7. PRIVATE INTERNATIONAL LAW
(24213)
5116/03
COM(02) 654
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Commission Green Paper on the conversion of the Rome Convention of 1980 on the law applicable to contractual obligations into a Community instrument and its modernisation.
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| Legal base: | —
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| Document originated: | 14 January 2003
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| Deposited in Parliament: | 24 January 2003
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| Department: | Lord Chancellor's Department and Scottish Executive Justice Department
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| Basis of consideration: | EM of 7 February 2003
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| Previous Committee Report: | None
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| To be discussed in Council: | No date set
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| Committee's assessment: | Legally and politically important
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| Committee's decision: | Not cleared; further information requested
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Background
7.1 In 1980 the then Member States adopted the Rome Convention
on the law applicable to contractual relations. The Convention
sets out a number of rules for determining which system of law
is to apply to contractual obligations where there is an international
element (such as the case where a contract made in one Member
State falls to be performed in another). The Convention is of
a 'universal' nature, that is, the choice of law rules which it
contains may lead to the application of the law of any country,
including that of non-Member States.
7.2 The 1980 Rome Convention has been ratified by the
United Kingdom following the enactment of the Contracts (Applicable
Law) Act 1990. A Protocol to that Convention confers jurisdiction
on the Court of Justice of the European Communities to interpret
the Convention, but it has yet to come into force, because Belgium
has not ratified the Protocol.
The Commission's Green Paper
7.3 The Commission's Green Paper reviews the provisions
of the Rome Convention and seeks views on the desirability of
converting it into a Directive or Regulation adopted under Article
61(c) EC,[10] and on
whether such an instrument should seek to 'modernise' the substantive
provisions of the Rome Convention .
7.4 The Green Paper explains that the Rome Convention
applies to contractual obligations in any situation involving
a choice between the laws of different countries, but that a number
of subject areas are excluded. These include the status or legal
capacity of natural persons, wills and succession, rights in property
arising out of a matrimonial or family relationship, obligations
arising from the negotiability of bills of exchange, cheques and
promissory notes, arbitration agreements and agreements on the
choice of court, the law governing companies, trusts and evidence
and procedure.
7.5 The Green Paper further explains that a 'keystone'
of the Rome Convention is the freedom of the parties to a contract
to choose the law which is to be applicable to their contract,
a principle which is set out in Article 3 of the Convention. In
the absence of any such choice of law, the applicable law is to
be that of the country which has the closest connection with the
contract. Article 4 sets out a number of presumptions for determining
which country has the closest connection.
7.6 Such general choice of law rules is subject to exceptions
under Articles 5 and 6 in relation to employment and consumer
contracts. These preserve the effect of any 'mandatory rules'
of the law of the country where the consumer is habitually resident
or in which the employee habitually carries out his work. 'Mandatory
rules' are those rules of law which must be applied, irrespective
of the law which would otherwise apply to the contract.
7.7 The Green Paper refers to the fact that a number
of Regulations have been adopted under Article 61(c) EC in relation
to judicial cooperation in civil matters, namely the 'Brussels
II' Regulation,[11] and
Regulations on bankruptcy,[12]
on service of judicial and extrajudicial documents[13]
and the Regulation converting the Brussels Convention of 1968
on jurisdiction and the recognition and enforcement of judgments
in civil and commercial matters into a Community Regulation.[14]
The Commission asserts that the rules on jurisdiction and choice
of law applying to contractual and non-contractual civil and commercial
obligations 'form an entity', and that the fact that the Rome
Convention takes a different form from these Community instruments
relating to private international law 'does not improve the consistency
of this entity'.
7.8 The Commission refers to a number of provisions in
the Rome Convention which 'will have to be reviewed in the light
of the concern for consistency in Community legislative policy'.
The Commission refers in this regard to the right of Member States
to enter reservations relating to Articles 7(1)(application of
mandatory rules) and Article 10(1)(e) (applicable law for determining
consequences of nullity of a contract), the right of Member States
under Article 23 to adopt a new choice of law rules in relation
to any particular category of contract[15]
and the right of Member States under Article 24 to accede to multilateral
conventions laying down rules of private international law relating
to any of the matters governed by the Convention.[16]
The Commission concludes this part of its Green Paper by suggesting
that 'it needs to be examined whether these provisions are compatible
with the aim of establishing a genuine area of justice'.
7.9 On the interpretation of the Rome Convention, the
Green Paper suggests that 'certain Articles of the Convention
are not always being applied uniformly, in particular because
the national courts tend to interpret the Convention in the light
of previous solutions, either to fill in gaps in the Convention
or to modify the interpretation of certain flexible provisions'.
The Green Paper goes on to assert (but without explaining the
basis for the assertion) that examples of these differences can
be found in relation to Article 1(1)(material scope) and Article
3(1) (freedom of choice). The Commission points out that the Member
States have agreed two Protocols to confer jurisdiction on the
Court of Justice to interpret the Convention, but these Conventions
are not yet in force, since Belgium has yet to ratify. The Commission
concludes that converting the Rome Convention into a Community
instrument would ensure that concepts common to the Rome Convention
and Council Regulation (EC) 44/2001 (such as that of 'consumer')
are interpreted in the same manner.
7.10 A further argument advanced by the Commission in
favour of the adoption of a Community instrument is that it would
'prevent the entry into force of the uniform conflict rules from
being delayed by ratification procedures in the applicant countries'.
In support of this argument, the Commission points out that the
Conventions of Funchal and Rome concerning the accession of Spain
and Portugal and Austria, Finland and Sweden have still not been
ratified by all Member States.
7.11 As for the choice of Community instrument, the Commission
argues that the objective of harmonising the entire subject matter
of the private international law of obligations could more easily
be achieved by adopting a Regulation, which would be directly
applicable and would 'avoid the uncertainties of the transposal
of a directive'.
7.12 On the question of modernisation, the Green Paper
considers a number of general questions before turning to detailed
issues. The first such general question is the existence of a
number of Community instruments relating to particular sectors
such as the sale of consumer goods and insurance which provide
rules on the choice of law which may diverge from those of the
Rome Convention. The Green Paper acknowledges that Article 20
of the Convention gives priority to such special rules, but questions
whether the resulting solutions are sufficiently transparent.
7.13 The Green Paper also expresses a concern that the
freedom of parties under the Rome Convention to choose the law
of a third State may lead to a situation in which Community law
is not applied even though all the elements of the case are located
within the European Union. However, the Green Paper also acknowledges
that the provisions of the Rome Convention on 'mandatory rules'
would prevent the choice of a third country's law from displacing
the applicable law of a Member State where all the relevant elements
are connected with one country only. The Green Paper suggests
the adoption of a rule guaranteeing the application of a 'Community
minimum standard' where all the elements, or at least 'certain
highly significant elements', of a contract are located within
the Community.
7.14 A further general question raised in the Green Paper
concerns the treatment of existing international conventions to
which Member States are already parties. The Green Paper concedes
that a Community instrument could make it possible for Member
States to continue to implement rules on the conflict of laws
under international conventions to which they are already party,
so that such Member States would not have to denounce such conventions.
On the other hand, the Commission asserts that, in accordance
with the AETR doctrine,[17]
the Member States 'would no longer be able to accede individually
to other Conventions once the proposed Community instrument is
adopted' and that 'the adoption of a Community instrument standardising
the rules of conflict of laws relating to civil and commercial
contracts would confer exclusive power on the Community to negotiate
and adopt international instruments on such matters'.
7.15 As for the detailed issues, the Green Paper draws
attention to the existing exclusion of arbitration agreements
from the scope of the Rome Convention as well as the exclusion
of insurance contracts covering risks located within the European
Union. The Green Paper also raises the question of whether the
freedom of choice of the parties to choose an applicable law should
extend to the choice of rules not incorporated in the law of a
State but set out in an international convention such as the Vienna
Convention of 11 April 1980 on contracts for the international
sale of goods, or in private codifications such as the UNIDROIT
Principles of International Commercial Contracts.
7.16 The Green Paper also raises the issue of whether
the existing provisions of Article 3(1) (which allow a choice
of law to be inferred where this is 'demonstrated with reasonable
certainty by the terms of the contract or the circumstances of
the case') are sufficiently precise. In addition, a number of
issues are raised on the operation of Article 4 (which determines
the applicable law in the absence of any choice made by the parties),
in relation to Article 5 (rules for certain consumer contracts)
and as to the definition of the term 'mandatory rules' used in
Articles 3(3), 5,6,7 and 9.
7.17 The Green Paper also raises a number of detailed
issues relating to Article 6 (employment contracts), Article 7
(application of foreign mandatory rules), Article 9 (law applicable
to formal validity of contracts) and Articles 12 and 13 (law applicable
to assignments and subrogation).
The Government's view
7.18 In their Explanatory Memorandum of 7 February 2003,
the Parliamentary Secretary at the Lord Chancellor's Department
(Baroness Scotland of Asthal QC) and the Minister of Justice for
Scotland (Jim Wallace QC) explain that the underlying policy of
the Rome Convention is to continue the work of unification in
the field of private international law begun by the 1968 Brussels
Convention on jurisdiction and the recognition and enforcement
of judgments in civil and commercial matters. They point out that
the Rome Convention is presently interpreted only by national
courts. A Protocol which would confer an interpretative jurisdiction
on the Court of Justice has not come into force, because it has
yet to be ratified by Belgium.
7.19 The Ministers explain further that, as a consequence
of the entry into force of the Treaty of Amsterdam and the moving
of judicial cooperation to Title IV of the EC Treaty, the Commission
has a policy of converting existing conventions in this area into
Community instruments. The Ministers state:
"This form of instrument has, in terms of convenience, two
main advantages over a convention: first, it will be easier to
amend in due course (there will be no need for any general ratification
of amending conventions); and secondly, it will be easier to apply
to new Member States (there will be no need for any general ratification
of accession conventions).
7.20 The Ministers comment further that the Rome Convention
is important for international commerce and in particular for
the London Commercial Court where foreign litigants, often with
little or no connection with this country, choose to have their
disputes determined. They add that the Government will assess
all the changes proposed in the consultation paper against this
policy consideration and that, in preparing its response to the
Green Paper (for which comments are requested by 15 September
2003), the Government will ensure that there is full consultation
with interested individuals and organisations among the judiciary,
legal practitioners and academic experts.
Our assessment of the Green Paper
7.21 Before reaching any concluded view on the proposals
made in the Green Paper, we will wish to know more of the views
expressed in the course of the consultation which the Government
plans to conduct. As matters now stand, it does not seem to us
that the Commission has made any compelling case for converting
the Rome Convention into a Community Regulation. Whilst this is,
admittedly, a question on which consultees are to be asked their
views, it does not seem to us that there is evidence to show that
the position of parties to contracts would be improved to any
material extent by adoption of a Regulation to replace the Convention.
7.22 We note the comments made in the Green Paper on
the interpretation of the Rome Convention by the Court of Justice,
but we note that the Commission does not even mention the cost
and delay which will be caused to individual litigants if all
courts or tribunals are to be given the right to refer a question
to the Court of Justice under Article 234 EC (which would be the
consequence of converting the Rome Convention into a Regulation).
We note that the First and Second Protocols to the Rome Convention
provide that such references may be made only by supreme courts,
and we consider this to be a preferable solution, particularly
bearing in mind the propensity of litigants from third countries
to opt for the jurisdiction and the laws of this country to determine
their disputes.
7.23 We note the Commission's remark (in paragraph 2.4
of the Green Paper) that the adoption of a Community instrument
'would prevent the entry into force of the uniform conflict rules
from being delayed by ratification procedures in the applicant
countries', but we recall that such procedures require the involvement
of national parliaments. It seems to us to be undemocratic to
advocate the adoption of measures at Community level in order
to by-pass the national parliaments, whatever may be the arguments
about convenience.
7.24 It seems to us that considerable disadvantages will
arise for the Member States in their relations with third countries
if the Rome Convention is converted into a Community instrument.
We note the emphasis which the Commission places on the loss by
Member States of their existing competence to conclude choice
of law agreements with third countries and the conferring on the
Community of an exclusive competence. We therefore remain at least
sceptical as to whether the advantages flowing from adoption of
a Community instrument will be sufficient to offset the disadvantages
which we consider the UK would suffer in its relations with third
countries and its ability to promote London as a centre for resolving
international commercial disputes.
Conclusion
7.25 This is a substantial Green Paper, raising a
number of issues of principle and of technical complexity. We
note the intention of the Ministers to consult widely on the Green
Paper, and we shall look forward to an account by the Ministers
of the views which have been expressed.
7.26 We ask the Ministers to have regard to
the points we make in this report when framing their reply, and
we ask them to provide us with a copy of their reply in sufficient
time to enable us to comment further.
7.27 In the meantime, we shall hold the document under
scrutiny.
10 Since
the Nice Treaty has now come into force, such a measure would
be adopted by co-decision and QMV 'with the exception of aspects
related to family law' Article 67(5)EC. Back
11 Council
Regulation (EC) No. 1347/2000 on jurisdiction and the recognition
and enforcement of judgments in matrimonial matters and matters
of parental responsibility for children of both spouses, OJ No
L 160, 30.6.2000, p. 19. Back
12 Council
Regulation (EC) No 1346/2000 on insolvency proceedings, OJ No
L160, 30.6.2000, p.1. Back
13 Council
Regulation (EC) No. 1348/2000, OJ No. L 160, 30.6.2000, p.37. Back
14 Council
Regulation (EC) No. 44/2001, OJ No. L 12, 16.01.2001, p.1. Back
15 This
right is subject to a notification procedure and the right of
any signatory State to request consultations. Back
16 This
right is also subject to a notification and consultation procedure. Back
17 Derived
from Commission v. Council [1971] ECR 263. Back
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