Update on choice of Law in Rome 1
The Rome Convention (enacted in the UK by the Contracts (Applicable Law) Act 1990) has harmonised the rules for establishing the law applicable to contracts. The Convention applies to contractual obligations in any situation involving a choice between the laws of different countries. A court within the European Union must apply the Convention whenever it has to determine which law applies to a contract.In December 2005, the European Commission published its proposal to replace the Convention with a Regulation, Rome 1. Rome 1 will apply in all EU member states (except Denmark and UK) from 17 December 2009 to all contracts concluded after that date. Areas of note for business buying goods and services from aboard are:
- Rome 1 retains the freedom for the parties to choose the applicable law in most circumstances. Consequently, if a business is making a significant purchase from abroad, it may want to take advice on the choice of law, if this is not English law.
- In the absence of party choice, Rome I seeks to enhance certainty as to the applicable law by converting mere presumptions into fixed rules. For example:
- A contract for the sale of goods shall be governed by the law of the country where the seller has his habitual residence
- A contract for the provision of services shall be governed by the law of the country where the service provider has his habitual residence
- A distribution contract shall be governed by the law of the country where the distributor has his habitual residence.
Editor’s Note: This has particular significance for businesses buying goods and services over the net. Where businesses are making purchases from outside the UK, they must pay special attention to the choice of law clause as most of the protection that we take for granted in the UK may not exist under the law of the seller’s habitual residence or the agreed law.