Government publishes international contract law guidance

Most cross-border contracts specify which country's law will apply in deciding future disputes over that contract. Some contracts do not, though, leading to disagreements over which legal regime is the relevant one.

The Rome I Regulation provides the tools for determining which country's law applies in such international contractual disputes.

The Regulation stems from the Rome Convention of 1980 which the European Commission decided to turn into a fully-enforceable Regulation, the Regulation on the law applicable to contractual obligations (11-page PDF).

The Ministry of Justice has now produced a guide to those Regulations, outlining for companies what the Regulation means and how it affects their business.

"The primary objectives of choice and certainty sought by the [now-replaced Rome Convention] were tempered by flexibility and the importance of protecting weaker parties," says the guidance. "As a result, the Rome Convention contained a number of provisions designed to ensure that, where the application of the general rules would be inappropriate, a broader test of connection would be applied."

"While the Regulation differs in some respects from the Rome Convention, its overall policy orientation is the same," it says. "The guiding principle remains that of party autonomy which is expressed in Article 3 of the Regulation … The Regulation also maintains the requisite degree of flexibility."

When the Rome Convention was turned into a Regulation of the EU it became legally enforceable through the EU courts, whose highest court is the Court of Justice of the European Union.

The Ministry of Justice's guidance stressed that only that Court could ultimately decide what the Regulation means.

"Issues concerning the interpretation of the rules in the Regulation can only be conclusively resolved by the European Court of Justice. As a result, any interpretative indications given in this guidance should not be regarded as conclusive in this sense," it says.

The guidance says that the Regulation is "substantial and complex" and that the guidance is "a brief outline of some of [its] most significant provisions".

"Whilst Rome I is not perfect, it does have the particular merit of providing a more simplified framework for determining which national governing law should apply to a contract, in circumstances where the parties have forgotten to consider the question or where they have ducked the issue," said EU law expert Adrian Wood of Pinsent Masons, the law firm behind OUT-LAW.COM, when the Regulation came into force in December.

"The good news is that Rome I does not dramatically overturn the current state of affairs. Rome I clarifies current understanding, removes some ambiguities in the Rome Convention and is more user-friendly in an e-commerce environment," said Wood.

The UK Government had initially objected to the changes made to the Convention when it was proposed that it become a Regulation. It later accepted changes made to the proposed Regulation and backed its adoption.