ROME CONVENTION (Encyclopedia)

ROME CONVENTION OF 1980 ON THE LAW APPLICABLE TO CONTRACTUAL OBLIGATIONS

General principles

The Rome Convention of 1980 on the law applicable to contractual obligations (Convention) is a private international law convention which entered into force for Italy on 1 April 1991, pursuant to ratification through Law No. 975 of 18 December 1984. It applies in all EU Member States1.
Following the entering into force of Regulation (EC) 593/20082, also known as "Rome I", the Convention will not apply within the European Union to contracts entered into from 17 December 20093, as they will be ruled according to the new Regulation. The law applicable to extra-contractual obligations has already been regulated since 11 January 2009 by Regulation (EC) 864/20074, also known as "Rome II".
The Convention applies to contractual obligations concerning a conflict of law situation, thus not involving more than one legal system. Matters listed in paragraphs 1 and 2 of Article 1 are excluded by its application5. It is to be noted that Article 57 of Law No. 218/1995, regulating Italian private international law, refers contractual obligations to the Convention. This has lead scholars to conclude that even the matters excluded by Article 1 of the Convention follow its rules for the identification of the applicable law6.
The convention is universal (Article 2), as it applies even when the law identified according to its principle is not the law of a contracting state. In case of incompatibility with EU legislation, the latter prevails (Article 20). 

Main provisions of the Convention

Choice of law

The fundamental principle of the Convention is the freedom to choose the applicable law, as established by Article 3. This is an absolute freedom, as it is possible to choose also a law completely unrelated to the parties and to the contract. Scholars wonder whether it is possible to choose a system of non-legislative rules - such as the Unidroit principles - or uniform law conventions – such as the Wien Convention – independently from the implementing national legal systems.
Still according to Article 3 of the Convention, the choice of law can be tacit, as long as it is "[…] demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case." As this formulation is quite generic, the possibility to obtain different results in different countries has developed, with a tendency – generally criticised by scholars – to identify the applicable law with the one of the jurisdiction. Negative choices, where parties - while not choosing a law - directly or indirectly exclude a law, are considered admissible7
Parties can also modify their choice of law, with the only limit that the new choice cannot lead to invalidity of the contract or to prejudice against the rights of third parties.
It is also allowed to apply the so-called depeçage, i.e. the application of different laws to different parts of the contract, which can allow to better respond to the juridical needs of the parties and can simplify contractual negotiations, where often each party exerts the application of its own legal system (Article 3, paragraph 1).
In a system so clearly characterised by the principle of free choice of law, the only limitation of this principle derives from Article 3, where it is established that where all other elements relevant to the situation at the time of the choice are connected with one country only, the mandatory law of said country cannot be derogated8.

Applicable law when no choice is exercised

When the parties have not explicitly chosen a law and no implied choice can be identified, the subsidiary principle of Article 4, referring to the country with which the contract is most closely connected, will apply first. A number of presumptions are provided:
(i) In general, the closest connection is presumed to exist with the country where the party which has to perform the characteristic obligation of the contract has its habitual residence or central administration;
(ii) For contracts concerning rights in immovable property, the closet connection is presumed to exist with the country where the property is located;
(iii) For freight transport contracts, the closest connection is presumed to exist with the country where the carrier had its principle place of business at the time when the contract was entered into, but only if this is also the place of loading or discharge or the principal place of business of the consignor.
As for the presumption under (i), it is clearly decisive to identify the characteristic obligation. The Giuliano and Lagarde Report on the Convention9 clarifies, on this issue, that in contracts with reciprocal obligations the characteristic obligation is the non-monetary one10
The discipline of presumptions is completed by the last paragraph of Article 4, according to which the main presumption is not applied when it is not possible to identify a characteristic obligation, while the other presumptions are not applied when "it appears from the circumstances as a whole" that a closer connection exists with a country different from the one resulting from the application of the presumptions, which are therefore not absolute.
Articles 5 and 6 establish specific rules on the identification of the applicable law, when no choice has been made, for consumer contracts and individual employment contracts.

Specific cases

Specific cases concern:

- Incapacity proceedings concerning contracts entered into between persons who are in the same country (Article 11);
- Voluntary assignment (Article 12);
- Subrogation (Article 13);
- Burden of proof (Article 14).

Law applicable to the validity of the contract and to the form

Article 8, paragraph 1 establishes that, for the existence and validity of the contract, the governing law is the one that would govern the contract or clause if it were valid. However, according to paragraph two, the party who intends to demonstrate that it did not consent can rely upon the law of the country where it has its habitual residence, if it appears from the circumstances that it would not be reasonable to determine the effects of its conduct according to the law resulting from paragraph 1.
As for the form of the contract, Article 9 establishes several rules based on the principle of the favor negotii, according to which the contract is valid if it complies with the requirements of at least one of the laws alternatively applicable.

Scope of applicable law

The law identified according to the above principles rules on (Article 10): interpretation of the contract, execution of its obligations, consequences of total or partial breach, extinction of the obligations, prescriptions and limitations of actions, and consequences of nullity of the contract. Manner of performance and measures for the case of incorrect execution are ruled by the law of the country in which the performance takes place.

Interpretation

Interpretation of the Convention is ruled by Article 18, according to which the internationality of its provisions and the opportunity of a uniform interpretation are to be considered. While this is normal in international conventions, it is important the specific possibility, established with the Brussels protocols of 19 December 1988 (applicable since 1 August 2004) to revert to the European Court of Justice for interpretation of the Convention11

The "Rome I" Regulation – main differences with the Convention

Following the introduction in Article 65 of the Treaty of Rome, as modified by the Treaty of Amsterdam, of the principle of judicial cooperation, EU law has incorporated various provisions of private international and judicial law, beginning with the substitution of the 1968 Brussels Convention with Regulation (EC) 44/2001. Regulation (CE) 593/2008 ("Rome I", Regulation), which substituted the Convention with regards to contractual obligations and Regulation 864/2007 ("Rome II") on non-contractual obligations, completed the process.
As already mentioned, the Regulation will apply to contracts entered into from 17 December 2009. This section is focused on the main differences with the Convention.

Applicable law

The rules concerning the governing law are relevantly changed by the Regulation. Instead of a general principle concerning the closest connection, supported by some presumptions and specific cases, the Regulation contemplates:
- specific rules for various kinds of contracts in Article 4, paragraph 112;
- that when the above principles do not apply, the principle of the habitual residence of the party shall render the characteristic performance;
- that the principle of the law of the country with which the contract has the closest connection is just residual.
Articles 5 to 8 provide for specific rules on transport contracts, consumer contracts, insurance contracts and individual employment contracts, based on the protection of the weaker party, with some limitation to the general principle of the freedom of choice. 

The concept of overriding mandatory provisions

As mentioned, the Convention provides for the application of the mandatory provisions of the country where all other elements relevant to the situation at the time would lead to, had the parties not chosen a different law. The Regulation limits the application of mandatory provisions only to those necessary to safeguarding its public interests (Article 9). Two additional requirements are also necessary for the application of the mandatory provisions of another country: the contract shall be performed in that country and in case of violation of these rules, the contract must be illegal. Thus, application of the principles in the Regulation is more precise and narrow than in the Convention.
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1In Germany, the rules of the Convention apply through their incorporation in a domestic law substantially identical to the Convention within the EGBGB (Einführungsgesetz zum Bürgerlichen Gesetzbuch).
2Official Journal of the European Union, L 177/6 of 4 July 2008.
3As per its Article 24, the Regulation substitutes the Convention in the Member States, except for the territories of the Member States which are under the territorial scope of the Convention and to which the Regulation is not applicable by virtue of article 299 of the Treaty of Rome.
4O.J.E.U. L 199/40 of 31 July 2007.
5The matters excluded are:
(a) questions involving the status or legal capacity of natural persons, without prejudice to Article 11;
(b) contractual obligations relating to wills and succession, rights in property arising out of a matrimonial relationship, rights and duties arising out of a family relationship, parentage, marriage or affinity, including maintenance obligations in respect of children who are not legitimate;
(c) 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;
(d) arbitration agreements and agreements on the choice of court;
(e) questions governed by the law of companies and other bodies corporate or unincorporate such as the creation - by registration or otherwise - legal capacity, internal organization or winding up of companies and other bodies corporate or unincorporate and the personal liability of officers and members as such for the obligations of the company or body;
(f) the question whether an agent is able to bind a principal, or an organ to bind a company or body corporate or unincorporate, to a third party;
(g) the constitution of trusts and the relationship between settlors, trustees and beneficiaries;
(h) evidence and procedure, without prejudice to Article 14.
6The effective application of this rule is limited by the fact that it does not apply where the matter excluded by Article 1 of the Convention is ruled by other provisions of Law No. 218/1995, by special laws or by other international conventions ratified by Italy.
7The issue of how to identify the applicable law, once the excluded law is identified, remains open.
8Because of the uncertainty that the rule can cause on contractual law, the United Kingdom, Luxemburg, Germany, Ireland and Portugal have expressed a reserve on Article 7, paragraph 1, as allowed by Article 22 of the Convention.
9O.J.E.U., C 282 of 31 October 1980.
10This rule, apparently clear, can be difficult to apply, for instance, in the case of franchising, which has in fact been specifically regulated in Article 4, paragraph 1, letter e), of the Regulation.
11The interpretation by the European Court of Justice can be requested by the supreme jurisdictions of the Member States (in Italy Corte di Cassazione and Consiglio di Stato) and by other jurisdictions ruling on appeal.
12More specifically:
“(a) a contract for the sale of goods shall be governed by the law of the country where the seller has his/her habitual residence;
(b) a contract for the provision of services shall be governed by the law of the country where the service provider has his/her habitual residence;
(c) a contract relating to a right in rem in immovable property or to a tenancy of immovable property shall be governed by the law of the country where the property is situated;
(d) notwithstanding point (c), a tenancy of immovable property concluded for temporary private use for a period of no more than six consecutive months shall be governed by the law of the country where the landlord has his/her habitual residence, provided that the tenant is a natural person and has his/her habitual residence in the same country;
(e) a franchise contract shall be governed by the law of the country where the franchisee has his/her habitual residence;
(f) a distribution contract shall be governed by the law of the country where the distributor has his/her habitual residence;
(g) a contract for the sale of goods by auction shall be governed by the law of the country where the auction takes place, if such a place can be determined;
(h) a contract concluded within a multilateral system which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments, as defined by Article 4(1), point (17) of Directive 2004/39/EC, in accordance with non-discretionary rules and governed by a single law, shall be governed by that law.”
Editor: Lucio LANUCARA
© 2009 ASSONEBB