The Rome Convention of 1980 currently determines how parties in
different countries should settle disputes. It did not harmonise
actual laws governing contracts but it did establish which
country's law should apply in any dispute.
In 2005, the European Commission proposed the Rome I Regulation,
intending that would cover the same ground as the Convention. The
UK opted out of that proposal at an early stage because the
Government did not believe that it was in the economic interests of
the UK. Rome I differed from the Rome Convention in ways that it
could not support, it said at the time.
The Regulation was never passed and the European Commission
issued an amended proposal last November. The Ministry of Justice
has now said that following these changes it thinks it is best if
the UK does sign up. "The proposal is now substantially in accord
with the Rome Convention," it said.
It has explained its change of stance in a 136-page consultation
paper in which it asks UK businesses to give their views on the
Commission's new proposal.
"The analysis in this consultation leads to the preliminary
conclusion that the UK should opt in to the Rome I Regulation and
apply similar rules to contracts connected to two or more
jurisdictions within the UK," said the consultation paper.
Rome I enshrines the basic principle of the Rome Convention,
which is that two parties can choose which of their countries' laws
will govern their dealings.
The Convention and proposed Regulation also determine which laws
will apply if there is no agreement between the parties. This
changes depending on whether a contract involves a consumer or not
and whether it is for goods or services or property, amongst other
factors.
The trouble with Rome I, version I
The Government explained in its consultation paper why it had
initially rejected the Regulation.
"The Commission proposed fundamental changes to the law
applicable to consumer contracts, as well as entirely new
provisions on contracts concluded by an agent and on voluntary
assignment and subrogation," it said. "There were also structural
changes to core provisions, such as the law applicable in the
absence of choice. Taken together, the Commission proposal was not
simply a transposition from one legal form to another with
necessary updating."
Its consultation process also uncovered resistance in the
private sector. "There were fundamental concerns about the
Commission’s proposal and the manner in which it had been
prepared," said the current consultation document. "The key
concerns centred on aspects of the rules on party choice, default
rules in the absence of choice, consumer contracts, contracts by an
agent, mandatory rules, assignment and subrogation."
"UK stakeholders, especially those involved in international
finance and commerce, were concerned about the potential economic
impact of several of the provisions. There was particular concern
about the potential of the proposal to introduce significant legal
uncertainty into complex, multi-party international contracts," it
said.
Under the Rome Convention, businesses generally had freedom to
declare in their contracts that, for example, English law would
apply to the contract and therefore to any dispute. That was
qualified for consumer contracts such that a consumer would always
enjoy the protection of "mandatory rules of law" in his own
country. The Commission's 2005 proposal removed all freedom of
choice for consumer contracts, instead stating that in all cases
the applicable law would be that "of the Member State in which the
consumer has his habitual residence."
The UK Government described that as a "radical departure" from
the Rome Convention.
"The Commission’s proposal caused widespread concern in those
business sectors, in particular the small business and e-commerce
sectors, which routinely provide goods and services to consumers in
the European Union," said the consultation paper. "It was felt that
the new rule would represent a change that was not justified by the
generally satisfactory operation in practice of Article 5 of the
Convention. Such a change would place a requirement on businesses
to research the entire law of contract in every country where goods
and services were to be supplied to consumers. Fears were expressed
that such a burden of 'due diligence' would interfere with the
operation of the internal market and in some instances even deprive
consumers of goods and services currently sold to them by overseas
suppliers."
Rome I, version II
The Government said that it believes that the latest version of
the proposal for a Regulation fixes these problems, and that it
would not be in the UK's interests to stay outside of any
agreement.
"Some of the benefits of the Rome I Regulation arise from its
structure as a Community instrument, rather than the specifics of
the text," said the consultation paper. "In conflict of laws
issues, the widespread application of similar rules can provide a
benefit for those contracting across borders. In particular,
maintaining a single system prevents the need for extensive legal
advice."
"This benefit, presently provided by the Rome Convention, will
be lost if the UK does not opt in, as the Regulation will apply in
other Member States in any event. While the Convention and the
Regulation are similar in many respects, maintaining two separate
systems would increase complexity, especially for business."
The consultation is open until 25th June 2008.
The proposed Rome I Regulation is separate from the proposed
Rome II Regulation, which governs the law to be used in the case of
non-contractual disputes in the EU.
