Week 12 Comprehensive Study Notes on Regulation Rome I (EU) Regulation Rome I

Introduction and General Overview of Regulation Rome I

• Definition and Legal Foundation: Regulation (EC) No 593/2008, commonly known as Regulation Rome I, was adopted on 17 June 2008. It serves as the primary instrument for conflict rules regarding contractual obligations in the Private International Law (PIL) of EU Member States.

• Temporal Scope and Predecessor: Rome I replaced the 1980 Rome Convention. The 1980 Convention continues to apply to contracts concluded between the date of its entry into force for a specific Member State and 17 December 2009.

• Territorial Limitations: The Regulation applies to all EU Member States except Denmark.

• Interpretive Guidance: Because the content of the Regulation often corresponds to the 1980 Convention, existing legal writing and case law for the Convention remain relevant. A key interpretive resource is the Giuliano-Lagarde Report, a semi-official report published in the Official Journal of the European Communities in 1980 (OJ 1980 C 282 p. 1).

• Primary Purpose: One of the main goals of the Regulation is to reduce the impact of forum shopping. By harmonizing conflict rules, the advantages of choosing one court over another are minimized because the same law should be applied regardless of the forum.

Scope and General Features

• Material Scope (Article 1(1)):

  • Applies to "civil and commercial matters" involving a conflict of laws (situations where a choice between the laws of different countries is required).

  • Territorial Units (Article 22): Member States with different legal systems in different regions (e.g., Scotland vs. England in the UK) treat each unit as a "country." However, courts are not mandated to apply the Regulation to strictly internal conflicts between units within their own state.

• International Character vs. Domestic Contracts:

  • The Regulation applies even to contracts where all elements are connected to a single country.

  • Example: If two parties sign a purely domestic contract in Mexico and then one party moves to Germany and is sued there, a German court must address the issue of applicable law using Rome I.

  • Choice-of-law agreements in single-country contracts are subject to restrictions regarding mandatory rules (Article 3(3)).

• Universal Application (Article 2):

  • The Regulation has an erga omnes (universal) character. This means the law designated by the conflict rules must be applied even if it is not the law of a Member State.

  • Reciprocity is not required.

• Residual Authority: Within its scope, Rome I is comprehensive and leaves no room for the autonomous national conflict rules of the Member States.

• Arbitration: Arbitrators are not formally bound by Rome I as they are not organs of a Member State. However, they frequently use it for inspiration or follow the rules of their seat.

Exclusions from Material Scope (Article 1(2))

The following are explicitly excluded from the Regulation's scope:

• Personal Status and Capacity: The status or legal capacity of natural persons (except for specific protections in Article 13).

• Family Relationships: Obligations arising from marriage, matrimonial property, other family ties, and relationships with "comparable effects" (e.g., registered partnerships).

  • Example: A maintenance agreement for a child is excluded (family law), but a maintenance agreement for a former employee is included (contract law).

• Financial Instruments: Obligations arising from bills of exchange, checks, promissory notes, and negotiable instruments like bills of lading.

  • Note: The underlying sale contract involving these instruments is not excluded.

• Procedural Agreements: Arbitration agreements and choice-of-court agreements.

• Company Law: The creation, legal capacity, internal organization, winding up, and liability of directors/members of companies or other legal bodies.

  • Included: Contracts for the sale of shares or founding agreements between future shareholders.

• Agency and Trusts: The authority of an agent to bind a principal, and the constitution or internal relations of a trust.

• Pre-contractual Obligations: Matters such as culpa in contrahendo (negotiation in bad faith) are governed by the Rome II Regulation (Article 12).

• Evidence and Procedure: Generally governed by the lex fori (law of the forum), with specific exceptions for presumptions and the burden of proof (Article 18).

Party Autonomy (Article 3)

• The Principle of Choice: Parties are free to choose the law applicable to their contract.

• Formal Requirements (Article 3(1)):

  • The choice must be either explicit or clearly demonstrated by the terms of the contract or circumstances.

  • Tacit Choice: Factors like the use of specific legal terminology or a long-standing practice of using a particular law may indicate a choice. Choosing a court/arbitration in a specific country (Recital 12) is an indication but not a definitive choice of substantive law.

• Nature of the Chosen Law:

  • Parties can choose a law with no natural connection to the contract (e.g., English law for maritime carriage or Swedish law as "neutral" ground).

  • The chosen law is applied "alive," meaning including subsequent changes to that law.

  • Non-State Rules: Referencing things like lex mercatoria or the UNIDROIT Principles is generally viewed as an incorporation of terms into the contract, valid only within the limits of the freedom of contract allowed by the governing national law (Recital 13).

• Dépecage (Splitting): Parties can choose different laws for different parts of the contract (Article 3(1)). If split rules are mutually incompatible, the choice may be disregarded.

• Timing of Choice (Article 3(2)): Choice can be made at the time of contract or later. A subsequent choice cannot prejudice the rights of third parties or the contract's formal validity.

• Limitations on Choice:

  • Single-country contracts (Article 3(3)): If all relevant elements are in one country, the choice of a foreign law cannot prejudice the mandatory rules of that country.

  • Intra-EU contracts (Article 3(4)): Choosing the law of a non-Member State cannot prejudice the mandatory rules of EU law (treaties/directives) as implemented in the Member State of the forum.

Applicable Law in the Absence of Choice (Article 4)

• Fixed Rules for Common Contracts (Article 4(1)):

  • Sale of goods: Law of the country of the seller's habitual residence.

  • Provision of services: Law of the country of the service provider's habitual residence.

  • Right in rem/Tenancy of Immovable Property: Law where the property is situated (lex rei sitae).

    • Short-term Tenancy Exception: If for max 6 months and both parties are natural persons residing in the same country, the law of that country applies.

  • Franchise: Law of the country of the franchisee's habitual residence.

  • Distribution: Law of the country of the distributor's habitual residence.

  • Auctions: Law where the auction takes place.

  • Financial trading systems: Law governing the system.

• The Residual Rule: Characteristic Performance (Article 4(2)):

  • For contracts not listed or mixed contracts, the law applied is that of the country where the party required to effect the characteristic performance resides.

  • Definition: In bilateral contracts, the payment of money is not characteristic. The characteristic performance is the act for which the payment is made (delivery, service, etc.).

• Escape Clause (Article 4(3)): If a contract is manifestly more closely connected to a country other than the one designated by Article 4(1) or (2), the law of that other country applies.

• The "Most Closely Connected" Rule (Article 4(4)): If no characteristic performance can be determined (e.g., a barter), the law of the most closely connected country applies.

Special Conflict Rules for Specific Contracts

• Carriage of Goods (Article 5(1)): If no choice is made, the law of the carrier's habitual residence applies, provided the place of receipt, delivery, or consignor's residence is also in that country. Otherwise, the law of the place of delivery applies.

• Carriage of Passengers (Article 5(2)): Limited choice of law (residence of passenger/carrier, place of departure/destination). In the absence of choice, the law of the passenger's residence applies if it is also the place of departure or destination.

• Consumer Contracts (Article 6):

  • Applies when a professional "pursues" or "directs" activities to the consumer's country of habitual residence.

  • Applicable Law: Law of the country where the consumer resides.

  • Protection: A choice of law cannot deprive the consumer of the protection of mandatory rules of their home country.

• Individual Employment Contracts (Article 8):

  • Protection: A choice of law cannot deprive the employee of the protection of mandatory rules of the law that would apply in the absence of choice.

  • Absence of Choice: Law of the country where the employee habitually carries out work (lex loci laboris). If no single country, then the law of the place of business that engaged the employee.

  • Temporary Work: Working temporarily in another country does not change the habitual place of work (Recital 36 defines temporary as expecting to resume work in the home country).

• Insurance Contracts (Article 7):

  • Large Risks: Professional risks (Article 7(2)). Law of the insurer's residence usually applies.

  • Mass Risks (Small Risks): Article 7(3) restricts choice to 5 specific legal systems (e.g., where the risk is situated or the policyholder's residence).

Overriding Mandatory Rules and Public Policy

• Definition of Overriding Mandatory Rules (Article 9(1)): Crucial provisions for a country's public interest (political, social, or economic organization) that apply regardless of the law otherwise applicable.

• Lex Fori (Article 9(2)): The Regulation does not restrict the application of overriding mandatory provisions of the forum.

• Third-Country Rules (Article 9(3)): A court may give effect to the overriding mandatory rules of the country where the contract is performed, but only if they render the performance unlawful. Nature, purpose, and consequences must be considered.

• Public Policy (Article 21): Application of a foreign law may be refused if it is manifestly incompatible with the public policy (ordre public) of the forum.

• Public Law Issues: The Regulation is assumed to deal with private-law matters. Foreign public laws (trade embargos, exchange regulations) are typically considered only as facts (e.g., as force majeure) under the governing law of the contract.

Scope of the Applicable Law (Article 12)

The law designated by Rome I governs:

1. Interpretation of the contract.

2. Performance of obligations.

3. Consequences of breach, including assessment of damages (but excluding procedural limitations of the forum).

4. Extinguishing obligations (termination, time-limitations).

5. Consequences of nullity.

Material and Formal Validity

• Material Validity (Article 10): Determined by the "putative law" (the law that would govern if the contract were valid).

  • Exception (Article 10(2)): A party may rely on the law of their habitual residence to show lack of consent if using the putative law would be unreasonable.

• Formal Validity (Article 11):

  • General Rule: Satisfied if it meets the requirements of the governing law or the law of the place where it was concluded (lex loci contractus).

  • Consumer Contracts: Must satisfy the law of the consumer's habitual residence.

  • Real Estate: Must satisfy the mandatory formal rules of the place where the property is located.

Other Provisions

• Renvoi (Article 20): Explicitly excluded. The application of a law means the substantive rules of that country, not its conflict of laws rules.

• Incapacity (Article 13): In a contract between persons in the same country, a natural person can only rely on incapacity under a foreign law if the other party was aware of that incapacity or was negligent in not knowing.

• Assignment (Article 14): The contract between the assignor and assignee is governed by the law applicable to that contract. The relationship between the assignee and the debtor is governed by the law of the assigned claim.

• Legal Subrogation (Article 15): The right of a third party (e.g., a guarantor) to take over the creditor's rights is governed by the law governing the third party's duty to satisfy the creditor.

• Set-off (Article 17): Unilateral set-off is governed by the law applicable to the claim against which the set-off is asserted.

• Burden of Proof (Article 18): Governed by the law of the contract if it contains presumptions or rules on the burden of proof, otherwise governed by the lex fori.