04 Mar 2009
Rome II Regulation on the law applicable to non-contractual obligations
Parties entering into commercial agreements should consider agreeing in advance the law which governs non-contractual as well as contractual obligations arising from their agreement.
The Rome II Regulation is an EU regulation which serves to harmonise the choice of law rules for non-contractual obligations throughout the EU in most commercial matters. Courts in all EU Member States (with the exception of Denmark) will apply Rome II to proceedings commenced after 11 January 2009.
Importantly, Rome II provides a choice of law rule for torts/delicts. The general rule, where there has been no express choice of law by the parties, is that the law applicable to non-contractual obligations arising out of a tort/delict shall be the law of the country in which the damage occurs. There are a number of circumstances in which the general rule does not apply (for example, where the non-contractual obligation arises out of unfair competition, product liability and IP infringement claims). Further, as indicated above, parties may also derogate from this general rule by expressly agreeing to submit non-contractual obligations to the law of their choice.
Rome II also provides a choice of law rule for obligations arising out of unjust enrichment. The general rule, again where there has been no express choice by the parties, is as follows: if the non-contractual obligation arising out of unjust enrichment concerns an existing relationship between the parties, for example arising out of contract or tort, it shall be governed by the law that governs that relationship, unless the non-contractual obligation is manifestly more closely connected with another country.
In order to avoid the selection of a law by the courts that you do not want to be applied to your dispute (for example, the country in which the tortious damage occurs may be an arbitrary country), it is advisable to consider agreeing the law which will govern non-contractual obligations, in advance.
Impact on the drafting of governing law clauses
Rome II offers commercial parties an opportunity to review the governing law clauses in commercial contracts as it permits parties to agree contractually the law which governs non-contractual obligations (as well as contractual obligations) arising from their contract. The parties' choice of law will only be effective if the parties are pursuing a commercial activity and the agreement has been "freely negotiated".
What are the consequences for international arbitration?
Unlike the Rome I Regulation on the law applicable to contractual obligations, which serves to harmonise the choice of law rules for contractual obligations throughout the EU Member States, Rome II does not exclude arbitration from its material scope. Accordingly, its rules may indirectly affect national rules governing arbitration and its supervision. Recital 8 to Rome II provides that the Regulation should apply "irrespective of the nature of the court or tribunal seised". This may suggest that arbitral tribunals who are subject to Member States' supervision are bound by its provisions.
 Regulation (EC) No. 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations.