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14 October 2011
The Supreme Court recently handed down a decision concerning a real estate agent's fee in connection with a cross-border sale agreement under which an Italian estate agent had facilitated the sale of an Austrian hotel to an Italian investor. The real estate agent later filed a claim against the seller of the hotel for payment of the brokerage fee of €3.7 million. The seller argued that the agency agreement was subject to Italian law, which provides for a statute of limitation of one year. This period had already elapsed and therefore the claim was invalid.
According to the European Convention on the Law Applicable to Contractual Obligations 1980, a contract must - in the absence of a choice of law by the parties - be governed by the law of the country with which it is most closely connected. Such closest connection is presumed to refer to the country in which the party that effects the "characteristic performance" of the contract has its habitual residence or central administration, at the time of conclusion of the contract. The 'characteristic performance' of a mutual contract is defined as the one that is not the payment of money. For contracts that relate to a right in immovable property or a right to use immovable property, the convention contains the presumption that the contract can be deemed to be most closely connected to the country in which the immovable property is situated.
Therefore, when assessing a real estate agent's contract, the actual facilitated contract must be distinguished from the agent's contract. As the parties to these contracts differ, the two agreements exist independently. The agent's contract itself does not deal with a right in immovable property or a right to use immovable property. Consequently, the applicable law for the real estate agent's contract cannot be tied to the location of the property in question (in this case, Austria). Hence the applicable law for the agent's contract is that of the country where the realtor has its habitual residence or central administration (in this case, Italy).
According to the convention, it is possible for a contract to be governed by the law of a country other than that which has been determined according to the respective provisions. However, for this exception to apply, it must be clear from the entirety of the circumstances that the contract has a closer connection to the alternative country.
In the present case, the Supreme Court agreed with the judgment of the courts of lower instance in not assuming a closer connection to Austria. The court referred to:
The court ruled that Italian substantive law governed the contract and that the Italian statute of limitation applied. The claim was therefore dismissed.
Although this decision deals with legal status according to the convention, the reasoning is also relevant in respect of the Rome I Regulation of June 17 2008, which replaced the convention as the law applicable to contractual obligations.
For further information on this topic please contact Martin Foerster at Graf & Pitkowitz Rechtsanwälte GmbH by telephone (+43 1 401 17 0), fax (+43 1 401 17 40) or email (email@example.com). The Graf & Pitkowitz Rechtsanwälte GmbH website can be accessed at www.gpp.at.
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