EU agrees new regime for cross-border contract disputes

The new rules, known as Rome I, will come into force in around 18 months' time.

The UK Government had opted out of the new rules but plans to seek permission to become part of them again. Rome I governs whose law applies in the case of a civil or commercial contractual dispute.

Contracts are currently governed by the 1980 Rome Convention, which does not harmonise actual contract law but does determine which country's law applies in the case of a dispute between parties in different nations.

Rome I is a proposed successor to that Convention, but in 2006 the UK opted out of it, saying that it affected consumer law too greatly.

A new version of Rome I was proposed last year and the UK Government has said that it will seek permission to opt back into the agreement, though its consultation process on that opt in will run until 25th June.

The European Parliament had made amendments to the Rome I proposal, and now that these have been accepted by the Justice and Home Affairs Council of the EU Council, the Rome I Regulation will be implemented. It converts the Rome Convention into a European Community Regulation.

The UK Government said after the publication of the more recent version of Rome I that it more accurately reflected the content of the Rome Convention, and that it therefore backed the Regulation.

"Some of the benefits of the Rome I Regulation arise from its structure as a Community instrument, rather than the specifics of the text," said the Government's consultation paper, published in April. "In conflict of laws issues, the widespread application of similar rules can provide a benefit for those contracting across borders. In particular, maintaining a single system prevents the need for extensive legal advice."

"This benefit, presently provided by the Rome Convention, will be lost if the UK does not opt in, as the Regulation will apply in other Member States in any event. While the Convention and the Regulation are similar in many respects, maintaining two separate systems would increase complexity, especially for business," it said.

The rules say that two parties can choose whose law governs a contract. The Convention governs whose law applies in a dispute over that contract if the parties have not previously agreed which country's law to adhere to.

When that happens the law to be applied is that of the country of the party to the contract whose service characterises the contract.

Rome I differs slightly in that it gives courts the right to enforce the law of the country "with which the situation has its closest connection" even if the two parties have expressly chosen another country's laws.

If the UK goes ahead and seeks to be included in Rome I it will need the permission of the European Commission to opt back in. Until then it will still be bound by the terms of the Rome Convention.