2 Law applicable to non-contractual obligations
| (24782)
11812/03
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| Draft Regulation on the law applicable to non-contractual obligations ("Rome II")
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| Legal base | Article 61(c) EC; co-decision; QMV
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| Department | Constitutional Affairs; Scottish Executive Justice Department
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| Basis of consideration | Minister's letter of 7 January 2004
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| Previous Committee Report | HC 63-xxxiii (2002-03), para 4 (15 October 2003)
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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; information on progress requested
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Background
2.1 We considered this draft Regulation on 15 October 2003. We
noted that the Commission described 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", and that the Commission
argued that the measure should be in the form of a Regulation,
laying down "detailed, precise and unconditional" uniform
rules requiring no measures by the Member States for their transposition
into national law.
2.2 Since the proposal is based on Title IV of the
EC Treaty, it will not apply to Denmark and would not apply to
the United Kingdom or Ireland unless those countries exercised
their right to opt into the measure. We asked the Minister to
inform us of any decision by the UK in this regard.
2.3 We noted that 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. We asked the Ministers
for their assessment 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. As it appeared
that arbitration was not excluded from the scope of the proposal,
we also asked for a like assessment on the position of London
as a centre for international commercial arbitration.
2.4 We noted that Article 24 of the proposal contained
a rule which would prevent the application of any rule of law
which had the effect of causing non-compensatory damages, such
as exemplary or punitive damages, to be awarded, and that the
provisions stated that the application of such rules "shall
be contrary to Community public policy". We asked the Ministers
if they considered it 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 asked the Ministers if they were content
with the general disapplication of all rules providing for non-compensatory
damages.
The Minister's reply
2.5 In his letter of 7 January 2004 the Parliamentary
Under-Secretary of State at the Department for Constitutional
Affairs (Lord Filkin) replies to the concerns we raised on 15
October. The Minister had earlier informed us by letter of 31
October that the United Kingdom had decided to opt into this proposal.
2.6 On the likely impact of the Regulation on the
volume of international commercial litigation and arbitration
currently dealt with in London, in particular that use of London
for such business might be deterred by the expense and delay of
references to the European Court of Justice, the Minister states
that he is not persuaded that adoption of the Regulation would
have any significant adverse impact of this kind. The Minister
recalls that most issues arising in international litigation and
arbitration are contractual rather than tortious in kind, and
that in relation to contractual obligations the United Kingdom
has long ago accepted that the 1980 Rome Convention on the Law
applicable to Contractual Relations should be subject to the jurisdiction
of the Court of Justice. The Minister adds that the fact that
this new jurisdiction has not yet come into operation is due to
the failure by one Member State to ratify the relevant protocol
to the Rome Convention.
2.7 The Minister notes that, in raising this point
we also drew his attention to the fact that, as currently drafted,
the Regulation would also cover non-contractual obligations arising
in the context of arbitration proceedings. The Minister considers
that this would be inconsistent with the position under the 1980
Rome Convention and that the Regulation should be amended so that
it would not affect arbitration proceedings in any way at all.
2.8 In relation to our question as to whether any
advantages likely to flow from adoption of the Regulation would
outweigh the loss of national competence that would follow, the
Minister makes three points. The first is that the Government
has various concerns about the proposal and will be seeking to
resolve these in negotiations, and that the final balance of advantage
will be affected by the outcome.
2.9 Secondly, the Minister states:
"The Government in principle supports the harmonisation
at Community level of the rules of private international law.
This should enable courts in the Member States to reach an identical
result in relation to the same issue wherever the issue is raised.
Not only does this establish a welcome degree of predictability,
it should also alleviate the pressure for the harmonisation at
Community level of substantive national law, an option which is
likely in many cases to be significantly more difficult."
2.10 Thirdly, the Minister points out that the Government
is concerned about the lawfulness of the 'universal' scope of
the Regulation (i.e. that it should apply regardless of whether
any party in the case is connected in any significant way with
the European Union). The Minister explains that the Government
has sought an opinion from the Council Legal Service and that
resolution of this issue will have an important impact on the
extent to which Member States would retain their national competence
in this area.
2.11 In relation to the points we raised on Article
24 of the proposal, the Minister comments as follows:
"This provision inflexibly disapplies all rules
providing for non-compensatory damage by reference to 'Community
public policy'. I am grateful to the Committee for raising this
matter which I consider would be more appropriately dealt with
under the general discretionary rule on the application of the
public policy of the forum contained in Article 22. Under English
law the issue of the non-compensatory nature of the damages to
be awarded is regarded as a matter of substance, rather than procedure,
which properly falls to be determined under the general choice
of law rules. On this basis it should, like other aspects of
the applicable law, be subject to Article 22. The equivalent
provision in the 1980 Rome Convention (Article 16) is in the same
terms and also refers to 'the public policy of the forum'. The
official report on this agreement by Professors Giuliano and Lagarde
makes clear that this concept includes, but is not confined to,
Community public policy. I believe that the same result should
in substance be reflected in the Regulation and accordingly that
[the] instrument should not create either a rule of Community
public policy or a rule which would inflexibly prohibit the award
of non-compensatory damages."
Conclusion
2.12 We thank the Minister for his helpful and
informative letter. We accept that a number of issues will require
resolution before an assessment can be made of the overall balance
of advantage of this proposal. At this stage, we would simply
underline the point that, because the Regulation covers conflict
of law rules in tort or delict in general, it consequently may
affect external competence in relation to choice of law rules
in a range of specialised fields, such as air and sea transport,
marine pollution and other environmental damage, defamation and
product liability, to name but a few.
2.13 We are encouraged by the Minister's remarks
in relation to the concept of "Community public policy"
and we agree that the Regulation should not create such a concept,
or any inflexible rule against the award of non-compensatory damages.
2.14 We look forward to an account in due course
of the progress of negotiations on this proposal, and in the meantime
we shall hold the document under scrutiny.
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