the law of the connecting factors. The leading text of Dicey & Morris formulates the question, using the example of the constitution of a corporation in the following manner:
Thus, the category, which is determined by understanding the substantive question at hand, is used to identify a relevant connecting factor. The first stage must be used to determine the "character" of the claim (hence characterisation). This is not necessarily the name of the action but the type. i.e. Not necessarily conversion but it is a matter relating to ownership of personal property. Lord Mance in Raiffeisen Zentral Bank expressed caution with relation to allowing the rules to control decision and emphasised the importance of determining the core matter which is sought to be determined. QB 825 at 841 In the case of MacMillan, it was whether the parties were bona fide purchasers for value without notice. This The second and third stages of this test are determined by the lex fori. The Characterising laws as either procedural or substantive is necessary, but that part of the process can be abused by the forum court to maximise the use of the local law.