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International Payments and Conflicts of Laws
Author(s): Luca G. Radicati di Brozolo

Source: The American Journal of Comparative Law, Vol. 48, No. 2 (Spring, 2000), pp. 307-326
Published by: American Society of Comparative Law
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LUCA G. RADICATI DI BROZOLO
International Payments and Conflicts of Laws
1. INTRODUCTION
Since international payments involve contacts with at least two

different States and their respective legal systems, it is intuitive that
they raise issues of conflicts of laws. Anybody even superficially fa-
miliar with private international law would be quick to realize that
such issues are bound to be numerous and complicated. Yet it is sur-
prising that, despite the number of international payments made
each day around the world and the likelihood of disputes liable to
raise conflicts problems, both the case law and the literature on these
issues are quite scarce.' This could be explained in several ways: ei-
ther the problems are in practice not relevant; or they are relevant to
such an extent intractable that litigants, courts and even conflicts
lawyers internationally shy away from them; or they are completely
overlooked.2
LUCAG. RADICATI DI BROZOLO is Professor of Private International Law, School of

Law, Universita Cattolica di Milano; Partner, Chiomenti Studio Legale. The author
wishes to thank the Boalt Hall School of Law, University of California at Berkeley
where this paper was written.
1. As confirmed by M. Pelichet, "Questionnaire on the law applicable to interna-
tional credit transfers: synthesis of replies, in Hague Conference on Private Interna-
tional Law, Proceedings of the Seventeenth Session (1995) 265 seq. at 273 on the basis
of a questionnaire submitted to a number of banks and funds transfer systems, the
reported cases which have addressed the issue of conflicts of law have been extremely
few: see Evra Corporation v. Swiss Bank Corporation, 522 F. Supp. 820 (N.D. Ill.
1981), at 826 (on appeal the court - in the person of no less than Posner J., - consid-
ered the conflicts of laws issue not worthwhile addressing on the grounds that the
result would have been identical on the merits regardless of the applicable law: 673
F.2d 951 (7th Cir. 1982), at 954); Delbruek v. Manufacturers Hanover Trust Company,
464 F. Supp. 989 (S.D.N.Y. 1979), at 993 (the issue of conflicts was not addressed by
the Court of Appeal: 606 F.2d 1047 (2nd Cir. 1979)). Conflicts of laws issues were not
even mentioned in other well known cases involving international payments which
could very well have given rise to a discussion of this point, such as Momm v. Barclays
Bank International, [1977] 1 QB 790; A/S Awilco v. Fulvia SpA di Navigazione (The
Chikuma), [1981] 1 All ER 652.
2. The lack of interest in these matters is in contrast with the attention devoted
to the neighboring problem of conflicts of laws in cross-border deposits: see, also for
the references to the case law, Radicati di Brozolo, "Qualche riflessione sulla dis-
ciplina dei contratti internazionali;: il caso degli eurodepositi, in Rivista di diritto in-
ternazionale privato e processuale 529; E.M. Kwaw, Grey Areas in Eurocurrency
Deposits and Placements 217-56 (1994); Herring & Kiibler, "The Allocation of Risk in
Cross-Border Deposit Transactions" 89 Nw. U. L. Rev. 942 (1995); Sommer, "Where is
a Bank Account?," 57 Md. L. Rev. 1 (1998).
307
308 THE AMERICAN JOURNAL OF COMPARATIVE LAW [Vol. 48
As a conflicts lawyer I cannot accept the first possibility, which

would call into question the usefulness of this branch of law, and I
obviously have more sympathy for the third one. This justifies the
decision to devote an essay to the subject of conflicts of laws in inter-
national payments, although I realize that raising the awareness of
these problems might simply open a Pandora's box of additional po-
tential for litigation. At the same time the need to keep this paper
within reasonable limits provides an excuse for not dealing with any
of the matters in depth and thereby having to face up to the conclu-
sion that the issues are indeed intractable and better left unexplored.
2. THE LEGAL PROBLEMS OF INTERNATIONAL PAYMENTS
For the purposes of this analysis an international payment is one

of two types of transactions. The first type, called a credit transfer in
the terminology of the UNCITRAL model law which will be discussed to
some extent further on.3 This is the transaction whereby funds are
transferred at the initiative of one party (the "Originator") to con-
tinue to use the model law's terminology to another party (the "Bene-
ficiary") through one or more banks or other financial intermediaries.
The second type of international payment is a debit transfer, where
the payment is made in accordance with an order given by the benefi-
ciary of the payment to the holder of the payor's funds in accordance
with a prior authorization by the payor. In other words, a credit
transfer is debtor-initiated, whilst a debit transfer is creditor-initi-
ated (the terms debtor and creditor are used here somewhat loosely).
Both types of transactions typically involve a minimum of three, but
often many more parties: the originator, the beneficiary and one or
more intermediaries. Both types of transactions can be carried out by
traditional paper-based techniques or by more sophisticated elec-
tronic computer-based systems.4
Always for the purposes of the present discussion a credit or a
debit transfer is international as opposed to purely domestic when it
has contacts with more than one State. These contacts typically re-
sult from the fact that some of the parties involved are nationals of,
or have their domicile or place of business in, different countries, but
they may result from any other element, foremost amongst which the
currency in which the payment is to be made. The concept of "inter-
3. UNCITRAL Model Law on International Credit Transfers adopted by the

United Nations Commission on International Law on May 15, 1992. The adoption of
legislation based on the model law formed the object of a recommendation of the Gen-
eral Assembly of the United Nations dated November 15, 1992.
4. I will not deal here with issues relating to bills of exchange and checks which
although technically a means for international payments - pose somewhat differ-
ent problems (for a conflict of laws analysis of these instruments see Radicati di
Brozolo, "La legge regolatrice dei titoli di credito," in I Banca, borse e titoli di credito
434 (1998).
2000] INTERNATIONAL PAYMENTS 309
national payment" used here is thus broader than the one used by the
UNCITRAL model law which considers only the fact that the banks in-
volved are in different countries.
An international payment may give rise to countless problems,
and consequently disputes, possibly needed to be solved by legal rules
or principles. These may have to do with the payment instructions
given by the originator (or any party further along the chain) - for
example, in what form are the instructions to be given; how are they
to be interpreted; how and until what point are they revocable or
modifiable and at what points do they become final and irrevocable;
how and when may a stop payment order be given). They may have
to do with the payment (where and at what moment is it supposed to
be made and is it actually considered to be made). They may have to
do with the consequences of a failure to carry out the instructions
correctly (what remedies are available in case of late or erroneous
payment such as underpayment, payment to the wrong beneficiary:
entitlement only to interest or also to damages, and the amount
thereof, etc.).
Although it is these problems that practitioners will first seek
concrete answers, I will not deal with them. This is not so much be-
cause of their difficulty but because they are the domain of substan-
tive lawyers and not of a conflicts lawyer. It is because any attempt
to do so in the abstract would be meaningless.
Indeed, notwithstanding that the problems posed by interna-
tional payments are not in principle different from the ones posed by
purely domestic ones. However, there is one very significant differ-
ence. Also with regard to domestic payments the rules and solutions
may not necessarily be clear, but there is at least certainty as regards
to the legal system within which they are to be sought, this being
obviously the one of the country with which the payment has its only
contacts. Even this certainty is lacking with regard to international
payments. Since there is no single set of rules dealing (automatically
or prima facie) with all international payments,5 or for that matter
with any given international payment, at least in theory each pay-
ment can be analyzed from the perspective of more than one legal
system. The consequence is that there is no single solution to any of
the problems mentioned above and that actually there is a potentially
different solution for each one of these problems depending on the
legal system in the light of which it is analyzed.
It is thus obvious that whatever attempt to seek the solution of
any specific legal problem arising from an international payment
must be preceded by a conflicts of laws analysis aimed at identifying
the legal system (or systems) against the backdrop of which the pay-
5. The reasons why not even the Uncitral model law provides such a set of rules
will be discussed further on.
ment is to be viewed. Despite the scarce attention devoted to it, per-

haps because of its apparent abstruseness, private international law
plays a central role in the context of international payments. Here I
will point to only a few general problems, without differentiating be-
tween the different types of payments, but it should be clear that a
discussion in much greater depth would be required.6
3. THE ROLE OF CONFLICTS OF LAWS AND OF THE UNCITRAL

MODEL LAW
As is evident to those with a knowledge of the workings of con-

flicts of laws, not even the preliminary question - which legal sys-
tem, amongst the potentially applicable ones, is the one within which
the solutions to the problems of a given international payment are to
be sought? - lends itself to a unique answer. The reason is, of
course, that conflicts rules, which are the rules which identify the
applicable legal system to govern any substantive question, are them-
selves rules of national law. Therefore they may vary from one sys-
tem to another. The question of which law is applicable in any given
case will therefore very much depend on the perspective from which
it is raised. In practice this amounts to saying that it depends on
where the action will be brought. This in turn means that there is an
issue that is preliminary even to that of conflicts law, i.e., the one of
jurisdiction.
All this clearly introduces a large number of variables (or, put
otherwise, multiple levels of uncertainty) into the quest for a solution
to any one of the substantive problems posed by international pay-
ments. Such a relativity of solutions, is, however, inherent in all in-
ternational commercial transactions and it is therefore essential to be
aware of it and to understand the rules of the game.7
This uncertainty can be eliminated - if only to a point - by a
process of harmonization of domestic law. In the context of interna-
tional payments, an attempt to introduce certainty and simplification
in this way has been made with the adoption of the UNCITRALmodel
law on international credit transfers. As is well known, this law ad-
dresses several of the substantive problems referred to above.8
6. For a discussion of many of these issues see Giovanoli, "Paiements et obliga-

tions Mon6taires internationales," in Collected Courses of the Hague Academy of In-
ternational Law (1997, forthcoming).
7. See generally Mathias Reimann, Conflicts of Law in Western Europe: a Guide
Through the Jungle (1995).
8. See Bergsten, "A Payments Law for the World," in R. Effros (ed.), Payment
Systems of the World (1994); Bischoff, "Das Uncitral-Modellgesetz fiber den
Uberweisungsverkehr," in Schweizerische Zeitschrift far internationales und
europaisches Recht (1993) 285; J. Genner, Das UNCITRAL Modellgesetz uber den in-
ternationalen Uberweisungsverkehr (1995); Migliorino, "La legge modello Uncitral sul
tranferimento internazionale dei fondi," in Diritto del commercio internazionale 137
(1995); Schneider, "The uniform rules for international credit transfers under the Un-
20001 INTERNATIONAL PAYMENTS 311
However, quite apart from the fact that no State has yet adopted
legislation based on the model law, even this instrument by no means
eliminates conflicts of laws problems.
First of all, the very application of the model rules depends on
conflict rules. This is particularly so because this instrument is a
model law and not an international convention. Consequently, its
rules are not automatically applicable even where the substantive
question to be solved arises before the court of a state which has
adopted it. Indeed, the model rules will be applicable only if they are
part of the law of the state whose law is considered applicable under
the forum's conflict rules. This is unless, under the law of the forum
State which has adopted them, the model rules are considered
mandatory (i.e., "regles d'application immediate") in that they are ap-
plied to any international payment, regardless of the law designated
by the conflict rules as the governing law of a specific transaction.
Since nothing is said on this issue in the model law, the question is
left entirely open. In practice, the model rules may be applicable in a
given case if this arises in a country which has adopted the law. The
solution depends on the conflict rules of the forum.
Secondly, recourse to conflict rules remains necessary to address
issues not covered by the model law, since this does not provide solu-
tions to all substantive issues arising from international payments.
This is because the model law does not deal with all international
payments, on account of the fact that it adopts a restrictive interpre-
tation of the term international payment; because is does not deal
with debit transfers; and because, even with regard to credit trans-
fers, it does not provide definite solutions to all conceivable problems.
Moreover, since a model law is precisely only a "model" for states
wishing to enact legislation, and these remain free to adapt it to their
individual peculiarities, there could remain significant differences
even between the laws of states which have adopted legislation based
on the model law, thereby leaving additional scope for conflicts
problems.
Finally, it is worth pointing out that, although the problem of
conflict of laws itself has been touched upon by UNCITRAL, as will be
shown further on this has been done only incidentally and in a far
from satisfactory manner.
citral model law," in W. Hadding & U. Schneider (eds.), Legal Issues in International
Credit Transfers 451 (1993); Vasseur, "Les transferts internationaux de fonds: la loi
type des Nations Unies sur les virements internationaux, les cartes de d6bit," in Col-
lected Courses of the Hague Academy of International Law, vol. 239 (1993-lI), p. 117
seq. See also Effros, "ABanker's Primer on the Law of Electronic Funds Transfer," in
105 Banking L. J. 510 (1988).
4. CONFLICTS OF JURISDICTION
In an international payment the applicable conflicts rules, and

therefore ultimately the applicable substantive law, depend on the
legal system from whose perspective the matter is addressed. It is
useful to begin with a few considerations on conflicts of jurisdiction.
At this point it will come as no surprise that even in this matter there
is no single solution, inasmuch as the rules on conflicts of jurisdiction
are national and vary from one state to another.9 The upshot is that
a single payment (or a single portion of a payment transaction) will
often be subject to multiple jurisdictions, with considerable potential
for different conflicts of laws, and a fortiori substantive law, solu-
tions, and thus for forum shopping.
Since it is impossible to examine the matter from multiple per-
spectives, I will restrict myself to an analysis from a European view-
point,10 and more specifically from the viewpoint of the Brussels
convention on jurisdiction and recognition and enforcement of judg-
ments in civil and commercial matters of September 27, 196811 and of
the "parallel" Lugano convention of September 16, 1988. Given that
international payments clearly fall within the definition of "civil and
commercial matters," it to these conventions that one must look for
the applicable rules on jurisdiction with respect to defendants domi-
ciled in a member State of the European Community or of the Euro-
pean Economic Area.12
9. As is known, the difficult issue of the harmonization of rules on conflicts of

jurisdiction is on the agenda of the Hague Conference on private international law:
see Von Mehren, "Recognition and Enforcement of Foreign Judgments: a New Ap-
proach for the Hague Conference?,"in 57 Law & Contemp. Prob. 271 (1994). Von Meh-
ren, "The Case for a Convention-mixte Approach to Jurisdiction to Adjudicate and
Recognition and Enforcement of Foreign Judgments, in 67 Zeitung fur internationales
und auslandisches Privatrecht 96 (1997). On the general issue of the influence of
(public) international law on the conflicts of law see most recently P. Vareilles-Som-
mieres, La competence internationale de l'Etat en mati&e de droit prive (1997).
10. For interesting insights into these problems from a U.S. perspective see Som-
mer, "A Law of Financial Accounts: Modern Payment and Securities Transfer Law,"
in 53 Bus. Law. 1181 (1998).
11. The rules of the Brussels Convention should undergo some changes. The Eu-
ropean Commission has issued a proposal for regulation of the EC Council which, if
adopted, would replace the Brussels Convention for most EC Member States (see
COM (1999) 348 final of July, 14, 1999). The text of the Regulation is almost identi-
cal-save for a number of relatively minor changes to a number of provisions-to the
one Brussels Convention. Article 5, no. 1, which is discussed further on in this paper,
is one of the provisions likely to be modified with respect to the present rule, but the
wording of the current draft proposal do not significantly affect the conclusions
reached here.
12. The jurisdiction of member states with respect to defendants not domiciled in
the territory of a member State is determined by their respective general rules of
jurisdiction (in some cases these are similar to - or even coincide with - those of the
Brussels Convention: see generally Reimann, Conflicts of Laws, cit. and, with specific
reference to Italy, L.G. Radicati di Brozolo, "Private International Law," in U. Mattei
and J. Lena (eds.), Introduction to Italian Law 2000 (forthcoming, 2000).
These conventions provide for two main heads of jurisdiction rel-

evant for international payments, i.e., the domicile of the defendant,
laid down in Article 2, and the "place of performance of the obligation
in question," laid down in Article 5, n. 1. A further head of jurisdic-
tion might be relevant in relation to disputes arising from claims of
restitution, notable in the event of an erroneous payment or of over-
payment claims of restitution, notably in the event of erroneous pay-
ment or of overpayment. In these case it is possible - but by no
means certain - that jurisdiction would lie not only in the forum of
the defendant, but also in the one of quasi-contract laid down by Arti-
cle 5, n. 3 of the Brussels and Lugano conventions.13
These provisions of the Brussels and Lugano Conventions give
rise to a wealth of problems, which would obviously arise also in con-
nection with international payments.14 In this context one of the
most delicate issues would seem to be the one relating to the identifi-
cation of the "obligation in question" and even more so of the place
where it falls to be performed. Even this preliminary question raises
conflicts of laws issues, since according to the case law of the Euro-
pean Court of Justice this place is to be determined in the light of the
governing law of the obligations according to the rules of private in-
ternational law of the forum.15 The potential for jurisdictional dis-
putes, as well as for the multiplication of fora, is increased by the
European Court's position that, where a dispute relates to more than
one obligation 'of the same rank', even if arising under a single con-
tract, the same court does not have jurisdiction to hear the whole of
the action if all the obligations do not fall to be performed in the coun-
try of the court.16
The rules relating to the place where an obligation is to be per-
formed vary considerably from one legal system to the other and de-
pend on the nature of the obligation in question. There thus arises
the issue of the characterization of the obligation17: is it, for instance,
13. See the judgement of the European Court of Justice of March 28, 1995, Case
C-346/903 and Kleinwort Benson v. City of Glasgow City Council, 1995 ECR 1-615;
and Radicati di Brozolo, "La ripetizione dell'indebito nel diritto internazionale privato
e processuale," in Collisio legum: Festschrift fur Gerardo Broggini 421 (1996).
14. J. Kropholler, Europaisches Zivilproze/3recht (5th ed., 1996).
15. P. Kaye, Civil Jurisdiction and the Enforcement of Foreign Judgments (1987);
H. Gaudemet Tallon, Les Conventions de Bruxelles et de Lugano (1996); R. Geimer &
R. Schutze, Europaisches Zivilverfahrensrecht. Kommentar zum EuGVU und zum
Lugano Abkommen (1997); L. Mari, II diritto processuale civile della Convenzione di
Bruxelles (1999); F. Salerno, La convenzione di Bruxelles e la sua revisione (2000).
16. On these two issues see the judgements of the European Court of Justice re-
spectively of September 28, 1999 in Case C-440/97, GIE Groupe Concorde v. The
Master of the Vessel Suhadiuwarno Panjan, and of October 5, 1999 in case C-420/97,
Leathertex Divisione Sintetici spa v. Bodetex BVBA (both as yet unreported in ECR).
These problems are unlikely to simplified to any significant extent by the adoption of
the amendment referred to in note *** above.
17. On the subject of characterization, and of its practical impact in international
conflict of laws cases, see Forsyth, "Characterisation Revisted: An Essay in the The-
an agency relationship or some different sui generis type of relation-

ship? The even more delicate question is whether the web of relation-
ships which make up an international payment is to be viewed as a
single transaction, or instead as a set of connected, but independent
transactions. In the simplest case (where the originator and benefici-
ary use the same bank) there will simply be a relationship between
the originator and the bank and one between the bank and the bene-
ficiary; in more complex ones there will be many more relationships,
between each party to a link of the chain. The situation is yet more
complicated where clearing houses are involved.
Under the traditional approach - still adhered to by the well
known Article 4A of the Uniform Commercial Code and also shared
by the UNCITRALmodel law - each portion of the overall transaction
tended to be viewed as an individual transaction.'8 In light of devel-
opments in the technical means of international payment transac-
tions this view, probably not followed in some continental legal
systems,'9 is felt by some to be particularly deserving of reconsidera-
tion, at least in the context of substantive law and even more so (as
we shall see presently) of conflicts of laws. The reasoning is that the
speed and the complexity of payments by electronic means (which by
the way tend to displace traditional paper-based transactions) make
it impossible to identify at what point in the chain, and at what mo-
ment, problems may occur, and therefore require that the payment as
a whole - i.e., the entire chain of relationships starting from the
originator's order to the credit of the beneficiary's account - to be
viewed as a single transaction from a legal standpoint.20
Whether an international payment is to be considered as a single
transaction or as a series of juxtaposed segments is in any event an
issue of characterization. Under the Brussels convention this opera-
tion has to be carried out, not on the basis of any individual legal
system, but under an "autonomous" characterization based on the
spirit of the convention and aimed at permitting a uniform applica-
tion of the latter. In the absence of any significant precedent it is
difficult to foresee how the courts would rule on this issue.
In either case the applicable heads of jurisdiction would, as men-
tioned, be the domicile of the defendant and the place of performance
of the obligation in question. While the first one would not seem to
raise any particular problem, the second one might.
ory and Practice of the English Conflict of Laws," in 114 Law Quarterly Rev. 141
(1998).
18. For a discussion of this point see M. Vasseur, Les transferts internationaux de
fonds, cit., especially p. 183 seq.
19. M. Vasseur, loc. cit.
20. Pelichet, "Note on the problem of the law applicable to international credit
transfers," in Hague Conference on Private International Law, Proceedings of the
Seventeeth Session 1995, p. 63 seq.; M. Vasseur, Les transferts internationaux 350-55.
Were the payment to be viewed as a single transaction, it would
be necessary to identify the place of performance of the overall obliga-
tion, as determined by the lex causae pointed to by the forum's con-
flict rules. Where the dispute deals with the obligations directly
inherent to the payment (for instance was the payment timely and for
the correct amount, etc.) this place would most likely be held to be at
the location of the beneficiary's bank where the account to be credited
is held. The situation might be less clear where the dispute relates
instead to the obligation of the bank (or banks) to pay damages or
interest in the event of failure on their part correctly to carry out the
originator's instructions, although here too the place of performance
might probably be held to be at the location of the beneficiary's ac-
count rather than at the domicile of the originator.
The advantage of this solution is that there would in principle be
a single forum for the entire transaction, regardless of the party
against which the action is brought. The disadvantage would be that
this forum might in some cases be rather remote from at least some of
the parties most closely involved in the transaction. Such would be
the case, for instance, of a dollar payment from an Indian originator
to a Greek beneficiary, both with accounts at small local banks. In all
likelihood this payment would transit through a considerable number
of banks located in different countries, some of which certainly would
be in the United States, and most of which would find it strange and
inconvenient to be sued in Greece.
If, on the other hand, the payment were construed as a set of
individual juxtaposed transactions, the obligation "in question"
would have to be considered having regard to each one of the seg-
ments. Although the solution might vary depending on the applica-
ble law, the place of performance of each segment might well be
considered to be the place of business of the next bank along the
chain. For instance, as regards to the relationship between the origi-
nator and its bank, the place of performance of the obligation of the
latter to make funds available to a correspondent bank for the ac-
count of the originator could well be seen to be the place of business of
the correspondent bank or of the third bank with which both banks
involved maintain correspondent accounts, or even of the system
through which the transaction is cleared. The traditional view would
thus obviously result in a multiplicity of fora, each having jurisdic-
tion only on a fraction of the overall transaction, for what is from a
substantive and economic viewpoint a single transaction. In any case
it would lead to a considerable additional uncertainty without neces-
sarily permitting jurisdiction to be allocated in each case to the court
most ideally suited to hear the case.
The conclusion might be that in the context of international pay-
ments it would perhaps be best if the only forum were the one of the
defendant. In other words, this might be one of the (probably not

very numerous) cases where there is some merit in the criticism
against the forum of the place of performance2' that has put the revi-
sion of Article 5, n. 1 at the center of the discussions on the revision of
the Brussels and Lugano conventions, without, however, bringing
about major changes. Consequently, the parties to international pay-
ments with links to the countries parties to the two conventions will
have to reckon with this forum and with its inherent uncertainties
due to the inextricable circular relationship between issues of con-
flicts of laws, conflicts of jurisdiction and substantive law.
It should also be mentioned that things may be yet further com-
plicated because with regard to international payments jurisdiction
might be asserted also under Article 6 of the two conventions which
permits a defendant domiciled in a contracting State to be sued in the
court of another contracting State either when he is a third party in
an action on a warranty or guarantee or in any other third party pro-
ceedings. Whether this "connection" would exist in any given case
would have to be determined, here again, on the basis of an autono-
mous interpretation not directly based on the lex fori or the lex
causae. Considering that in the interpretation of Article 6 regard
must be had to the definition of related actions contained in Article
22, para. 3, which defines these as actions "so closely connected that
it is expedient to hear and determine them together to avoid the risk
of irreconcilable judgments," the relevance of this head of jurisdiction
cannot be excluded where one of the parties to a payment seeks to act
against more than one of the other parties involved.
Of course the forum of the defendant, of the place of performance
and of the connected action can be displaced by appropriate forum
selection clauses concluded ad hoc or, more likely, contained in gen-
eral conditions governing the relations with, or between, banks or re-
lating to the participation in a clearing system. The effect of these
clauses is recognized by Article 17 of the two conventions. Although
in principle such clauses could be used to unify the forum for each
payment, this is in practice impossible, since the way in which these
transactions are carried out in practice stands in the way of any
agreement on jurisdiction between all the parties concerned, and this
even apart from the well known reluctance of banks to accept a forum
other than that of their place of business. Forum selection clauses
will thus have the effect of fragmenting the jurisdiction over the over-
all transaction. Their advantage is the elimination of much of the
uncertainty inherent in the search for the competent jurisdiction in
each individual case which might otherwise result in the jurisdiction
of a forum at odds with the expectations of at least some of the par-
21. See for instance, Hill, "Jurisdiction in Matters Relating to a Contract Under
the Brussels Convention," Int'l & Comp. L.Q. 591 (1995).
ties and having fairly loose contacts with the tasks performed by each
one of them.
5. CONFLICTS OF LAWS
5.1. UNCITRAL'S "SUGGESTED" CONFLICT RULE
Unlike conflicts of jurisdictions, conflicts of laws were considered

by UNCITRALduring the process of drafting the model law. The idea
of including a rule on this subject was eventually discarded, largely
as a result of criticism by the permanent Bureau of the Hague Con-
ference on Private International Law22 and because the issue was not
considered mature.23 Nevertheless, the text of the conflicts of laws
provision originally considered by UNCITRAL was included as Article
Y in a footnote to the model law where the Commission "suggests" the
text "for States that might wish to adopt it." This is a rather strange
way of proceeding, considering that all the provisions of the model
law are themselves not mandatory, and it probably simply indicates
that there was even less consensus on this rule than on the substan-
tive ones.
The "suggested" rule states that "the rights and obligations aris-
ing out of a payment order shall be governed by the law chosen by the
parties. In the absence of agreement, the law of the state of the re-
ceiving bank shall apply."
It is not necessary to deal with the criticism leveled at the rule
for its lack of clarity as to its scope, and more specifically whether it
is a conflict rule designed to define the range of applicability of the
model law itself, or whether it is also intended to designate the appli-
cable law in situations involving the laws of States which have not
adopted the model law. It is clear that, when adopting the model law,
States will have to define the scope of its substantive provisions, in-
cluding whether - or to what extent - they are "regles d'application
immediate," and hence applicable regardless of conflicts rules.
Should the model rules, for instance, apply to any international pay-
ment coming within the jurisdiction of the courts of that state, or to
any international payment having certain contacts with the forum
(for instance the domicile of the originator or of the beneficiary, or the
place of business of their respective banks)? Or should they be appli-
cable only where they are part of the law declared applicable by the
conflicts rules, be it the one of the forum or that of another State
having adopted the model law? In doing so it will be necessary to
bear in mind the pitfalls of the application of the provisions of the
model law to payments involving states which have not adopted it or
22. M. Pelichet, Note on the problem of the law applicable to international credit
transfers (supra n. 20).
23. See generally M. Vasseur, Les transferts internationaux, cit., p. 355.
318 THE AMERICAN JOURNAL OF COMPARATIVE LAW [Vol.48
have adopted it with significant modifications. Ordinary conflicts

rules will be required to the extent that the model rules will not be
considered mandatory.
As regards to its merits, the rule is obviously to be read in the
light of the general approach of the model law which, as mentioned
above, views payments as a succession of distinct bilateral opera-
tions. Thus the conflict rule could have to be applied separately to
each segment of the payment, with the result that each one of these
would end up being governed by a different law. This solution has
been the main focus of the vigorous criticism by the Permanent Bu-
reau of the Hague Conference on Private International Law, accord-
ing to which the segmentation of the transaction also from the
perspective of conflicts of laws is unfeasible in the case of credit
transactions carried out electronically, and moreover makes the
model law almost pointless because the solutions proposed by it (no-
tably with regard to the revocation of the payment order) can only
work properly if the entire transaction is subject to the same body of
rules.
5.2 THE ROMECONVENTION

The criticism against UNCITRAL'S suggested conflict rule would
seem to point to the need to develop a different and more appropriate
ad hoc conflict rule for international payments (in which case obvi-
ously the Hague conference would be the appropriate venue). Before
turning to this aspect one should consider the situation under the
conflict rules that govern the matter pending either the introduction
of such a new rule, or at least the adoption of the UNCITRAL rule by
States which enact legislation based on the model law.
Once again my few remarks will be from a European perspective,
i.e., from that of the Rome Convention of June 19, 1980 on the law
applicable to contractual obligations. As is well known, this conven-
tion, which obviously contains no ad hoc rule on international pay-
ments, contains two rules which would be of central relevance here.
The first one (Article 3) is the one which gives effect to the choice of
the parties on the subject of the governing law. The second one (Arti-
cle 4) is the one which - in the absence of such a choice
designates the law with the closest connection to the transaction and
lays down a rebuttable presumption that this law is the one of the
country of the place of business of the party which provides the "char-
acteristic performance."24
24. On the Rome Convention see generally Richard Plender, The European Con-
tracts Convention (1991); Peter Kaye, The New Private International Law of Contract
(1993); with specific reference to its application with regard to banking transactions
see L.G. Radicati di Brozolo, Operazioni bancarie internazionali e conflitti di leggi
(1984).
Nothing is said directly in the convention about whether, when it

is applied to international payments, these are to be considered as a
single multiparty transaction or as a succession of different opera-
tions. As in the context of conflicts of jurisdictions, this is an issue of
characterization to be settled, not in the light of any given system of
substantive law, but specifically for the purposes of applying the Con-
vention. It is difficult to foresee how the matter would be settled,
especially in the absence of jurisdiction from the Court of Justice of
the European Communities over the uniform interpretation of the
Rome convention.25 However, it is to be expected that some consider-
ation would be given to the work of UNCITRAL, which until now is the
only serious attempt to tackle these issues at an international level,
as well as to the legislation of the United States which to date is the
only other significant model. Both of these examples would certainly
weigh against the characterization of the payment as a single
transaction.26
The outcome at the conflicts level of the two characterizations
must be examined separately.
The overall payment as a single transaction
Assuming the payment were viewed as a single transaction, the

connecting factor giving effect to the choice of law by the parties
would play an insignificant role. It is indeed unlikely that there
could ever in practice be an agreement on the choice of a single gov-
erning law by all the parties concerned.
As to the law designated by Article 4, it would be almost impossi-
ble to identify in the abstract or with any level of objectivity. First of
all, with regard to an international payment it would be difficult to
identify the "characteristic performance," and hence the law forming
the object of the presumption of Article 4, para. 2. As to the closest
connection, several laws could claim to have at least a significant con-
nection with the transaction: for instance the one of the beneficiary
(or of its bank), the one of the clearing system most directly involved,
or even the one of the currency of the payment. Nonetheless, it would
be difficult to settle readily upon which one of these has a particular
claim to prevail over the others as being the "most closely" connected
to the payment. The chances are, therefore, that the solution would
vary from case to case, at least until a significant and consistent body
of judicial precedents has pointed to a preferred solution.
25. The two protocols conferring the jurisdiction to interpret the convention on
the European Court of Justice are not yet in force.
26. For the U.S. perspective see Sommer, supra n. 10.
320 THE AMERICAN JOURNAL OF COMPARATIVE LAW [Vol.48
The overall payment as a succession of distinct contractual
relationships
From the perspective of conflicts of laws the characterization of a
payment as a single transaction is seen to have the advantage or per-
mitting the entire transaction to be governed by a single law.27
Under the Rome Convention this result would not a priori be ruled
out even if payments were characterized as consisting of distinct
transactions, with the consequence that each one is a separate con-
tract with its own governing law to be identified on the strength of
one or the other of the two rules mentioned above.
Contrary to expectations, this could not be accomplished so much
by the rule which considers the primary connecting factor the will of
the parties regarding the governing law (as seen above this same con-
necting factor naturally appears also in UNCITRAL'S "suggested" rule).
This is essentially for the same reasons already exposed with regard
to the parallel issued of conflicts of jurisdiction. It is unrealistic to
expect that, assuming the parties to an international payment (viz.
the parties to each of the contracts making up the chain leading to
the payment) deal with the matter, they will all choose the same law.
Were the parties to consider the issue of governing law - which they
might well do in the context of general conditions and not with regard
to specific payments - they would do so on a purely bilateral basis,
without regard to the links between their relationship and the more
complex transactions of which it becomes a part in the context of each
individual payment. Although it might appear superfluous, it is
worth stressing that any choice is relevant only for the segment of the
transaction with respect to which it is made.
The "unification" of the governing law could instead, at least in
the abstract, be brought about by means of the connecting factor of
Article 4. Unlike in the situation examined above, when this provi-
sion is applied to each segment of the transaction, taken by itself, it is
possible to identify the "characteristic performance" - this being the
one of the bank or other institution receiving the payment instruc-
tions - and thereby the law of the presumption of Article 4, para. 2.
If this presumption were given effect to, the result would be the same
as the one prescribed by UNCITRAL'S "suggested" conflict rule: the gov-
erning law of each bilateral relationship making up the overall pay-
ment would be the one of the bank receiving the instructions.28
27. See M. Pelichet, supra n. 20; M. Vasseur, supra n. 8.

28. A different solution was reached on the basis of United States conflict princi-
ples in Evra Corporation v. Swiss Bank Corporation and in Delbreuk v. Manufactur-
ers Hanover Trust Company (supra n. 1). The situation would now be different under
the specific conflict rules of the UCC, which would lead to the same solution as the
UNCITRALrule and Article 4 of the Rome convention: see Sommer, supra n. 10, at 1212
seq.
Article 4, however, is more flexible than the UNCITRAL rule be-

cause the presumption is rebuttable. It is this additional flexibility
which, at least in theory, would permit the entire transaction to be
governed by the same law. It could in fact be maintained that the law
to which each segment of the transaction has the closest connection is
not the one of the party providing the characteristic performance or
any other law identified having regard only to the segment taken on
its own. It could be argued that the closest connection, is instead
with the country whose law governs one of the other segments of the
transaction. If this approach is applied consistently to each one of the
segments, the upshot would be that the whole transaction would be
governed by the same law. This would avoid inconsistencies between
the rights and obligations of the parties to the different bilateral rela-
tionships thereby ensuring what appears to be the ideal result.
There is of course one major snag. Which is the one and only law
to which all the individual bilateral transactions are most closely con-
nected? The problem is the same one that would arise in the quest
for the law applicable under Article 4 of the Rome Convention if the
payment were characterized as a single transaction, and already
pointed to above. To this one must add the additional uncertainty
arising from the unlikelihood that all the bilateral relationships will
fall under the jurisdiction of the same court. Thus, even if all the
courts were unanimous that the law with the closest connection for
the purposes of Article 4 must be identified having regard to the eco-
nomic transaction as a whole (and even this cannot be taken for
granted), would the same unanimity continue to prevail when it
comes to identifying the most closely connected law amongst the ones
having some claim to be considered as such?
In the face of this uncertainty, the arguments in favor of an ap-
plication of Article 4 aimed at permitting the application of a single
governing law to the entire transaction are probably not overwhelm-
ing. The situation is therefore similar in this respect to the one of
bank guaraties or stand-by letters of credit29 and of international de-
posits30 for which, all considered, it is preferable to apply Article 4 to
each segment of the overall transaction and, where possible, relying
to the fullest extent on the presumption of para. 2. Particularly in
international financial transactions, a solution permitting legal cer-
tainty, albeit at the cost of fragmentation, has much more to recom-
mend itself than one which in an ideal world is capable of identifying
29. See Radicati di Brozolo, "Giurisdizione e legge regolatrice del Garantievertrag

(anche alla luce della Convenzione Uncitral)," in Banca, borsa e titoli di credito 75
(2000), II, with further references.
30. See the references, supra n. 2.
the "best" law. But the real world leaves all concerned in the most
severe uncertainty.3'
5.3. Is AN AD Hoc CONFLICT RULE FOR INTERNATIONAL

PAYMENTS NEEDED?
The discussion of the preceding section shows that, thanks to the

flexibility of Article 4, the Rome Convention would theoretically be
capable of affording a solution to the conflicts of law problems of in-
ternational payments which allows these to be governed by a single
law. In this sense, the general rule of the Convention could be
deemed preferable to UNCITRAL'S"suggested" ad hoc conflict rule,
which has been faulted precisely for its inability to achieve this re-
sult. On the other hand, given the number of variables of the overall
mechanism for the application of the rule the Convention's ability to
ensure even this result in the context of its practical application by
the courts is not beyond question. Furthermore, also assuming this
result could be guaranteed it would probably be at the expense of any
certainty as to which law is in practice going to be applied, and hence
as to the legal regime of any given transaction.
From the latter perspective, the UNCITRAL rule would fare better
because it definitely ensures certainty, without in practice leading to
a much greater fragmentation.
This brings us back to the question debated at UNCITRAL and by
the Permanent Bureau of the Hague Conference - whether it would
make sense to develop an ad hoc conflict rule which is more mediated
than the one appended as a footnote to the model law and better
suited to resolve the issue than the existing ones.
Taking account of the criticism leveled at the UNCITRALrule, the
ideal rule would seem to be one capable of designating a single law
for the overall payment transaction and of identifying this law
unequivocally.
The problem is of course, once again, which law should - as a
matter of policy - govern the entire transaction. Those called upon
to draft the new conflict rule would face a degree of uncertainty per-
haps even greater than the one faced by the courts and the parties
called upon to determine the applicable law in a given case. There is
no single law likely to be unanimously recognized as the most suited
to govern payments. UNCITRAL has correctly acknowledged that the
matter is not ripe for decision. It is, however, doubtful that even an
extensive and competent drafting effort, such as the one of which the
Hague conference would be capable, would produce a decidedly more
satisfactory result. Assuming that at the outcome of the inevitably
31. The case for legal certainty in international banking relationships, and thus
for conflict rules capable of guaranteeing this result, is made quite forcefully by Som-
mer, supra n. 2, at 29 seq.
complex and lengthy debate it were possible to reach an agreement

on the law most suited to govern the transaction, by way of compro-
mise the rule would probably have to contain an escape clause of
some sort permitting the application of a different law in certain cir-
cumstances. This, by the way, would be in keeping with the general
trend in conflicts of laws, which aims at permitting flexibility and the
application of the most appropriate solution for the specific case.
Since the freedom in the choice of law is a basic tenet of contracts
conflicts of laws, it would also be virtually impossible to eliminate the
relevance of agreements on the choice of laws between certain of the
parties involved. Now, as seen above, these agreements have a
highly disruptive effect on any attempt at bringing the overall pay-
ment under the same legal roof.
In terms of legal certainty and other wise, the end result of such
a legislative effort might therefore not be very different from the one
obtained under the current rule of the Rome Convention (and pre-
sumably of other conflict systems).
Any decision to pursue the matter should also take into account
the opinion of those seemingly most directly affected by this issue,
i.e., the banks and the other intermediaries. It is significant that
when the Permanent Bureau of the Hague Conference addressed the
problem through a questionnaire submitted to these entities, their
support for an initiative aimed at drafting specific conflict rules for
international payments was at best lukewarm.32 It is hardly mate-
rial whether this was due to the belief that the present situation is
satisfactory; to skepticism about the possibility of finding a better so-
lution; or to a preference for the uncertainty of the current situation
(which, alongside its obvious downsides, may also have advantages in
terms of deterring litigation) with respect to the certainty of having
to operate under a governing law perhaps viewed at best as inconve-
nient by the majority of the parties, that is by all the ones whose law
is not the one designated to govern the transaction.33
At the end of the day it seems to have been precisely this attitude
which discouraged the Hague conference and for the moment killed
any enthusiasm for the search of ad hoc conflict rules for interna-
tional payments.
All this leads me to conclude that, under the circumstances, Arti-
cle 4 of the Rome Convention is capable of providing a workable
though not ideal - solution to the conflict problems of international
payments, provided that the presumption of para. 2 is strictly applied
to each of the segments of the transaction and that no leeway is left
for the search for an "ideal" solution. In this respect, despite the
32. See Pelichet, supra n. 1.

33. The same skepticism would probably be encountered if the issue were raised
at the level of conflicts of jurisdiction.
probably somewhat unfair criticism directed against it, UNCITRAL'S

"suggested" rule is even preferable to Article 4 of the Rome Conven-
tion. The reason is that by laying down a firm conflict rule which
unequivocally makes each segment of the transaction subject to the
law of the party receiving and carrying out the instructions, the UNCI-
TRAL rule eliminates the uncertainty engendered by the escape clause
of Article 4, para. 5, of the Rome Convention which is particularly
pernicious in the international financial context.
It should finally be recalled that, were the issue of the develop-
ment of ad hoc conflict rules for international payments ever to be-
come more concrete, the States party to the Rome Convention would
face an additional problem. Articles 23 to 25 of the Convention limit
the possibility for contracting States to adopt conflict rules in matters
falling under the Convention, be they purely domestic rules - such
as the one "suggested" by UNCITRAL which is not internationally bind-
ing - or part of international conventions.34 With regard to the UN-
CITRAL rule, it could be contended that this procedure is not necessary
because the rul does not in substance derogate from the Rome Con-
vention. The reasoning would be that the UNCITRAL rule does no
more than render concrete for international payments the abstract
rule of Article 4, and in practice leads to the same result which - in
my opinion - should already now be derived from this provision.
The contrary view would obviously rely on the consideration that the
UNCITRAL rule eliminated the flexibility permitted by the escape
clause of para. 5, and thereby does create a derogation from the
Convention.35
6. HARMONIZATION OF CONFLICTS RULES OR OF THE

SUBSTANTIVE LAW?
The present conflict rules, and notably the Rome Convention, can
be interpreted so as to provide a workable solution to the problem of
the law governing international payments. It remains nevertheless
indisputable that - although the situation is probably not more seri-
ous than with respect to certain other types of complex international
transactions which are equally fraught with conflicts of laws
problems36- this solution is not particularly satisfactory, at least
from the viewpoint of legal certainty and even more so from that of
the overall consistency of the regime of the rights and obligations of
all the parties involved.
34. Kaye, supra n. 24, at 380.

35. On the parallel issue of the compatibility with the Rome Convention of the ad
hoc conflict rule contained in the UNCITRAL convention on independent guaranties
and stand-by letters of credit of December 11, 1995 see Radicati di Brozolo, supra n.
29.
36. E.g., to remain in the financial field, international deposits: see the refer-
ences, supra n. 2.
The outlook for the quest for harmonized rules capable of over-
coming these problems does not look particularly good either, as it is
doubtful that any new ad hoc rule could be devised which would pro-
vide universally satisfactory rules to all the problems.
It may be added that even once an appropriate conflict rule for
the designation of the lex causae (or of the leges causae?) of interna-
tional payments were found, conflicts problems would not be entirely
eliminated or resolved. On a first level, there would remain the class-
ical question of determining which matters are governed by the lex
causae. On the second level the questions are: what other laws affect
an international payment? Which matters do they govern? On the
basis of which conflict rules or other conflict solving mechanisms well
known to conflict lawyers (regles d'application immediate, unilateral
conflict rules, regles de droit international prive material, pubic pol-
icy) do they apply? The first issues which come to mind are the ones
relating to the position of consumers and to other questions governed
by mandatory or public policy rules of the forum state or possibly
even of a third state. Cases in point are the validity of blocking or-
ders, the relevance of events relating to the currency of the payment
and of laws on money laundering, the effects of bankruptcy and so on.
Another example is the very important question of which law deter-
mines whether the actual sender of a payment order has the author-
ity to bind the purported sender, which is explicitly excluded from the
scope of the lex causae designated by the conflict rule "suggested" by
UNCITRAL. Yet other examples are the question whether one party to
the chain may bring action against another party of the chain to
which it is not directly linked. For instance whether the originator
can bring an action against the bank of the beneficiary,37 and more
generally issues of tort and the relationships between claims in tort
and in contract.
Leaving aside the more philosophical issue of whether there is
merit in not stifling competition and innovation between legal sys-
tems by means of harmonization,38 the conclusion could be that it
would be more efficient to attempt to harmonize the substantive law
rather than to seek specific harmonized solutions at the level of con-
flicts of laws, such substantive harmonization would have to be
achieved by means of international conventions, rather than by soft
law mechanisms such as the UNCITRALmodel law. However, as
demonstrated by UNCITRAL'sefforts, and perhaps even more the fail-
ure by states to adopt legislation based on the model law, this might
prove to be an even more daunting task.
37. For some general thoughts on this issue see Leclerc, "Les chaines de contrats
en droit international prive6," in Journal de droit international 267 (1995).
38. A. Ogus, "Competition Between National Legal Systems: A Contribution of
Economic Analysis to Comparative Law," (1999) Int'l & Comp. L. Q. 405; U. Mattei,
Comparative Law and Economics (1997).
The most workable solutions are thus likely to lie in harmoniza-

tion with regard to specific problems or at the regional level,39 nota-
bly within the European Community. In the latter context, the most
noteworthy instruments are Directive 97/5/EC of January 25, 1997
on cross-border credit transfers and Directive 98/26/EC of May 19,
1998 on settlement finality in payment and security settlement sys-
tems40 which addresses some of the critical issues but does not com-
pletely eliminate the references to national laws.41 On an even more
pragmatic level, de facto harmonization might at least to some extent
be achieved if, as is not unlikely, other States follow the lead of the
legislation of those countries which play a particularly important role
in international payments, like the United States or the European
Community.
Finally, one should not underestimate the fundamental role that
can be played in the elimination of conflicts simply by appropriate
and well drafted arrangements which address the issues at a contrac-
tual level, notably in the context of payment and clearning mecha-
nisms. Clearly contractual arrangements are incapable of solving all
problems, and particularly those falling outside the scope of the lex
contractus (typically the effects of insolvency, of blocking orders, and
such likes). These issues, however, are hardly likely to be resolved by
harmonization, since even the bravest attempts at harmonizing the
conflicts law of international payments cannot be expected to deal
with more than the lex contractus, and would thus leave all other
matters to unharmonized national conflicts systems.
All this might contribute to reduce the scope of the problems of
conflicts of laws in this area of international financial transactions
which, to revert to the initial question, are indeed quite intractable
and could thus be a bonanza for litigators generally, and more specifi-
cally for conflicts lawyers. Considering the actual lack of litigation on
these issues pointed to at the outset of this paper, the reduction of
potential conflicts through substantive harmonization might in prac-
tice not be as disappointing to conflict lawyers as could otherwise be
expected, whilst at the same time contributing to the elimination of
some - but by no means all - of the legal risks of international
payments.
39. Such as the European Convention on the place of payment of money liabilities
of May 16, 1972 of the European Convention on foreign money liabilities of December
11, 1967, both of which drafted under the auspices of the Council of Europe but not in
force.
40. Official Journal of the European Communities, L 166 of June 11, 1998, p. 45.
41. See for instance Article 3, para. 3.

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International Payments and Conflicts of Laws

Author(s): Luca G. Radicati di Brozolo

International Payments and Conflicts of Laws

Since international payments involve contacts with at least two

LUCAG. RADICATI DI BROZOLO is Professor of Private International Law, School of

As a conflicts lawyer I cannot accept the first possibility, which

2. THE LEGAL PROBLEMS OF INTERNATIONAL PAYMENTS

For the purposes of this analysis an international payment is one

3. UNCITRAL Model Law on International Credit Transfers adopted by the

ment is to be viewed. Despite the scarce attention devoted to it, per-

3. THE ROLE OF CONFLICTS OF LAWS AND OF THE UNCITRAL

As is evident to those with a knowledge of the workings of con-

6. For a discussion of many of these issues see Giovanoli, "Paiements et obliga-

In an international payment the applicable conflicts rules, and

9. As is known, the difficult issue of the harmonization of rules on conflicts of

These conventions provide for two main heads of jurisdiction rel-

an agency relationship or some different sui generis type of relation-

defendant. In other words, this might be one of the (probably not

5.1. UNCITRAL'S "SUGGESTED" CONFLICT RULE

Unlike conflicts of jurisdictions, conflicts of laws were considered

have adopted it with significant modifications. Ordinary conflicts

5.2 THE ROMECONVENTION

Nothing is said directly in the convention about whether, when it

The overall payment as a single transaction

Assuming the payment were viewed as a single transaction, the

27. See M. Pelichet, supra n. 20; M. Vasseur, supra n. 8.

Article 4, however, is more flexible than the UNCITRAL rule be-

29. See Radicati di Brozolo, "Giurisdizione e legge regolatrice del Garantievertrag

5.3. Is AN AD Hoc CONFLICT RULE FOR INTERNATIONAL

The discussion of the preceding section shows that, thanks to the

complex and lengthy debate it were possible to reach an agreement

32. See Pelichet, supra n. 1.

probably somewhat unfair criticism directed against it, UNCITRAL'S

6. HARMONIZATION OF CONFLICTS RULES OR OF THE

34. Kaye, supra n. 24, at 380.

The most workable solutions are thus likely to lie in harmoniza-

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