4 Law applicable to non-contractual obligations
| (24782)
11812/03
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| Proposal for a Regulation on the law applicable to non-contractual obligations ("Rome II").
|
| Legal base | Article 61(c) EC; co-decision; QMV
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| Document originated | 22 July 2003
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| Deposited in Parliament | 29 July 2003
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| Department | Constitutional Affairs; Scottish Executive Justice Department
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| Basis of consideration | EM of 2 September 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
4.1 The preparation of conventions and other instruments to establish
agreed rules between the Member States on the conflict of laws
began in the 1960s. In 1972 a group of experts from the Member
States produced a draft convention on the law applicable to contractual
and non-contractual obligations. The scope of this draft was later
confined to the choice of law in relation to contractual obligations
and was eventually adopted in 1980 as the Rome Convention on the
law applicable to contractual obligations.
4.2 In December 1998 the Justice and Home Affairs
Council adopted an Action Plan on how best to implement the freedom,
security and justice provisions of the Amsterdam Treaty. Part
of this plan was the preparation of a legal instrument on the
law applicable to non-contractual obligations, referred to as
"Rome II".
The draft "Rome II" Regulation
4.3 The Commission describes the purpose of the Regulation
as being to "standardise the Member States' rules of conflict
of laws regarding non-contractual obligations and thus extend
the harmonisation of private international law in relation to
civil and commercial obligations which is already well advanced
in the Community with the 'Brussels I' Regulation[8]
and the Rome Convention of 1980".
4.4 The proposal is based on Article 61(c) EC, which
permits the Council to adopt measures in the field of judicial
cooperation as provided for in Article 65 EC. Article 65 EC provides
for measures in the field of judicial cooperation 'in civil matters
having cross-border implications' to be agreed under the co-decision
procedure and 'in so far as necessary for the proper functioning
of the internal market'. By virtue of Article 65(b) EC such measures
may include 'promoting the compatibility of the rules applicable
in the Member States concerning the conflict of laws'. As the
measure is proposed under Title IV of the EC Treaty, it does not
apply to Denmark and will not apply to the United Kingdom or Ireland
unless those countries exercise their right to opt into the measure.
4.5 The Commission argues that the measure should
be in the form of a Regulation, since it would lay down uniform
rules for the applicable law which are 'detailed, precise and
unconditional' and require no measures by the Member States for
their transposition into national law. The Commission further
argues that 'if the Member States had room for manoeuvre in transposing
these rules, uncertainty would be reintroduced into the law, and
that is precisely what the harmonisation is supposed to abolish'.
4.6 The material scope of the Regulation is defined
in Article 1 as applying to non-contractual obligations in civil
and commercial matters in situations involving a conflict of laws.
It is apparent from the Commission's explanatory memorandum that
the term 'civil and commercial matters' is to be understood in
the same sense as that term is used in the 'Brussels I' Regulation.
The draft Regulation does not, therefore, apply to revenue, customs
or administrative matters. Article 1(2) specifically excludes
non-contractual obligations arising out of family relationships,
matrimonial property regimes and succession, obligations arising
under bills of exchange, promissory notes and cheques insofar
as these obligations arise out of their negotiable character,
the personal liability of officers and members for the debts of
a corporate or unincorporated body, the personal liability of
persons carrying out a statutory audit, the liabilities of settlors,
trustees and beneficiaries of a trust, and non-contractual obligations
arising out of nuclear damage.
4.7 Article 2 provides that the Regulation is to
have universal application, i.e. that the law specified by the
Regulation as the proper law is to be applied, whether or not
it is the law of a Member State. The Commission argues in its
explanatory memorandum that the proposed Regulation should also
apply where one of the parties to the dispute is habitually resident
in a third state, asserting that the separation between 'intra-Community'
and 'extra-Community' disputes 'is by now artificial'. The Commission
also argues that the complexity of private international law rules
'would be even greater if … practitioners had to deal not
only with Community uniform rules but also with distinct national
rules in situations not connected as required with Community territory'.
4.8 Article 3 sets out the principal rule for determining
the applicable law. Accordingly, the law applicable is to be the
law of the country in which the damage arises or is likely to
arise (irrespective of the country in which the event giving rise
to the damage occurred or of the country or countries in which
indirect consequences of that event arise). This general rule
is subject to particular rules applying in the case of product
liability (Article 4), unfair competition (Article 5), privacy
and rights relating to personality (Article 6), 'violation of
the environment' (Article 7) and infringement of intellectual
property rights (Article 8).
4.9 By virtue of Article 4, the law applying to a
product liability claim in respect of damage sustained from a
defective product is to be the law of the country in which the
person sustaining the damage is habitually resident, unless the
defendant can show that the product was marketed in that country
without his consent (in which case the applicable law will be
that of habitual residence of the defendant).
4.10 In relation to 'unfair competition' (a concept
which is undefined)[9]
Article 5 provides that the applicable law is to be the law of
the country 'where competitive relations or the collective interests
of consumers are or are likely to be directly and substantially
affected'. However, where the act of unfair competition 'affects
exclusively the interests of a specific competitor' the rules
of Article 3 are to apply.
4.11 In relation to privacy or 'rights relating to
personality', Article 6 provides for the law of the forum (the
'lex fori', i.e. the law applied by the court determining the
substantive issue) to apply in those cases where application of
the law determined under Article 3 would be contrary to the 'fundamental
principles of the forum as regards freedom of expression and information'.
Article 6(2) provides for the law of the habitual residence of
the broadcaster or publisher to apply in relation to any right
to reply or 'equivalent measures'. The Commission explains that
this provision seeks to respond to concerns expressed by some
Member States and in the press over cases where a court in one
Member State might be obliged to give judgment against a publisher
in that State in respect of a breach of the laws of another member
State or of a third State, even though the publication was permitted
by the law of that first State. The Commission adds that this
is a 'sensitive issue, where the Member States' constitutional
rules diverge quite considerably'.[10]
For this reason, the Commission believes that the law designated
by Article 3 must be disapplied in favour of the lex fori
if it is incompatible with the public policy of the forum in relation
to freedom of the press.
4.12 Article 8 provides that in relation to 'violation
of the environment' the applicable law is to be that determined
by the general rule in Article 3(1), unless the claimant 'prefers
to base his claim on the law of the country in which the event
giving rise to the damage occurred'. The Commission's reasoning
appears to be that relying only on Article 3 'would mean that
a victim in a low-protection country would not enjoy the higher
level of protection available in neighbouring countries' and that
this 'could give an operator an incentive to establish his facilities
at the border so as to discharge toxic substances into a river
and enjoy the benefits of the neighbouring country's laxer rules'
. The provisions of Article 7 therefore allow the victim of environmental
damage to determine the law which is most favourable to him.
4.13 Article 8 contains a special choice of law rule
to ensure that the Regulation complies with the universally recognised
principle that the applicable law in the case of intellectual
property rights is the law of the country in which protection
is sought . This 'territorial principle' stemming from the 19th
century versions of the Berne and Paris Conventions enables each
country to apply its own law to an infringement of an intellectual
property right which may validly be asserted in that country.
4.14 Article 9 provides rules for determining the
proper law in cases where a non-contractual obligation arises
out of an act other than a tort or delict. The Commission explains
that the provision needs to be defined in non-technical language
because of the wide divergence between national systems, but that
most Member States provide for a non-contractual obligation to
arise for repayment of amounts wrongly received, unjust enrichment
and in respect of actions performed without due authority in connection
with the affairs of another person (negotiorum gestio).
4.15 Articles 10 to 17 provide rules which are common
to tort or delict cases as well as those arising from other non-contractual
obligations. Article 10 provides that the parties may agree to
submit their non-contractual obligations (other than those relating
to intellectual property under Article 8) to a system of law of
their choice. Where all the elements of the situation are located
in a country other than the country whose law has been chosen,
the choice of law may not prevent the application of those rules
of that other country which cannot be derogated from by contract.
Article 10(3) provides that a choice of law shall not debar the
application of Community law where the other elements of the situation
were located in a Member State at the time the loss was sustained.
4.16 Article 11 provides that the applicable law
is to govern, in particular, questions relating to the extent
of liability, the availability of damages, measures to prevent
or terminate injury or damage, liability for acts of a third party
and prescription and limitation.[11]
4.17 Article 12 is concerned with 'overriding mandatory
rules', i.e. those rules of law which are to apply irrespective
of the choice of law.[12]
Article 12(1) provides that where the law of a third country[13]
is applicable by virtue of the Regulation, effect may be given
to the mandatory rules of another country with which the situation
is closely connected 'if and in so far as, under the law of the
latter country, those rules must be applied whatever the law applicable
to the non-contractual obligation'. Article 12(1) further provides
that, in considering whether to give effect to those mandatory
rules, 'regard shall be had to their nature and purpose and to
the consequences of their application or non-application'. Article
12(2) provides that nothing in the Regulation is to restrict the
application of mandatory rules of the forum State.
4.18 Article 13 requires the court, irrespective
of the law which is applied, to take account of rules of safety
and conduct in force at the place and time of the event giving
rise to the damage. Article 14 provides for the right of a person
to take direct action against an insurer to be governed by the
law applicable to the non-contractual obligation, or the law applicable
to the insurance contract, at the option of the claimant. The
Commission explains that the purpose of the provision is to limit
the choice of law to those two systems which the insurer can legitimately
expect to be applied.
4.19 Articles 15 and 16 closely follow equivalent
provisions in Articles 13 and 9 of the Rome Convention. They provide,
respectively, rules on the choice of law relating to subrogation[14]
arrangements and rights of contribution,[15]
and on the formal validity of any unilateral act intended to have
legal effect.
4.20 Article 17 provides that the applicable law
is also to determine the burden of proof or the existence and
effect of presumptions (i.e. inferences which are to be drawn
from certain facts). The Commission points out that this provision
corresponds to Article 14 of the Rome Convention and serves a
similar purpose in making the chosen applicable law apply to such
questions in place of the procedural rules of the lex fori
which would otherwise generally apply.
4.21 Articles 18 provides for seabed installations,
ships and aircraft to be treated as being the territory of a State,
whilst Article 19 provides for the principal establishment of
a legal person to be treated as its habitual residence. Article
20 provides for the exclusion of renvoi.[16]
4.22 Article 21 (which is substantially similar to
Article 19 of the Rome Convention) provides for the application
of the choice of law rules of the Regulation to countries having
more than one legal system.[17]
Article 21(2) provides that a State[18]
in this situation 'shall not be bound' to apply the Regulation
to conflicts solely between such systems.
4.23 Article 22 provides for an exception (which
corresponds to Article 16 of the Rome Convention) by which the
application of any rule of law specified by the Regulation may
be refused if to apply that rule would be incompatible with the
public policy of the forum. Article 23 preserves the application
of choice of law rules in specific Community instruments and provides
that the Regulation does not prejudice the application of specific
Community measures.
4.24 Article 24 contains a rule which prevents the
application of a rule of law which has the effect of causing non-compensatory
damages, such as exemplary or punitive damages, to be awarded.
The Article provides quite starkly that the application of such
rules 'shall be contrary to Community public policy'.
4.25 Article 25 permits Member States to continue
to apply the choice of law rules in conventions to which they
are a party at the time of adoption of the Regulation, and Article
26 is to contain a list of such conventions.
The Government's view
4.26 In their Explanatory Memorandum of 2 September
2003 the Parliamentary Secretary at the Department for Constitutional
Affairs (Lord Filkin) and the Minister for Justice in the Scottish
Executive (Jim Wallace) describe the draft Regulation and explain
that the Government has not yet decided whether to opt into this
measure under the provisions of Title IV of the EC Treaty. The
Ministers indicate that the Government is still in the process
of assessing the proposal, but that it is, in principle, content
with the general rule in Article 3 on the applicability of the
law of the place where the initial damage is suffered as a result
of a tort or delict.
4.27 The Ministers add that, among other things,
the Government will explore during the course of negotiations:
- Whether the apparent 'world-wide'
scope envisaged by Article 2; i.e. that it would apply whether
or not either of the parties in a case has any significant connection
to the internal market, complies with the requirement in Article
65 EC that measures must be necessary for the proper functioning
of the internal market;
- Whether there is a need for
the 'special rules' envisaged in Articles 4, 5 and 7, and how
the scope of any such rules would be defined and operate in practice;
- Whether the rule proposed in Article 6 (violations
of privacy and rights relating to the personality), which has
important and controversial implications for the press and broadcast
media, is appropriate; in assessing this matter the Government
is concerned to ensure that any rule in this sensitive area does
not operate to restrict freedom of expression in the United Kingdom;
- Whether the section of the proposal concerning
non-contractual obligations arising from an act other than a tort
or delict (Article 9), is necessary and, if so, whether the proposed
rules provide adequate certainty; and
- In Article 10 (freedom of choice), although the
Government welcomes the principle of party autonomy, whether the
proposed limitation of this provision to agreements made after
the dispute has arisen between the parties is appropriate."
Conclusion
4.28 We agree that the points identified by the
Ministers require further explanation, but we also think that
a more basic assessment needs to be made of the advantages and
disadvantages for the United Kingdom of opting into this proposal.
4.29 A substantial volume of commercial litigation
is conducted in London between parties who have no particular
connection with the United Kingdom but who choose to litigate
or arbitrate their disputes here. The adoption of a Regulation
would mean that such cases would become subject to the probability
of references being made to the European Court, with consequent
delays and expense being imposed on parties who have no connection
with the Community. We would therefore be grateful to know the
assessment by the Ministers of the likely effect that participation
in the Regulation by the United Kingdom would have on the position
of London as a centre for such commercial litigation and, given
that arbitration is not excluded from the scope of the proposal,
also on the position of London as a centre for international commercial
arbitration.
4.30 It is apparent from the provisions of Article
25 of the proposal that the Community would acquire an exclusive
external competence in relation to rules in all sectors providing
for the determination of the proper law, and we ask the Ministers
if the advantages of the Regulation are sufficient to outweigh
the corresponding loss of competence by the United Kingdom.
4.31 On a more detailed point, we ask the Ministers
if they consider that it is appropriate for Article 24 to provide
for a 'Community public policy', when in private international
law 'public policy' has traditionally been a matter for states.
We also ask the Ministers if they are content with the general
disapplication of all rules providing for non-compensatory damages.
4.32 We also ask the Minister to inform us of
any decision by the Government to opt into this proposal. We shall
hold the document under scrutiny pending the Ministers' reply.
8 Council Regulation (EC) No. 44/2001 of 22 December
2000, OJ No L12, 16.1.2001, p.1. This Regulation replaced the
1968 Brussels Convention on jurisdiction and the recognition and
enforcement of judgments in civil and commercial matters. The
Brussels Convention continues to apply between Denmark and the
other Member States. Back
9
Neither is there any provision on which law is to be applied
to the question of characterisation of the act as an act of unfair
competition. Back
10
However, all Member States are bound by Article 10 ECHR on the
right to freedom of expression. Back
11
i.e. rules which prevent an action being brought after a period
of time. These operate either by extinguishing the cause of action
(prescription) or by imposing a procedural bar to proceedings
(limitation). Back
12
The Commission refers to the definition given by the ECJ in Arblade
[1999] ECR I- 8453 'national provisions compliance with which
has been deemed to be so crucial for the protection of the political,
social or economic order in the Member State concerned as to require
compliance therewith by all persons present on the national territory
of that Member State and all legal relationships within that State'. Back
13
This presumably includes the law of a Member State. Back
14
Subrogation is the process whereby one person may assume the
rights and liabilities of another in relation to proceedings.
It is common in insurance. Back
15
Where several persons are responsible for a wrongful act, the
party sued may seek a contribution from those persons. Back
16
Renvoi is the doctrine in the private international law
of many countries by which the application of its private international
law rules leads to the application of the conflict of law rules
of another country. Back
17
Of the Member States, only the UK is in this position, but if
the Regulation has a universal application, it would also determine
the proper law by reference to the relevant parts of the United
States, Canada or Australia. Back
18
The context seems to confine this reference to a Member State,
but the Regulation would require Member States to apply the Regulation
to determine the applicable law in the case of third countries
having a federal composition, such as the United States. Back
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