UK signs up to Rome I rules on cross-border contract disputes

The new EU law, which will come into effect in December 2009, is known as Rome I. It does not actually harmonise contract laws but it does outline whose law applies in certain disputes.

The deal was initially proposed in 2005 but the UK Government opted out of negotiations, saying that the existing Rome Convention was preferable and Rome I undermined British business interests.

Amendments proposed in November of last year satisfied the Government's concerns, though, and it consulted with businesses on signing up to the new deal. A statement from the Council of the European Union has said that the UK now accepts Rome I.

"The Council noted that the United Kingdom wished to accept, in its entirety, the Regulation on the law applicable to contractual obligations (Rome I)," said the statement.

International Justice Minister Bridget Prentice said that the move follows a consultation in which most participants backed signing up.

"I am delighted that the vast majority of those who responded to the consultation were in favour of the proposal," said Prentice.

"Much of the business conducted by the UK is done by contract, and with international parties. Contracts are the basic building block of many of the financial transactions that occur in huge numbers in the City of London and throughout the UK every day. For these businesses and individuals, it is crucial that the law applying to their contracts is certain and predictable. That is what this regulation will achieve," she said.

The UK had said that Rome I deviated too much from the Rome Convention. After the changes, though, it said that it was close enough to the Convention and that it approved of the new regulation.

Both the Convention and Rome I say that two parties can choose which of their countries' laws will govern their dealings and determine which laws will apply if there is no agreement between the parties. This changes depending on whether a contract involves a consumer or not and whether it is for goods or services or property, amongst other factors.

In its consultation paper the Government explained the benefits of Rome I.

"Some of the benefits of the Rome I Regulation arise from its structure as a Community instrument, rather than the specifics of the text," said the consultation paper. "In conflict of laws issues, the widespread application of similar rules can provide a benefit for those contracting across borders. In particular, maintaining a single system prevents the need for extensive legal advice."

"This benefit, presently provided by the Rome Convention, will be lost if the UK does not opt in, as the Regulation will apply in other Member States in any event. While the Convention and the Regulation are similar in many respects, maintaining two separate systems would increase complexity, especially for business."

The European Commission has accepted the UK's request to be included in a deal over whose law should govern contractual disputes.

The UK had opted out of Rome I, a set of rules governing whose law applies when parties in two EU member states have disputes over a contract. Last year, though, it asked the European Commission if it could be included in the deal.

The Commission has now agreed that the rules will apply to the UK from 17 December 2009, except article 26, which will apply from 17th June this year. Article 26 allows countries to request revisions to the agreement.

Rome I allows organisations from two different countries to choose which law applies in case of disputes over contracts and lays down rules about which law applies where no agreement on that has been reached.