EU split over ‘Rome I’ contracts rules

The German presidency is set for failure in its attempts to resolve disputes over an EU law on contractual obligations, which will be aired at a meeting of industry ministers next week (21 May).

The draft, proposed in 2005 by Franco Frattini, the commissioner for justice, freedom and security, is bogged down in disagreement over the application of consumer law and jurisdictional discretion.

The Rome I regulation is an attempt to update the Rome Convention of 1980 on the law applicable to contractual obligations. A primary point of disagreement among member states is a clause on the application of country-of-destination rules. Businesses throughout the EU fear that article 5 of the new draft is worded in a way that would force online traders to comply with 27 different sets of consumer law.

Patrice Pellegrino, adviser on internal market and consumer affairs for retail lobby Eurocommerce, said: "I think this proposal sums up all the bad legislation the Commission could produce. On the one hand, the EU is saying, take advantage of online opportunities, but if you sell, then you are in a mess."

Amendments proposed by German centre-right MEP Klaus-Heiner Lehne to article 5 attempt a return to the original text of the Rome Convention, which granted exemptions from country-of-destination rules in cases where no advertising was directed at consumers in their home country. Observers believe, however, that Lehne’s amendments will be dropped at a forthcoming vote in the European Parliament’s legal affairs committee (25 or 26 June).

Member states are set to clash over the provisions of article 5 at a meeting of industry ministers next week (21 May). Estonia, Latvia, Luxembourg and the UK are strongly in favour of Lehne’s plan to overturn article 5. But several other countries, led by France, want to preserve the European Commission’s original proposals. A recent meeting (3 May) between Parliament and the Council of Ministers failed to secure a compromise.

The UK’s negotiating position is muddied by an opt-out from the whole of Rome I arranged in September last year. This was sought because the UK objected to Article 8(3) of the regulation which allows EU courts hearing contractual disputes to decide on which laws their judgements should be based. According to Andrew Dickinson, solicitor and consultant to law-firm Clifford Chance, the UK sought an opt-out because of the legal uncertainty Article 8(3) could create for high-value financial contracts. It was thought that application of the article could have damaging effects on the activities of the City of London.

"In addition to increased legal costs and litigation, it could lead to the loss to other jurisdictions, probably New York, of significant volumes of international contract business such as commercial and governmental securitisations," said Dickinson.

Following a meeeting of justice ministers last month (19-20 April), the UK delegation indicated that it had not ruled out the possibility of opting in to the regulation.

But Article 8(3), which has been dropped from the German presidency’s agenda, is likely to be remain a contentious issue in future negotiations. According to observers, any negotiations under the German presidency will not include the clause, which is broadly supported by member states such as France and Italy. UK centre-right MEP Malcolm Harbour said that the UK’s overall opt-out from Rome I would be of little help to the online traders that stand to lose out under article five of the regulation. "Important work has been done by UK business associations. I know the UK has general concerns about how all this would operate. They can walk out of it, but that will not help [UK] companies that want to sell to people in other countries," he said.

The German presidency is set for failure in its attempts to resolve disputes over an EU law on contractual obligations, which will be aired at a meeting of industry ministers next week (21 May).