European Union Regulation on the Law Applicable to Non-Contractual Obligations

The European Union regulation on the law applicable to non-contractual obligations (Rome II regulation) will take effect on 11 January 2009. From this date courts in EU member states, except Denmark, will decide on the law applicable to non-contractual obligations in civil and commercial matters based on the same rules. In addition to unifying decision rules the possibility to select the law applicable to non-contractual obligations is introduced.

Applicability
The regulation applies to non-contractual obligations under civil and commercial law except for obligations which under the regulation are excluded from its applicability. Under the regulation a non-contractual obligation is mainly civil or commercial liability arising from the breach of a statutory duty even if the breach is accidental. The regulation also applies to non-contractual obligations arising from unjust enrichment, contracts of agency without a mandate and -contractual negotiations. If the court is a court from any of the member states it always applies the regulation to determine the applicable law irrespective of whether the international element of the obligation is connected to a member state or a third party. The applicable law may thus be the law of a state which is not an EU member state. Though the regulation will take effect on 11 January 2009, it will also apply to non-contractual obligations arising after 20 August 2007 when the Rome II regulation became valid.

Determination of Applicable Law
Generally, the regulation states that the law applicable to compensation for damage is the law of the country in which the damage arose irrespective of the country in which the event causing the damage occurred and the country or countries in which indirect consequences of this event occurred. An exception from this general rules is admissible if the person liable and the injured party have their usual place of residence in the same country at the moment when damage arises. In this case the law of this country applies. The second exception is the so-called escape clause, where the law of another country applies if it appears from all the circumstances that the or tort is obviously closely related to a country other than the country where the damage arose or where the injured party and the wrongdoer had their permanent residence at the moment when it arose. There are also special rules of conflict on liability for damage caused by a defective product, for non-contractual obligations arising from unfair competition and conduct limiting free competition, non-contractual obligations arising due to damage to the environment, breach of intellectual property rights and a protest action during collective bargaining.

Choice of Law
The fundamental change brought by the Rome II regulation is the possibility to choose the applicable law. The parties will be able to agree on the law under which their non-contractual obligations with an international element will be assessed. Consequently the legal certainty increases as the parties may determine the law common to them and which they are familiar with. They may also unify the law applicable to contractual and non-contractual relationships which will simplify the resolution of a dispute. The choice of law is excluded in relation to non-contractual obligations arising from unfair competition, conduct limiting free competition and the breach of intellectual property rights. The imperative provisions of the law of the state where the relevant court sits must remain unimpaired by the choice of law and the court may reject the application of the determined applicable law if it is obviously incompatible with public order.
An agreement on applicable law may be concluded after the event which caused the damage occurred. Entrepreneurs may also agree on the applicable law before this event occurs on condition that all parties act within their entrepreneurial activities. If no agreement on the choice of law is reached, the court determines the applicable law under the rules of conflict.

Conclusion
The regulation increases the predictability of court decisions and simplifies the method of determining the law. However, the general rule for determining the applicable law (that is, the law of the country where the damage arose) must not lead to an unambiguous result, since the occurrence of damage in different jurisdictions is not excluded. Consequently, the certainty upon determining the applicable law decreases. On the contrary, the possibility to contractually regulate the law applicable to non-contractual relations could increase legal certainty. Therefore, it is appropriate to incorporate an understanding of the law applicable to non-contractual relations in agreements.