Select Committee on European Union Fortieth Report


ROME II: LAW APPLICABLE TO NON-CONTRACTUAL OBLIGATIONS (16231/04, 6622/06)

Letter from Rt Hon Baroness Ashton of Upholland, Parliamentary Under Secretary of State, Department for Constitutional Affairs to the Chairman

  I am writing to update you and the Select Committee on this dossier following the end of the UK Presidency and the attempt by the Austrian Presidency to gain political agreement on certain articles of the draft regulation.

  You will recall that during our Presidency, the Council Working Group considered all the amendments proposed by the European Parliament last July. I attach the latest version of the text of the draft Regulation which in effect records the position adopted by the Working Group in relation to those amendments. I draw your attention to those aspects of this text where the Parliament's amendments were accepted by the group (the group rejected the rest of the amendments). The European Parliament proposed a large number of amendments to the Commission's original proposal and in an annex to this letter I intend to focus on the more significant of these.

  The Austrians stated at the start of their Presidency that they would make Rome II a civil justice priority and it remains their objective to get political agreement and, if possible, a full common position on this dossier by the end of June. They intend to obtain political agreement on some parts of the dossier at the JHA Council on 20 February.

  On this basis, they have produced a proposal (which is attached) covering several contentious articles including those dealing with defamation, product liability and unfair competition. I intend to set out the key issues behind each article contained in the proposal and the Government's position in relation to it.

GENERAL QUESTIONS AND ARTICLE 3

  The Government fully endorses the Presidency's proposals as set out under a) General Questions and b) Article 3.

ARTICLE 4

  This article proposes a special provision for product liability cases. It contains a form of "cascade" rule which has not previously been considered in the Council Working Group and which attempts to balance the interests of the victim and the defendant.

  The Government does not favour a special rule for such cases; it believes instead that the general rule in Article 3 would be sufficient. However, because the great majority of Member States are in favour of some such rule, we will continue to argue that any special rule should be simple and workable. We have particular concerns about the proposal in paragraph 6 that the rule should apply without prejudice to Articles 3(2) and 3(3). We believe that the application of these rules, particularly the latter, is unnecessary and will create legal uncertainty.

ARTICLE 5

  The Presidency is proposing a separate rule for unfair competition cases. As with the previous article, we do not favour any special rule for these types of cases but are aware that the majority of Member States do favour such a rule. The Presidency has put forward a special rule as set out in the latest Presidency text with some minor modifications. This broadly sets out an applicable law that is the law of the country where competitive relations or the collective interests of consumers are or are likely to be affected. Because this is not intended to be substantially different in its results from the general rule in Article 3, it is proposed that this should be clarified in a recital. The Government supports this clarification.

  We believe that there should be clarification, either in the text or in a recital, that would give a clear definition of what is meant by "unfair competition and acts restraining free competition". We believe that such a definition would be more helpful than the current reference in the proposal to a recital giving examples of cases that would be covered by Article 5.

ARTICLE 6

  The Presidency has proposed a special rule (at paragraph 22) for defamation and similar cases which attempts to balance the interests of victims and the media. This states that the applicable law should be the law of the country where the person sustaining damage has his habitual residence if the publication was distributed or the programme was broadcast in that Member State. In all other cases, the law of the country where the publisher or broadcaster is established would apply.

  This proposed rule is not fully consistent with the Government's position, which is to support solutions based closely on the country of origin principle. We believe that only solutions of that kind will create the necessary high degree of legal certainty essential for securing freedom of expression for the media and the proper functioning of the internal market. However, mindful of the lack of consensus among the Member States behind any particular solution in this field, we also support the idea of excluding defamation from the scope of Rome II altogether as this seems to us the most likely and pragmatic way of moving forward on this important issue and therefore the dossier as a whole. We will continue to press for either of these outcomes on defamation.

ARTICLE 3A

  This proposal establishes freedom of choice between commercial parties to agree on an applicable law to govern a tortious dispute before the events giving rise to that dispute have occurred. The Government generally supports this proposal. We can accept the proposed restrictions in it, namely that it should not apply to cases involving unfair competition and breaches of intellectual property rights and that it should not apply to cases involving consumers and employees.

ARTICLE 22

  The Presidency proposes to retain the wording of the current Presidency text as regards the provisions on public policy. They have proposed that the second sentence of this provision, referring to a possible incompatibility between public policy and the award of non-compensatory damages, should be set out in a recital. The Government is content with this approach.

  However, we are concerned by the second proposal in this Article which is that the reference to excessive non-compensatory damages should be omitted. We do not support this omission for two reasons. Firstly, a simple reference to "non-compensatory damages" may cast some doubt on the limited circumstances in English law where exemplary or punitive damages can be awarded, for example in unjust enrichment cases where an account of profits can be awarded.

  Although the Presidency's wording would only provide courts with a guideline as to what may constitute a breach of public policy, we will continue to press for the reference to "excessive" to be re-inserted into the text or for the entire recital to be deleted.

ARTICLE 23

  The Presidency proposes to gain agreement on Article 23, governing the relationship between Rome II and other Community provisions, as set out in the current Presidency text. We have previously argued for the inclusion here of a suitably worded recital that would explicitly state that Rome II does not undermine the workings of the E-Commerce Directive and related internal market measures.

  Although such a recital would not be intended to change the legal meaning of Article 23, we will continue to press for its inclusion on the basis that it would be helpful in clarifying the relationship between Rome II and the E-Commerce Directive. We propose that the precise wording of a recital should be referred back to the Working Group.

20 February 2006

Annex A

ARTICLE 1

  The Working Group rejected as unnecessary the European Parliament's proposal (Amendment 24) for a new paragraph 2a (relationship with Community instruments). This provided (in subparagraph (d)) that Rome II would not "prejudice the-application or adoption of acts of the institutions of the European Communities which ... lay down provisions designed to contribute to the proper functioning of the internal market in so far as they cannot be applied in conjunction with the law designated by the rules of private international law".

ARTICLE 2A

  The Working Group broadly accepted the European Parliament's proposals (Amendment 25) on party autonomy, in particular the proposal that in the commercial context parties should in principle be able to choose an applicable law before the dispute between them has arisen.

ARTICLE 3

  The Working Group rejected the European Parliament's proposals (Amendment 26) for the amendment of the general rules in the Regulation. The grounds for doing so broadly related to drafting considerations and, as regards traffic accidents, that no special rule would be appropriate.

ARTICLE 4

  The Working Group generally rejected the European Parliament's proposal (Amendment 27) to delete the special rule for product liability cases. It was considered desirable that there should be some such rule.

ARTICLE 5

  The Working Group generally rejected the European Parliament's proposal (Amendment 29) to delete the special rule for unfair competition cases. It was considered desirable that there should be some such rule.

ARTICLE 6

  The Working Group rejected the European Parliament's proposed rule (Amendment 57) for defamation and related claims. This rejection was in broad terms based on the view that the Parliament's proposal would not achieve a satisfactory balance between the interests of the parties and that it was not satisfactorily drafted.

ARTICLE 6A

  The Working Group generally rejected the European Parliament's proposal (Amendment 31) that there should be a special rule for industrial actions on the ground that an insufficient case for such a rule had been made out.

ARTICLE 6B

  The Working Group rejected the European Parliament's proposal (Amendment 32) for a special rule as regards damages in traffic accident cases on the basis that such damages should in principle be dealt with under the general rules.

ARTICLE 7

  The Working Group generally rejected the European Parliament's proposal (Amendment 33) to delete the special rule for environmental torts on the ground that some such rule was justified in the interests of environmental protection.

ARTICLES 9, 9A AND 9B

  The Working Group generally supported the European Parliament's proposed approach (Amendments 35, 36 and 37) in the field of non-tortious non-contractual obligations. In particular it was agreed that there should be specific provisions on unjust enrichment and proceedings arising out of acts performed without due authority (negotiorum gestio).

ARTICLES 11A AND 11B

  The Working Group rejected the European Parliament's proposals (Amendments 42 and 43) for certain procedural provisions requiring the determination of choice of law issues by national courts on the basis that these matters were more appropriately left to the national law of the Member States.

ARTICLE 22

  The Working Group rejected the European Parliament's proposals (Amendment 50) relating to the provision on public policy on the basis that an insufficient case had been made to justify these. The proposals envisaged that specific reference be made in this context to the European Convention on Human Rights and related national and international legislation and to awards of non-compensatory damages.

ARTICLE 24

  The Working Group accepted the European Parliament's proposal (Amendment 52) to delete the provision on non-compensatory damages on the basis that such damages should in principle properly remain available under the laws of Member States.

ARTICLE 26

  The Working Group rejected the European Parliament's proposal (Amendment 54) relating to the provision in the Regulation for the review of that instrument. This decision was made on the basis that no sufficient case had been made out in relation to the matters specified in the proposal (these related to damages, procedure, and defamation and the media generally).

Letter from the Chairman to Rt Hon Baroness Ashton of Upholland

  Thank you for your letter of 20 February informing the Committee of the outcome of the discussions in the Working Group under the UK Presidency and of the position of the Austrian Presidency to be presented at the Justice and Home Affairs Council on 20 February. If reports in the media are to be believed, discussions at the recent JHA disclose a lack of agreement between Member States on a number of key issues including whether Rome II should include a clause on defamation and violations of privacy. I understand that you will be writing to the Committee shortly letting us know the outcome of that meeting and indicating how the negotiations are likely to proceed under the Austrians.

  We are aware of the priority which the Austrian Presidency has attached to Rome II and that it is likely that new texts of key provisions will be prepared for discussion in the coming weeks. Rather, therefore, than spend time on the detail of texts which may now be only of historical value we believe it might be more helpful to you to indicate the key concerns of the Committee. First, we remain of the view that the Regulation should not have universal application but should be limited to cases closely connected with the Union. Second, we share your view that the number of special rules should be restricted to the absolute minimum. We can see a case for a special rule for defamation but are still not persuaded that there is a need for a rule to deal with product liability cases or for unfair competition cases. If there are to be such rules it must be clear when they should apply and what their purport and effect is. Third, were the Regulation to include a rule for defamation and privacy, we continue to support the view that, in the interests of free expression, it should be a country of origin rule.

  We look forward to hearing from you and learning about the present state of the negotiations. We will endeavour to respond quickly to any texts submitted for scrutiny and hope that our views will be of assistance to you in the forthcoming negotiations.

  The Committee decided to retain the proposal under scrutiny.

9 March 2006

Letter from the Chairman to Rt Hon Baroness Ashton of Upholland

  The amended Commission proposal for Rome II was considered by Sub-Committee E (Law and Institutions) at its meeting on 22 March. We are grateful for your Explanatory Memorandum and for drawing attention to major changes.

  We note in particular the Commission's proposal to exclude "violations of privacy and of personal rights by the media" from the scope of the Regulation. We share the concerns you have regarding the Commission's text and agree that it would be preferable for the whole of issue of defamation to be removed from the Regulation. We wish you success in your search for "a simpler and better solution".

  The Committee decided to retain the proposal under scrutiny. We would be grateful to be kept informed of developments and, as I mentioned in my last letter, the Committee will respond as quickly as possible to any further documents submitted for scrutiny.

23 March 2006

Letter from Rt Hon Baroness Ashton of Upholland to the Chairman

  I am writing to you in advance of the JHA Council on 27 and 28 April at which this dossier will be on the agenda for political agreement on the articles in the Regulation. I am therefore seeking scrutiny clearance from your Committee in the light of the outcome which I expect from the Council and the positions which the Government will take at that meeting. This outcome will be based on a text currently being prepared for the Council by the Austrian Presidency. It will effectively supersede the text issued by the Commission in February.

  This political agreement in the Council is most unlikely to be the end of the negotiations. The Council is likely to adopt a full common position in June (including the recitals) and the dossier will then return to the European Parliament which is expected to make further proposals for the amendment of the text. The Council will have to consider these later this year. These proposals will be incorporated into a new text which will be deposited with Parliament in the usual way together with an Explanatory Memorandum.

  I propose to deal in some detail with the most significant elements, from the Government's perspective, which are likely to be incorporated into the agreement which will go before the Council.

SCOPE

  This has always been a significant issue for the United Kingdom and for your Committee. As proposed by the Commission Rome II would have an unlimited scope of application in the sense that it would apply notwithstanding the absence of any proper connection between either the parties to the dispute, or the facts of the dispute itself, and any of the Member States. The UK has consistently argued that such a broad scope would not be compatible with the instrument's treaty base under Article 65 of the EC Treaty which requires that measures adopted thereunder must be "necessary to the proper functioning of the internal market". This position has been supported in general terms by the Council Legal Service.

  During the negotiations in the Working Group the UK has put forward various limitations on scope which would comply with Article 65. Unfortunately it has not proved possible to persuade a sufficient number of other Member States to accept any of these of these options, although a minority have supported us in principle.

  In the light of this I am not optimistic that the Council will agree any limitation on scope, although I propose to raise the issue there and clearly register the UK's concern that it has not been satisfactorily resolved.

DEFAMATION

  It is likely that the Council will agree that the whole topic of claims relating to defamation and breach of privacy will be excluded from Rome II. This outcome will reflect the reality that within the Council there is no agreement on any positive choice of law rule for such claims.

  The UK originally argued for a solution in this area which would closely follow the country of origin principle on the basis such a rule would both protect the important principle of freedom of expression by the media and ensure the proper functioning of the internal market in this area. However we were aware that a solution of this kind was not generally acceptable to other Member States. We therefore strongly urged the Commission to come forward with a revised proposal to exclude defamation and similar claims from the scope of Rome II. This was discussed at the Council where we expressed support for this proposal as the only realistic way of securing political agreement in the Council on this contentious topic. The majority of Member States agreed with this. The exclusion of defamation and privacy claims from scope will ensure that these claims continue to be regulated by national law. The media can accept such an outcome; I regard it as a good outcome and propose to support it in the Council.

PRODUCT LIABILITY

  The UK has consistently opposed a special rule on product liability as being both unnecessary (such a rule has never been part of our national law) and likely to produce undue complexity. We have argued that the general rules in Rome II would be quite adequate for such cases. Our position was supported by the European Parliament. Unfortunately the great majority of other Member States favour such a rule, largely because their national laws already so provide, and it is almost certain that the Council will agree some such provision.

  However there remains considerable disagreement among the Member States as to the detailed formulation of such a rule and therefore in this sense uncertainty as to the outcome in the Council. The UK's position is to continue to press for a provision which will minimise legal uncertainty and therefore establish so far as possible workable legal arrangements for both consumers and businesses. I shall continue to urge further improvements in this area at the Council.

ENVIRONMENTAL TORTS

  The UK has also consistently opposed the proposed special rule on environmental torts as unnecessary in principle and likely to create some legal uncertainty in practice. Again our position was supported by the European Parliament. However the great majority of Member States favour the provision put forward by the Commission as this uses Rome II to pursue a policy of environmental protection. The provision is therefore almost certain to be agreed by the Council. I cannot envisage any way of avoiding this outcome.

UNFAIR COMPETITION

  Once again the proposed spacial rule in this area has been consistently opposed by the UK as both unnecessary and likely to produce some legal uncertainty. Unfortunately the great majority of Member States favour some such rule which is therefore likely to be adopted in the Council. This would not be an entirely satisfactory outcome, although the European Parliament may return to this matter on Second Reading given that they recommended the deletion of the rule on First Reading. In the light of this I propose that we should engage with the JURI Committee at that stage and seek to persuade them to come forward with a proposal which would be more acceptable from the UK's perspective.

MANDATORY RULES OF A THIRD COUNTRY

  The Commission proposed a provision which would displace the other choice of law rules in Rome II and involve the application of the mandatory rules of another country with which the situation is closely connected. In general terms these rules are national provisions of special socio-economic importance in that particular country. The UK has always opposed this rule as being likely to create an unacceptable degree of legal uncertainty. I am pleased to report that our position is now generally accepted by the other Member States and that this is likely to be endorsed by the Council. As well as being a good result for Rome II, it will also be a valuable precedent for the future negotiations on the proposed Regulation to replace the 1980 Rome Convention on the Law Applicable to Contractual Obligations. This proposal currently contains an equivalent rule which would be particularly objectionable in that context where legal certainty is of the first importance.

FREEDOM OF CHOICE

  I am also pleased to report that the Council will almost certainly approve a provision which will generally enable commercial parties to agree on the application of a particular law in the event of future disputes between them involving an alleged tort. The UK has consistently championed such a rule which in our view will enhance legal certainty, an important consideration in the context of the internal market. Our current national law is not clear on this issue and therefore in this significant respect Rome II will represent an improvement on our present arrangements.

25 April 2006

Letter from the Chairman to Rt Hon Baroness Ashton of Upholland

  Thank you for your letter of 25 April setting out the present state of the negotiations and advising us, in advance of the JHA Council this week, of the issues to be discussed in the Council of Ministers. Your letter was considered by Sub-Committee E (Law and Institutions) at its meeting on 26 April. It is regrettable that the Committee did not have more notice of the issues raised but, on the other hand, they are not new and it is helpful to have the position so clearly stated as at the eve of the meeting of the Council of Ministers this week.

  Thank you for setting out so clearly the position of the Government on each of the key issues to be discussed. On the question of scope there is, as you know, no disagreement between the Government and the Committee. We are pleased to note that this position has been supported by the Council Legal Service and that you will continue to press this point in the negotiations.

  Thank you also for setting out the position as regards defamation and breach of privacy. As you will recall from my letter of 23 March the Committee believes that it would be preferable for the issue of defamation to be removed from the Regulation. We look forward to receiving the revised text in due course.

  As regards the special rules for product liability, environmental torts and unfair competition, you will recall that the Committee has consistently questioned the need for these rules. However, as you have explained, they have importance for a number of other Member States. We wish you success in seeking clarification of the rule relating to product liability. The question of the scope and detail of the proposed rule for unfair competition does, we agree, need further consideration. We wonder what the Commission's position is given the recent initiative of the Competition Commissioner encouraging the greater use of civil proceedings as a means of enforcing competition law in the Community.

  Finally, we note the developments relating to mandatory rules of a third country and also to freedom of choice. As regards the former, the change may be a useful precedent for the proposed Regulation to replace the 1980 Rome Convention. I am writing to you separately about that proposal.

  Finally, you request that the proposal be cleared from scrutiny. Having regard to the number of issues outstanding and their seriousness the Committee regrets that it is not able to accede to this request. However, we would not wish to prevent you from pushing for agreement at the Council along the lines set out in your letter and would not regard that as amounting to overriding scrutiny in these circumstances.

27 April 2006

Letter from Rt Hon Baroness Ashton of Upholland to the Chairman

  Thank you for your letter of 27 April in reply to my earlier correspondence. I am grateful to the Committee for considering my letter at such short notice and for indicating agreement to my proposed course of action in advance of the meeting of the Justice and Home Affairs Council on 28 April.

  At that meeting, political agreement was reached on all articles in Rome II and I attach a copy of the final Presidency proposal as agreed by the Council (not printed). This will now be adopted as a common position by the Council later this year. The discussion centred on two main issues: Article 8A—the special rule for cases involving industrial action, where a small minority of Member States were opposed to such a rule, and Article 25 governing the relationship between Rome II and international agreements. Neither of these issues were contentious as far as the UK was concerned. On the latter, following mediation efforts by the UK, the Presidency produced a compromise solution that commanded broad support.

  Regarding the articles that were of concern to the UK, on Article 1, the scope of the Regulation, I was aware that there was not likely to be sufficient support amongst Member States for our concerns on this issue to result in any amendment to the Presidency proposal. However, due to the importance of this issue I reiterated our continuing concerns that there was no limitation on scope which was inconsistent with Article 65 and that this should not be a precedent for future dossiers. As expected, there was little support for introducing such a limitation and, as you will see from the attached Presidency text, Rome II continues to have universal application in that it requires no particular connection between the parties to a dispute or the facts of the dispute itself and any one or more Member States. I have to accept that this outcome is not satisfactory. It is however an issue which we will continue to raise in other dossiers where it arises.

  There was no discussion on the issue of defamation and similar cases as there was already clear agreement in the Council that claims relating to defamation and breach of privacy would be excluded completely from the scope of Rome II. This outcome, which I supported, reflected the reality that there was no agreement, within the Council, on any positive choice of law rule for such claims. There was also agreement on a reference to defamation and similar cases in the review clause. This provides that, no later than four years after the Regulation comes into force, the Commission shall submit a report to the Council and European Parliament on its application and in particular, the report shall consider non-contractual obligations arising out of violations of privacy and rights relating to the personality, including defamation. This agreement meets UK concerns that there should be a realistic timescale for the production of the Commission's report and that this should only be accompanied by proposals to adapt the Regulation if the Commission considers that to be necessary.

  I am sure that you will share my view that this is a good outcome for the UK, and its media interests in particular. The eventual exclusion of defamation was, as you know, a hard fought issue and we made a concerted effort to achieve this end. You may be aware that I had many meetings with other EU Justice Ministers and with the Commission who I am pleased to say eventually agreed that exclusion was the only way forward.

  The UK's remaining concerns centred on the proposed special rules for cases involving product liability (Article 4), unfair competition (Article 5) and environmental damage (Article 7). Again, there was limited support amongst Member States for our concerns on these articles and although I reiterated our concerns, agreement was reached on the Presidency proposal without further amendment. This is an unsatisfactory outcome for the UK although I intend to pursue our concerns, particularly regarding the rules on product liability and unfair competition, with the Parliament during their second reading where I hope there may be scope for further amendment.

  Following the meeting of the Council, the recitals in Rome II have been discussed in the Working Group. Political agreement will be sought on these when the Council next meets in June and I will write to you further in advance of that meeting. A full common position on Rome II will then be adopted by the Council later this year.

19 May 2006

Letter from the Chairman to Rt Hon Baroness Ashton of Upholland

  Thank you for your letter describing the outcome of the discussion of the Rome II Regulation at the Justice and Home Affairs Council on 28 April. This was considered by Sub-Committee E (Law and Institutions) at its meeting on 24 May.

  We are pleased to see that privacy and rights relating to personality, including defamation, are to be excluded from the Regulation, though we note that the matter will be reconsidered four years after the entry into force of the Regulation. We are also pleased to see that notwithstanding the political agreement reached at the JHA, you will continue to press the points relating to the scope of application of the Regulation (Article 1) and the proposed special rules (Article 4, 5 and 7).

  We would be pleased if you would furnish for scrutiny the common position when its final text is settled.

  The Committee decided to retain the proposal under scrutiny.

25 May 2006



 
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