The Rome Convention (Convention on the Law Applicable to Contractual Obligations 1980) has been replaced by the Rome I Regulation (Regulation 593 / 2008 on the law applicable to contractual obligations). The paper critically evaluates the impact that this has had on the area of choice of law in contract, supporting the answer by appropriate case law and academic opinion.
Rome II legislation was enacted 11 months after the introduction of Rome I and is the law that governs the applicable legislations on non-contractual obligations such as tort claims that have been derived from pre-contractual negotiations. On the other hand Rome I does not interfere with the Brussels Regulation on jurisdiction and the enforcement of judgments that are outlined in article 44/2001 of the European Community policy that has jurisdiction court settlements and disputes. Indeed, Rome I, Rome II and Brussels I, combines together to form a comprehensive framework of European laws1.
Rome I regulations as encompassed in the Rome Convention have relied on the same principles of the English law where the laws of the contract are governed by the express agreement on choice of laws that will be applicable to them when entering into a contract. In case that has not been agreed upon, then the closest and most relevant law should be assumed to apply2. However, by comparing Rome I to Rome Convention it is obvious that Rome I is very similar to the Rome convention since some of the articles remained exactly the same as before while very of them were drastically altered.
Some of these changes include inter alia, which implies a minor change of principle of party autonomy as provided by article three of the regulation; a total review of the choice of rules indicated in article four is done in this section in cases where the absence of choice for an applicable law governing the contract exists. In articles five and seven respectively, a new provision on the transport of carriage and insurance was inserted.
Additionally, in article 6 which outlines the rules that govern consumer contract, the convention expounded on this by providing additional statutes. Finally, article nine has increased on factors and conditions that can be included under it refer as the “mandatory rules” of law. As a result of these changes in Rome I, this convention has become more applicable and efficient as it is more flexible and relevant than was the case with the former Rome Convention3.
Rome I is also more relevant since it has addressed and incorporated the aspect of the modern4; as a result it has extended to cover contractual obligations in civil and commercial matters5, unlike the Rome Convention which applied to “contractual obligation in any situation involving a choice between the laws of different countries”.6 However, whether or not the parties’ choice of law is written, the verbal agreement can still be applicable especially since there is no requirement that such a condition must be certified7; this is what the court held in Oakely v Ultra Vehicle Design Hd (2005)8. In this case of Oakely v Ultra Vehicle Design Hd (2005), the court relied on the principles of Rome I which it said decreased the scope of all other contracts made after 17/12/2009. However, all other contracts made after that date will mean that the Rome Convention must be used as the applicable law; some examples of contracts features that were excluded by Rome I include; arbitration and Jurisdiction agreement, trust, revenue customs, and administrative matters.9
In both Rome I and Rome convention, articles 3 and 4 have embodies the principle of party autonomy; also the recitals of Rome I affirm the principle that the parties to an agreement have the freedom to choose the applicable law which will govern their contract in circumstances where none is specified by the law10
Principle of “Party Autonomy”
The principle of “Party Autonomy” is one of the foundations in contractual obligations that involve issues of conflicts of law; this principle was first applied in European private international law in the case of R v International Trustee (1937)11. In this case it was “held that the fact that a government is a party to a contract is not a conclusive indicator that its law will apply, but only a factor to be considered in arriving at what is the proper law”; additionally, the court held that whereas parties have a freedom of choice of law, the same does not imply the right to derogated from the jurisdiction of Kenyan court constitutionally conferred”12. The court also applied Rome convention in article 3, also contained in Rome I Regulation which reiterates the principle in very similar words in its articles. Lord Cooke J explained that the terms of article 3/1 give the parties the freedom to choose the law applicable to the agreement which they are making in Caterpillar Financial Services v SNC (2004).13
This therefore affirmed that parties have the power to choose an applicable law they wanted 14 even if all elements related to the situation at the time of choice are located in a different country, whether or not it is the law of European Community of member states.15 This principle govern issues such as performance of contract, interpretation of the contract, consequences of breach of obligations, prescription and limitation of actions, nullity of the contract and any other contractual dispute that may arise. It also covers issues of existence and validity of the contract, its terms, formal requirements, capacity of persons and burden of proof as indicated in articles 12, 10, 11, 13 and 18 of Rome regulation16. However, the law allows the parties to choose the law that should be applicable in their case.
Moreover, Rome I has made a minor textual change on article three that deals with the criteria for making implied term, Rome I required that the inserted choice that has been agreed by parties to an agreement to be “clearly demonstrated” and not necessarily as required by the Rome Convention which requires that it must be “demonstrated with reasonable certainty” by the term of the contract or the circumstances of the case. This meant that with this amendment, this provision became more tightened17. Having said that, it is important to mention that the principles of governing law is not necessarily what a court of law might opt to apply as there is one choice of determining which law will apply in regard to contractual obligations while the second choice relates to which court will be the forum for resolving disputes when they arise.
But it is not necessary for the law or the court to apply either of the above since these requirements only functions as indicators of choice of laws that might be chosen18 depending on the circumstances of the case. In the case of Egon Oldenroff v Libera crop, for instance, in which the plaintiffs was a German commercial partnership and the defendant a Japanese corporation. The plaintiff claimed compensation because of a breach of a contract19; in this case “the problem was that there was no choice of law that had been chosen by the parties during the agreement of the contract.
But their use of a well-know English standard form of charter party and the presence of clause specifying arbitration in England was held to demonstrate the choice of English law as the applicable law”20.
Furthermore, it was necessary to indicate that there was consensus between the parties if that was not the case, in the case of Asin Land Rover Expots Ltd v Samcrete Egypt Engineers and Contracts Sea (2001)21 for instance; the court held that there was a clear rejection of a proffered choice of law clause because such consensus has been agreed upon. And if there is no clear choice of law between the parties the court will not apply article 3 until it has established that such a consensus between the parties to be existent. Additionally the parties may change the chosen law between them but they have to declare it in writing or otherwise it will not be accepted as was held in the case of ISS Machinery services Ltd v Aeolian Shipping SA, The Aeolian (2001),22 where there was no evidence that the choice of law in second contract intended to change the law which governed the first contract.
This means that article three is only applicable to a contract between parties where the choice of law preferred by both parties is clearly specified from the onset. However, in circumstances where this has not been clearly specified, the applicable law is article four which will be used by the court to resolve the problem which it assumes to prevail in the absence of choice of law.23
Law Applicable In the Absence of Choice
Major changes set out by Rome I, involved rules regarding the laws applicable to the contract in the absence of an express choice of law implied by the contracting parties 24; as such, the new provision “aims to enhance certainty and overcome the limitations of the current rules of the Rome Convention” which have not comprehensively addressed this weakness25.
Foremost, Rome I approach is very clear in how it regulates and governs the eight various types of contracts such as sale of goods, provision of services franchisee and distribution contract by stating the applicable law for each of this cases without prejudice to articles 5 to 826. However, this “bright-line approach” 27 is not the same under the Rome convention, when the parties have not expressly chosen the proper law and where no other option can be inferred. In such cases, the main rule governing the contracts will be the law of the given country “which is most closely connected”28. This rule is also subject to particular presumptions that are based on specific characteristic performance, “where the convention assumes that the contract has the closest connection with the country in which the party who is affected was residing at the time of the contract agreement formation”29.
Nevertheless, it should be noted that Rome I introduced a new provision on the definition of habitual residence, for companies and other bodies, corporate or unincorporated, shall be the place of central administration. For a natural person who’s acting in the course of their business activity, then this shall be their principle place of business. For contracts concluded in the course of the operations of a branch, agency or any other establishment, then that shall be the place where the branch is located.30 This is unlike Brussels I which recognized three criteria for determining where the corporations and other legal bodies are domiciled.31
Secondly, if the contract falls outside categories mentioned in article 4 subsection 1, or if the contract would be covered by more than one of the kinds of aforementioned rule, then the applicable law will be the law of the country where the party is required to effect the characteristic performance of the contract and this shall also be the habitual residence32. “Hence, the presumption of the Rome Convention relating to characteristic performance has been turned into one of the two main rules of Rome I regarding the applicable law in the absence of a law of choice”33.
Article 4(3), of the convention has a sub section for complex cross border contracts in which it mentions that the test of habitual resident will not apply, where it is clear from the circumstances of the case that the contract manifested is more closely connected with a country other than those indicated in paragraphs (1) and (2)34. But the Convention failed to expound on the meaning of the adverb “manifestly”, which means that currently according to Rome I “courts have less leeway to resort to this exception than was the case under the Rome Convention”35.
A final comparison between Rome I and Rome convention is that it is impossible to determine the appropriate law by using subsections (1) (2), which states that the contract shall be governed by the law of the country which it is most closely connected.
By the same comparison Rome I is more flexibility and applicable with respect to rules governing the contract in the absence of choice of law; nonetheless, in the case of linked contract the difference is “manifestly more closely connected36.
There are however special rules governing certain types of contracts in the absence of choice of law, stipulated in Rome I, and they may limit the ability of the parties to choose the governing law they want for their contract such as contracts of carriage, consumer, and insurance.
Overriding mandatory provision
Rome I has a subsection of the so-called “mandatory rules” within its new section 9.37 By inserting a mandatory requirement that puts restriction on application of non EU law, thus, it has included an exception to the application of the choice of law granted to the party by the regulation where there are mandatory rules of the forum. In other words it means that there are mandatory EU rules and other elements stated within the scope of the EU states, this exception is intended to represent the public policy and protect the public interest of the country such as the political, social, or economic organization38. Including the application of mandatory terms of the country where contractual obligations are to be preformed.
There are several exemptions to this choice of law between parties in an agreement where the mandatory rules of the forum in Rome I applies. Article 9 of Rome I states that terms are regarded as crucial by a country for safeguarding its public interest, such as its political, social, or economic organization.
Contracts for Carriage
Despite the option presented by the Rome convention which gives the parties the freedom to choose an applicable law to their contract, and in spite of the principle inserted in article 5 (3) of the closest connection which applies to contracts for carriage, Rome I has inserted a new provision which has set the applicable law in case of no choice of law was agreed between the parties. Or in case where it is not outlined or clear under the circumstance, that the law which is mostly connected or closely connected to another country other than the countries indicated as outlined in article five of the regulation be applied.
Indeed, the Convention includes special rules that govern the contracts for carriage of goods. A special article in the convention favours the country in which, at the time of agreement was also the country in which the place of loading, or of discharge, or which is the main place of business is located. However Rome I replaced this rule by a similar rule that make use of the concept of habitual residence that covers the contracts for the carriage of passengers39. On one hand, contracts for carriage of goods as indicated in article 5 (1) provides that the law of the country of habitual residence of the carrier will apply in matters of the contract if the place of receipt or the place of delivery of goods or the habitual resident of the consignor who is the person who enters into a contract of carriage with the carrier40 is also situated in that country. Otherwise, the applicable law will be the law of the country in which the delivery of goods as agreed by the parties is to take place.
On the other hand, the contracts for carriage of passengers which was treated as an ordinary contract under Rome Convention, articles 3 and 4 did not contain any special rules for contracts in such cases. However, Rome I came with new restrictions that apply on range of laws which can be applied in the case of arbitration which means the parties are free to choose one of the following choices. These are where the passenger or the carrier has his habitual residence, or where the carrier has his place of central administration, or where the place of departure or destination is situated. Moreover, if the parties do not make a choice of choosing the law that will govern the contract, then the law of the country where the party is a habitual resident will apply as long as the place of departure or the place of destination is situated in that country.
Otherwise, the law of the country where the carrier is habitually resident will apply unless the contract was more connected to another country other than the countries indicated by the parties as stated by Recital 32. Recital 32 states, “owing to the particular nature of contracts of carriage, specific provisions should ensure an adequate level of protection of passengers and according to article 6 on protected consumer contracts which should apply to such contracts”41. In general, the policy in article 5(2) attempts to strike a balance between the interest of passengers and the commercial operators42.
Both conventions of the regulation and the convention have ruled the need to govern consumer contract,43; the new provision in the regulation has expanded the choice of law by44 deleting the word “advertising” which it has substituted by inserting the sentence “by any means direct such activities to that country” which is probably the reason that resulted in Rome I covering E-commerce contractss well45. In addition this conventions states “consequently, the choice of law cannot deprive consumers of the protection afforded to them by mandatory provisions of the law of the country where they have their habitual residence, provided that the party pursues commercial or professional activities in that country or, by whatever means, directs such activities to that country or to several countries including that country, and the contract falls within the scope of such activities”46.
If there is no agreement between the parties on a specific choice of law and if the conditions inserted in the provision are satisfied, then the law of the country where the consumer is habitually residing will manage the contract47. Moreover, it should be noted that specific type of consumer contract are excluded from the scope of Rome I regulation.48
Rome I also presents new terms on insurance, which consolidate the insurance provisions set out in Rome convention.49 The new rules which determine what law will govern the insurance contracts vary according to whether the insurance covers large risks or not. If it covers large risks it will depend on whether there is a chosen law that had been agreed upon to govern the contract irrespective of the location of the insurance. If there is no chosen law, the law of the country where the insurer habitually resided will apply or the closest law when it is clear based on the circumstances that such a law is the closest50. On the other hand, if the risk is not so large and is situated within the region of the Member States, then the risk will be governed by the law chosen by the parties subject to certain restrictions. However, if there is no law of choice between the parties, the governing law is the law where the risk is situated at the time the contract is concluded, and if there is more than one risk and situated in more than one Member State the contract will be deemed as constituting many contracts each relating to only one Member state.51 One more rule is set out in the regulation that covers the risks for which a Member State forces an obligation to extract insurance on the other.52
It can be concluded that Rome I has several changes compared to Rome Convention; nevertheless many of the articles were retained as they appeared under the Rome Convention.
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