Rome 1 – Contractual Disputes?

The majority of international contracts include clauses stating the choice of law governing their contractual relations. The Rome 1 Regulation attempts to govern the minority of contracts that fail to include a choice of law clause and update the Rome Convention 1980 from a multilateral inter government agreements to a Community Regulation falling under the jurisdiction of the Court of Justice of the EU.

The key changes to the Rome Convention by Rome 1 include:

The continuation of the parties to choose the governing law freely, but expanding the meaning of intention in cases of doubt about the choice of governing law to include choices “clearly demonstrated by the terms of the contract or the circumstance of the case” (Art 3(1))

Where no particular governing law has been selected, Art 4(1) sets out specific rules for various contracts. If the contract is not listed in Art 4(1), Art 4(2) states the governing law will be “where the party required to effect the characteristic performance of the contract has his habitual residence”. Art 4(3) provides a displacement provision for complex cross border contracts, where the contract in question is closely related to other contracts and allows for the governing law to be the one that is more closely connected to a country other than those set out in Art 4(1) and (2)

Power by the parties to choose which governing law to apply to consumer contracts, without invalidating any mandatory rules of law that would have applied had the express choice of law not been made

Rome 1 applying to more consumer contracts under Art 6, with the removal of the word advertising and the inclusion of “by any means, direct such activities to that country”, possibly resulting in Rome 1 covering e-commerce contracts

Covering contracts for the carriage of passengers (Art 5) and consolidation of the insurance provisions set out in the Rome Convention (Art 7)

Greater clarification on national laws of a Member State overriding the parties selection of a different governing law (Art 9), giving the national court some flexibility in deciding whether to acknowledge the laws of another country.

Rome 1 will only affect contracts concluded on or after 17 December 2009, prior to this the Rome Convention will continue to apply. While Rome 1 has expanded on the Rome Convention, it demonstrates the importance of the parties setting out the governing law of any agreement at the beginning of any negotiations.

Muhammed Poswall is a legal assistant to Izaz Ali ( Izaz is a commercial lawyer who specialises in information technology law and intellectual property law with an emphasis on IT, escrow, online and off-line contracts, and the buying and selling of online businesses.

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