Q&A: Contractual Obligations and Choice of Law in the European Union
1. What is the choice of law rule?
The cornerstones of EU private international law is freedom to choice. One of the pillars of this system is the choice of applicable law. The parties to a contract are given the freedom to choose the law applicable in the case of an eventual dispute arising amongst them. In this way, the applicable law chosen will govern issues of interpretation of the contract at hand, breach of contract, nullity of proceedings, statutory delays etc…
The principle of freedom of choice of law was brought forward to regulate the legal landscape of conflict-of-law in the EU. These rules found in the Rome I and Brussels I Regulation favour an environment of legal certainty and overall consistency, in compatibility with the Union’s overall integration project.
2. What does the Rome I Regulation cover?
Rome I (EC 593/2008) – governing law of contractual obligations
Regulation (EC) 593/2008 on the law applicable to contractual obligations (Rome I), which applies to contracts entered into on or after 17 December 2009. In the broader context of the European harmonization project stands the Rome I Regulation, aiming to condense and simply EU procedure for conflicts-of-laws.
The law applicable to contractual obligations in civil and commercial matters is first evaluated based on the freedom of choice of applicable law. In cases where parties have chosen not to identify the governing law, the contract will be governed by the law of the country with which it is most closely connected.
3. What are the limits to the principle of freedom of choice in the Rome I Regulation?
There are certain exceptions however to this general rule for employment, consumer and insurance contracts:
Employment contracts: for employment contracts the governing law is that of the country from which the employee habitually carries out their work.
Consumer contracts: for consumer contracts the governing law is that of the country in which the consumer has their habitual residence.
Insurance contracts: for insurance contrats the governing law is that of the country in which the risk is situation at the time of the contract’s conclusion.
The principle of freedom of choice is conditioned additionally by Art 3 (3) of the EC Regulation (Rome I)
Art 3 (3) REGULATION (EC) No 593/2008 on the law applicable to contractual obligations (Rome I):
« Where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement. »
Article 3 (3) of the Rome I Regulation sets out the reasonable limits to this principle of freedom of choice.
In addition to these conditions, are overriding mandatory provisions found in Article 9 of the Rome I Regulation.
Art 9 , « Overriding mandatory provisions » REGULATION (EC) No 593/2008 on the law applicable to contractual obligations (Rome I) state:
«Overriding mandatory provisions are provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation.
Nothing in this Regulation shall restrict the application of the overriding mandatory provisions of the law of the forum.
Effect may be given to the overriding mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed, in so far as those overriding mandatory provisions render the performance of the contract unlawful. In considering whether to give effect to those provisions, regard shall be had to their nature and purpose and to the consequences of their application or non-application. »
4. What does the Brussels I Regulation cover?
Recast Brussels I (EU 1215/2012) – On jurisdiction and the recognition and enforcement of judgments in civil and commercial matters
The Brussels Regime covers primarily matters related to the choice of jurisdiction clauses. It establishes an EU-wide jurisdictional regime allowing for a unified principle of freedom of choice for contracts. The Regulation allows parties to a contract to identify the courts they deem relevant to judge their case in the event of future dispute.
The general rule of the Brussels Regime, if no choice of jurisdiction has been made, is that the defendant must be sued within the competent courts of their country of domicile (Section 1, Art 2)
The Brussels Recast Regulation does not include however matters related to family law, bankruptcy/insolvency, social security or arbitration.
The EC Regulation on jurisdiction confirms the binding nature of the choice of jurisdiction of the parties to a contract. The Recast Brussels Regulation grants jurisdiction to the courts chosen by the parties, indifferently from the EU domicile of either contracting party.
5. What are the limits to the principle of freedom of choice in the Brussels Regime?
The scope of applicability of the Brussels regime may be limited by certain elements of State policy: The French courts exclude the freedom of choice of jurisdiction in certain matters such as personal statuts, measures taking place in France, real estate and labour laws.
The Brussels Regulation does not cover matters of insolvency/bankruptcy, registered intellectual property rights, insurance, consumer or employment contracts.
If you or your company are experiencing any difficulty in matters of cross-border dispute resolution or have any questions regarding conflicts of laws in the European Union, feel free to contact us at email@example.com or reach out to Baptiste ROBELIN directly at firstname.lastname@example.org