5 Law applicable to non-contractual obligations
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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); 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 22 November 2006
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| Previous Committee Report | None, but see (26326) 16231/04 and (27314) 6622/06: HC 34-xxx (2005-06), para 7 (24 May 2006)
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| To be discussed in Council | December 2006 or January 2007
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| Committee's assessment | Legally and politically important
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| Committee's decision | Cleared
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Background
5.1 The Regulation is intended to provide uniform choice of law
rules operating in the Member States to determine the law which
is to apply to cases involving non-contractual liability, such
as liability for negligence and other breaches of duties not assumed
by contract. The normal rule under the Regulation would be that
the law to be applied is the law of the place where the damage
is suffered. The general rule is subject to exclusions which include
defamation and privacy law, the law of trusts and matrimonial
law. In addition there are special rules governing product liability
cases and those arising from industrial action.
The document
5.2 The latest text of the proposal is a Common Position agreed
by the Council on 25 September 2005 and subsequently accepted
by the Commission. We cleared an advance text of the Common Position
in advance of the Council agreement. There are no significant
material differences between the cleared and the agreed text.
We decided to clear the proposal on the grounds that the amendments
secured by the Government, notably the exclusion of defamation
and privacy cases from the application of the Regulation, allayed
significant UK concerns and, on balance, justified clearing the
text notwithstanding residual reservations we share with the Government.
We asked the Government to continue its efforts to secure further
amendments during the remaining stages of the negotiations before
adoption of the proposal.
The Minister's letter
5.3 The Parliamentary Under-Secretary of State at the Department
for Constitutional Affairs (Baroness Ashton) has now written,
enclosing a text of the agreed Common Position and updating us
on recent developments and ongoing negotiations regarding this
proposal. In her letter the Minister summarises recent events
together with the likely timetable for final inter-institutional
adoption. The Minster also explains the motivation behind two
last minute amendments the Government is proposing and provides
some background information about Article 9, which was already
included in the advance Presidency text cleared by the Committee
and which contains a special rule for trans-national damages claims
arising from industrial action. The full text of the Minster's
letter reads as follows:
"I am writing to bring your Committee up to date with
recent developments on this draft Regulation.
"On 25th September the Council agreed a Common Position
which has been subsequently accepted by the Commission …
The file has therefore returned to the European Parliament and
in the first instance to the JURI Committee. I expect that the
report of that Committee will be published in December and a completed
Second Reading from the Parliament as a whole early in the New
Year. If, as seems likely, the Parliament proposes some amendments
to the Common Position, these proposals will be referred back
to the Council to decide which of them should be accepted.
"Accordingly this stage in the procedure represents an
opportunity for the Government to attempt to persuade the JURI
Committee of the merits of some amendments that would improve
the text of the Common Position. The scope for so doing is limited
in that the Parliament is in principle only able at this stage
to propose amendments in areas where it has previously proposed
amendments.
"On this basis I intend to put forward amendments in
two areas. The first concerns product liability cases. These are
covered by Article 5 in the Common Position text and my proposal
is that this provision should be deleted. In the Government's
view no special rules are required for cases of this kind which
could indeed be dealt with adequately under the general rules
in Article 3. Any special rules would inevitably create complexity
and legal uncertainty as to whether a particular case falls within
their scope. Article 4 in its current form is particularly unsatisfactory;
its cascade approach and rules of exception make it excessively
complex and likely to prove difficult to operate satisfactorily
in practice.
"The second area concerns torts which result in purely
economic damage in different countries. These cases might be anti-trust
claims which presently fall under Article 6; they might also be
claims falling under Article 4 which might for example, relate
to the giving of negligent financial advice and information.
"In such cases the current rules in the Common Position
give rise to the application of several, perhaps many, different
national laws, with each such law applicable only to the damage
which has been suffered in one particular country. This will be
the situation notwithstanding the fact that all the damage caused
arises out of a single sequence of events which takes place largely
or entirely in one country. This would be an unduly complex outcome
that would be likely to result in increased costs of litigation.
"Perhaps it would be helpful if I gave an example of
the sort of case with which we are concerned. A company is floated
on the London stock market. In connection with that floatation
the company provides information about itself for potential investors.
After the floatation problems emerge with the company and the
investors, who may be situated in many different countries, suffer
financial losses as a result. They bring proceedings in London
on the basis that the information provided by the company was
inaccurate in certain important respects and that they were induced
to invest in the company on the basis of this inaccurate information.
Under Article 4(1) the applicable law is that of 'the country
in which the damage occurs irrespective of the country in which
the event giving rise to the damage occurred'. This produces the
application of all the national laws of the many countries where
the economic damage has been inflicted and in respect of which
claims have been brought. Such a result would greatly, and I would
argue unnecessarily, complicate the litigation.
"In the light of the prospect of difficult cases of this
kind we are proposing amendments that would seek to identify a
single applicable law. In broad terms these would reflect the
current position in this country under Part III of the Private
International Law (Miscellaneous Provisions) Act 1995 which has
generally worked well in practice. For these cases we envisage
the application of the law of the country where the tort occurs
or, in more complex cases where elements of the tort occur in
different countries, the application of the law of the country
where the most significant elements of the tort occur. An amendment
of this kind to Article 4 would also enable Article 6(3) to be
deleted, thereby achieving a welcome simplification of that provision.
"I should also provide some further background information
about Article 9, which is a special rule for industrial action.
This rule, which was strongly lobbied for by two member states
in particular, would displace the general rule in Article 4(1).
In general terms this would mean that in respect of a claim relating
to liability arising out of an industrial action the law applicable
is to be that of the country where the action took place, rather
than that of the country where the damage occurred. The rationale
behind this special rule is that it would be inappropriate for
the lawfulness of a strike in one country to be challenged under
the law of another country. The Member States generally accepted
that this was an area of particular sensitivity that justified
a special rule. An example of the kind of case which would be
subject to this rule is where a port in country A is blockaded
as a result of strike action and the ship carrying the claimant's
goods is prevented from unloading those goods, thereby causing
economic damage in country B where the claimant has his business.
Claims in tort relating to this strike would be subject to the
law of country A, and not to the law of country B."
Conclusion
5.4 We thank the Minister for her detailed and helpful comments
on the latest text of the proposal. We agree with the Government's
position in relation to industrial action cases and otherwise
are content to see that the Government is still seeking to secure
last-minute amendments to meet remaining concerns.
5.5 In relation to those concerning product liability cases,
however, we ask the Minister if a more favourable rule to consumers
allowing them, as a general rule, to sue manufacturers in their
own country of residence rather than that of the manufacturer,
might not be justified on the grounds that, realistically, damages
claims would not normally be brought under a different regime
and that a consumer-friendly applicable law regime might not indeed
be justified or preferable on improved competitiveness grounds.
On those grounds neither the proposed rules nor the Government's
amendment would go far enough. Notwithstanding our reflections
in this regard, however, we do not, on balance, consider this
to be a sufficient reason to change our position on the text which
is substantially identical with that cleared in May. We are therefore
content to clear this document.
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