The draft Law Applicable to Contractual Obligations and Non-contractual Obligations (Amendment Etc.) (EU Exit) Regulations 2018

Posted in UK and EU legal framework Dispute resolution and litigation Contractual and counter-party

The UK Government has published a draft statutory instrument under the European Union (Withdrawal) Act 2018, which will incorporate the Rome I and Rome II Regulations into domestic law.

The Rome I and Rome II Regulations provide rules to determine the law applicable to contractual and non-contractual obligations respectively. Crucially, they do not rely on reciprocity, and therefore it can be expected that they will become part of domestic law even in the event of no deal. In this regard, the draft statutory instrument follows the Government’s earlier 'no deal' paper, which had stated that the Rome Regulations would be retained post-Brexit.

In accordance with section 8 of the Act, the draft statutory instrument contains various technical amendments so that the Regulations continue to be workable as they form part of domestic law. For example, references to ‘Member States’ are amended to read ‘relevant states’, which will generally comprise EU Member States and the UK. The draft legislation also provides for amendments to be made to the Contracts (Applicable Law) Act 1990 in order to preserve the substantive rules of the 1980 Rome Convention so that they will continue to apply to existing contracts entered into between 1 April 1991 and 16 December 2009 (when the Rome Convention was superseded by Rome I).

The retention of the Rome Regulations by the UK will ensure continuity in the English’s courts’ approach to questions of applicable law and that for the most part, the English courts will continue to apply the same rules as those being applied after exit day by national courts in the EU Member States that continue to apply the EU Regulations.

However, the explanatory notes to the draft statutory instrument caution that in certain cases due to the way in which the provisions of the EU Regulations are drafted, it will be the case that a determination of the applicable law by a Member State court applying the EU Regulations could lead to a different outcome from that of a court in the UK applying the retained version of the EU Regulations. Examples cited include:

  • the rules that give effect to non-derogable provisions of Community law in cases where elements relevant to a situation are located in one or more Member States;
  • rules in Article 7 of Rome I on insurance contracts covering “non-large” risks located in EU Member States; and
  • the rule in Article 6(3)(b) of Rome II dealing with the law applicable to obligations arising from unfair competition affecting the market in more than one country.

The reason for this is that Member State courts will no longer read references to ‘Member State’ as including the UK. However, the amendments that will be made by draft statutory instrument will, in effect, ensure that the rules can continue to be applied by a UK court, as if the UK were still a Member State.

Taking the insurance example, this means that the rules that restrict the freedom to choose the applicable  law in the case of “non-large” risks located in the EU, will continue to be applied by UK Courts to insurance contracts dealing with risks located in the UK (as well as the EU) but not by courts in the Member States  in relation to insurance contracts dealing with risks located in the UK.

Notwithstanding the anomalies that will be created, the principal benefit for businesses and contracting parties is that in general, an express choice of applicable law for both contractual and non-contractual obligations, will continue to be upheld on the same basis as now.

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