EU law - Rome I - Law applicable to contractual obligations

Rome I has replaced the 1980 Rome Convention on the law applicable to contractual obligations.

Rome I
The 1980 EU Convention on the Law Applicable to Contractual Obligations (the Rome Convention) has been replaced by the Rome I Regulation (EU Regulation 593/2008, on the law applicable to contractual obligations)  which came in to force in July 2008 and has been applicable in all EU member states, with the notable exception of Denmark, since 17th December 2009.

As part of the EU's plans to lay down comprehensive choice of law rules for obligations in civil and commercial matters, Rome I is complemented by Rome II, the Regulation on the law applicable to non-contractual obligations, which has applied since 11th January 2009, providing for choice of law rules regarding non-contractual obligations, such as tort.

Right to choose
In many ways, Rome I reflects the provisions of the Rome Convention.  Notably, Rome I maintains a party's right to choose the law that will apply to a contract where that choice is made expressly or can be clearly demonstrated from the terms of the contract. 

One notable restriction is to be found in the second part of Article 5.2, which provides that in the case of a contract of carriage of passengers the parties may only choose to apply the law of the country where:
- the passenger has his habitual residence; or
- the carrier has his habitual residence; or
- the carrier has his place of central administration; or
- the place of departure is situated; or
- the place of destination is situated.

In the absence of choice
Article 4.1 lists eight specific contracts and makes express provision for determining which law governs those contracts where there is an absence of choice.  The list includes for example contracts for the sale of goods, contracts for the provision of services, franchise and distribution contracts. These contracts are governed by the law of the country where the seller, service provider, franchisee or distributor, respectively, has his habitual residence.

Contracts other than the eight categories listed in 4.1 shall be governed by the law of the country where the party required to effect the characteristic performance of the contract has his habitual residence.

Article 5 deals specifically with contracts of carriage where the parties have not made an express choice. The law applicable in these cases shall be the law of the country of habitual residence of the carrier, provided the place of receipt or the place of delivery of the goods or the habitual place of residence of the consignor is also in that country. If this criteria can not be met, the applicable law will be that of the country of the place of delivery, as agreed by the parties.

Where the contract is one for the carriage of passengers and no express choice of law is made, the applicable law is that of the country where the passenger has his habitual residence, provided either the place of departure or destination is also in the same country.  If these requirement are not met, the applicable law will be that of the country where the carrier has its habitual residence.

However, mopping up provisions in Articles 4 and 5 provide that where it is clear from all the circumstances that the contract is manifestly more closely connected with a country other than those provided by the articles, the law of that country shall apply.

Insurance contracts
Article 7 applies to insurance contracts and allows free choice of law for insurance contracts, other than life insurance.  If an applicable law has not been chosen by the parties, then the contract of insurance will be governed by the law of the country where the insurer has its habitual residence.  Yet again, there is a mopping up provision which reflects the provisions in Articles 4 and 5.  It should, however, be noted that Article 7 does not apply to reinsurance contracts.

Habitual residence
Article 19 defines "habitual residence". Where the party is a natural person acting in the course of a business, the habitual residence shall be their principal place of business. Where the party is a corporate entity, the habitual residence shall be the place of the central administration. 

Comment
It would appear that in the absence of an express choice of law provision in a contract a number of difficulties may arise under Rome I, especially by reason of the mopping up provisions, and, as such, it is important that the parties specify which law they wish to have as applicable to their contracts.  Fortunately, the shipping community has been proactive in this particular area and, indeed, it is rare to find charterparties or bills of lading which do not contain an express provision relating to the law which should be applicable to the respective contract.  These provisions should be upheld in most cases under Rome I.

Any comments to this article can be e-mailed to the Gard News Editor.