Rome II - Thinking ahead

Simple choice of law clauses in commercial contracts often set out what law should be applied by the courts when interpreting the contract. That law will usually apply to the resolution of contractual disputes. If you don't agree what law is to apply to non-contractual obligations, the Rome II Regulation, which comes into force in January 2009, will impose a particular law upon you. Now is the time to take advantage of the provisions of Rome II, which allows parties (subject as always to some limitations) to agree in advance the law they want applied to non-contractual obligations.

• Commercial parties should consider using more sophisticated choice of law agreements to reduce the potentially adverse impacts of Rome II. For example, a precedent wording might be: "This Agreement, and any issues or disputes arising out of or in connection with it (whether such disputes are contractual or non-contractual in nature, such as claims in tort, for breach of statute or regulation, or otherwise) shall be governed by and construed in accordance with English law".
• Businesses engaged in cross-border transactions should review their positions well in advance of January 2009.
• Any choice of law clause governing non-contractual obligations should be considered in conjunction with the choice of jurisdiction selected. It is possible for the courts of England & Wales to have jurisdiction to hear a dispute but apply the laws of France if that is the law selected by the parties. Such instances are likely to add both to the costs of any legal proceedings as well as uncertainty as to the eventual outcome. However, aligning the choice of law and jurisdiction clauses is usually preferable.
• Carefully consider the law you want applied before agreeing the governing law clause covering non-contractual obligations. This step is now even more important as it appears that under Rome II the amount of damages will be determined by the applicable law.

If you'd like to find out more, take a look at our analysis of Rome II.