Contractual and non contractual disputes; Rome I & II.

Both the Rome I Regulation on the law applicable to contractual obligations, (Rome 1) and the Rome II Regulation on the law applicable to non contractual obligations, (Rome 2) have as their objective the standardisation of the rules by which the applicable law is determined so as to extend the harmonisation of international private law.

Rome I and Rome II apply in situations concerning a conflict of laws, the purpose of which is to harmonise the rules that determine what law applies in relation to contractual obligations and non contractual obligations respectively. The overall objective of these two Regulations is to ensure that the national courts of member states apply the same laws to the same dispute it is hoped that this will reduce parallel litigation and increase certainty. However, these Regulations do not attempt to harmonise the substantive law of member states.

Rome I and Rome II follow the overall theme of harmonisation seen in the Brussels I Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels 1). The role of Brussels I is to provide rules that determine the jurisdiction of national courts of member states, concerning contractual and non contractual disputes.

I: THE ROME CONVENTION

The Rome Convention on the law applicable to contractual obligations (referred to as the Rome convention, which was implemented by the Contracts (Applicable Law) Act 1990) opened for signature on 19th June 1980 and entered into force in 1991, and applies to all member states including Denmark. Harmonisation was not absolutely achieved across all member states as a result of the variety of ways in which the convention was implemented, and the number of reservations submitted by member states as to the provisions of the Rome Convention.

The Rome Convention seeks to determine what substantive laws apply to contractual obligations in any situation involving a choice between the laws of different countries this does not extend to non contractual obligations. The Rome Convention in particular deals with employment and consumer contracts.

The scope of the Rome Convention does not extend to the constitution of wills and trusts and the relationships between setlor, trustee(s) and beneficiaries, property rights that arise out of matrimonial relationships, rights and duties arising out of relationships, parentage or affinity and maintenance obligations in relation to children who are not legitimate, the laws governing companies and whether the an agent can bind his principal to a third party and contracts of insurance.

The Rome Convention and the role it plays

Unless otherwise provided, the courts will have to decide which laws apply to the contract(s) in issue according to the conflict of law rules in that court’s jurisdiction. In explanation, the contract shall be governed by the law of the country with which it is most closely connected (Art. 4 of the Rome convention). However, if there is a severable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country.

However, there is a presumption that the country where performance is to be executed which is which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporated, its central administration. Difficulties may arise in relation to what is meant by “habitual” for example when does ones business presence become habitual. Furthermore, there are a number of exceptions as to the application of the presumption.

II: ROME I REGULATION

The Rome Convention, was the only piece of private international law in the European Community that remained in treaty form. However, a number of proposals were submitted so as to adapt and update the Conventions rules. This adaptation and updating was provided for in part by the Rome I Regulation. The approach of Rome I is to an extent similar to that provided for in the Rome Convention which is to hold that the applicable law is that of the place in which the party performing the service characterising the contract has his habitual residence provided the applicable law has not been chosen.

However, and in particular Rome I removes the presumptions as to which laws apply as seen in Article 4 of the Rome Convention indeed the word presumption is not in the equivalent Article 4 in Rome 1. This increased certainty for practitioners, academics and those involved with contractual obligations to which Rome I applies. Furthermore, notwithstanding the fact that the applicable law may have been chosen by the parties a court can give effect to the “overriding mandatory provisions”, that is to give effect to the laws of another country “where the obligations have to be or have been performed”, provided it is “regarded as crucial by a country for safeguarding its public interests”.

The Rome I Regulation will be in force on the 17th December 2009 to all contracts made after that date to all member states, excluding Denmark. For the Official Journal see OJ 2008 L177/6 published on 4th July 2008, Rome I was adopted by the EU Council on the 6th June 2008.

Rome I and the United Kingdom

By 2006, the UK government completed a number of consultations concerning the proposed Rome I. The results of this consultation suggested that, should the UK choose to opt into Rome I the effect would be significantly adverse to the economies of the UK and the EU. Furthermore, the proposed Rome I would undermine the policy of English law to offer legal certainty when concerned with contracting parties. This resulted in the UK opting out of the negotiations in May 2006.

By April 2008, the issue as to whether or not to opt into the Rome I was raised by the publication of a consultation paper by the Ministry of Justice. Where it was found that the negotiations of the Rome I Regulation had improved the document as a whole, the consultation evidentially amounted to support by the UK government of the Rome I Regulation, which in turn suggested that the UK should opt in.

By July 2008 the European Council announced that the UK had proposed its intention to op into the Rome I Regulation. By the following month the Ministry of Justice wrote to the Commission stating the UK’s intention to adopt Rome I and in the same month the European Council made the announcement that the UK had advised it that the UK was to accept Rome I. On 22nd December the Commission provided the decision that Rome I will come into force in the UK from the 17th December 2009.

III: ROME II REGULATION

Rome II as mentioned above concerns non contractual situations. The previous position in relation to a conflict of laws was to hold that the applicable law is that where the tortuous act was committed.

Rome II ensures certainty and the facilitation of mutuality of judgments in relation to disputes concerning the application of laws involving non contractual disputes. In sum, and in contrast to Rome I, Rome II does not seek to harmonise the substantive law of member states that concerns non-contractual disputes, but rather to harmonise the rules by which the laws applicable to non-contractual disputes are determined.

During 2003, the European Commission put forward a proposal concerning Rome II. This proposal provided a number of laws which determined which law was applicable to instances of non-contractual obligations. These laws applied to instances involving conflict of laws regarding civil and commercial matters, also particular rules are made in relation to defective products, damage arising out of unfair commercial practice, violation of the environment and infringement of intellectual property rights. However, Rome II did not extend to cover customs and administrative matters, revenue, trusts, family, liability of partners and those responsible for statutory audits of company accounts.

In sum, the major change wrought by Rome II is that the law applicable to non contractual disputes shall be the law of the country or countries in which damage happens irrespective of the country in which an act gave rise to the damage and irrespective of country or countries in which the indirect consequence of that event occurs.

Rome II and the United Kingdom

Following two readings by the European Parliament and Council there were a number of issues that still needed to be resolved pursuant to the requirement of the co-decision procedure. These issues where solved at a conciliation meeting held on the 15th May 2007. By July 10th 2007 at third reading the European Parliament adopted Rome II.

The UK Parliamentary Committee on the European Union had expressed reservations about Rome II. However, Rome II is of direct effect in the UK and has been in force since the 11th January 2009. On the 18th November 2008 secondary legislation was presented before Parliament, that is The Law Applicable to Non-Contractual Obligations (England and Wales and Northern Ireland) Regulations 2008, this has been in force since the 11th January 2009. The purpose of which is to achieve harmonisation in the Private International Law (Miscellaneous Provisions) Act 1995 so as to remove any inconsistencies with Rome II. The amendments also extend the application of Rome II to Gibraltar and Northern Ireland.

See the Official Journal of the European Union publication (L 299/40) on the 31st July 2007 Rome II has been in force in all member states since the 11th January 2009, with the exception of Denmark.

Tracking Rome I & II

To track the developments and to read about the background and purposes of both Rome I and Rome see respectively http://www.europarl.europa.eu/oeil/file.jsp?id=5301232 and http://www.europarl.europa.eu/oeil/FindByProcnum.do?lang=2&procnum=COD/2003/0168.

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