Select Committee on European Scrutiny Thirteenth Report


7. PRIVATE INTERNATIONAL LAW


(24213)

5116/03

COM(02) 654


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.

Legal base:
Document originated:14 January 2003
Deposited in Parliament:24 January 2003
Department:Lord Chancellor's Department and Scottish Executive Justice Department
Basis of consideration:EM of 7 February 2003
Previous Committee Report:None
To be discussed in Council:No date set
Committee's assessment:Legally and politically important
Committee's decision:Not cleared; further information requested


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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