CELEX: 52005PC0650
Language: en
Date: 2005-12-15
Title: Proposal for a Regulation of the European Parliament and the Council on the law applicable to contractual obligations (Rome I)

COMMISSION OF THE EUROPEAN COMMUNITIES
                                             Brussels, 15.12.2005
                                             COM(2005) 650 final
                                             2005/0261 (COD)
                                Proposal for a
   REGULATION OF THE EUROPEAN PARLIAMENT AND THE COUNCIL
          on the law applicable to contractual obligations (Rome I)
                       (presented by the Commission)
EN                                                                  EN
 ---pagebreak---                                    EXPLANATORY MEMORANDUM
   1.        CONTEXT OF THE PROPOSAL
   1.1.      Background and objective
   The Brussels Convention of 1968 on jurisdiction and the recognition and enforcement of
   judgments in civil and commercial matters contains options enabling a claimant to choose
   between specified courts, which generates the risk that a party will choose the courts in one
   Member State rather than another simply because the law is more favourable to his cause. To
   reduce the risk, the Member States, acting on the same legal basis, signed in 1980 the Rome
   Convention on the law applicable to contractual obligations.
   The Amsterdam Treaty gave a new impetus to private international law of Community origin.
   That was the legal basis on which the Community adopted what is known as the ”Brussels I”
   Regulation1 to replace the Brussels Convention of 1968 in relations between Member States.
   On 22 July 2003 the Commission presented a proposal for a Regulation on the law applicable
   to non-contractual obligations (Rome II).2 The Rome Convention is now the only Community
   private international law instrument that remains in international treaty form. The drawbacks
   that this represents are all the less acceptable as Brussels I, Rome II and the Rome Convention
   of 1980 form an indissoluble set of Community rules of private international law relating to
   contractual and non-contractual obligations civil and commercial matters.
   1.2.      Grounds for the proposal
   The importance of compatibility between conflict-of-laws rules for achieving the objective of
   mutual recognition of judicial decisions was acknowledged in the Vienna Action Plan.3 The
   2000 Mutual Recognition Programme4 sets forth measures to harmonise the conflict-of-laws
   rules as accompanying measures to facilitate the implementation of the mutual recognition
   principle. More recently, in the Hague Programme, the European Council5 restated that work
   on the conflict-of-laws rules regarding contractual obligations (Rome I) should be “actively
   pursued”. The Council and Commission action plan to give effect to that programme provides
   for a Rome I proposal to be adopted by 2005.6
   1
           Council Regulation (CE) No 44/2001 of 22.12.2000, OJ L 12, 16.1.2001, p. 1.
   2
           COM (2003) 427 final.
   3
           OJ C 19, 23.1.1999, p. 1, point 40 (c).
   4
           OJ C 12, 15.1.2001, p. 8.
   5
           The Hague Programme, Presidency Conclusions, 5.11.2004, point 3.4.2.
   6
           Point 4.3.c).
EN                                                     2                                           EN
 ---pagebreak---    2.         OUTCOME OF CONSULTATIONS OF INTERESTED PARTIES AND OTHER INSTITUTIONS
              - IMPACT ANALYSIS
   This proposal has been preceded by extensive consultation of the Member States, the other
   institutions and civil society, in particular via the Green Paper of 14 January 20037 and the
   public hearing on it in Brussels on 7 January 2004. The 80 or so replies to the Green Paper,8
   received from governments, universities, the legal professions and a variety of economic
   actors, confirmed that the Rome Convention is not only a widely-known instrument but also
   highly appreciated in relevant circles, who by a large majority supported its conversion into a
   Community Regulation while also confirming the need to modernise certain of its rules. On 4
   and 5 November 1999 the Commission also organised a public hearing on Electronic
   Commerce: jurisdiction and applicable law, receiving about 75 written contributions.
   In their Opinions dated 29 January9 and 12 February 200410 respectively, the European
   Economic and Social Committee and the European Parliament came out in favour of
   converting the Convention into a Community Regulation and modernising it.
   On 17 February 2005, the Member States’ experts met to consider a preliminary draft Rome
   I Regulation prepared in the Commission.
   Given the limited impact of this proposal on the existing body of legislation and the relevant
   circles, the Commission has decided to refrain from making a formal impact assessment. The
   proposal does not set out to establish a new set of legal rules but to convert an existing
   convention into a Community instrument. But some of the amendments made will help to
   modernise certain provisions of the Rome Convention and make them clearer and more
   precise, thus boosting certainty as to the law without bringing in new elements such as would
   substantially change the existing legal situation. All the changes proposed here are based on
   the results of the Commission’s extensive consultations, which were widely accessible to the
   public. For further details of the nature and impact of the changes, see the specific
   commentaries on the individual articles (point 4.2 below).
   3.         LEGAL ASPECTS OF THE PROPOSAL
   3.1.       Legal basis
   Since the Amsterdam Treaty entered into force, the conflict-of-laws rules have come under
   Article 61(c) of the TEC. Under Article 67 of the TEC, as amended by the Treaty of Nice, the
   Regulation is to be adopted by the codecision procedure of Article 251 of the TEC. Article
   65(b) provides: “ Measures in the field of judicial cooperation in civil matters having cross-
   7
            COM (2002) 654 final.
   8
            Accessible at:
            http://europa.eu.int/comm/justice_home/news/consulting_public/rome_i/news_summary_rome1_en.htm
   9
            Opinion of the European Economic and Social Committee on the Green Paper on the conversion of the
            Rome Convention of 1980 on the law applicable to contractual obligations into a Community
            instrument and its modernisation. INT/176, 29.01.2004
   10
            European Parliament Resolution on the prospects for approximating civil procedural law in the
            European Union (COM(2002) 654 - COM(2002) 746 – C5-0201/2003 – 2003/2087(INI)), A5-
            0041/2004.
EN                                                        3                                                   EN
 ---pagebreak---    border implications, to be taken in accordance with Article 67 and in so far as necessary for
   the proper functioning of the internal market, shall include: … promoting the compatibility of
   the rules applicable in the Member States concerning the conflict of laws and of jurisdiction”.
   The Community legislature thus has some room for manoeuvre in deciding whether a measure
   is necessary for the proper functioning of the internal market. Harmonisation of the conflict-
   of-laws rules relating to contractual obligations is necessary for the proper functioning of the
   internal market.
   Title IV of the TEC, which is the basis for the matters covered by this proposal, does not
   apply to Denmark by reason of the Protocol applicable to it. Nor does it apply to Ireland and
   the United Kingdom, unless those countries exercise their right to opt into this initiative as
   provided by the Protocol annexed to the Treaty.
   3.2.      Principles of subsidiarity and proportionality
   The objective of the proposal – the adoption of uniform rules on the law applicable to
   contractual obligations to make judicial decisions more easily foreseeable – cannot be
   adequately attained by the Member States, who cannot lay down uniform Community rules,
   and can therefore, by reason of its effects throughout the Community, be better achieved at
   Community level, the Community can take measures, in accordance with the subsidiarity
   principle set out in Article 5 of the Treaty. And the measures respect the proportionality
   principle set out in that Article, by increasing certainty in the law without requiring
   harmonisation of the substantive rules of domestic law.
   Point 6 of the Protocol on the application of the principles of subsidiarity and proportionality
   provides that “Other things being equal, directives should be preferred to regulations..”. For
   this proposal, however, the Regulation would seem to be preferable as its provisions lay down
   uniform rules on the applicable law that are detailed, precise and unconditional and require no
   measures for their transposal into domestic law. If the Member States enjoyed some room for
   manoeuvre in transposing, the uncertainty as to the law which the aim is to abolish would be
   restored.
   4.        ARTICLE-BY-ARTICLE COMMENTARY
   4.1.      Adaptations linked to the nature of the instrument
   Apart from the changes of substance (point 4.2), the obvious differences between the legal
   nature of the Rome Convention (the “Convention”) and the Regulation warrant a number of
   adaptations: apart from the purely formal adaptations, there are those that allowed contracting
   States to enter reservations (article 22), to adopt new conflict rules after a notification
   procedure (article 23) or the limited duration of the Convention (article 30). Likewise the two
   Protocols annexed to the Convention concerning interpretation by the Court of Justice are
   now superfluous.
   4.2.      Adaptations to modernise the Rome Convention rules
   Given the similarity between the Convention and the proposed Regulation, only changes of
   substance from the Convention are considered here.
   Article 1 – Scope
EN                                                 4                                                EN
 ---pagebreak---    The proposed changes seek to align the scope of the future Rome I instrument on that of the
   Brussels I Regulation and to reflect the work done by the Council and the European
   Parliament on the proposed Rome II Regulation. Point (e) confirms the exclusion of
   arbitration agreements and agreements on the choice of court as the majority of the replies to
   the Green Paper felt that the former was already covered by satisfactory international
   regulations and that the question of the law applicable to the choice-of-forum clause should
   ultimately be settled by the Brussels I Regulation. Point (f) combines the rules of point (e) and
   the company-law aspects of point (f) of the Convention. The first sentence of point (f) of the
   Convention has been deleted as there is a specific rule on agency (Article 7). Point (i)
   proposes a specific rule for pre-contractual obligations which, according to the contributions,
   confirms the analysis of the majority of legal systems in the Union and the restrictive concept
   of the contract adopted by the Court of Justice in its judgments concerning Article 5(1) of
   the Brussels I Regulation: for the purposes of private international law, they would be treated
   as a matter of tort/delict and governed by the future Rome II instrument.
   Article 2 – Application of law of non-member States
   The discussions of the Rome II draft revealed that the title of Article 2 of the
   Convention (“Universal application”) was a source of confusion: it has therefore been
   changed for the sake of clarity.
   Article 3 – Freedom of choice
   The proposed changes to the second and third subparagraphs of paragraph 1 require the courts
   to ascertain the true tacit will of the parties rather than a purely hypothetical will: they suggest
   that the parties’ conduct be taken into account and seek to clarify the impact of the choice of
   court, so as to reinforce the foreseeability of the law.
   To further boost the impact of the parties’ will, a key principle of the Convention, paragraph 2
   authorises the parties to choose as the applicable law a non-State body of law. The form of
   words used would authorise the choice of the UNIDROIT principles, the Principles of
   European Contract Law or a possible future optional Community instrument, while excluding
   the lex mercatoria, which is not precise enough, or private codifications not adequately
   recognised by the international community. Like Article 7(2) of the Vienna Convention on the
   international sale of goods, the text shows what action should be taken when certain aspects
   of the law of contract are not expressly settled by the relevant body of non-State law.
   Paragraph 4 addresses the issue of fraudulent evasion of the law, referring not only to binding
   international provisions within the meaning of Article 8 but also the mandatory provisions in
   the domestic law of a legal system. Paragraph 5 aims to prevent fraudulent evasion of
   Community law.
   Article 4 –Applicable law in the absence of choice
   The rule in the Convention, whereby the applicable law is the law of the place where the party
   performing the service characterising the contract has his habitual residence, is preserved, but
   the proposed changes seek to enhance certainty as to the law by converting mere
   presumptions into fixed rules and abolishing the exception clause. Since the cornerstone of
   the instrument is freedom of choice, the rules applicable in the absence of a choice should be
   as precise and foreseeable as possible so that the parties can decide whether or not to exercise
   their choice.
EN                                                    5                                                 EN
 ---pagebreak---    Regarding the solutions for the different categories of contracts, only those proposed at points
   (g) and (h) have come up for discussion and prompted court decisions in the Member States in
   relation to determination of the characteristic performance. The solutions are based on the fact
   that Community law seeks to protect the franchisee and the distributor as the weaker parties.
   Paragraph 2 retains the characteristic performance criterion for contracts for which paragraph
   1 lays down no special rule, such as complex contracts that are not easy to categorise or
   contracts involving mutual performance by the parties in terms that can be regarded as
   characteristic on both sides.
   Article 5 – Consumer contracts
   Paragraph 1 proposes a new, simple and foreseeable conflict rule consisting of applying only
   the law of the place of the consumer’s habitual residence, without affecting the substance of
   the professional’s room for manoeuvre in drawing up his contracts. The solution adopted in
   the Convention was widely criticised in the responses to the Green Paper as it often produced
   hybrid solutions in which the law applicable to the professional and the mandatory provisions
   of the law applicable to the consumer were applied in parallel. In the event of a dispute, this
   complex solution entails additional procedural costs that are all the less justified as the
   consumer’s claim will tend to be quite small. There are two possible solutions to prevent this
   hybrid situation – full application of the law applicable to the professional or the law
   applicable to the consumer – only the latter would be truly compatible with the high level of
   protection for the consumer demanded by the Treaty. It also seems fair in economic terms: a
   consumer will make cross-border purchases only occasionally whereas most traders operating
   across borders will be able to spread the cost of learning about one or more legal systems over
   a large range of transactions. Finally, in practice this solution does not substantially modify
   the situation of the professional, for whom the initial difficulty in drafting standard contracts
   is to comply with the mandatory provisions of the law in the country of consumption; under
   the Convention, the mandatory provisions are already those of the country of the consumer’s
   habitual residence. Regarding other clauses, which the parties are free to draft as they wish,
   the freedom of the parties to draft their own contract is the rule that continues to prevail; it
   therefore matters little whether they are governed by the law of one or other party.
   Paragraph 2 specifies the conditions for applying the special rule. The first subparagraph now
   recalls that the consumer’s contracting partner, a concept defined in some detail by the Court
   of Justice, is a professional. As requested in the great majority of contributions in response to
   the Green Paper, the second subparagraph replaces the conditions of Article 5(2) and (4)(b) of
   the Convention by the targeted activity criterion, already present in Article 15 of the Brussels
   I Regulation to take account of developments in distance selling techniques without
   substantially changing the scope of the special rule. When the Brussels I Regulation was
   adopted, a joint declaration by the Council and the Commission11 specified that, for the
   consumer protection provisions to be applicable, it was not enough for a firm to target its
   activities on the Member State where the consumer was domiciled a contract must also have
   been concluded in the exercise of his trade or profession. “The mere fact that an Internet site
   is accessible is not sufficient for Article 15 to be applicable, although a factor will be that this
   Internet site solicits the conclusion of distance contracts and that a contract has actually been
   concluded at a distance, by whatever means. In this respect, the language or currency which
   a website uses does not constitute a relevant factor”. The sites to which this declaration refers
   11
           Accessible at: http://europa.eu.int/comm/justice_home/unit/civil/justciv_conseil/justciv_en.pdf.
EN                                                        6                                                 EN
 ---pagebreak---    are not necessarily interactive sites: a site inviting buyers to fax an order aims to conclude
   distance contracts. On the other hand, a site which offers information to potential consumers
   all over the world but refers them to local distributor or agent for the purposes of concluding
   the actual contract does not aim to conclude distance contracts. Unlike Article 5(2) of the
   Convention, the proposed Regulation does not require the consumer to have done the acts
   needed to conclude the contract in the country of his habitual residence, as this is a
   superfluous condition in terms of contracts concluded via the Internet. On the other hand, the
   last subparagraph of this paragraph brings in a safeguard clause to protect the professional, for
   example where he has agreed to enter into a contract with a consumer who has lied about his
   habitual residence; for a contract concluded via the Internet, it will up to the professional to
   ensure that his standard form makes it possible to identify where the consumer lives.
   The proposed Regulation no longer contains a list of contracts to which the special rule
   applies; its material scope is accordingly extended to all contracts with consumers except
   those expressly excluded by paragraph 3.
   Article 6 – Individual employment contracts
   The basic rule in paragraph 2(a) has been amplified and the reference is now to the “country
   in or from which…” to take account of the law as stated by the Court of Justice in relation to
   Article 18 of the Brussels I Regulation and its broad interpretation of the habitual place of
   work. This change will make it possible to apply the rule to personnel working on board
   aircraft, if there is a fixed base from which work is organised and where the personnel
   perform other obligations in relation to the employer (registration, safety checks). Paragraph
   2(b) will thus apply more rarely. The text then provides additional guidance as to whether an
   employee posted abroad is temporarily employed there, though there is no rigid definition.
   The courts are to have regard to the intentions of the parties.
   Article 7 – Contracts concluded by an agent
   Among the three legal relationships that arise from a contract concluded by an agent –
   between principal and agent, between agent and third party and between principal and third
   party – only the first two are covered by the Convention. The question of the agent’s powers
   is excluded by Article 1(2)(f); the reasons for the exclusion are the diversity of the national
   conflict rules when the Convention was negotiated and the existence of the Hague Convention
   of 14 March 1978 on the law applicable to agency. As only three Member States have signed
   and/or ratified the Convention and national solutions have come closer into line with each
   other, the exclusion is no longer warranted. The proposed Regulation brings together in a
   single Article all the rules governing legal relationship arising from agency contracts.
   Article 8 – Mandatory provisions
   Paragraph 1 proposes a definition of international mandatory provisions for the purposes of
   Article 8 which is inspired by the Court of Justice’s judgment in Arblade.12 Paragraph 31 of
   that judgment holds that the fact that national rules are categorised as mandatory provisions
   legislation does not mean that they are exempt from compliance with the provisions of the
   Treaty: the considerations underlying such national legislation can be taken into account by
   Community law only in terms of the exceptions to Community freedoms expressly provided
   12
           Cases C-369/96 and C-374/96 (judgment given on 23.11.1999).
EN                                                    7                                              EN
 ---pagebreak---    for by the Treaty. Paragraph 3 specifies the criteria that may be used by the courts to decide
   whether it should apply the mandatory provisions of another Member State. The replies to the
   Green Paper having enabled decisions referring to the concept of foreign mandatory
   provisions, including those of the Member States that had entered reservations on Article 7(1)
   of the Convention, to be identified, the utility of the rule would seem to be confirmed,
   especially as the Brussels I Regulation sometimes provides for alternative grounds of
   jurisdiction; it is therefore essential in a genuine European justice area for the courts to be
   able to have regard to another Member State's mandatory provisions where there is a close
   connection with the case and where a court action has already been brought by the claimant.
   Article 10 – Formal validity
   Given the growing frequency of distance contracts, the rules in the Convention governing
   formal validity of contracts are now clearly too restrictive. To facilitate the formal validity of
   contracts or unilateral acts, further alternative connecting factors are introduced. The specific
   rules for contracts concluded by an agent have been incorporated in paragraphs 1 and 2.
   Article 13 – Voluntary assignment and contractual subrogation
   Voluntary assignment and contractual subrogation perform a similar economic function and
   are now covered by a single Article. Paragraph 3 introduces a new conflict rule relating to the
   possibility of pleading an assignment of a claim against a third party; the solution is the one
   recommended by the great majority of respondents, which was also adopted in the 2001
   UNCITRAL Convention on the assignment of receivables in international trade.
   Article 14 – Statutory subrogation
   Voluntary subrogation is now covered by Article 13, so Article 14 applies solely to statutory
   subrogation as provided, for instance, where an insurer who has compensated a person who
   has suffered a loss is subrogated to the victim’s rights against the person who caused the loss.
   The amendment reflects the work done by the Council and the European Parliament on the
   Rome II proposal to explain this mechanism, unknown in certain legal systems, in terms that
   are easier to understand.
   Article 15 – Multiple debtors
   The amendment reflects the same work so as to cover subrogation and multiple debtors by
   two separate provisions and present the conflict rules relating to multiple debtors in simpler
   terms. The final sentence clarifies the situation of a debtor enjoying special protection.
   Article 16 – Statutory offsetting
   The contributions confirmed the analysis in the Green Paper regarding the usefulness of a rule
   governing statutory offsetting, given that contractual offsetting is by definition subject to the
   general rules in Articles 3 and 4. The aim of the solution adopted here is to make offsetting
   easier while respecting the legitimate concerns of the person who did not take the initiative.
   Article 18 – Assimilation to habitual residence
   Like the Rome II proposal, Article 18 contains a definition of “habitual residence”, in
   particular for legal persons.
EN                                                   8                                                EN
 ---pagebreak---    Article 21 – States with more than one legal system
   Where a State consists of several territorial units each with its own substantive law of
   contractual obligations, this Regulation must also apply to conflicts of laws between those
   territorial units so as to ensure foreseeability and certainty on the law and the uniform
   application of European rules to all conflict situations.
   Article 22 – Relationship with other provisions of Community law
   Like Article 20 of the Convention, Article 22 determines the relationship with other
   provisions of Community law. Point a) covers the conflict-of-laws rules in instruments of
   Community secondary legislation in the specific subject-areas listed in Annex 1. The purpose
   of point b) is to secure consistency with a possible optional instrument in the context of the
   European Contract Law project. The relationship between the proposed Regulation and the
   rules to promote the smooth operation of the internal market is governed by point c).
   Article 23 – Relationship with existing international conventions
   The purpose of the proposed amendments is to strike a balance between compliance with the
   Member States’ international commitments and the objective of establishing a genuine
   European judicial area while enhancing the transparency of the body of law in force by
   publishing the conventions to which the Member States are Parties. Paragraph 2 sets out the
   basic rule that international conventions take precedence over the proposed Regulation. But
   there is an exception where at the time of conclusion of the contract all material aspects of the
   situation are located in one or more Member States. The co-existence of two parallel schemes
   – application of conventions rules for Member States which have ratified and application of
   the proposed regulation elsewhere – would be contrary to the smooth operation of the internal
   market. Paragraph 3 specifically refers to bilateral conventions concluded between the new
   Member States.
EN                                                  9                                                EN
 ---pagebreak---                                                            2005/0261 (COD)
                                              Proposal for a
        REGULATION OF THE EUROPEAN PARLIAMENT AND THE COUNCIL
                        on the law applicable to contractual obligations (Rome I)
   THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,
   Having regard to the Treaty establishing the European Community, and in particular Articles
   61(c) and the second indent of Article 67(5) thereof,
   Having regard to the proposal from the Commission13,
   Having regard to the Opinion of the European Economic and Social Committee14,
   Acting in accordance with the procedure provided for by Article 251 of the Treaty15,
   Whereas:
   (1)    The Union has set itself the objective of establishing an area of freedom, security and
          justice. To that end the Community must adopt measures relating to judicial
          cooperation in civil matters with a cross-border impact to the extent necessary for the
          proper functioning of the internal market, including measures promoting the
          compatibility of the rules applicable in the Member States concerning the conflict of
          laws.
   (2)    For the purposes of effectively implementing the relevant provisions of the
          Amsterdam Treaty, the Council (Justice and Home Affairs) on 3 December 1998
          adopted a plan of action on how best to implement the provisions of the Treaty of
          Amsterdam on an area of freedom, security and justice,16 stressing the importance of
          promoting the compatibility of conflict-of-law rules in order to attain the objective of
          mutual recognition of judgments and calling for the revision, where necessary, of
          certain provisions of the Convention on the Law applicable to contractual obligations,
          taking into account special provisions on conflict-of-law rules in other Community
          instruments.
   (3)    The Tampere European Council on 15 and 16 October 1999 approved the principle of
          mutual recognition of judgments as a priority matter in the establishment of a
          European judicial- area. The programme of measures for implementation of the
          principle of mutual recognition of decisions in civil and commercial matters17
   13
          OJ C , , p. .
   14
          OJ C , , p. .
   15
          OJ C , , p. .
   16
          OJ C 19, 23.1.1999, p. 1.
   17
          OJ C 12, 15.1.2001, p. 1.
EN                                                  10                                             EN
 ---pagebreak---         specifies that the accompanying measures relating to harmonisation of conflict-of-law
        rules actually do help facilitate the mutual recognition of judgments. In the Hague
        Programme,18 the European Council restated that work on the conflict of laws
        regarding contractual obligations should be actively pursued.
   (4)  The proper functioning of the internal market creates a need, in order to improve the
        predictability of the outcome of litigation, certainty as to the law and the free
        movement of judgments, for the rules of conflict of laws in the Member States to
        designate the same national law irrespective of the country of the court in which an
        action is brought. For the same reasons there is a need to achieve the greatest harmony
        between three instruments – this Regulation, Council Regulation (EC) No 2001/44 of
        22 December 2000 on jurisdiction and the recognition and enforcement of judgments
        in civil and commercial matters (“Brussels I”)19 and Parliament and Council
        Regulation (EC) No […] on the law applicable to non-contractual obligations (“Rome
        II”).
   (5)  The concern for transparency in Community legislation is such that the largest
        possible number of conflict-of-laws rules should be brought together in a single
        instrument or at least that this Regulation should contain a list of special rules laid
        down by sectoral instruments.
   (6)  The scope of the Regulation must be determined in such a way as to be consistent with
        Regulation (EC) No 44/2001 and Parliament and Council Regulation (EC) No […] on
        the law applicable to non-contractual obligations (“Rome II”).
   (7)  Freedom for the parties to choose the applicable law must be one of the cornerstone of
        the system of conflict-of-laws rules in matters of contractual obligations.
   (8)  To contribute to the general objective of the instrument – certainty as to the law in the
        European judicial area – the conflict rules must be highly foreseeable. But the courts
        must retain a degree of discretion to determine the law that is most closely connected
        to the situation in a limited number of hypothetical cases.
   (9)  As regards contracts concluded with parties regarded as being weaker, those parties
        should be protected by conflict rules that are more favourable to their interests than the
        general rules.
   (10) With more specific reference to consumer contracts, the conflict rule must make it
        possible to cut the cost of settling disputes on what are commonly relatively small
        claims and to take account of the development of distance-selling techniques.
        Harmony with Regulation (EC) No 44/2001 requires both that there be a reference to
        the concept of “targeted activity” as a condition for applying the consumer-protection
        rule and that the concept be interpreted harmoniously in the two instruments, bearing
        in mind that a joint declaration by the Council and the Commission on Article 15 of
        Regulation No 44/200120 states that “for Article 15(1)(c) to be applicable it is not
        sufficient for an undertaking to target its activities at the Member State of the
   18
        Annex 1 to Presidency Conclusions, 5.11.2004.
   19
        OJ L 12, 16.1.2001, p. 1. Regulation as last amended by Regulation (EC) No 2245/2004 (OJ L 381,
        28.12.2004, p. 10).
   20
        Accessible at: http://europa.eu.int/comm/justice_home/unit/civil/justciv_conseil/justciv_en.pdf.
EN                                                     11                                                EN
 ---pagebreak---         consumer’s residence, or at a number of Member States including that Member State;
        a contract must also be concluded within the framework of its activities”. The
        declaration also states that ”the mere fact that an Internet site is accessible is not
        sufficient for Article 15 to be applicable, although a factor will be that this Internet
        site solicits the conclusion of distance contracts and that a contract has actually been
        concluded at a distance, by whatever means. In this respect, the language or currency
        which a website uses does not constitute a relevant factor.”
   (11) Regarding individual employment contracts, the conflict rule should make it possible
        to identify the centre of gravity of the employment relationship, looking beyond
        appearances. This rule does not prejudge the application of the mandatory rules of the
        country to which a worker is posted in accordance with Directive 96/71/EC of 16
        December 1996 concerning the posting of workers in the framework of the provision
        of services.21
   (12) Regarding contracts concluded by agents, conflict rules should be laid down to govern
        the three legal relationships between the principal, the agent and the third party. A
        contract concluded between the principal and the third party would remain subject to
        the general rules of this Regulation.
   (13) Respect for the public policy (ordre public) of the Member States requires specific
        rules concerning mandatory rules and the exception on grounds of public policy. Such
        rules must be applied in a manner compatible with the Treaty.
   (14) For the sake of certainty as to the law there should be a clear definition of habitual
        residence, in particular for bodies corporate. Unlike Article 60(1)(c) of Regulation
        (EC) No 44/2001, which establishes three criteria, the conflict-of-laws rule should
        proceed on the basis of a single criterion; otherwise, it would remain impossible for
        parties to foresee the law applicable to their situation.
   (15) The relationship between this Regulation and certain other provisions of Community
        law should be spelled out.
   (16) Respect for international commitments entered into by the Member States means that
        this Regulation should not affect conventions relating to specific matters to which the
        Member States are parties. However, where at the time of conclusion of the contract
        material aspects of the situation are located in one or more Member States, the
        application of certain international conventions to which only some of the Member
        States are Parties would be contrary to the objective of a genuine European judicial
        area. The rule set out in this Regulation should accordingly be applied. To make the
        rules easier to read, the Commission will publish the list of the relevant conventions in
        the Official Journal of the European Union on the basis of information supplied by the
        Member States.
   (17) Since the objective of the proposed action, namely better foreseeability of court
        judgments requiring genuinely uniform rules on the law applicable to contractual
        obligations determined by a mandatory and directly applicable Community legal
        instrument, cannot be adequately attained by the Member States, who cannot lay down
   21
        OJ L 18, 21.1.1997, p. 1.
EN                                              12                                                EN
 ---pagebreak---             uniform Community rules, and can therefore, by reason of its effects throughout the
            Community, be better achieved at Community level, the Community can take
            measures, in accordance with the subsidiarity principle set out in Article 5 of the
            Treaty. In accordance with the proportionality principle set out in that Article, a
            Regulation, which increases certainty in the law without requiring harmonisation of
            the substantive rules of domestic law, does not go beyond what is necessary to attain
            that objective.
   (18)     [In accordance with Article 3 of the Protocol on the position of the United Kingdom
            and Ireland, annexed to the Treaty on European Union and the Treaty establishing the
            European Community, these Member States have stated their intention of participating
            in the adoption and application of this Regulation. / In accordance with Articles 1 and
            2 of the Protocol on the position of the United Kingdom and Ireland, annexed to the
            Treaty on European Union and the Treaty establishing the European Community,
            these Member States are not participating in the adoption of this Regulation, which
            will accordingly not be binding on those Member States.]
   (19)     In accordance with Articles 1 and 2 of the Protocol on the position of Denmark,
            annexed to the Treaty on European Union and the Treaty establishing the European
            Community, that Member State is not participating in the adoption of this Regulation,
            which will accordingly not be binding on that Member State,
   HAVE ADOPTED THIS REGULATION:
                                      Chapter One – Scope
                                             Article 1 – Scope
   1.       This Regulation shall apply, in any situation involving a conflict of laws, to
   contractual obligations in civil and commercial matters.
   It shall not extend, in particular, to revenue, customs or administrative matters.
   2.       The Regulation shall not apply to:
   (a)        questions involving the status or legal capacity of natural persons, without prejudice
              to Article 12;
   (b)        contractual obligations relating to a family relationship or a relationship which, in
              accordance with the law applicable to it, has similar effects, including maintenance
              obligations;
   (c)        obligations arising out a matrimonial relationship or a property ownership scheme
              which, under the law applicable to it, has similar effects to a marriage, wills and
              successions;
   (d)        obligations arising under bills of exchange, cheques and promissory notes and other
              negotiable instruments to the extent that the obligations under such other negotiable
              instruments arise out of their negotiable character;
EN                                                   13                                              EN
 ---pagebreak---    (e)       arbitration agreements and agreements on the choice of court;
   (f)       questions governed by the law of companies and other bodies corporate or
             unincorporate such as the creation, by registration or otherwise, legal capacity,
             internal organisation or winding up of companies and other bodies corporate or
             unincorporate, the personal liability of officers and members as such for the
             obligations of the company or body and the question whether a management body of
             a company or other body corporate or unincorporated can bind the company or body
             in relation to third parties;
   (g)       the constitution of trusts and the relationship between settlers, trustees and
             beneficiaries;
   (h)       evidence and procedure, without prejudice to Article 17;
   (i)       obligations arising out of a pre-contractual relationship.
   3.      In this Regulation, the term “Member State” shall mean Member States with the
   exception of Denmark [,Ireland and the United Kingdom].
                           Article 2 – Application of law of non-member States
   Any law specified by this Convention shall be applied whether or not it is the law of a
   Member State.
                                   Chapter II –Uniform rules
                                       Article 3 – Freedom of choice
   1.      Without prejudice to Articles 5, 6 and 7, a contract shall be governed by the law
   chosen by the parties.
   The choice must be expressed or demonstrated with reasonable certainty by the terms of the
   contract behaviour of the parties or the circumstances of the case. If the parties have agreed to
   confer jurisdiction on one or more courts or tribunals of a Member State to hear and
   determine disputes that have arisen or may arise out of the contract, they shall also be
   presumed to have chosen the law of that Member State.
   By their choice the parties can select the law applicable to the whole or a part only of the
   contract.
   2.      The parties may also choose as the applicable law the principles and rules of the
   substantive law of contract recognised internationally or in the Community.
   However, questions relating to matters governed by such principles or rules which are not
   expressly settled by them shall be governed by the general principles underlying them or,
   failing such principles, in accordance with the law applicable in the absence of a choice under
   this Regulation.
EN                                                   14                                              EN
 ---pagebreak---    3.      The parties may at any time agree to subject the contract to a law other than that which
   previously governed it, whether as a result of an earlier choice under this Article or of other
   provisions of this Regulation. Any change in the law to be applied that is made after the
   conclusion of the contract shall not prejudice its formal validity under Article 10 or adversely
   affect the rights of third parties.
   4.      The fact that the parties have chosen a foreign law in accordance with paragraphs 1 or
   2, whether or not accompanied by the choice of a foreign tribunal, shall not, where all the
   other elements relevant to the situation at the time of the choice are connected with one
   country only, prejudice the application of rules of the law of that country which cannot be
   derogated from by contract, hereinafter called “mandatory rules”.
   5.      Where the parties choose the law of a non-member State, that choice shall be without
   prejudice to the application of such mandatory rules of Community law as are applicable to
   the case.
   6.      The existence and validity of the consent of the parties as to the choice of the
   applicable law shall be determined in accordance with the provisions of Articles 9, 10 and 12.
                           Article 4 – Applicable law in the absence of choice
   1.      To the extent that the law applicable to the contract has not been chosen in accordance
   with Article 3, the contract shall be governed by the law determined as follows:
   (a)       a contract of sale shall be governed by the law of the country in which the seller has
             his habitual residence;
   (b)       a contract for the provision of services shall be governed by the law of the country in
             which the service provider has his habitual residence;
   (c)       a contract of carriage shall be governed by the law of the country in which the carrier
             has his habitual residence;
   (d)       a contract relating to a right in rem or right of user in immovable property shall be
             governed by the law of the country in which the property is situated;
   (e)       notwithstanding point (d), a lease for the temporary personal use of immovable
             property for a period of no more than six consecutive months shall be governed by
             the law of the country in which the owner has his habitual residence, provided the
             tenant is a natural person and has his habitual residence in the same country;
   (f)       a contract relating to intellectual or industrial property rights shall be governed by the
             law of the country in which the person who transfers or assigns the rights has his
             habitual residence;
   (g)       a franchise contract shall be governed by the law of the country in which the
             franchised person has his habitual residence;
   (h)       a distribution contract shall be governed by the law of the country in which the
             distributor has his habitual residence.
EN                                                    15                                                EN
 ---pagebreak---    2.       Contracts not specified in paragraph 1 shall be governed by the law of the country in
   which the party who is required to perform the service characterising the contract has his
   habitual residence at the time of the conclusion of the contract. Where that service cannot be
   identified, the contract shall be governed by the law of the country with which it is most
   closely connected.
                                     Article 5 – Consumer contracts
   1.       Consumer contracts within the meaning and in the conditions provided for by
   paragraph 2 shall be governed by the law of the Member State in which the consumer has his
   habitual residence.
   2.       Paragraph 1 shall apply to contracts concluded by a natural person, the consumer, who
   has his habitual residence in a Member State for a purpose which can be regarded as being
   outside his trade or profession with another person, the professional, acting in the exercise of
   his trade or profession.
   It shall apply on condition that the contract has been concluded with a person who pursues a
   trade or profession in the Member State in which the consumer has his habitual residence or,
   by any means, directs such activities to that Member State or to several States including that
   Member State, and the contract falls within the scope of such activities, unless the
   professional did not know where the consumer had his habitual residence and this ignorance
   was not attributable to his negligence.
   3.       Paragraph 1 shall not apply to:
           (a)     a contract for the supply of services where the services are to be supplied to the
                   consumer exclusively in a country other than that in which he has his habitual
                   residence;
           (b)     contracts of carriage other than contracts relating to package travel within the
                   meaning of Directive 90/314/EEC of 13 June 1990;
           (c)     contracts relating to a right in rem or right of user in immovable property other
                   than contracts relating to a right of user on a timeshare basis within the
                   meaning of Directive 94/47/EC of 26 October 1994.
                              Article 6 – Individual employment contracts
   1.       Notwithstanding the provisions of Article 3, in a contract of employment a choice of
   law made by the parties shall not have the result of depriving the employee of the protection
   afforded him by the mandatory rules of the law which would be applicable under this Article
   in the absence of choice.
   2.       A contract of employment shall, in the absence of choice in accordance with Article 3,
   be governed:
           (a)     by the law of the country in or from which the employee habitually carries out
                   his work in performance of the contract. The place of performance shall not be
                   deemed to have changed if he is temporarily employed in another country.
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 ---pagebreak---                    Work carried out in another country shall be regarded as temporary if the
                   employee is expected to resume working in the country of origin after carrying
                   out his tasks abroad. The conclusion of a new contract of employment with the
                   original employer or an employer belonging to the same group of companies as
                   the original employer does not preclude the employee from being regarded as
                   carrying out his work in another country temporarily;
           (b)     if the employee does not habitually carry out his work in or from any one
                   country, or he habitually carries out his work in or from a territory subject to no
                   national sovereignty, by the law of the country in which the place of business
                   through which he was engaged is situated.
   3.      The law designated by paragraph 2 may be excluded where it appears from the
   circumstances as a whole that the contract is more closely connected with another country, in
   which case the contract shall be governed by the law of that country.
                              Article 7 – Contracts concluded by an agent
   1.      In the absence of a choice under Article 3, a contract between principal and agent shall
   be governed by the law of the country in which the agent has his habitual residence, unless the
   agent exercises or is to exercise his main activity in the country in which the principal has his
   habitual residence, in which case the law of that country shall apply.
   2.      The relationship between the principal and third parties arising out of the fact that the
   agent has acted in the exercise of his powers, in excess of his powers or without power, shall
   be governed by the law of the country in which the agent had his habitual residence when he
   acted. However, the applicable law shall be the law of the country in which the agent acted if
   either the principal on whose behalf he acted or the third party has his habitual residence in
   that country or the agent acted at an exchange or auction.
   3.      Notwithstanding paragraph 2, where the law applicable to a relationship covered by
   that paragraph has been designated in writing by the principal or the agent and expressly
   accepted by the other party, the law thus designated shall be applicable to these matters.
   4.      The law designated by paragraph 2 shall also govern the relationship between the
   agent and the third party arising from the fact that the agent has acted in the exercise of his
   powers, in excess of his powers or without power.
                                       Article 8 – Mandatory rules
   1.      Mandatory rules are rules the respect for which is regarded as crucial by a country for
   safeguarding 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.
   2.      Nothing in this Regulation shall restrict the application of the rules of the law of the
   forum in a situation where they are mandatory.
   3.      Effect may be given to the mandatory rules of the law of another country with which
   the situation has a close connection. In considering whether to give effect to these mandatory
EN                                                  17                                                 EN
 ---pagebreak---    rules, courts shall have regard to their nature and purpose in accordance with the definition in
   paragraph 1 and to the consequences of their application or non-application for the objective
   pursued by the relevant mandatory rules and for the parties.
                                Article 9 – Consent and material validity
   1.      The existence and validity of a contract, or of any term of a contract, shall be
   determined by the law which would govern it under this Regulation if the contract or term
   were valid.
   2.      Nevertheless a party may rely upon the law of the country in which he has his habitual
   residence to establish that he did not consent if it appears from the circumstances that it would
   not be reasonable to determine the effect of his conduct in accordance with the law specified
   in the preceding paragraph.
                                       Article 10 – Formal validity
   1.      A contract is formally valid if it satisfies the formal requirements of the law which
   governs it in substance under this Regulation or the law of the country in which one or other
   of the parties or his agent is when it is concluded or the law of the country in which one or
   other of the parties has his habitual residence at that time.
   2.      A unilateral act intended to have legal effect relating to an existing or contemplated
   contract is formally valid if it satisfies the formal requirements of the law which governs or
   would govern the contract in substance under this Regulation or of the law of the country in
   which the act is performed or the law of the country in which the person who drafted it has his
   habitual residence at that time.
   3.      Paragraphs 1 and 2 of this Article shall not apply to contracts that fall within the scope
   of Article 5. The form of such contracts shall be governed by the law of the country in which
   the consumer has his habitual residence.
   4.      Notwithstanding paragraphs 1 to 3 of this Article, a contract the subject matter of
   which is a right in immovable property or a right to use immovable property shall be subject
   to the mandatory requirements of form of the law of the country where the property is situated
   if by that law those requirements are mandatory provisions within the meaning of Article 8.
                                   Article 11 – Scope of applicable law
   1.      The law applicable to a contract by virtue of this Regulation shall govern in particular:
           (a)     interpretation;
           (b)     performance;
           (c)     within the limits of the powers conferred on the court by its procedural law, the
                   consequences of the total or partial breach of obligations, including the
                   assessment of damages in so far as it is governed by rules of law;
EN                                                  18                                                EN
 ---pagebreak---            (d)     the various ways of extinguishing obligations, and prescription and limitation
                   of actions;
           (e)     the consequences of nullity of the contract.
   2.      In relation to the manner of performance and the steps to be taken in the event of
   defective performance regard shall be had to the law of the country in which performance
   takes place.
                                          Article 12 – Incapacity
   In a contract concluded between persons who are in the same country, a natural person who
   would have capacity under the law of that country may invoke his incapacity resulting from
   another law only if the other party to the contract was aware of this incapacity at the time of
   the conclusion of the contract or was not aware thereof as a result of negligence.
                    Article 13 – Voluntary assignment and contractual subrogation
   1.      The mutual obligations of assignor and assignee under a voluntary assignment or
   contractual subrogation of a right against another person shall be governed by the law which
   under this Regulation applies to the contract between the assignor and assignee.
   2.      The law governing the original contract shall determine the effectiveness of
   contractual limitations on assignment as between the assignee and the debtor, the relationship
   between the assignee and the debtor, the conditions under which the assignment can be
   invoked against the debtor and whether the debtor’s obligations have been discharged.
   3.      The question whether the assignment or subrogation may be relied on against third
   parties shall be governed by the law of the country in which the assignor or the author of the
   subrogation has his habitual residence at the material time.
                                    Article 14 – Statutory subrogation
   Where a person has a contractual claim upon another and a third person has a duty to satisfy
   the creditor, the law which governs the third person’s duty to satisfy the creditor shall
   determine whether the third person is entitled to proceed against the debtor.
                                       Article 15 – Multiple liability
   Where a creditor has a claim upon several debtors who are jointly liable and one of those
   debtors has in fact satisfied the creditor, the law of the obligation of this debtor towards the
   creditor governs the right of this debtor to claim against the other debtors. Where the law
   applicable to a debtor’s obligation to the creditor provides for rules to protect him against
   actions to ascertain his liability, he may also rely on them against other debtors.
EN                                                  19                                              EN
 ---pagebreak---                                      Article 16 – Statutory offsetting
   1.      Statutory offsetting shall be governed by the law applicable to the obligation in
   relation to which the right to offset is asserted.
                                      Article 17 – Burden of proof
   1.      The law governing the contract under this Regulation shall apply to the extent that it
   contains, in the law of contract, rules which raise presumptions of law or determine the
   burden of proof.
   2.      A contract or an act intended to have legal effect may be proved by any mode of proof
   recognized by the law of the forum or by any of the laws referred to in Article 10 under which
   that contract or act is formally valid, provided that such mode of proof can be administered by
   the forum.
                              Chapter III – Other provisions
                             Article 18 – Assimilation to habitual residence
   1.      For companies or firms and other bodies or incorporate or unincorporate, the principal
   establishment shall be considered to be the habitual residence for the purposes of this
   Regulation.
   Where the contract is concluded in the course of operation of a subsidiary, a branch or any
   other establishment, or if, under the contract, performance is the responsibility of such an
   establishment, this establishment shall be considered the habitual residence.
   2.      For the purposes of this Regulation, where the contract is concluded in the course of
   the business activity of a natural person, that natural person’s establishment shall be
   considered the habitual residence.
                                     Article 19 – Exclusion of renvoi
   The application of the law of any country specified by this Regulation means the application
   of the rules of law in force in that country other than its rules of private international law.
                                        Article 20 – Ordre public
   The application of a rule of the law of any country specified by this Regulation may be
   refused only if such application is manifestly incompatible with the public policy (“ordre
   public”) of the forum.
EN                                                  20                                             EN
 ---pagebreak---                           Article 21 – States with more than one legal system
   Where a State comprises several territorial units each of which has its own rules of law in
   respect of contractual obligations, each territorial unit shall be considered as a country for the
   purposes of identifying the law applicable under this Regulation.
                  Article 22 – Relationship with other provisions of Community law
   This Regulation shall not prejudice the application or adoption of acts of the institutions of the
   European Communities which:
           (a)     in relation to particular matters, lay down choice-of-law rules relating to
                   contractual obligations; a list of such acts currently in force is provided in
                   Annex 1; or
           (b)     govern contractual obligations and which, by virtue of the will of the parties,
                   apply in conflict-of-law situations; or
           (c)     lay down rules to promote the smooth operation of the internal market, where
                   such rules cannot apply at the same time as the law designated by the rules of
                   private international law.
                   Article 23 – Relationship with existing international conventions
   1.      The Member States shall notify the Commission, no later than six months after the
   entry into force of this Regulation, of the list of multilateral conventions governing conflicts
   of laws in specific matters relating to contractual obligations to which they are Parties. The
   Commission shall publish the list in the Official Journal of the European Union within six
   months thereafter.
   After that date, the Member States shall notify the Commission of all denunciations of such
   conventions, which the Commission shall publish in the Official Journal of the European
   Union within six months after receiving them.
   2.      This Regulation shall not prejudice the application of international conventions
   referred to in paragraph 1. However, where, at the time of conclusion of the contract, material
   aspects of the situation are located in one or more Member States, this Regulation shall take
   precedence over the following Conventions:
   -       the Hague Convention of 15 June 1955 on the law applicable to international sales of
   goods;
   -       the Hague Convention of 14 March 1978 on the law applicable to agency.
   3.      This Regulation shall take precedence over bilateral international conventions
   concluded between Member States and listed in Annex II if they concern matters governed by
   this Regulation.
EN                                                  21                                                EN
 ---pagebreak---                               Chapter IV – Final provisions
                         Article 24 – Entry into force and application in time
   This Regulation shall enter into force on the twentieth day following its publication in the
   Official Journal of the European Union.
   This Regulation shall apply from [one year after entry into force].
   It shall apply to contractual obligations arising after its entry into application. However, for
   contractual obligations arising before its entry into application, this Regulation shall apply
   where its provisions have the effect of making the same law applicable as would have been
   applicable under the Rome Convention of 1980.
   This Regulation shall be binding in its entirety and directly applicable in all Member States.
   Done at Brussels,
   For the European Parliament                   For the Council
   The President                                 The President
EN                                                 22                                               EN
 ---pagebreak---                    ANNEX 1: List of instruments mentioned in Article 22(a)
   – Directive on the return of cultural objects unlawfully removed from the territory of a
     Member State (Directive 7/1993/EC of 15.3.1993)
   – Directive concerning the posting of workers in the framework of the provision of services
     (Directive 71/1996/EC of 16.12.1996)
   – Second non-life insurance Directive (Directive 357/1988/EEC of 22.6.1988, as amplified
     and amended by Directives 49/1992/EC and 13/2002/EC)
   – Second life assurance Directive (Directive 619/1990/EEC of 8.1.1990 as amplified and
     amended by Directives 96/1992/EC and 12/2002/EC)
EN                                            23                                               EN
 ---pagebreak---        ANNEX II: List of bilateral conventions mentioned in Article 23(3)
   […]
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