4 Law applicable to non-contractual obligations
| (a)
(24782)
11812/03
COM(03) 427
(b)
(25772)
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Draft Regulation on the law applicable to non-contractual obligations ("Rome II")
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 | (b) EM of 22 June 2004
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| Previous Committee Report | (a) HC 42 vii (2003-04), para 2 (21 January 2004)
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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
4.1 We considered an earlier version of this draft Regulation
(document (a)) on 15 October 2003. The purpose of the Regulation
was described by the Commission 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". Since
the proposal was based on Title IV of the EC Treaty, it would
not apply to Denmark , but the United Kingdom has exercised its
right to opt into the measure.
4.2 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 were therefore
concerned about the "universal" scope of the Regulation
(i.e. that it would apply regardless of whether any party in the
case is connected in any significant way with the European Union).
We noted that the Government shared our concern and had sought
an opinion from the Council Legal Service on the lawfulness of
the Regulation having such a wide scope and noted the Government's
comment that a resolution of this issue would have an important
impact on the extent to which Member States would be able to retain
their national competence in this area. We emphasised the point
that, because the Regulation would cover conflict of law rules
in tort or delict in general, it would affect external competence
in relation to choice of law rules in a wide range of specialised
fields, including air and sea transport, marine pollution and
other environmental damage, defamation and product liability.
4.3 We also 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 application of such a rule of law would be "contrary
to Community public policy". We were encouraged by the Minister's
remarks that the proposal should not create either a rule of Community
public policy or a rule which would inflexibly prohibit the award
of non-compensatory damages.
The revised draft Regulation
4.4 The revised text of the draft Regulation (document
(b)) was first discussed by the relevant Council Working Group
on 23 June 2004. It incorporates a number of changes from the
earlier version, which may be summarised as follows.
4.5 Article 1 (which determines the scope of the
proposal) continues to apply to non-contractual obligations in
civil and commercial matters in situations involving a conflict
of laws, but a new Article 1a has been added to limit this potentially
wide field of application. It provides that the Regulation is
to apply in all cases where the court of a Member State has jurisdiction,
unless that jurisdiction is based on a choice of court agreement.
Article 1 of the earlier version specifically excluded non-contractual
obligations arising out of family and equivalent relationships,
matrimonial property regimes, succession, bills of exchange, cheques
and promissory notes (in so far 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
and of a statutory auditor, the liabilities of settlors, trustees
and beneficiaries of a trust and non-contractual obligations arising
out of nuclear damage. In the present version the reference to
"arising out of" has been expanded by referring also
to obligations "likely to arise" from such situations.
4.6 As before, Article 2 continues to provide for
the "universal" application of the choice of law rules
under the Regulation 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.
4.7 Article 3 continues to set out the basic rule
that the applicable law is to be the law of the country in which
the damage occurs or is likely to occur, 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 the general exception
in Article 3(2) and (3) as well as 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).
4.8 Under Article 3(2) the law of the place where
the damage occurs is displaced by the law of the place of habitual
residence, where both claimant and defendant are habitually resident
in the same country. Under Article 3(3) the law applying under
Article 3(1) may be displaced if the non-contractual obligation
is "manifestly more closely connected" with another
country. A new Article 3A is substantially similar to Article
10 of the earlier version and provides that the parties may agree
to submit their non-contractual obligations to a system of law
of their choice. The exceptions to this freedom of choice have
been expanded to include unfair competition as referred to under
Article 5. The existing exceptions relating to intellectual property
under Article 8, and the case where all the elements of the situation
are located in a country other than the country whose law has
been chosen, have been retained. In addition, a choice of law
is not to debar the application of Community law where all the
other elements of the situation were located in one or more Member
State at the time the loss was sustained.
4.9 Article 4 continues to provide that 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 such a case the earlier version provided
that the applicable law was to be that of the habitual residence
of the defendant, but this has been amended to include a reference
also to the law of the place where the product was purchased.
4.10 In relation to "unfair competition"
(a concept which is undefined)[6]
Article 5 continues to provide 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. In the present
version the (undefined) concept of "unfair competition"
has been expanded to include "an act restricting free competition".
4.11 In relation to privacy or "rights relating
to personality", which is now to include defamation, Article
6 now 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 all cases, not just those 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), which provided
for the law of the habitual residence of the broadcaster or publisher
to apply in relation to any right to reply or "equivalent
measures", has been deleted.
4.12 In the earlier version Article 7 provided 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 provisions of Article 7 therefore allowed the victim of environmental
damage to determine the law which is most favourable to him. Article
7 is substantially reproduced in the present version, but with
an option to delete the provision altogether.
4.13 Article 8 on the applicable law in the case
of infringements of intellectual property rights continues to
provide for the law of the country in which protection is sought,
and therefore complies with the "territorial principle"
under the Berne and Paris Conventions enabling each country to
apply its own law to an infringement of an intellectual property
right which may validly be asserted in that country. In the case
of a non-contractual obligation arising or likely to arise from
a unitary Community intellectual property right, the law of the
forum is to apply for any question not governed by the relevant
Community instrument.
4.14 The present version continues to provide, in
Article 9, 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 gives the examples of the obligations
to make repayment of amounts wrongly received, those relating
to unjust enrichment and in respect of actions performed without
due authority in connection with the affairs of another person
(negotiorum gestio)). However, the deletion of this entire
section (Articles 9, 9A to D) is now proposed as an option.
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. No substantial change has been made to these provisions.
Article 11 continues to provide 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.[7]
4.16 Article 12(1) is concerned with "overriding
mandatory rules", i.e. those rules of law which are to apply
irrespective of the choice of law.[8]
Article 12(2) provides that where the law of a third country[9]
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(2) 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".
An option is now provided for the replacement of these provisions
with a rule providing that nothing in the Regulation is to restrict
the application of mandatory rules of the forum State.
4.17 Article 13 continues to require 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 and 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. Articles 15 and 16 continue closely to follow equivalent
provisions in Articles 13 and 9 of the Rome Convention. They provide,
respectively, rules on the choice of law relating to subrogation[10]
arrangements and rights of contribution,[11]
and on the formal validity of any unilateral act intended to have
legal effect.
4.18 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 rule corresponds to Article 14 of the
Rome Convention and causes the chosen applicable law to apply
also to such questions in place of the procedural rules of the
lex fori which would otherwise generally apply.
4.19 Articles 18 provides for seabed installations,
ships and aircraft to be assimilated to the territory of a State,
but the provision now appears as an option, the other being the
deletion of the provision entirely. The Presidency explains that
the provisions of Article 18 appear to be unnecessary, since the
subject matter is more related to public law and might conflict
with other provisions in the draft Regulation. Article 19 provided
for the 'principal establishment' of a legal person to be treated
as its habitual residence. The qualifying reference has now been
changed to the "principal place of business". Article
20 provides for the exclusion of renvoi.[12]
4.20 Articles 21 to 23 are substantially unchanged.
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.[13] Article
21(2) provides that a State[14]
in this situation "shall not be bound" to apply the
Regulation to conflicts solely between such systems.
4.21 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.
4.22 Article 24 of the earlier version contained
a rule which prevented the application of a rule of law which
had the effect of causing non-compensatory damages, such as exemplary
or punitive damages, to be awarded. The Article provided quite
starkly that the application of such rules "shall be contrary
to Community public policy". The terms of Article 24 have
been reproduced in the current version, but the Presidency has
proposed the deletion of the Article or its replacement by alternative
proposals.
4.23 As before 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
4.24 In their Explanatory Memorandum of 25 June
2004 the Parliamentary Secretary at the Department for Constitutional
Affairs (Lord Filkin) and the Minister for Justice in the Scottish
Executive (Jim Wallace) describe the negotiations on the draft
Regulation and focus their attention on the more significant policy
implications of the current text.
4.25 The Ministers provide the following detailed
comments on individual Articles:
Article 1
"The Government is concerned to ensure that
this instrument's scope of application is restricted to those
cases where there is a proper cross-border EU dimension and does
not cover disputes where all or most of the relevant elements
are situated outside the EU. An appropriate restriction is necessary
so that the instrument properly complies with Article 65 of
the EC Treaty. In this context the Government welcomes, in principle,
Article 1(1 a) as an initial move in the right direction. This
provides that, although the instrument is to apply in all cases
where a court in a Member State has jurisdiction, it should not
do so in cases where the court's jurisdiction is based solely
on a choice of court clause. The Government is still considering
the adequacy of this proposal and the extent to which further
restrictions on scope may be necessary in order to ensure proper
compliance with Article 65.
Article 3
"The general principle in paragraph 1 is broadly
acceptable. Paragraph 2, under which the law of the country of
the common habitual residence of the parties is generally to be
applied in preference to the basic rule in paragraph 1, would
be more appropriately subsumed in the discretionary rule of displacement
contained in paragraph 3. On this basis such a common habitual
residence would be only a factor in the application of that rule
and would not itself constitute the basis for a separate provision.
Article 3A
"This provision should be amended to make it
clear that parties are in principle allowed, at least if they
are operating outside the consumer and employment contexts, to
agree on a choice of law in relation to any future tortious and
delictual disputes that may arise between them. This respect for
party autonomy is an important principle underlying the 1980 Rome
Convention and should also be incorporated into this instrument
in the interests of increasing legal certainty in the commercial
context.
"The restrictions on party autonomy contained
in paragraphs 2 and 3 are not justified, particularly in the light
of the reduction in legal certainty they would create. The Government
favours their deletion.
Article 4
"This rule, which contains its own inherent
complexities, uncertainties and unsatisfactory features, is in
any event unnecessary in the light of the general rules in Article
3. The Government favours its deletion.
Article 5
"This rule also contains inherent complexities
and uncertainties and is also unnecessary in the light of Article
3. The Government favours its deletion.
Article 6
"This rule provides for the application of the
law of the forum to defamation and related claims. Although the
Government has still to take a final position on this proposal
and will consult interested stakeholders about it, it considers
that it represents a substantial improvement on the equivalent
provision in the earlier text. In particular, it should establish
a welcome degree of certainty for media interests in the UK as
regards proceedings brought against them in this country; it also
provides some degree of flexibility for claimants suing abroad
in respect of international publications. The Government will
seek clarification that there is a common understanding among
the Member States that this rule does not affect any aspect of
the ruling of the Court of Justice in Shevill v Presse Alliance
SA (Case C-68/93 [1995] 1-415)[15]
on the application of the 1968 Brussels Convention to defamation
cases.
Article 7
"As regards violations of the environment the
text sets out two options: one is broadly the provision in the
previous text, the other is deletion. The Government favours the
second option on the basis that a special rule in this field is
unnecessary and that this particular provision would create legal
uncertainty.
Article 8
"There remain problems of classification in
the field of intellectual property, particularly as regards the
relationship between this rule and Article 5, and some
problems of drafting; these need to be resolved in order to achieve
a satisfactory solution in this area.
Articles 9 to 9D
"The Government favours the deletion of this
whole Section: this course is one of the options put forward in
the present text; the other involves a proposed recasting of the
earlier proposed rules. The Government is still considering its
final detailed position in relation to this second option.
"Section 2 covers a notoriously difficult and
undeveloped area in the laws of most Member States, including
those in the UK. It is not yet ready for harmonisation at Community
level. The problems of legal uncertainty are likely to prove intractable.
These persuasive reasons for not legislating in this field are
reinforced by a general lack of problems which have arisen in
practice.
Article 12
"The Government favours the deletion of paragraph
2 because no adequate justification for it has been demonstrated
and its effect would simply be to create legal uncertainty. This
is one of the options in the current proposal. The other would
involve the retention of the rule in the original proposal.
Article 14
"The Government favours the deletion of this
provision. It has not been adequately justified and it would create
legal uncertainty.
Article 23
"This provision concerns the relationship between
this instrument and other provisions of Community law. In its
original version it was clearly intended to ensure that this instrument
would not affect the areas covered by the e-Commerce Directive
and other country of origin measures. The Government is concerned
that the revised version may not so clearly achieve this result
and is considering how best to restore the clarity of the original
text in this respect.
Article 24
"The Government favours the deletion of this
provision. Its effect would, in large part, be to harmonise an
aspect of the substantive national law of damages. No adequate
justification has been made out for such a proposal which would
in any event be inappropriate in an instrument otherwise concerned
only with choice of law rules. The current text envisages either
the deletion of this rule entirely or its replacement by some,
as yet unspecified, alternative."
4.26 The Ministers add that the Government will continue
to consult interested individuals and organisations, including
judges, practitioners and academics as well as industry, commerce
and the media. The Ministers consider that it is uncertain whether
negotiations will be completed during the Dutch Presidency.
Conclusion
4.27 We thank the Ministers for their comprehensive
and detailed account of the Government's attitude to the Articles
of the revised text. We agree with the points the Government has
made and we emphasise our concern about the universal nature of
this proposal, particularly its likely effect on parties who choose
to determine their disputes in the United Kingdom but who otherwise
have no connection with the Community. We ask the Ministers if
they are yet in a position to explain if the Council Legal Service
has responded to their request for an opinion on the lawfulness
of this aspect of the draft Regulation.
4.28 We agree with the Ministers that the new
Article 1a is a move in the right direction, since it will limit
the scope of the draft Regulation.
4.29 We note that the Irish Presidency has suggested
the deletion of Article 24. In our view, this provision had no
place in an instrument dealing with choice of law rules, and we
firmly support the Ministers' intention to seek its deletion.
4.30 We shall hold the documents under scrutiny
pending the Ministers' reply.
6 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
7
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
8
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
9
This presumably includes the law of a Member State. Back
10
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
11
Where several persons are responsible for a wrongful act, the
party sued may seek a contribution from those persons. Back
12
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
13
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
14
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
15
In that case the ECJ decided that in relation to a defamatory
newspaper publication, the courts of each Contracting State in
which the publication is distributed and in which the claimant
claims to have suffered injury have jurisdiction under Article
5(3) of the Brussels Convention. Back
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