Jurisdiction and governing law – Rome I

Governing law

What regulations govern the determination of governing law?

• Council Regulation (EC) No. 593/2008 (Rome I) applies to contractual obligations
• Council Regulation (EC) No. 864/2007 (Rome II) applies to non-contractual obligations.
  
  

Rome I

What does it do?

Rome I determines which national law should apply to contractual obligations in civil and commercial matters involving more than one country in the EU.

Rome I promotes party autonomy and freedom of choice. Article 3(1) provides that “a contract shall be governed by the law chosen by the parties”.

To whom does it apply?

It applies to all EU Member States, except Denmark.

Applicable law in the absence of a choice being made

Where the law applicable to a contract has not been chosen, Article 4 sets out the rules to determine which law will govern a contract. For example, contracts for the sale of goods or for the provision of services will be governed by the law of the country of the seller or service provider. There are specific rules for Contracts of Carriage (Article 5) and Consumer Contracts (Article 6).

Insurance contracts

Article 7 provides specific rules for insurance contracts.

When determining the law applicable to an insurance contract, it is necessary to distinguish between those covering ‘large risks’ and other insurance contracts.

1. Large risks include the use of ships, aircraft, and damage to railway rolling stock. Insurers can choose which law governs ‘large risks’. If the insurance contract does not choose the applicable law, it will be governed by the law of the country where the insurer has its habitual residence, unless the contract is more closely related to another country, in which case the law of that other country will apply.
2. For all other insurance contracts, the parties are limited to choosing:
   1. The law of the Member State where the risk insured is situated at the time of the contract.
   2. The law of the country where the policyholder has his/her habitual residence.
   3. For life insurance, the law of the country where the policyholder is a national.
   4. For insurance contracts covering risks limited to events occurring in one Member State other than the one in which the risk is situated, the parties may choose the law of that other Member State, i.e. the Member State where the event occurred.
   5. Where the insured pursues a commercial activity and two or more risks are covered, situated in more than one Member State, the law of any Member State concerned, or the policyholder’s habitual residence.

Note, however, where (a), (b) or (e) applies, and the Member State grants “greater freedom of choice of the law applicable to the insurance contract”, the parties may take advantage of that freedom and choose the applicable law.

Where the applicable law has not been chosen by the parties (per (a)-(e)), the contract will be governed by the law of the Member State in which the risk is situated at the time the contract is concluded.

Where the risk is situated outside the EU, the contract will be governed by the choice of law rules in Rome I (Articles 3 and 4), i.e. the parties may choose the applicable law (Article 3) or where the law has not been chosen, there are rules to determine which law will apply (Article 4).

Where a Member State imposes an obligation to take out insurance, for example car insurace, the following will apply:

• The insurance contract must satisfy the specific provisions relating to that insurance. Where the law of the Member State in which the risk is situated and the law of the Member State imposing the obligation contradict each other, the law of the latter will prevail.
• A Member State may lay down that the insurance contract shall be governed by the law of the Member State that imposes the obligation.
  
  

Brexit

The ratified Withdrawal Agreement between the EU and the UK provides for a transition period up to 31 December 2020. The abovementioned principles, therefore, currently remain in force in the UK.

As regards prospective issues concerning the applicable law to insurance disputes with a UK dimension after 31 December 2020, very little will change, even in the event of no substantive trade deal being agreed prior to that date. The UK has already introduced legislation to incorporate Rome I into English law - ‘The Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc.)(EU Exit) Regulations 2019’, which will come into force on exit day. As such, the principles detailed above will continue to apply after the transition period has ceased.

Related items:

• Jurisdiction and governing law
• Jurisdiction and governing law – Rome II
• Does UK’s freeports plan offer a post-Brexit trade solution?
• EU Commission warns against complacency as the end of the Brexit transition period draws near
• Jurisdiction and enforcement and recognition of decisions post-Brexit