Contracts Applicable Law

Table of Contents

Convention on the law applicable to contractual obligations (Rome Convention)

Convention 80/934/EEC on the law applicable to contractual obligations opened for signature in Rome on 19 June 1980

The convention establishes uniform rules concerning the law applicable to contractual obligations in the EU.It has applied since 1 January 1991.

Scope

The convention on the law applicable to contractual obligations was opened for signature in Rome on 19 June 1980 for the then 9 European Economic Community (EEC) countries now EU. It entered into force on 1 April 1991. In due course, all the new members of the EEC signed the convention. When the convention was signed by Austria, Finland and Sweden, a consolidated version was drawn up and published in the Official Journal in 1998. A further consolidated version was published in the Official Journal in 2005, following the accession of 10 new countries to the convention.

The Convention was replaced, among all EU countries except Denmark, by Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I Regulation). The Rome Convention continues to apply to Denmark. It continues to apply to contractual obligations concluded before the entry into application of the Rome I Regulation.

Exceptions from Scope

The convention applies to contractual obligations in situations involving a choice between national laws — even where the law it designates is that of a non-contracting country — with the exception of:

questions involving the status or legal capacity of natural persons;
contractual obligations relating to wills, matrimonial property rights or other family relationships;
obligations arising under negotiable instruments (bills of exchange, cheques, promissory notes, etc.);
arbitration agreements and agreements on the choice of court;
questions governed by the law of companies and other corporate and unincorporated bodies;
the question of whether an agent is able to bind a principal to a third party (or an organ to bind a company, or a corporate or unincorporated body);
the constitution of trusts and questions relating to their organisation;
evidence and procedure;
contracts of insurance that cover risks in the territories of the EU countries (excluding reinsurance contracts).

The signatories to a contract may choose the law applicable to the whole or a part of the contract, and select the court that will have jurisdiction over disputes. By mutual agreement, they may change the law applicable to the contract at any time (principle of freedom of choice).

Special Cases

If the parties have not made an explicit choice of applicable law, the contract is governed by the law of the country with which it is most closely connected, according to, for example, the place of habitual residence or place of central administration of the party performing the contract, or the principal place of business or another place of business of the party performing the contract.

However:

where the contract concerns immovable property, the law applicable by default is that of the country in which the property is situated;
where the contract concerns the transport of goods, the applicable law is determined according to the place of loading or unloading, or the principal place of business of the consignor.

To protect the rights of the consumer, the supply of goods or services to a person is covered by special conditions, according to the principle of the protection of the weaker party. Unless the parties decide otherwise, such contracts are governed by the law of the consumer’s country of residence. In no circumstances may the choice of law disadvantage the consumer or deprive him or her of the protection of more favourable law in his or her country of residence. These rules do not apply to contracts of carriage or contracts for the supply of services in a country other than the consumer’s country of residence.

In the case of employment contracts, one of the following will apply:

the law of the country in which the employee habitually carries out his work;
the law of the country in which the company that employed the worker has its place of business;
the law of the country with which the employment contract is most closely associated.
If the parties decide to select another law to apply to the contract, this choice may not be at the expense of the protection of the worker.

Documents

Convention 80/934/EEC on the law applicable to contractual obligations opened for signature in Rome on 19 June 1980 (OJ L 266, 9.10.1980, pp. 1-19)

Corrigendum to the Convention on the law applicable to contractual obligations opened for signature in Rome on 19 June 1980 (OJ L 58, 5.3.1983, p. 14)

Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) (OJ L 177, 4.7.2008, pp. 6-16)

Successive amendments to Regulation (EC) No 593/2008 have been incorporated in the original text. This consolidated version is of documentary value only.

Convention on the law applicable to contractual obligations (Consolidated version) — First protocol on the interpretation of the 1980 convention by the Court of Justice (Consolidated version) — Second protocol conferring on the Court of Justice powers to interpret the 1980 convention (Consolidated version) (OJ C 334, 30.12.2005, pp. 1-27)

Corrigendum to the Convention on the law applicable to contractual obligations (Consolidated version) (OJ C 61, 6.3.2008, p. 20)

Convention on the accession of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden to the Convention on the Law applicable to Contractual Obligations, opened for signature in Rome on 19 June 1980, and to the First and Second Protocols on its interpretation by the Court of Justice (OJ C 15, 15.1.1997, pp. 10-16)

Convention 92/529/EEC on the accession of the Kingdom of Spain and the Portuguese Republic to the Convention on the Law applicable to Contractual Obligations, opened for signature in Rome on 19 June 1980 (OJ L 333, 18.11.1992, pp. 1-26)

Contractual obligations in the EU – determining which national law applies

Regulation (EC) No 593/2008 -The regulation applies to contracts concluded after 17 December 2009.

the law applicable to contractual obligations

It sets out EU-wide rules for determining which national law should apply to contractual obligations in civil and commercial matters involving more than one country.
This regulation, known as Rome I, works alongside two other regulations, Rome II (non-contractual obligations) and Rome III (divorce and legal separation) to determine the applicable law in different types of civil and commercial matters.

General

The regulation does not apply to revenue, customs or administrative matters, or to issues of evidence and procedure during legal proceedings. It also does not apply to obligations including those relating to:

a person’s status or legal capacity
family relationships
matrimonial property regimes
documents guaranteeing the payment of a specific amount of money such as bills of exchange, cheques and promissory notes
arbitration and choice of court agreements
law of companies and other corporate or unincorporated bodies
trusts
dealings that occur before a contract is signed.

Scope of the applicable law

The regulation determines the applicable national law on different aspects of contracts, including:

how a contract is interpreted and what must be done to fulfil its terms
the consequences of breaching a contract’s obligations, including the assessment of damages
the various ways of putting an end to contractual obligations (e.g. payment, compensation, annulling the contract), prescription* and the time limits on bringing legal action
the consequences of a contract being legally void.

Choice of law

The parties to a contract can choose the governing law.
It may be applied to only a part or the whole of the contract.
The applicable law can be changed at any time as long as all parties agree.

Applicable law in the absence of a choice being made

Where the parties have not chosen the applicable law, the type of contract determines the rules:

For contracts for the sale of goods, provision of services, franchises or distribution, the law of the country of residence of the seller, service provider or franchisee applies.
For contracts concerning immovable property, the law of the country where the property is located applies, except in the cases of temporary and private tenancy (maximum 6 consecutive months). In such cases, the applicable law is that of the landlord’s country of residence.
In the case of sale of goods by auction, the law of the country of the auction applies.
If none, or more than one of the above rules apply to a contract, the applicable law is determined based on the country of residence of the party carrying out the principal part of the contract.
If, however, the contract is related more closely to another country than provided by these rules, the law of that country applies. The same applies when no applicable law can be determined.

Specific contracts

For certain specific types of contract, the regulation also sets outs the options for choice of law and determines the applicable choice where no choice has been made. These include:

contracts for the carriage of goods
contracts for the carriage of passengers
consumer contracts between consumers and professionals
insurance contracts
individual employment contracts.

Acts

Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) (OJ L 177, 4.7.2008, pp. 6–16)

Successive amendments to Regulation (EC) No 593/2008 have been incorporated into the original text. This consolidated version is of documentary value only.

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 (Rome II) (OJ L 199, 31.7.2007, pp. 40–49)

Council Regulation (EU) No 1259/2010 of 20 December 2010 implementing enhanced cooperation in the area of the law applicable to divorce and legal separation (OJ L 343, 29.12.2010, pp. 10–16)

Legal certainty in international trade for EU businesses using choice of court agreements

SUMMARY OF:

Decision 2009/397/EC on the signing of the Convention on Choice of Court Agreements

Decision 2014/887/EU approving the Hague Convention on Choice of Court Agreements between parties to international transactions.Following Decision 2014/887/EU, the EU ratified the convention on 15 June 2015, making it binding for all EU countries (except Denmark) and the other countries that have ratified it from the moment of its entry into force on 1 December 2015.

On behalf of the European Union (EU), they sign and approve the Hague Convention of 30 June 2005 on Choice of Court Agreements.
The convention clarifies the rules governing international trade disputes, where the parties have chosen a court to be exclusively competent.
The convention brings more legal certainty for EU companies doing business with firms outside the EU by ensuring that their choice of a court to deal with a dispute is respected.

Scope of the convention

The convention applies to exclusive choice of court agreements in international civil and commercial matters involving countries which apply the convention.
A choice of court agreement is considered to be exclusive, unless otherwise specified by the parties.
Several issues are excluded. Examples of these include:
consumer and employment contracts,
the legal capacity of (natural) persons,
the validity of legal persons and of intellectual property rights and family law matters,
alternate dispute resolution* proceedings.

Moreover, the parties to the convention may exclude certain other issues from its scope of application. On that basis, the EU made a declaration that it will not apply the convention to certain insurance matters.

Ensuring the respect of the choice of the court

Will of the parties — the parties to a contract may conclude an exclusive choice of court agreement to designate the court of one of the countries applying the convention as competent to deal with a dispute. The agreement must be made in writing or by other means that allow the information to be subsequently accessed.

Court competence — the designated court is the only court that is competent to hear disputes covered by the choice of court agreement, unless it decides that the agreement is not valid under its national law. Any non-chosen court must suspend or dismiss proceedings brought in violation of the choice of court agreement, except where:
the agreement is null and void under the law of the state of the chosen court;
the party lacked the capacity to conclude the agreement under the national law of the court seized;
implementation of the agreement contravenes the public policy of the state of the non-chosen court;
the agreement cannot be performed; or
the designated court decides against hearing the case.

Recognition and enforcement — the other states applying the convention must recognise and enforce a judgment given by the chosen court. However, they may postpone enforcement if the judgment is still under review in the state of origin or if the deadline for seeking ordinary review has not yet expired. The convention also sets out a number of other situations where recognition and enforcement may be refused (for instance, when a judgment was obtained by fraud). The text also lists the documents required to request recognition and enforcement.