Thursday, 13 March 2014

Rome II: The Law Applicable to Non-Contractual Obligations

Source: Ince & Co.

From 11 January 2009 Rome II, otherwise known as Regulation (EC) No 864/2007 governing the law applicable to non-contractual obligations must be applied by all EU Member States (excluding Denmark). The objective of the Regulation is to harmonise the rules of the EU states relating to the law governing non-contractual disputes. It will apply to all such disputes involving a conflict of law issue, whether or not the parties are domiciled in contracting states or the relevant events or damage occurred in a contracting state.

The Regulation lays down rules for the law applicable to non-contractual obligations generally and makes specific provision for certain types of non-contractual obligation, including obligations arising out of dealings prior to the conclusion of a contract. 

The concept of a non-contractual obligation varies from one Member State to another. Therefore, for the purpose of the Regulation non-contractual obligations are to be understood as an autonomous concept (Preamble 11) and will not necessarily correlate with English law. There may be obligations classified as contractual or non-contractual under English law, which would be otherwise classified for the purpose of application of the Regulation and the Rome Convention. 

For claims that arise to prior to 11 January, but in respect of which proceedings have not yet been issued, the Regulation may have retrospective effect as it is stated to apply to events giving rise to damages which occur after its entry into force, which was on 19 August 2007 (Art 31). 

Key Provisions 

The general provisions, stated in Article 4, are as follows:

The general rule: The law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occurred (Art 4(1)); 
However, where the person claimed to be liable and the person sustaining the damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply (Art 4(2)).
Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than indicated in the paragraphs above, the law of that other country shall apply. A manifestly closer connection with another country might be based in particular on a pre-existing relationship between the parties, such as a contract, that is closely connected with the tort/delict in question (Article 4(2))

There are specific provisions governing:

environmental damage (Art 7);
unjust enrichment (Art 10);
culpa in contrahendo (Art 12) that is, obligations arising out of dealings prior to the conclusion of a contract. 

In respect of non-contractual obligatons falling within Article 12, regardless of whether the contract was actually concluded or not, the law applicable to such obligations shall be the law that applies to the contract or that which would have been applicable had it been entered into (Art 12(1)). There are fall back provisions in the event the applicable law cannot be determined on this basis. Preamble 30 expressly provides that Article 12 shall include the violation of the duty of disclosure and the breakdown of contractual negotiations. Unlike some civil law systems, there is no generally recognised duty to negotiate in good faith under English law. However, negligent and fraudulent misrepresentation will fall within this Article as will pre-contractual deceit. It is unclear whether Article 12 will apply to obligations incurred by a non-contracting party, such as a broker, in connection with contracts concluded by others. 

There are also specific provisions governing product liability; competition, intellectual property and industrial action. 

Certain non-contractual obligations are excluded from the application of the Regulation, including those arising out of: the law of companies and other bodies corporate or unincorporated (Art 1(2)); the negotiable character of negotiable instruments and violations of privacy, including defamation. 

Claims Against Insurers 

The Regulation increases the scope for claims to be pursued directly against liability insurers. Under Article 18 such claims may be brought if permitted either by the law applicable to the non-contractual obligation or the law applicable to the insurance contract. 

Agreement on Applicable Law 

The parties may agree to submit non-contractual obligations (other than intellectual property right infringement, unfair competition and acts restricting free competition) to the law of their choice either:

by agreement entered into after the event giving rise to the damage has occurred; or 
where the parties are pursuing a commercial activity, by an agreement freely negotiated before the event giving rise to the damage occurred.

The choice need not be in writing, but must be expressed or demonstrated with reasonable certainty by the circumstances of the case and shall not prejudice the rights of third parties (Article 14(1)). 

To minimise any risk that non-contractual aspects of their relationship may be subject to a law other than the law of the contract, contractual choice of law clauses should be drafted in terms wide enough to cover both contractual and non-contractual obligations. However, these clauses will be effective only in individually negotiated contracts as the travaux preparatoires to Convention confirms that it is only individually negotiated agreements that will be "freely negotiated" for the purpose of Art. 14(1). It remains to be seen to what extent the relative bargaining powers of the parties will be taken into account when determining whether an individually negotiated contract has been “freely negotiated”. 

If, at the time when the event giving rise to the damage occurs, all relevant elements of the situation are located in a country other than the country whose law has been chosen, the choice of the parties under Article 14 will not prejudice the application of the law of that country that cannot be derogated from by agreement. 

Scope of the Applicable Law 

The law applicable under Rome II will apply to govern the existence, nature and assessment of damages (Art 15(c)). The latter results in a significant change to English law under which the assessment of damages has previously fallen to be determined by the law of the forum. Where, for example, a personal injury claim is subject to the law of another state, it may now be necessary to adduce expert evidence on issues relating to quantification of damages for permanent physical impairment. However, liability for and assessment of legal costs will remain subject to English law and this may now be an important factor where a claimant has a choice of` jurisdictions in which to pursue a claim.

Source: Ince & Co


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