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Cheshire, North & Fawcett: Private International Law, 15th Edition by Grušić, Uglješa; Heinze, Christian; Merrett, Louise; Mills, Alex; Otero García-Castrillón, Carmen; Tang, Zheng Sophia; Trimmings, Katarina; Walker, Lara (28th September 2017)

Part IV The Law of Obligations, 20 Non-Contractual Obligations

Paul Torremans

From: Cheshire, North & Fawcett: Private International Law (15th Edition)

Uglješa Grušić, Christian Heinze, Louise Merrett, Alex Mills, Carmen Otero García-Castrillón, Zheng Sophia Tang, Katarina Trimmings, Lara Walker
Edited By: Paul Torremans, James J. Fawcett

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved. Subscriber: null; date: 14 December 2018

Subject(s):
Choice of law clauses — Applicable law — Torts and applicable law — Scope of the law applicable under the Rome II Regulation

(p. 776) 20  Non-Contractual Obligations

1.  Introduction

English law has traditionally had separate choice of law rules for torts, restitution and equitable obligations. Since 11 January 2009, these rules have been largely replaced by Regulation (EC) No 864/2007 on the law applicable to non-contractual obligations (the Rome II Regulation).1 This chapter is primarily concerned with the Regulation but, before turning to examine this in detail, it is useful to say something about the problems involved in ascertaining the applicable law for non-contractual obligations and how English law solved these problems prior to the introduction of the Regulation.

(a)  Torts

The problem of ascertaining the applicable law in the case of torts is scarcely less perplexing than that in the case of contract. The reasons for this are as follows. First, there is a variety of different connecting factors that can be raised by the facts of the case: the place where the tort was committed; the residence, habitual residence, domicile, or nationality of the parties; the place where the parties’ relationship was centred. Secondly, in the situation where, for example, a wrongful act takes place in one country and the consequent injury in another, there is a serious definitional problem in determining the place where the tort (p. 777) was committed. Thirdly, a wide variety of tortious issues may arise. For example, there can be issues of capacity, vicarious liability, defences and immunities, damages, limitations on recovery, wrongful death, or intra-family immunities. Should the same law govern all of these issues? Furthermore, there are many different types of tort or delict, ranging from negligent driving, nuisance, defamation, and fraudulent misrepresentation, to infringement of intellectual property rights and torts involving ships or aircraft. Should the same rule apply, regardless of the type of tort involved? Fourthly, if a foreign tort law is to be applied, this could lead to liability being imposed for torts unknown to English law, such as invasion of privacy or unfair competition, torts which may reflect radically different views and protect radically different interests from those recognised under English law.2 Fifthly, the question arises of whether the parties should be allowed to choose the law applicable to a tort, and if so, what safeguards are needed.

Since 1996 the English tort choice of law rules3 have been a combination of common law and statutory rules.4 These rules continue to apply in relation to those torts (including invasion of privacy and defamation) falling outside the scope of Rome II.5 The common law rules in respect of foreign torts are derived from Phillips v Eyre,6 as modified by the House of Lords in Chaplin v Boys7 and the Privy Council in Red Sea Insurance Co Ltd v Bouygues SA.8 There is a general rule of double actionability (ie there must be actionability by the law of the forum and the law of the place of the tort), with a flexible exception to this introduced by Chaplin v Boys, seemingly based on the concept of the most significant relationship.9 The exception has been applied in the situation where the parties are from the same country, this also being the forum,10 and has been extended to enable a claimant to rely exclusively on the foreign law of the place where the tort was committed, even if his claim would not be actionable under the law of the forum.11 Where a tort is alleged to have been committed in England, the English courts have always applied English law to such a claim.12 It is doubtful whether the “flexibility” introduced by Boys v Chaplin would permit English law to be displaced in favour of the application of some more appropriate law.13 The place where a tort is committed is to be (p. 778) determined by asking the following question: “where in substance did this cause of action arise?”14 There is a considerable body of case law applying this test to particular torts.

Part III of the Private International Law (Miscellaneous Provisions) Act 1995 put tort choice of law rules largely on a statutory basis by abolishing these common law rules and by introducing new statutory rules. There is a general rule, which applies the law of the country in which the events constituting the tort or delict in question occur.15 Where the elements of these events occur in different countries, there is a series of rules to identify the applicable law.16 Thus, for example, for a cause of action in respect of personal injury the applicable law is that of the country where an individual sustained the injury.17 There is also a displacement rule, which applies a flexible exception.18 This provides that where it is substantially more appropriate for the applicable law for determining the issues arising in the case to be the law of some other country (than that provided for under the general rule), the general rule will be displaced and the law of that other country will apply.19 There are no special rules for particular torts, with the exception of defamation, which is excluded from the scope of Part III of the 1995 Act.20 The common law rules therefore continue to apply in defamation cases. There are also no special rules for particular issues.21 The choice of law rules in Part III apply equally to events occurring in England as they apply to events occurring abroad.22 Overall the 1995 Act has the effect of getting rid of the idiosyncrasies of the common law and bringing English rules closer to those in other European countries.

(b)  Restitution

The problem of ascertaining the applicable law in cases of restitution is arguably more difficult than in respect of other obligations. First, there is a problem of terminology. At the heart of restitution lies the principle of unjust enrichment, which is concerned with reversing a defendant’s enrichment at the claimant’s expense. There is a view among common lawyers that restitution and unjust enrichment cover the same area of law, restitution being the response to unjust enrichment.23 Some continental lawyers, though, whilst accepting a principle of unjustifiable enrichment, would also include within the ambit of restitution or (p. 779) quasi-contract the principle of negotiorum gestio.24 Secondly, the English substantive law of restitution, although rapidly developing, is not as well developed as that of contract or tort. Moreover, it is an area where there is much theoretical discussion of what comes within the ambit of restitution and, within this topic, what the different categories of restitution are. All of this raises particularly acute problems of characterisation in private international law. Thirdly, restitutionary claims can arise in an exceptionally wide variety of different situations: for example, where money has been paid under a void contract; or by way of a bribe; or where a person has voluntarily intervened to pay a debt. This raises an important question: should the same choice of law rule apply to all of these different situations? Fourthly, as in tort cases, the English courts may be faced with a restitutionary claim in respect of a cause of action that is unknown to English law, eg for negotiorum gestio (the voluntary bestowal of a benefit).25 This raises the question whether the English courts should allow recovery in respect of such a cause of action.

It can be stated with some confidence that in English cases of unjust enrichment decided under the pre-Rome II Regulation law, the obligation to make restoration is governed by the proper law of the obligation.26 Dicey, Morris and Collins identified the proper law by means of three sub-rules, each one dealing with a different type of claim to restitution.27 Thus it seems that, if the obligation arises in connection with a contract, its proper law is the law applicable to the contract. If it arises in connection with a transaction concerning an immovable (land), its proper law is the law of the country where the immovable is situated. If it arises in any other circumstances, its proper law is the law of the country where the enrichment occurs. Although there has been a tendency for the courts to apply these sub-rules,28 some cases have preferred to adopt a flexible solution, according to which the closest and most real connection is identified in the light of the whole facts and circumstances, without the use of sub-rules.29

(c)  Equitable obligations30

The forms of liability which may arise from a breach of an equitable obligation are very varied. Such breaches may give rise to liability not only under the law of trusts but also in contract or tort, under the law of restitution, under the law of property or in the context of succession. There is a basic problem regarding whether separate choice of law rules for equitable obligations are needed, at least for some equitable obligations, or whether such obligations should always be fitted within the existing well-recognised choice of law categories. The problem is particularly acute where there is an equitable obligation whose domestic classification is uncertain, an obvious example being breach of confidence. There is a further problem in that any attempt to use existing choice of law categories raises the obvious question: which of the existing categories should be used in a particular case?

(p. 780) Authority on these questions is sparse.31 Academic opinion is divided on whether separate choice of law rules should be adopted for at least some equitable obligations.32 The most appropriate separate choice of law rule would be the application of the proper law of the equitable obligation, this being “the legal system governing the relationship in terms of which general access was gained to the beneficiary’s assets”.33 When it comes to deciding which of the existing categories of choice of law a case should fall within, it appears that, if an equitable claim is to disgorge an unjust enrichment, this will fall within the unjust enrichment choice of law rules.34 As far as breach of confidence is concerned, there is authority for this falling within the unjust enrichment choice of law rules, even where there was no element of disgorgement.35 This observation, however, has now been considered as mere dictum, preferring to characterise the misuse of private information as a tort for the purpose of service out of the jurisdiction.36

2.  The Rome II Regulation37

(a)  Preliminary remarks

(i)  The history, legal basis and justification of the Regulation

(a)  History of the Regulation

In 1972 the original six Member States of the European Community prepared a preliminary draft Convention on the Law Applicable to Contractual and Non-Contractual Obligations.42 However, in 1978 attention focused on contractual obligations, culminating in the Rome Convention in 1980 which was later replaced by the Rome I Regulation.43 After years without any progress being made on the harmonisation of choice of law rules in relation to non-contractual obligations, this project was back on the agenda in 199644 and a working party was set up by the Council of the European Union.45 A Green Paper was produced in 2002 with a preliminary draft proposal46 and, after consultation on this,47 there was a proposal for a Regulation in 2003 (the Proposal).48 The European Parliament sought fifty-four amendments, some of major importance.49 This led to an amended proposal from the Commission in 2006 (the Amended Proposal)50 which accepted in whole or part some of the European Parliament’s amendments but rejected others.51 After that, the Council adopted its common position in September 2006 (the Common Position).52 The European Parliament proposed nineteen amendments to the Common Position.53 The main issues at stake related to: violation of personality rights (including defamation); road traffic accidents; unfair competition; the definition of “environmental damage”; the relationship with other EU instruments; the treatment of foreign law; the review clause. The Council could not accept all of these amendments and recourse had to be had to the conciliation procedure, which produced the present Regulation. This was regarded as a satisfactory compromise by the relevant parties.54(p. 782) Three of the most contentious issues (namely: the choice of law rules that should apply to non-contractual obligations arising out of violations of privacy and rights relating to personality, including defamation; the position of cross-border victims of road traffic accidents; the way in which foreign law is treated in different Member States) were resolved by the Commission undertaking to produce reports on these issues as part of the process of review of the Regulation.55 The Regulation was adopted in July 2007.

(b)  The legal basis and justification of the Regulation

The legal basis for the Regulation was Title IV, in particular Article 61(c), of the Treaty on the European Union (now Title V, Article 81(2)(c) of the Treaty on the Functioning of the European Union [TFEU]),56 which authorises the adoption of measures promoting the compatibility of the rules applicable in the Member States concerning conflict of laws (ie the applicable law). Such measures are authorised “particularly when necessary for the proper functioning of the internal market”.57 They fall within the wider objective the Union has set itself58 of establishing an area of freedom, security and justice, in which the free movement of persons is ensured.59 Rome II is one of a number of measures60 relating to judicial co-operation in civil matters.

Harmonisation of choice of law rules ensures that the same substantive national law applies, irrespective of the Member State in which the action is brought. Recital (6) of the Regulation states that the proper functioning of the internal market creates a need for this. It goes on to say that this is in order “to improve the predictability of the outcome of litigation, certainty as to the law applicable and the free movement of judgments”. The first two of these advantages were already used to justify the Rome Convention (now Rome I Regulation). As regards the third advantage, harmonisation of choice of law rules has been regarded as facilitating the mutual recognition of judgments.61 At first sight, this line of argument is hard to understand since there is semi-automatic recognition and enforcement of judgments within the European Union, regardless of the law applied in the judgment-granting Member State.62 However, the harmonisation of the conflict rules may prevent distortions of competition between litigants in the EU by ensuring that each competent court will, within the scope of the Regulation, apply the same substantive law.63 Even if one does not agree that such distortions exist or may be prevented,64 a clear advantage gained from harmonisation is mitigating the effects of the forum shopping that the Brussels I Recast allows. It is surprising that this advantage is not expressly mentioned in the Regulation, given that this was used to justify the introduction of the Rome Convention.65 The most convincing justification for Rome II is (p. 783) thus that it is an extension of the Brussels I Recast (which deals with jurisdiction in relation to both contractual and non-contractual obligations) and the Rome I Regulation (which deals with the law applicable to contractual obligations).66

(ii)  Interpretation

(a)  Referrals to the Court of Justice

Article 267 of the Treaty on Functioning of the European Union authorises the Court of Justice to give preliminary rulings on the validity and interpretation of acts of the institutions of the Union. Such acts include regulations and thus the Rome II Regulation. National courts normally have discretion whether or not to request a preliminary ruling on interpretation from the Court of Justice.67 However, where the question of interpretation is raised in a case pending before a national court against whose decisions there is no judicial remedy under national law, that court or tribunal is under an obligation to bring the matter before the Court of Justice.68

(b)  The principles and decisions laid down by the Court of Justice

Where the meaning of the Regulation is not referred to the Court of Justice, it should be determined in accordance with the principles laid down by, and any relevant decision of, that Court.69 This means that the English courts should act in accordance with two different types of authority: first, any relevant decisions of the Court of Justice; secondly, the principles laid down by the Court of Justice.

If the Court of Justice has previously given a decision on the provision in issue, this must be followed. However, the provision which is in issue may not have been previously discussed by the Court of Justice. In this situation, the English courts should act in accordance with the principles of interpretation previously laid down by the Court of Justice,which are the following:70

  1. (i)  In interpreting a provision of the Regulation, it is necessary to consider not only its wording but also the context and scheme in which it occurs and, in particular, the purpose pursued by the Regulation and the respective provision to be interpreted.71

  2. (ii)  The need for a uniform application of EU law and the principle of equality require that the terms used in the Regulation which make no express reference to the law of the Member States should be given an autonomous (independent) and uniform meaning by reference to their wording, scheme and purpose, rather than being understood as a reference to national law.72 This is confirmed in relation to Rome II by its Recitals73 which provide definitions for certain terms.74(p. 784)

  3. (iii)  When deciding upon what the independent EU meaning should be, three factors should be considered: first, the wording of the provision, secondly, the systematic context in which the provision is found, including its relation to other provisions in the Regulation or in other EU instruments, and thirdly, the objectives of the provision in question and the objectives and scheme of the overall Regulation.75 These objectives are in particular the predictability of the outcome of litigation, legal certainty and foreseeability as to the law applicable and the uniform application in all Member States.76

  4. (iv)  In ascertaining the meaning of concepts used in the Regulation, regard should be had to the meaning of cognate concepts to be found in the European Union Treaties or in secondary legislation (in particular in neighbouring instruments such as Brussels I or Rome I), unless the European Union legislature has, in a specific legislative context, expressed a different intention.77

(c)  Aids to interpretation

(i)  Recitals

In the process of interpretation, recourse can be had to the forty Recitals at the beginning of the Regulation,78 even if the operative part of the Regulation (the articles) takes precedence in case of doubt.79 Although Rome II has fewer Articles than the Brussels I Recast, it has roughly the some number of Recitals. This is the consequence of a recent tendency to put in the Recitals not just explanations but also a number of amplifications80 and definitions81 that could, and perhaps should, have gone in the text.

(ii)  The Explanatory Memorandum

There is an Explanatory Memorandum from the Commission of the European Communities on the Proposal for a Rome II Regulation.82 Both the Court of Justice and English courts have used the Explanatory Memorandum accompanying the Brussels I Regulation (and the former versions of the Brussels Convention) to interpret it.83 The Explanatory Memorandum on the Proposal for Rome II is reasonably detailed and, although it just sets out the view of the Commission, this view sometimes repeats also the comments in earlier expert reports, what can be described as earlier influences. Also the other legislative materials84 should be consulted, even if their instructions are not binding for the interpretation of the Regulation.85

(p. 785) (iii)  Earlier influences

The Regulation adopts a substantial number of the provisions in the preliminary draft Convention on the Law Applicable to Contractual and Non-Contractual Obligations of 1972.86 This was accompanied by the Giuliano, Lagarde and Van Sasse Van Ysselt Report87 which acknowledged that the 1972 draft was in turn influenced by the Hague Convention on the law applicable to Traffic Accidents of 1971 and the Hague Convention on the law applicable to Products Liability of 1973. The former was accompanied by the Essen Report and the latter by the Von Mehren Report. In so far as provisions in Rome II can be traced back to these Hague Conventions and Reports,88 the latter may be relevant to the interpretation of the former. The 1972 draft was the subject of a Law Commission Consultative Document which contains interesting comment and criticism but does not set out the views of the two Law Commissions.

(iv)  The Brussels I Regulation/Recast and the instruments dealing with the law applicable to contractual obligations (Rome I Regulation)

Recital (7) of Rome II says that the substantive scope and the provisions of the Regulation “should be consistent with the Brussels I Regulation and the instruments dealing with the law applicable to contractual obligations”. The instruments referred to are today the Brussels I Recast and the Rome I Regulation.89 At first sight, Recital (7) could be read as simply an explanation that concepts and terminology used in Rome II have in some cases been lifted from the Brussels I Regulation90 (today Brussels I Recast) and the Rome Convention (today Rome I Regulation).91 However, Recital (7) has important implications for the interpretation of Rome II. The need for consistency means that borrowed concepts and terminology should be interpreted in the light of the meaning given to them, in the past and in the future, in these other instruments. In particular the distinction in Art 7(1) and (2) Brussels I Recast between contractual jurisdiction and jurisdiction based on tort/delict can be applied by analogy to the categories of contractual and non-contractual obligations in Rome I and Rome II.92 Moreover, the need for consistency could in principle come into play even where there is no borrowed concept or terminology. On the other hand, the objective of consistency cannot lead to the provisions of Rome II being interpreted in a manner which is unconnected to the scheme and objectives pursued by that Regulation.93

(v)  The views of the European Parliament

The Regulation is significantly different in places from the Proposal because of amendments sought by the European Parliament. The history of the Regulation as it progressed through the European Parliament provides an invaluable insight into the thinking underlying these changes.

(p. 786) (b)  When does the Regulation apply?

The Regulation applies to matters coming within its scope,94 and it has universal application, ie it applies equally to cases having no connection with a European Union State and to cases with such a connection.95 Before turning to examine in detail these two aspects of the application of the Regulation, three general points need to be made. First, the Regulation does not have retrospective effect. It only applies in a Member State to events giving rise to damage which occurred after its entry into force.96 But when does the Regulation enter into force? The obvious answer would be on the date of its application (from 11 January 2009).97 However, the European legislator normally distinguishes between the date of entry into force and the date of application of an act to allow for sufficient time to prepare for application of the new law.98 As the Rome II Regulation only provides for a date of application (11 January 2009),99 the Court of Justice has applied the general rule of Article 297(1) third subparagraph of the Treaty on the Functioning of the European Union to determine the date of entry into force of the Rome II Regulation on the twentieth day following its publication in the Official Journal of the European Union (which is 20 August 2007).100 This date, however, is only relevant for the administrative obligations of the Member States.101 The relevant date for the application of the conflict rules of the Regulation is the date of application as defined by Article 31 (11 January 2009), meaning that the Rome II Regulation applies only to events giving rise to damage occurring after that date.102 Thus, the only time to be taken into account is when the event causing the damage occurred; it does not matter when court proceedings were brought or when the court determined the applicable law.103 The traditional English statutory and common law rules104 will continue to apply to events giving rise to damage which occurred before that date. Secondly, the Regulation does not prejudice the application of international conventions to which a Member State was a party at the date when the Regulation was adopted.105 Thirdly, the Regulation does not prejudice the application of provisions of EU law which, in relation to particular matters, lay down conflict of law (ie choice of law) rules relating to non-contractual obligations.106

(i)  The scope of the Regulation

(a)  Application, in situations involving a conflict of laws, to non-contractual obligations in civil and commercial matters

Article 1(1) states that “This Regulation shall apply, in situations involving a conflict of laws, to non-contractual obligations in civil and commercial matters.” There are three separate requirements under this provision. First, the situation must involve a conflict of laws. Secondly, there must be a non-contractual obligation. Thirdly, there must be a civil and commercial matter.

(p. 787) (i)  A conflict of laws

The situation must involve a “conflict of laws”. The Regulation frequently uses this term; it is also found in the Rome I Regulation.107 Conflict of laws is a confusing term for common lawyers since it is used to cover not just choice of law but also jurisdiction and the enforcement of foreign judgments. Nevertheless, the Regulation is undoubtedly concerned only with the question of the applicable law, as its full title and its contents makes clear. In other words, it is concerned with situations involving a choice of law, ie a choice between the laws of different countries. This is clear from the Explanatory Memorandum, which explains that a conflict of laws situation is one where “there are one or more elements that are alien to the domestic social life of a country that entail applying several systems of law”.108

This brings out the point that there must be a foreign element, not a purely domestic situation. This idea is familiar to English lawyers. Under English private international law a choice of law problem exists whenever the court is faced with a dispute that contains a foreign element.109 With a non-contractual dispute, typical examples of a foreign element are as follows: one of the parties to the tort is a foreign national or is habitually resident abroad; the harmful event or the damage occurred abroad. In such cases the foreign country has a claim to have its law applied, and the uniform rules in the Regulation are intended to apply.

The position is more difficult if the court is faced with a dispute involving a foreign element, but in respect of what is an essentially domestic non-contractual obligation. This can arise in two different types of case. The first is where, for example, there is a purely German tort, which is the subject of trial in England, subsequent to the defendant having moved his business to England after the tort was committed. The situation involves a foreign element in that one of the parties now carries on his business here. However, what is lacking is any relevant connection with a country other than Germany of the sort which would give that other country’s law a claim to be applied. Nonetheless, it is desirable that such cases come within the Regulation.110 The object of the Regulation of achieving harmonisation of choice of law rules for non-contractual obligations is most likely to be attained if the scope of the Regulation is given as wide an interpretation as possible. The above example should therefore be regarded as one involving a choice between the laws of different countries. The second type of case is where there is, for example, a purely English tort or unjust enrichment, but the parties have agreed that French law shall govern this non-contractual obligation. It is implicit from the terms of Article 14(2)111 that the Regulation will apply in this situation.112

There is another problem which is less easily solved. This relates to the requirement that the foreign element must entail applying several different systems of law, in other words there must be a choice between different laws. Under English law, if foreign law is not pleaded or proved the court gives a decision according to English law.113 The courts are free to apply this rule in relation to the Regulation because matters of evidence and procedure are excluded from its scope.114 If the English court is going automatically to apply English law, it is arguable that there is no element of choice between different laws. However, the purpose of the (p. 788) Regulation is not going to be met if the English courts allow the parties to side-step the uniform rules contained therein by a simple omission to plead and prove foreign law. It would therefore be better if this sort of case was regarded as coming within the Regulation.115

The Explanatory Memorandum refers to applying several systems of law. Nonetheless, the choice of law rules in the Regulation consistently refer to the application of the law of a country. It is clear therefore that, for the purposes of the scope of the Regulation, the choice must be between the laws of different countries. A country is defined under the Regulation in the normal private international law sense as a territorial unit with its own rules of law, in this case relating to non-contractual obligations.116 A German court, for example, will have to apply English law, or Scottish, or Northern Ireland law under the Regulation, even though the United Kingdom is the Member State under the Regulation. Similarly, an English court will have to apply, for example, Ontario or New South Wales law under the Regulation. Indeed, the Regulation will apply to an inter-state dispute involving connections with the “countries” of California and New York, provided that trial takes place in a European Union Member State.

However, the Regulation makes it clear that it is for the United Kingdom to decide whether it wants to apply the rules in the Regulation to intra-United Kingdom disputes.117 It is certainly not bound to do so,118 but the obvious inconvenience of having a different regime for intra-United Kingdom non-contractual disputes from all other cases lead to legislation applying the Regulation to such disputes.119 This is what happened in relation to contract choice of law as well.120 England, Scotland and Northern Ireland are thus treated as separate countries for the purposes of the Regulation, even in intra-United Kingdom disputes.

(ii)  Non-contractual obligations

The Regulation applies to “non-contractual obligations”. This concept varies in meaning from one Member State to another and therefore, for the purposes of the Regulation, it should be given an autonomous definition.121 Unfortunately the Regulation gives only very limited guidance on what this definition should be. We are only told that the choice of law rules in the Regulation should also cover non-contractual obligations arising out of strict liability122 and that the Regulation also applies to non-contractual obligations that are likely to arise.123

Non-contractual

The word “non-contractual” does not tell us expressly what obligations are covered. Rather, we are told what is not covered, namely “contractual obligations”. Contractual obligations in any situation involving a choice between the laws of different countries fall within the scope of the Rome I Regulation. For the distinction between contractual and non-contractual obligations, the Court of Justice has referred to the distinction in (what is now) Article 7(1) and (2) Brussels I Recast between matters relating to contract and matters relating to tort, delict and quasi-delict. By analogy to the Brussels I case-law, the concept of “contractual obligation” in Art 1(1) Rome I designates a legal obligation freely (p. 789) consented to by one person towards another.124 The concept of “non-contractual obligation” in Article 1(1) Rome II, on the other hand, defines an obligation which derives from one of the events listed in Article 2 of that Regulation, that is to say, any consequence arising out of tort/delict, unjust enrichment, negotiorum gestio or culpa in contrahendo.125 The word “non-contractual” obligations literally covers all obligations which are not contractual, at least as long as they fall into one of the four categories of tort/delict, unjust enrichment, negotiorum gestio or culpa in contrahendo.126 This encompasses not only tortious/delictual and restitutionary obligations but also (certain) equitable obligations.127 The Explanatory Memorandum confirms that the inclusion of all obligations, except those expressly excluded under Article 1(2), is what is intended.128 The text of the Regulation also supports this interpretation. The fact that it was thought necessary expressly to exclude from the scope of the Regulation non-contractual obligations arising out of wills and succession129 suggests that, without this, they would have come within the Regulation.

Obligations

In private international law there is a fundamental distinction between property, which has its own choice of law rules, and obligations, to which separate choice of law rules apply.130 The Regulation is only concerned with obligations and leaves choice of law for property untouched.131 As will be seen, difficult questions arise as to whether a tort (within the meaning of Chapter II of the Regulation) or property classification should be adopted.132 Equally, the question can arise as to whether an unjust enrichment or property classification should be adopted.133

Statutory obligations

The source of non-contractual obligations is often not the common law, but rather statutes or civil codes. These provisions form part of the applicable law under the Rome II Regulation, provided that they can be characterised as non-contractual,134 are not (p. 790) excluded from the Regulation’s scope135 and do not violate English public policy.136 Recital (11) Rome II clarifies that the rules of the Regulation should also cover non-contractual obligations arising out of strict liability.

Non-contractual obligations and the scope of the choice of law rules

We must now examine the relationship between the scope of the Regulation (non-contractual obligations) and the scope of the separate choice of law rules contained in Chapters II and III of the Regulation. Chapter II is headed “Torts/Delicts”. Its scope is limited to where there is “a non-contractual obligation arising out of a tort/delict”. Chapter III is headed “Unjust enrichment, negotiorum gestio and culpa in contrahendo”. Its scope is limited to where there is “a non-contractual obligation arising out of unjust enrichment, negotiorum gestio and culpa in contrahendo”. At first sight it might be thought that these provisions on the scope of Chapters II and III cut back the width of the concept of “non-contractual obligations” so as to exclude equitable obligations.137 There is no mention of equitable obligations in Chapters II and III and no separate Chapter IV headed “equitable obligations”. However, no separate mention of equitable obligations is necessary.138 For the breach of equitable obligations which are not entered into voluntarily139 (otherwise they are likely to be characterised as contractual obligations), “Torts/Delicts” should be regarded as a suitable residual category that covers all non-contractual obligations other than those expressly excluded under Article 1(2) and those covered in Chapter III.140 In distinguishing between Chapters II and III, it seems appropriate to look both at the nature of the obligation and the measure of recovery. Non-contractual obligations (including equitable obligations) which seek to establish the liability of the defendant on the basis of a causal connection between damage to the claimant and a “harmful event” to be imputed to the defendant in which the damage originates may be classified as a tort/delict in the sense of Chapter II, whereas non-contractual obligations which require proof of enrichment on the part of the defendant for which there is no valid legal basis and of impoverishment on the part of the applicant which is linked to that enrichment may be classified as unjust enrichment in the sense of Chapter III.141 Moreover, it can be asked whether the measure of recovery is determined by reference to the loss to the claimant (Chapter II) or by reference to the enrichment of the defendant (Chapter III).142 For equitable obligations (p. 791) which do not result from a relationship entered into voluntarily,143 such a distinction leads to some being classified as tortious,144 others as belonging to the law of unjust enrichment,145 and still others as falling outside the scope of Rome II as being proprietary in nature.146

This examination of the scope of Chapters II and III enables us to describe “non-contractual obligations” in a positive way as obligations arising out of tort/delict, unjust enrichment, negotiorum gestio or culpa in contrahendo.147 The link between non-contractual obligations and these four concepts is shown by the fact that Article 2, which “defines” non-contractual obligations, in fact defines damage which is a requirement in relation to the scope of torts/delicts under Chapter II, rather than non-contractual obligations as such.148 It will be necessary later on to examine the meaning of the four concepts of tort/delict, unjust enrichment, negotiorum gestio and culpa in contrahendo.149 This is because there can be questions as to whether, for example, an obligation arises out of tort or contract, out of contract or unjust enrichment, out of tort or unjust enrichment.

Concurrent liability

In cases where there is concurrent liability in contract and tort, the position prior to the introduction of the Rome II Regulation was very favourable to the claimant. The claimant was, for choice of law purposes, free to frame the action in tort rather than contract.150 Indeed, the position was the same as under English domestic law and the claimant had the option of framing his claim in contract, or tort, or both.151 The introduction of the Rome II Regulation means that this needs rethinking. The analogy should be drawn with jurisdiction under Article 7(1) and (2) of the Brussels I Recast152 and the obligation should be classified as contractual or non-contractual but not both, so that there would be no question of the claimant being able to choose.153 This leaves the question of how concurrent liability should be classified for the purposes of the Regulation. The first alternative is to say that where there is concurrent liability in contract and tort, the latter should also be regarded as being contractual and therefore cannot be tortious. An English court has adopted this contractual classification of concurrent liability for the purposes of jurisdiction.154 The second alternative is to say that a tortious classification should be (p. 792) adopted for the purposes of the Regulation.155 Both alternatives, however, go too far in that they change the classification of a claim (from tortious to contractual or vice versa) only because it is factually related to another claim (either in tort or in contract). The better view is to accept that a single factual scenario may generate two (or more) claims, one to be classified as contractual (and thus governed by Rome I), and another to be classified as non-contractual (and thus governed by Rome II).156 The Rome II Regulation itself envisages that there can be a tortious obligation in the situation where the parties have a pre-existing contractual relationship157 and that there can be a tortious obligation to which there is a contractual defence.158 Moreover, in the context of the Brussels I jurisdiction rules it is accepted that contractual and non-contractual obligations may arise from the same set of facts and still be governed by different jurisdictional rules.159 In such a scenario (as in general), a claim is to be considered as contractual (and thus falling under Rome I) if its legal basis “can reasonably be regarded as a breach of the rights and obligations set out in the contract which binds the parties ( . . . ), which would make its taking into account indispensable in deciding the action”.160 If, on the other hand, the claimant’s action is based on an obligation not deriving from a contract freely consented to by one person towards another, this action is to be regarded as non-contractual and thus falling under Rome II.161 This distinction should also be applied to concurrent liability in the choice of law context, where the doctrine of secondary (accessory) connection under Art 4(3) of the Rome II Regulation mitigates the problem of distinction between Rome I and Rome II anyway.162 Finally, there may be claims in tort and contract which do not involve concurrent liability because the claims are not parallel ones, being based on separate lines of argument.163 In this situation, Rome II will apply in relation to the claim in tort.

(iii)  A civil and commercial matter

Rome II applies in civil and commercial matters,164 irrespective of the nature of the court or tribunal seised.165 The concept of civil and commercial matters has also been used to limit the scope of the Brussels I Regulation and Recast (and previously the Brussels Convention). It has been borrowed from Brussels I so as to achieve consistency between these two instruments.166 The meaning of “civil and commercial matters” has been extensively explored by the Court of Justice and by national courts in the context of the Brussels system, and the reader is referred to that discussion for its meaning in the present context.167 Article 1(1) also goes on to provide that the Regulation shall not apply, in particular, to revenue, customs or administrative matters or to the liability of the state for acts or omissions in the exercise of state authority (“acta iure imperii”). These specifically excluded matters were also specifically excluded from the scope of the Brussels I Regulation and have also been borrowed from that (p. 793) Regulation.168 For the exclusion of “acta iure imperii”, Recital (9) clarifies that this phrase “should include claims against officials who act on behalf of the State and liability for acts of public authorities, including liability of publicly appointed office-holders”. These are just examples of acta iure imperii and are not intended as a complete definition. Acta iure imperii are now specifically excluded also from the scope of the Brussels I Recast. Before, there was Court of Justice authority suggesting that such claims fall outside the scope of Brussels I.169

(b)  Exclusions

Article 1(2) and (3) expressly excludes a wide variety of matters from the scope of the Regulation. These matters can be put into two categories. First and foremost, Article 1 excludes certain non-contractual obligations. Secondly, it excludes certain matters which do not involve the law applicable to non-contractual obligations, namely evidence and procedure. Most of these exclusions are also exclusions from the scope of the Rome I Regulation. The Commission has asserted that, as exceptions, these exclusions should be interpreted strictly.170

(i)  The exclusion of certain non-contractual obligations

The matters excluded from the scope of the Regulation, and the reasons for their exclusion, will now be examined. These are as follows:

(a)  non-contractual obligations arising out of family relationships and relationships deemed by the law applicable to such relationships to have comparable effects including maintenance obligations171

Family relationships are defined as covering “parentage, marriage, affinity and collateral relatives”.172 There is a similar exclusion of family relationships under the Rome I Regulation.173 The provision of Article 4(3) Rome II Regulation174 under which the law governing a pre-existing relationship (such as a family relationship) may also govern a non-contractual obligation closely connected with it led some to argue that the family relationship exclusion should be removed from the Regulation. However, at the time the Rome II Regulation was adopted, there were no harmonised choice of law rules for determining the governing law for family relationships.175 In such circumstances it was thought better to keep the family relationship exclusion.176

The exclusion in Article 1(2)(a) Rome II (and Article 1(2)(b) Rome I) goes further than that in the 1980 Rome Convention and extends to “relationships deemed by the law applicable to such relationships to have comparable effects”. According to Recital (10), the term “relationships having comparable effects to marriage and other family relationships” should be interpreted in accordance with the law of the Member State in which the court is seised. This (p. 794) does not suggest that the forum automatically applies its own substantive domestic law to determine the law applicable to “relationships having comparable effects”.177 Rather, it is only meant as a clarification that the definition of “relationships having comparable effects”178 and thus the scope of the exception in Article 1(2)(a) Rome II for such relationships is to be determined by the national law of the forum in order to respect traditional national boundaries between family law obligations and non-contractual obligations in general. Non-contractual obligations arising out of family relationships, etc are said to include “maintenance obligations” for which now Regulation (EC) No 4/2009179 has been adopted.180

Non-contractual obligations are seldom going to arise out of a family relationship. However, an example would be where there is an action for compensation for damage caused by the late payment of maintenance.181 In contrast, an action by a wife, who has suffered personal injury, against her husband following his negligent driving does not arise out of their family relationship but out of his negligent driving. Accordingly, it is not excluded from the scope of the Regulation.

(b)  non-contractual obligations arising out of matrimonial property regimes, property regimes of relationships deemed by the law applicable to such relationships to have comparable effects to marriage, and wills and succession182

This exclusion covers two rather different things: first, non-contractual obligations arising out of matrimonial property regimes (and comparable regimes); and secondly, non-contractual obligations arising out of wills and succession. The phrase “matrimonial property regimes” is not defined in Rome II. However, there is Regulation (EU) 2016/1103 implementing enhanced cooperation in the area of jurisdiction, applicable law and the recognition and enforcement of decisions in matters of matrimonial property regimes,183 which defines such regimes as “a set of rules concerning the property relationships between the spouses and in their relations with third parties, as a result of marriage or its dissolution”.184 The Brussels system (including the Brussels I Recast) and the Rome Convention, all of which pre-date Rome II, exclude “rights in property arising out of a matrimonial relationship”.185 It is not obvious what difference, if any, there is between “rights in property arising out of a matrimonial relationship” and “matrimonial property regimes”. There is no need under Rome II to distinguish between non-contractual obligations arising out of matrimonial property regimes and those arising out of maintenance since, as has been seen, the latter are also excluded from the scope of the Regulation.

The exclusion covers not just matrimonial property regimes but also “property regimes of relationships deemed by the law applicable to such relationships to have comparable effects to marriage”. Again, Recital (10) provides that relationships having comparable effects to (p. 795) marriage “should be interpreted in accordance with the law of the Member State in which the court is seised” which is not meant as a reference to the forum’s substantive law, but rather a clarification that the exact scope of the exception in Article 1(2)(b) Rome II is to be defined by national law.186 For registered partnerships,187 Regulation (EU) 2016/1104 implementing enhanced cooperation in the area of jurisdiction, applicable law and the recognition and enforcement of decisions in matters of the property consequences of registered partnerships188 gives a parallel definition of partnership property regime as Regulation (EU) 2016/1103 does for marriage.189

The phrase “wills and succession” is to be found among the list of exclusions from the scope of the Brussels Convention and Brussels I Recast;190 and its meaning has been fully discussed in that context. “Wills and succession” are also excluded from the scope of the Rome I Regulation.191 In the European Union, the conflict rules for succession have been harmonised by Regulation (EU) No 650/2012 on jurisdiction, applicable law, recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession.192 Most disputes in relation to wills and succession will not involve non-contractual obligations but are concerned with issues such as the validity of the will. The exception of Article 1(2)(b) Rome II makes it clear that, in the rare cases which involve non-contractual obligations, the Regulation will not apply.

(c)  non-contractual 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 character193

The identical exclusion in respect of contractual obligations is to be found in the Rome Convention and Rome I Regulation.194 The reason for the incorporation of the same exclusion in Rome II is the same as the reason for its incorporation in the Rome Convention and Rome I Regulation, namely that “the Regulation is not the proper instrument for such obligations, that the Geneva Conventions of 7 June 1930 and 19 March 1931 regulate much of this matter and that these obligations are not dealt with uniformly in the Member States”.195 The exclusion applies to bills of exchange, cheques and promissory notes, each of which category is well known to English lawyers. It also applies to “other negotiable instruments to the extent that the obligations under such other negotiable instruments arise out of their negotiable character”. The meaning of this phrase has already been examined in the context of the Rome I Regulation196 and the reader is referred to what is said there on this.

(p. 796) (d)  non-contractual obligations arising out of the law of companies and other bodies corporate or unincorporated regarding matters such as the creation, by registration or otherwise, legal capacity, internal organisation or winding up of companies and other bodies corporate or unincorporated, the personal liability of officers and members as such for the obligations of the company or body and the personal liability of auditors to a company or its members in the statutory audits of accounting documents197

This provision clarifies the point that, if non-contractual obligations arise in a company law context, they fall outside the scope of the Regulation. A very similarly worded exclusion was already found in the Rome Convention and still exists in the Rome I Regulation.198 But the Rome II exclusion gives an additional example of the matters with regard to the law of companies that the exclusion is concerned with, namely “the personal liability of auditors to a company or its members in the statutory audits of accounting documents”. The latter would encompass an action for negligence brought by a company or a member199 against the auditor of a company. The Proposal for a Rome II Regulation contained a much narrower and very specific exclusion which was confined to the personal liability of officers and members as such for the debts of a company and the personal liability of auditors, etc. It was explained in relation to the former that the question of the personal liability of officers could not be separated from the law governing companies (applicable to the company in connection with whose management the question of liability arose).200 An example of where the exclusion would operate can be seen in a pre-Regulation case, where a claim was brought by a company against one of its directors based on a breach of his equitable duty of care to the company.201 That duty was held to have arisen only from the director’s relationship with the company.202 If it did not relate to the constitution of the company, it related to its internal management.203 It was held that the equitable duty was governed by the law of the company’s place of incorporation. Under the Regulation the non-contractual obligation (ie the equitable duty) should be regarded, as it is under English law, as arising out of the law of companies (being concerned with the internal organisation of the company) and, accordingly, outside the scope of the Regulation.204 The English court would apply its domestic private international law rules according to which the director’s equitable duty to his company is governed by the law of the company’s place of incorporation. While Article 1(2)(d) Rome II excludes non-contractual obligations arising in a company law context, it does not exclude the capacity of a company or other legal body to incur liability in tort/delict, which is governed by the applicable law as determined by the Rome II Regulation.205 Finally, Article 1(2)(d) Rome II does not apply to non-contractual liability as a consequence of transactions on stock exchanges or related to financial instruments.206

(e)  non-contractual obligations arising out of the relations between the settlors, trustees and beneficiaries of a trust created voluntarily207

This exclusion is explained on the simple basis that “trusts are a sui generis institution” and that they are also excluded from the Rome Convention.208 The latter contains a wider (p. 797) exclusion—as now does the Rome I Regulation.209 First, it also excludes the constitution of trusts; secondly, the Rome Convention exclusion is not confined to trusts created voluntarily.210 Thus non-contractual obligations arising out of the relations between trustees and beneficiaries of a constructive trust are not excluded from Rome II.211

(f)  non-contractual obligations arising out of nuclear damage212

This exclusion, which is not to be found in the Rome Convention nor the Rome I Regulation, has been explained213 by “the importance of the economic and State interests at stake and the Member States’ contribution to measures to compensate for nuclear damage in the international scheme of liability” established by various international Conventions.214

(g)  non-contractual obligations arising out of violations of privacy and rights relating to personality, including defamation215

The Proposal for a Regulation did not exclude violations of privacy and rights relating to personality. However, it was recognised that there were constitutional concerns over violation of freedom of the press and that the normal tort choice of law rules set out in the Regulation could not apply on their own.216 A special choice of law rule was therefore proposed which made it explicit that the law designated under the normal tort choice of law rules must be disapplied in favour of the law of the forum if it was incompatible with the public policy of the forum in relation to freedom of the press.217 The European Parliament wanted a different rule218 and sought amendments, which were unacceptable to the Commission as being too favourable to editors. The European Parliament withdrew its amendments on the inclusion of these rules as part of the overall compromise on the Regulation. These matters were regarded as being left over to be dealt with in the future. The Commission was required to produce a study on the situation where a non-contractual obligation arises out of violations of privacy and rights relating to personality, including defamation.219 On that basis, a first comparative study has been published.220 Moreover, the European Parliament produced two reports,221 one of them proposing a (p. 798) conflict rule.222 Whether and when this proposal might be taken into account in a reform of Rome II is completely uncertain.

Article 1(2)(g) Rome II as it stands today excludes two matters: violations of privacy and rights relating to personality, the latter includes defamation.223 As regards violations of privacy, many civil law countries have laws on invasion of privacy. Traditionally there was no such cause of action under English law. However, English law has expanded the wrong of breach of confidence to cover cases involving misuse (by publication) of private information.224 This protects one aspect of privacy.225 These cases of misuse of private information borne out of non-contractual breach of confidence would undoubtedly be regarded in civil law jurisdictions as instances of invasion of privacy or injury to rights of personality. Accordingly they should fall within the exclusion.

“Rights relating to personality” goes much wider than defamation and may cover, inter alia, rights related to the name, to one’s image and voice, or the right to one’s honour. Broad as it may be, the exclusion in Article 1(2)(g) Rome II does not extend to personality rights violations which are related to physical harm (such as injuries to the physical integrity of a person),226 as it was motivated by the concerns to protect the freedom of speech, in particular the freedom of the press. The exclusion does however extend to violations of data protection laws.227

(p. 799) A question arises of whether the exclusion of defamation can be avoided by re-labelling the tort as unfair competition, which is within the scope of the Regulation.228 Under English law, if a business rival disparages the business reputation of a competitor, recourse can be had to the law of defamation. In some other countries the same act of disparagement would allow recourse to the law of unfair competition. The terms “defamation” and “unfair competition” should be defined for the purposes of the Regulation in the light of their meaning in Member States generally. This would suggest that this act should be regarded as one of unfair competition and hence within the Regulation.229

(ii)  Evidence and procedure, without prejudice to Articles 21 and 22230

Article 1(3) provides that the Regulation “shall not apply to evidence and procedure, without prejudice to Articles 21 and 22”. The same exclusion is to be found in the Rome I Regulation.231 The exclusion is justified by the consideration that procedural matters such as the constitution and powers of courts and the mode of trial are an integral feature of the forum’s organisation of the judicial process.232 Requiring the judge to apply foreign procedural or evidential practices would be unrealistic and inefficient, as the judge would have to consult foreign law before being able to proceed with the steps of the court’s procedure.233 Another argument for the exception is the principle “that a litigant resorting to a domestic court cannot expect to occupy a different procedural position from that of a domestic litigant” and thus “cannot expect to take advantage of some procedural rule of his own country to enjoy greater advantage than other litigants here”.234

Evidence

The exclusion of evidence is not total, but is subject to Article 21,235 which contains a rule on the formal validity of a unilateral act intended to have legal effect and relating to a non-contractual obligation, and Article 22,236 which subjects two specific evidential matters, rules which raise presumptions of law or determine the burden of proof and proving acts intended to have legal effect, to the rules of the Regulation. Article 22 covers only the burden, not the standard of proof, the latter as a procedural matter falling outside the scope of the Regulation.237 Another matter of evidence (and procedure) in the sense of Article 1(3) which falls outside the Regulation are methods of proving recoverable loss, for example what (expert) evidence is available or required to prove a claimant’s injuries.238

(p. 800) Procedure

When it comes to procedure there is the vital question of when a matter is to be classified as being one of procedure, rather than one of substance. Procedure is a very different matter from the other matters excluded in that it involves a potential escape device, ie if you classify a matter as being purely procedural you escape from the choice of law rules under the Regulation. In the absence of guidance from the Court of Justice, national courts are likely to resort to their own traditional ideas of what is a procedural matter. However, the concept of procedure must be given an autonomous EU definition,239 and English courts cannot automatically assume that the classifications which they have adopted in the past will continue to be appropriate under the Regulation.

The terms of the Regulation, in particular the non-exhaustive list of Article 15, make it clear that a different classification should be adopted from that under English law.240 Three examples can be given to illustrate this. The first example is concerned with damages. The issue of assessment or quantification of damages was classified at common law as being one of procedure, whereas the issue of heads of liability for which damages could be recovered was one of substance.241 The position was the same under the statutory tort choice of law rules. In that context, it was held that the issue of whether accrued benefits (state benefits, employment pension, personal pension) had to be deducted when assessing damages was a procedural one.242 Similarly, a statutory ceiling on damages was held to be a matter of assessment of damages and therefore procedural.243 However, under the Regulation it is expressly stated that the issue of assessment of damage falls within the scope of the law applicable under the Regulation.244 This includes not only the rules on the applicable law in so far as assessment is prescribed by a black-letter rule of law, but also in so far as it is prescribed by judicial conventions and practices (such as particular tariffs, guidelines or formulae to calculate damages under the applicable law245).246 Also foreign case law on the appropriate level of damages is to be applied.247 Rules on the deduction of accrued benefits and a statutory ceiling on damages are thus, for the purposes of the Regulation, to be regarded as part of the applicable law defined by the Regulation and not a procedural matter.248 However, applying foreign substantive law on the assessment of damages does not mean that an English court must adopt also foreign procedures to decide the case in the exact same manner as the foreign court would. Mere methods of proving recoverable loss, in particular what (expert) evidence is required to prove the claimant’s injuries and losses is a matter of evidence and procedure in the sense of Article 1(3) Rome II and thus governed by English procedural rules.249

(p. 801) The second example of a different delineation between procedure and substance under the Regulation is that of the issue of limitation of liability. In the past, this has been classified as procedural.250 Again, under the Regulation it is expressly stated that this issue falls within the scope of the law applicable under the Regulation.251

A third example are the rules of prescription and limitation. While there is some debate whether these are to be classified as substantive or procedural outside the Regulation,252 the Regulation makes clear that these issues are not questions of “evidence or procedure”, but rather fall within the scope of the law applicable defined by Rome II.253

Finally, it deserves to be mentioned that Article 15 does not require all aspects of remedies to be classified as substantive (and thus falling in the scope of Rome II). Article 15(d) provides a counter-exception for “the limits of powers conferred on the court by its procedural law”, and the conditions of admissibility of actions, such as the conditions of applying for a declaration of non-infringement, are not to be classified as substantive, but rather as procedural in nature.254

Once it has been decided that the issue is one of evidence or procedure, the effect of the exclusion is that this issue is left to be governed by the forum’s rules on private international law. Under English private international law all procedural matters (including evidence) are automatically a matter for the law of the forum (lex fori).255

(ii)  The universal application of the Regulation

The Rome II Regulation is intended to be of universal or world-wide application, ie it applies regardless of whether the situation giving rise to the non-contractual obligation and the obligation itself has any connection with a European Union Member State. In particular, there is no need for either party to the dispute to be domiciled or resident in a Member State. The only thing that matters is that the dispute is tried in a Member State. Thus a tortious dispute between a New York resident and an Ontario resident which is tried before the High Court in England will be subject to the Regulation.

Article 3 provides that: “Any law specified by this Regulation shall be applied whether or not it is the law of a Member State.” This provision makes it clear that, if the uniform rules under the Regulation point, for example, to Russian law as the law governing the non-contractual obligation, the courts of Member States will apply that country’s law, even though Russia is not a European Union Member State. However, Article 3 only deals with one aspect of the universal application of the rules in the Regulation. It says nothing about whether the situation giving rise to the non-contractual obligation, including the residence of the parties, must have a connection with a Member State. It is the Explanatory Memorandum256 which makes it clear that the Regulation is intended to have universal application and will apply to situations giving rise to a non-contractual obligation which have no connection with a Member State. This principle of universal application is well established and is also (p. 802) to be found in the Rome I Regulation257 and in the Brussels I Recast (in the sense that that Regulation governs both purely “intra-EU” situations and certain situations involving a non-Member State).258 It avoids the need to distinguish for choice of law purposes between intra-EU cases and extra-EU cases, a distinction which is both highly artificial and difficult to draw.259 It also avoids the complexity of Member States having two sets of choice of law rules and the distortions in competition that would result if Member States applied their own national choice of law rules to extra-EU cases.260

(c)  The applicable law: preliminary remarks

At the heart of the Regulation lie the rules on the applicable law. There are separate sets of rules for torts/delicts (in Chapter II) and unjust enrichment, negotiorum gestio and culpa in contrahendo (collectively referred to as unjust enrichment, etc) (in Chapter III). There is then a series of rules (in Chapter IV) allowing the parties to submit non-contractual obligations to the law of their choice.

(i)  Exclusion of renvoi

The applicable law under the Regulation, whether chosen or not, refers to the substantive rules of the domestic law of the country in question, and there is no place for application of that country’s rules of private international law under the doctrine of renvoi.261

(ii)  Definition of habitual residence

A number of the rules on the applicable law, in the absence of choice, provide for the application of the law of the country of the parties’ habitual residence.262 The Regulation defines the habitual residence of companies but, apart from in one specific situation, not that of natural persons (ie individuals).263 For companies, Article 23(1) of Rome II provides that “For the purposes of this Regulation, the habitual residence of companies and other bodies, corporate or unincorporated, shall be the place of central administration.264 The same term “central administration” is used to define the domicile of companies under the Brussels I Recast,265 and the same autonomous EU meaning should be given to the concept in both contexts.266 The place of central administration rule is qualified by a special rule in Article 23(1) to deal with the situation where the event giving rise to the damage occurs, or the damage arises, in the course of operation of a branch, agency or other establishment. In this situation, the place where the branch, etc is located is treated as the place of habitual residence of the company. The terms “branch, agency or other establishment” in the context of the Rome II Regulation can be understood in the same way as they have been understood by the Court of Justice for the purposes of what is now Article 7(5) Brussels I Recast. In this context, the Court of Justice has also defined the concept of “a dispute arising out of the operations of a branch”. The requirement under Article 23(1) that the event or damage arises “in the course (p. 803) of operation of a branch”, etc looks to be in substance the same, so that recourse can again be had to the case law under Article 7(5).267

The one situation where Article 23 defines the meaning of the habitual residence of a natural person is where such a person is “acting in the course of his or her business activity”. In this situation, the habitual residence of the natural person is his or her principal place of business.268 The term “principal place of business” is also used to define the domicile of companies under the Brussels I Recast,269 so that the same autonomous Community meaning can be given to the concept in both contexts.270 In all other situations, the English courts will have to have recourse to the meaning of habitual residence of a natural person who is not acting in the course of a business activity. In due course, it is to be hoped that there will be guidance from the Court of Justice on the meaning of the habitual residence of a natural person in the present context, as there has been in the context of income support for employed persons.271 In the meantime, any guidance on the meaning of the concept from that Court in other contexts272 should be borne in mind.273

(iii)  Definition of damage

Many of the choice of law rules use the concept of damage. Damage covers any (direct or indirect) consequence arising out of tort/delict, unjust enrichment, negotiorum gestio or culpa in contrahendo274 and also damage that is likely to occur.275

(iv)  Proof of foreign law

The normal English rules on proof of foreign law apply in relation to the Regulation. However, it is an open question how long this will remain the case. Different practices are followed in different Member States in relation to the treatment of foreign law.276 The European Parliament unsuccessfully sought an amendment to the Regulation that would have required the court seised to establish the content of the foreign law of its own motion277 so as to ensure a more uniform approach to the application of foreign law by courts throughout the European Union. The European Parliament dropped this amendment as part of the overall compromise on the Regulation. The matter was settled by the Commission undertaking to produce a study on the effects of the way in which foreign law is treated in the different jurisdictions and on the extent to which courts in the Member States apply foreign law in practice pursuant to the Rome II Regulation.278 The Commission has made a statement which suggests that the study will not be confined to just the application of foreign law in Rome II cases but more generally in civil and commercial matters.279 This study shall be included in a more (p. 804) general report on the application of the Regulation, accompanied, if necessary, by proposals to adapt the Regulation.280 This report was to be submitted by 20 August 2011, but apparently has not yet been produced.

(d)  The applicable law for torts/delicts

(i)  The scope of Chapter II

In order to define the scope of Chapter II, a process of characterisation has to be gone through. If the obligation arises out of tort/delict it is a non-contractual obligation that falls within Chapter II. If the obligation arises out of unjust enrichment, negotiorum gestio or culpa in contrahendo it is a non-contractual obligation that falls within Chapter III. If the obligation arises out of contract it is a contractual obligation and falls outside the scope of the Regulation altogether (and into that of the Rome I Regulation instead).

How is this process of characterisation to be carried out? If English judges apply the same approach as they have applied in relation to the Rome Convention, this would be according to English principles of characterisation.281 However, the process of characterisation should be guided by the subject matter and wording of the Regulation itself—as characterisation involves an element of interpretation, it is to be done in an EU autonomous way.282 Moreover, it is subject to the implicit instruction in Recital (7) of the Regulation that “torts/delicts”, being concerned with scope, should be interpreted in a way that is consistent with the meaning attached to this concept under Article 7(2) of the Brussels I Recast (matters relating to tort, delict or quasi-delict). Applying these principles we can examine what is covered by “torts/delicts” and what is not.

(a)  What is covered

It will be recalled that “matters relating to tort, delict or quasi-delict” under Article 7(2) Brussels I Recast has been widely interpreted by the Court of Justice to cover all actions which seek to establish the liability of a defendant and which are not related to a contract within Article 7(1) of that Regulation.283 This definition covers (most) matters which are tortious according to the domestic substantive law of Member States. Thus it has been held to cover negligence, conversion, negligent misstatement, negligent and fraudulent misrepresentation.284 Torts/delicts for the purposes of Chapter II of Rome II should thus also cover negligence and negligent misstatement, unless the misstatement is made during dealings prior to the conclusion of a contract.285 We further know from the terms of the Rome II Regulation that the concept of torts/delicts encompasses also product liability, unfair competition, acts restricting free competition, environmental damage, infringement of intellectual property rights, and industrial action because there are separate specific rules for all of these in Articles 5 to 9 of Chapter II. The Regulation applies also to non-contractual obligations that are likely to arise286 and thus would cover the threat of a tort. This is consistent with the Brussels I Recast which specifically applies to threatened wrongs.287

(p. 805) But Article 7(2) Brussels I Recast goes beyond this. It is a residual category which covers matters which are not in a strict sense tortious, ie they are not classified as tortious under domestic substantive law. For example, Article 7(2) has been held by an English court to cover a constructive trust claim based on dishonestly assisting a breach of fiduciary duty288 and has been assumed to cover a claim for breach of fiduciary duty.289 In both cases, under English substantive law what is involved is a breach of an equitable obligation. Torts/delicts for the purposes of Chapter II should therefore be regarded as a residual category,290 as it is in jurisdictional cases, that covers, subject to the special rules of Chapter III, all non-contractual obligations (including equitable obligations) which seek to establish the liability of the defendant on the basis of a causal connection between a damage of the claimant and a “harmful event” to be imputed to the defendant in which the damage originates.291 In distinguishing between tort and unjust enrichment (Chapters II and III), it seems also appropriate to ask whether the measure of recovery is determined by reference to the loss to the claimant (tort) or by reference to the enrichment of the defendant (unjust enrichment).292 In principle therefore Chapter II is capable of covering equitable obligations where the obligation is not entered into voluntarily293 (otherwise it is to be characterised as a contractual obligation) and does not fall under Chapter III,294 such as breach of a fiduciary duty and dishonestly procuring or assisting a breach of fiduciary duty,295 On this basis, non-contractual breach of confidence, when it is concerned with protecting secret information,296 should also come within Chapter II.297 Where a breach of an equitable obligation gives rise to liability under the law (p. 806) of trusts this will often come within the Hague Convention on the Law Applicable to Trusts and on their Recognition 1985, and recourse must then be had to the choice of law rules in that Convention,298 rather than those in the Regulation.299

In some respects, however, tort/delict for the purpose of Chapter II is a narrower residual category than Article 7(2) of the Brussels I Recast in that Chapter II of Rome II does not include unjust enrichment, negotiorum gestio and culpa in contrahendo (because they fall within Chapter III), whereas an instance of culpa in contrahendo has been held to come within Article 7(2).300 Moreover, Article 7(2) may encompass certain property matters,301 whereas the law of property is not part of the law of obligations and therefore falls outside the scope of the Rome II Regulation altogether.302

(b)  What is not covered

Chapter II does not apply to non-contractual obligations arising out of unjust enrichment, negotiorum gestio and culpa in contrahendo. These are subject to the choice of law rules in Chapter III.

(i)  Tort or unjust enrichment
Equitable obligations

Equitable obligations which are not entered into in the context of a voluntarily assumed obligation303 will fall within the tort choice of law rules in Chapter II, unless they are classified as unjust enrichment (within the meaning of Article 10 of the Regulation). Under the pre-Regulation classification for choice of law purposes the Court of Appeal found persuasive the argument that a claim for breach of confidence304 fell to be categorised as a restitutionary claim for unjust enrichment.305 The case in question involved a claim for damages,306 rather than for an account for profits, and so made no sense as a matter of domestic classification. Under domestic English law this would not constitute unjust enrichment or restitution for wrongdoing. It would be very odd to adopt, for the purposes of the Regulation, a classification that is not followed as a matter of English substantive law or under the law of any other Member State. It is submitted therefore, as the Court of Appeal has decided now for service out of jurisdiction,307 that such a case should be classified as (p. 807) tortious (within the wide meaning to be given to that phrase under Chapter II). However, if the disgorgement of profits was sought from the defendant (an account of profits) this would be regarded under English law as an example of restitution for equitable wrongdoing. It is argued below308 that such cases fall within the meaning of unjust enrichment under the Regulation, and, accordingly, the choice of law rules in Chapter III (Article 10) would have to be applied. The same principles should apply to other instances of breach of equitable obligations,309 such as breach of a fiduciary duty.310

Contribution and indemnity

A difficult question of classification arises also where a tortfeasor seeks a contribution or indemnity from another tortfeasor. Where the contribution or indemnity does not arise out of a contractual relationship (and the Rome I Regulation therefore does not apply),311 the Rome II Regulation tells us that the “debtor’s right to demand compensation from the other debtors shall be governed by the law applicable to that debtor’s non-contractual obligation towards the creditor”.312 For the case of an insurer of a vehicle involved in an accident seeking compensation from the insurer of another vehicle involved in the same accident, the CJEU has held that the applicable law is determined in two steps: (1) the division of liability between the drivers of the vehicles is to be determined under the law applicable according to Article 4 Rome II, (2) the law applicable to the insurance contract between the insurer and the driver of the vehicle seeking compensation must be determined under Article 7 Rome I in order to ascertain whether and to what extent those insurers may (by subrogation) exercise the driver’s rights against the insurer of the other vehicle.313 As the difference in wording between Article 20 Rome II Regulation and its predecessor in Article 13(2) 1980 Rome Convention makes clear, Article 20 covers all possible forms of contribution between jointly liable debtors (“debtor’s right to demand”), irrespective of their legal basis (such as cessio legis,314 subrogation, separate cause of action, restitution or negotiorum gestio).315 Therefore, Article 20 Rome II316 is lex specialis317 to Articles 10, 11 Rome II for compensation claims based on restitution or negotiorum gestio.318 It therefore does not matter that contribution and indemnity might not be regarded as tortious in nature in the strict (p. 808) sense,319 but rather as being based on unjust enrichment,320 or even a sui generis claim321 as has been the classification favoured by the Law Commissions322 in a pre-Regulation context.

(ii)  Tort or culpa in contrahendo

A negligent misstatement that is made during dealings prior to the conclusion of a contract where no tacit contractual relationship existed between the parties323 will fall within the concept of culpa in contrahendo and, accordingly, the choice of law rules in Chapter III will apply.324 If it is not made with a direct link with the dealings prior to the conclusion of a contract, it will fall within the concept of tort/delict.325 The English law of fraudulent and negligent misrepresentation and duress is a form of pre-contractual liability and will fall within culpa in contrahendo.326

(iii)  Tort or property

The common law is unusual in treating claims for interference with property rights as part of the law of tort. With the common law tort of conversion, the claimant seeks damages. In contrast, civil law countries treat interference with property as part of the law of property. The claimant does not seek damages, but rather recovery of an item solely on the basis that he is the rightful owner and the defendant has no right to possession.327 Such a claim (rei vindicatio) should be regarded as falling outside the scope of the Regulation altogether. But what of a claim for damages for conversion under English law or that of some other common law country? The English courts have held that conversion falls within Article 7(2) of the Brussels I Recast328 but that Regulation encompasses property matters, whereas such matters fall outside the scope of the Rome II Regulation, not being part of the law of obligations. When it comes to choice of law, the Court of Justice, looking at how civil law jurisdictions classify the matter, is likely to decide that a claim for interference with property solely based (p. 809) on the claimant’s proprietary right, including for conversion, is to be classified as part of the law of property and thus falls outside the scope of the Regulation.329 Such a classification presents the English courts with a problem: what choice of law rules are they then to apply? There are no English property choice of law rules that would deal with a case of conversion. Such a case would fall naturally within the statutory tort choice of law rules330 that applied prior to the introduction of the Rome II Regulation and still apply to torts falling outside the scope of the Regulation. It is to these statutory tort choice of law rules that the English courts should have recourse.

Questions of scope also arise in relation to the separate choice of law rules in Chapter II. These questions of scope will be considered below.331

(ii)  The structure of Chapter II

Chapter II creates a flexible framework of choice of law rules, which seek to reconcile the requirement of legal certainty with the need to do justice in the individual case.332 Article 4 is entitled the “General rule”. Articles 5 to 9 then set out a number of specific rules for special torts “where the general rule does not allow a reasonable balance to be struck between the interests at stake”.333 The “general rule” applies for all other torts/delicts and the term must be understood as contrasting with the specific rules for special torts. For certain provisions there is a let-out which allows for a departure from fixed rules where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with another country.334

(iii)  Article 4: General rule

The so-called general rule comprises three separate rules: first, a general principle; secondly, an exception to this; thirdly, an escape clause, which operates as a let-out in relation to both the general principle and its exception.335 It is noticeable that the general principle and the exception to it are rules and not presumptions.

(a)  The scope of Article 4

Article 4 applies to “a non-contractual obligation arising out of a tort/delict”. Despite the all-embracing language, Article 4 does not encompass the following torts/delicts: product liability; unfair competition; acts restricting free competition; environmental damage; infringement of intellectual property rights; industrial action, as there are separate rules for these in Articles 5 to 9 of the Regulation. The scope of each of these special rules for specific torts will be examined later. Suffice it to say at this stage that difficult problems can arise as to whether the general rule under Article 4 should apply or one of the specific rules for special torts. For example, non-contractual breach of confidence should normally come within Article 4. However, for the purposes of the Regulation, targeting a competitor by the disclosure of business secrets, which would be regarded under English (p. 810) law as a breach of confidence, should be regarded as an act of unfair competition within Article 6.336

(b)  Article 4(1): a place of damage general principle

Article 4(1) provides that:

Unless otherwise provided for in this Regulation, the law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur.

(i)  Unless otherwise provided for

The opening words, “Unless otherwise provided for in this Regulation”, make it clear that this provision is subject to other provisions in the Regulation. Article 4(1) is subject to the exception in Article 4(2) and the escape clause in Article 4(3), to the specific rules for special torts (Articles 5 to 9), to the right of the parties to choose the applicable law (Article 14), and to the limitations on the applicable law, namely overriding mandatory provisions of the forum (Article 16) and public policy (Article 26).

(ii)  The definitional problem and adoption of a place of damage rule

Prior to Rome II, virtually all the Member States agreed on the application of the law of the place where the tort was committed (lex loci delicti commissi) as the basic rule for tort/delict choice of law.337 However, a definitional problem arose where the component factors of the case were spread over several countries. There was no agreement among the Member States on the definition of this place.338 The basic choice was between the law of the country in which the damage occurs (lex damni) and that of the country in which the event giving rise to the damage occurred. In the Regulation, the former was preferred to the latter for two reasons. First it is said that a connection with the country where the direct damage occurred “strikes a fair balance between the interests of the person claimed to be liable and the person sustaining the damage”.339 Secondly, it is said to “reflect the modern approach to civil liability and the development of systems of strict liability”.340 Still, in some cases, there will be very little connection with the country in which the damage occurred. The classic example is that of a car journey from Country A to Country E via Countries B, C and D. The driver drives negligently in Country D and injures his passenger. Both parties are from Country A. The fact that the damage occurred in Country D is fortuitous. Hence the need for the exception in Article 4(2) and the escape clause in Article 4(3).

Article 4(1) not only makes it clear that the law of the country in which the damage occurs is applicable but also spells out that one must not apply the law of the country in which the event giving rise to the damage occurred341 or is likely to occur.342 This has been inserted because of the position under the Brussels I Recast in relation to jurisdiction in cases of tort/delict. It will be recalled that Article 7(2) has been interpreted by the Court of Justice to (p. 811) allocate jurisdiction to both the place of the event giving rise to damage and to the place of damage. But for choice of law purposes it cannot cover both because this would lead to two laws being applicable in cases where the two occurred in different countries.343

(iii)  Identification of the country in which the damage occurs

Article 4(1) presupposes that it is always possible to identify the country where the damage occurs.344 Identification of this country is normally easy in cases of personal injury or damage to tangible property. In a case of personal injury the country in which the damage occurs should be the country where the injury was sustained,345 not where the payment of compensation was refused.346 In a case of damage to property the country in which the damage occurs should be the country where the property was damaged.347 The place where property was damaged is usually easy to identify. However, it may be more difficult in a situation where a damage gradually develops so that it is unknown, at the time of discovery, when and where exactly the damage occurred. Image a scenario where perishable goods are carried across Europe in a refrigerated truck and at some unknown point the refrigeration breaks down and the goods gradually rot. For jurisdictional purposes the place where the damage is discovered does not constitute the place of damage, but rather the place where the actual carrier was to deliver the goods.348 It may be that, for reasons of foreseeability, legal certainty and coherence between Rome II and the Brussels I Recast the CJEU will adopt a similar approach for choice of law. The position is more straightforward in cases where the damage occurred in several countries and it is possible to identify these countries.349 In principle, in this situation the laws of all of these countries will have to be applied on a distributive basis,350 with a different law governing each instance of damage.

Where the action seeks to recover pure financial loss not arising from personal injury or damage to (tangible) property, the place of damage will depend on the nature and structure of the action. The location of the bank account in which the damage materialises or the place where the injured party is domiciled and where his assets are concentrated will normally not be the (relevant) place of (direct) damage.351 Rather, it is to be asked where the direct (first) consequences of the alleged unlawful conduct or the first loss of assets (p. 812) occurred.352 If, however, the alleged unlawful conduct consists of a breach of information duties (or possibly also in inducing the injured party into a transaction by means of fraud), the place of damage may be localised at the place of the account where the financial loss materialises.353 In recent case law, it seems that the CJEU takes also substantive law considerations (such as protection of consumers or small investors or of cartel victims) into account in localising the place of damage, being more likely to allow for a place of damage at the place of the injured party’s account or domicile where this supports a specific substantive law policy. Finally, another problem is identifying the place where damage results in cases where torts are committed via the internet.354 As defamation is outside the scope of Rome II, such torts will often involve pure financial loss, so that the criteria for localisation of such loss are likely to be applied. In cases where the country has to be artificially fixed or is particularly difficult to identify, it will be easier to show that the tort is manifestly more closely connected with another country under the escape clause in Article 4(3).

(iv)  Direct damage

Article 2(1) provides that damage covers “any consequence arising out of tort/delict”. This is potentially very wide and could cover indirect consequences as well as direct consequences. However, Article 4(1) limits the meaning of damage by confining it to direct damage and excluding indirect damage. It does this by adding, after the instruction to apply the law of the country in which the damage occurs, the words “irrespective of the country or countries in which the indirect consequences of that event occur”. If damage had included both direct and indirect damage this could have led to two or more countries’ laws being applicable, which would be unworkable. Moreover, limiting damage to direct damage is consistent with Article 7(2) of the Brussels I Recast, as interpreted by the Court of Justice. We can now look at some examples—drawn from the context of jurisdiction under Article 7(2) Brussels I Recast—of how the direct damage rule will operate. Where an Italian domiciled plaintiff is arrested in England (and promissory notes are sequestrated) and the plaintiff subsequently brings an action in Italy, inter alia, for compensation for the damage he claims to have suffered as a result of his arrest, the breach of several contracts and injury to his reputation, the damage occurs in England, not in Italy.355 Likewise where initial damage has been suffered by the claimant in a road traffic accident in France but his medical condition has deteriorated whilst living in England, the damage occurs in France.356 This is unaffected by the fact that under French law deterioration constitutes a separate cause of action from the original injury. Article 4(1) does not explain what happens where direct harm is suffered by an indirect victim,357 as where, for example, A is injured in State X but B as a consequence suffers nervous shock witnessing this (say on the television) in State Y. As regards the claim by B, does the damage occur in X or Y? Article 4(1) does not specify that the damage is referring to the damage to the claimant. The CJEU has held that where it is possible to identify the occurrence of direct damage, which is usually the case with personal injury or damage to tangible property, the place where the direct damage occurred is the relevant connecting factor for the determination of the applicable law, regardless of the indirect consequences of (p. 813) that accident.358 The damage related to the death of a person in an accident which took place in Member State X sustained by close relatives of that person who reside in Member State Y (eg pain and suffering, psychological damage, loss of maintenance) will thus be regarded as indirect consequences within the meaning of Article 4(1),359 with the consequence of the law of X applying. According to the CJEU, the application of the law of the place where the direct damage was suffered contributes to the objective set out in Recital (16), seeking to ensure the foreseeability of the applicable law, while avoiding the risk that the tort or delict is broken up in to several elements, each subject to a different law according to the places or the persons other than the direct victim who sustain damage.360 However, it is yet unclear whether the same analysis applies where uninvolved third parties on the spot of an accident (such as rescue workers) or even relatives claim damages caused by shock (eg for witnessing the accident). In such a scenario, it could be argued that the damage caused by shock is an independent second damage which occurs directly at the place where the shock is felt.

(v)  Threatened damage

Damage includes damage that is likely to occur.361

(c)  Article 4(2): the common habitual residence exception

Article 4(2) sets out an exception to Article 4(1). This provides that “where the person claimed to be liable and the person sustaining damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply”. Article 4(2) is a strict rule, but subject to the narrow exception under Article 4(3). The “person sustaining damage” is the person who suffered direct damage in the sense of Article 4(1). Habitual residence is at least partially defined under Article 23.362 While the habitual residence of one or both parties can change during the course of events, Article 4(2) is concerned with habitual residence at the time when the damage occurs. Article 4(2) applies also in cases where there are several claimants and/or defendants.363 In order to avoid manipulation by adding further parties in such a scenario, Article 4(2) is to be applied as between each pair of claimants and defendants. The habitual residence of the other parties and the consequences of a fragmentation of the applicable law may be taken into account under the escape clause of Article 4(3).364

Already before Rome II many Member States applied the law of the parties’ common residence or habitual residence in a tort choice of law case.365 Under the English pre-Regulation choice of law rules there was a flexible exception and the personal connecting factor was one important factor to be taken into account. Indeed, English law has been applied under both the common law and statutory rules exception in circumstances where the parties were (p. 814) normally resident in England366 or resident in England.367 The same result will apply under the Regulation, but now by virtue of a much stricter rule368 that only looks at the common habitual residence, rather than as the result of a wider flexible exception. Thus, the rigidity of the Regulation and the flexibility of the traditional English rule can lead to a difference in result. Under the pre-Regulation law there were instances of the English courts not applying the flexible exception, even though both of the parties appeared to be habitually resident in England.369 In contrast, under the Regulation the habitual residence exception would operate in such a case.370

(d)  Article 4(3): the manifestly more closely connected escape clause

(i)  The escape clause

Article 4(3) is an escape clause.371 It provides that: “Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply.” The purpose of this provision is to produce flexibility so that individual circumstances can be taken into account in order as to apply the law that reflects the centre of gravity of the situation.372 It is the tort that must be manifestly more closely connected; it appears not to be sufficient that only a specific issue that arises in the particular case is manifestly more closely connected.373 It is not enough to show that the tort/delict is more closely connected with a country other than that indicated in paragraphs 1 or 2, it has to be “manifestly” more closely connected. The addition of the word “manifestly” is designed to underscore the exceptional nature of this escape clause.374 The use of rules in Article 4(1) and (2), rather than presumptions, is also designed to make clear that the exception really is exceptional.375 The requisite connection under Article 4(3) can be shown from all the circumstances of the case.376 A particular example is given, namely where there is a pre-existing relationship between the parties. But this is only an example and, in principle, there may be other situations where it is clear from all the circumstances of the case that the tort/delict may be shown to be manifestly more closely connected with another country.377

(ii)  A pre-existing relationship

Article 4(3) provides an example of a manifestly closer connection: “A manifestly closer connection with another country might be based in particular on a pre-existing relationship (p. 815) between the parties, such as a contract, that is closely connected with the tort/delict in question.” A very similar example is given under pre-Regulation German private international law.378 The pre-existing relationship is referred to as a secondary connection.379 The idea is that the law of the country governing the secondary connection will also govern the non-contractual obligation.380 This rule has been justified on the basis that by “having the same law apply to all their relationships, this solution respects the parties’ legitimate expectations and meets the need for the sound administration of justice”.381 Under the English statutory tort choice of law rules it was possible to take into account a pre-existing relationship and the law governing that relationship when operating the displacement rule.382 However, the governing law would just be one factor amongst a number of factors. The Regulation gives more significance to this factor by providing that the manifestly closer connection with another country might be based on a pre-existing relationship between the parties. In other words, this on its own might be enough for Article 4(3) to operate. It is unclear what significance should be attached to a choice of jurisdiction clause in the parties’ contract. In so far as it determines the governing law, the same significance should be attached to it as to a choice of law clause. But if the governing law is different, the choice of jurisdiction clause should just be treated as one factual connection amongst many other factual connections.383

The example given in Article 4(3) of a pre-existing relationship is that of a contract. It is not uncommon for the parties to a claim in tort to have a contractual relationship. In cases of concurrent liability, this will be the case.384 It could also arise where there is a claim based on a non-contractual obligation and where, although there is a contract between the parties, there is no contractual liability.385 This pre-existing contractual relationship could presumably cover a contract that has been annulled,386 certainly after the tort was committed. The position is more uncertain in relation to a contract annulled before the tort was committed. In such a case, there may be little connection between the contract and the tort in question and the exception would not operate.387 Where the contract that constitutes the pre-existing relationship is a consumer contract or an employment contract the consumer and the employee are protected in relation to contractual obligations by special contract choice of law rules under the Rome I Regulation. Thus if an employee habitually carries out his work in State A but the contract of employment has a choice of law clause providing for the application of the law of State B, the employee can still rely on the mandatory (protectionist) rules of State A. But as far as non-contractual obligations are concerned it would appear that the law applicable would be that of State B.

The Commission has foreseen this problem and has said that the secondary connection mechanism cannot have the effect of depriving the weaker party of the protection of the law otherwise applicable (State A in our example).388 But what is there in the Regulation to stop (p. 816) this? There is no express provision to deal with this situation. The Commission has said this is implicit in the protective rules in the Rome I Regulation but this looks to be an inadequate response and it would have been better to incorporate into the Regulation a restriction of the secondary connection rule.

In principle, a pre-existing relationship could include a pre-contractual relationship where a contract has not been entered into.389 The relationship between a guest passenger and a host driver who subsequently injures the passenger by his negligent driving is another example of a pre-existing relationship.390 In this example the pre-existing relationship is undeniably closely connected with the tort/delict in question. The pre-existing relationship could in principle be a family relationship.391 In practice this scenario is normally not going to face the courts as the Regulation excludes from its scope non-contractual obligations arising out of family relationships.392 However, it is possible to have a family relationship in respect of which the exclusion does not operate because the non-contractual obligation does not arise out of this, as where, for example, a husband negligently injures his wife in a car crash. In this situation the question is whether the relationship of husband and wife is closely connected with the tort of negligent driving. A family relationship can include an annulled relationship.393

Closely connected with the tort/delict in question

The pre-existing relationship must be closely connected with the tort/delict in question.

Application of the law governing the pre-existing relationship

Let us assume that there is a pre-existing relationship between the parties that is closely connected with the tort/delict in question. A manifestly closer connection with another country might be based on this relationship. But which country does this point to? Take the example of where there is a contractual relationship. The Explanatory Memorandum envisages that the law of the country governing the contract will also govern the non-contractual obligation.394 Likewise the law of the country governing the family relationship would govern the non-contractual obligation.395 But what law governs the relationship of husband and wife? There are no harmonised rules of choice of law for marriage in the European Union so this would be a matter to be determined by the national choice of law rules of the forum. At common law the law of the domicile would govern the relationship of husband and wife. Indeed, it is possible at common law to classify the question whether one spouse is liable to the other in tort as a matter of status to be referred to the law of the domicile.396 Similarly, whether a child can sue his parents may be similarly so classified.397 The Rome II Regulation would produce the same (p. 817) result albeit by a different route. Rather than classifying the claim as family law it is classified as tort but to be governed by the law governing the family relationship.

The lack of harmonisation of choice of law rules for marriage means that different substantive domestic laws would apply to the family relationship depending on which Member State the trial was held in.398 But what law governs a guest host relationship? Ultimately the search is for a manifestly closer connection with another country. This could be based on where the guest host relationship is centred. Thus if this relationship starts and is to end in New York, New York law should apply, rather than the law of Ontario where the car crash occurred and the guest was injured by the host.399

A discretion?

The wording of the pre-existing relationship example in Article 4(3) (“might be based”) makes clear that even if there is a pre-existing relationship between the parties, such as a contract, which is closely connected with the tort/delict in question, there will not automatically be a manifestly closer connection with another country. The court is said to have a degree of discretion to decide whether there is a significant connection between the non-contractual obligation and the law applicable to the relationship.400 This is not a discretion in the sense that the term is used under English private international law in, for example, forum conveniens cases. Instead it is just making the point that a fine judgment may have to be made as to whether the secondary connection will apply. The question ultimately is whether there is a manifestly closer connection with another country.

(iii)  The effect of the secondary connection rule: mitigating problems of classification

The secondary connection rule has the effect of mitigating problems of classification. There are two particular areas where this is particularly noticeable. The first area is that of concurrent liability. The secondary connection rule has considerable implications for such cases.401 Until the Court of Justice has determined the classification of such liability there is a danger of different national courts adopting different classifications. However, the undesirable lack of uniformity that this would entail is said to be mitigated by the secondary connection rule.402 This needs a few words of explanation. Let us assume that a French court has adopted a contractual classification and applies French law as the law governing the contract. If an English court adopted a tortious classification it could also apply French law to govern the non-contractual obligation on the basis that the pre-existing contractual relationship between the parties is governed by French law.

The second area where problems of classification arose is that of the consequences of nullity of a contract. The 1980 Rome Convention allowed Member States to enter a reservation against the application of the Convention to this issue because some Member States regarded this issue as non-contractual.403 The effect of the secondary connection rule was that Member States which had adopted such a reservation would apply, via Article 4(3) Rome II, the same (contractual) law as the Member States which directly applied the Rome Convention.404(p. 818) Under the Rome I Regulation, the reservation was abolished, and the consequences of nullity of a contract are generally regarded as a contractual matter.405

(iv)  An escape from Article 4(1) and (2)

Article 4(3) operates as an escape from both Article 4(1) and Article 4(2).

An exception to Article 4(1)

Apart from cases where there is a pre-existing relationship between the parties, situations where Article 4(3) would operate as an exception to Article 4(1) are likely to be relatively rare.406 At common law the flexible exception operated where the parties had the same normal residence. This situation would now involve Article 4(2) (common habitual residence), rather than Article 4(1). Another situation where the common law flexible exception operated was where there were strong connections with the country where the tort was committed (eg Saudi Arabia) with the result that Saudi Arabian law governed. In contrast, Article 4(3) operates to displace the law of the country where damage occurred and so could not operate in such a case.

An exception to Article 4(2)

The scenario we are concerned with here is as follows:

The law of country A is applicable under Article 4(1), the exception under Article 4(2) then leads to the application of the law of Country B. The question then is whether there is a manifestly closer connection with Country C with the result that under Article 4(3) the law of that country will apply to displace that of Country B.

In the absence of a pre-existing relationship between the parties, it is hard to envisage Article 4(3) operating in a three-country case. The parties’ common habitual residence constitutes a strong connection with Country B, as does the occurrence of damage with Country A. If there are strong connections with two countries, it is unlikely that there is a manifestly closer connection with a third country, Country C. So displacement of Article 4(2) by Article 4(3) is likely to be even harder than displacement of Article 4(1) by Article 4(3), at least in a three-country case.

However, there is another possibility that needs to be considered. This involves a two country scenario.

Let us assume that there are strong connections with the country of damage (Country A), quite apart from the fact that damage occurred there. The parties have a common habitual residence in Country B so that the exception under Article 4(2) will apply. But can the law of Country A be applied by virtue of Article 4(3)?

This raises a question of principle. Can Article 4(3) be used to displace the law applicable under Article 4(2) by the law applicable under Article 4(1)? The wording of Article 4(3) suggests that it can. Article 4(3) refers to the tort being manifestly more closely connected with a country other than that indicated in paragraph 1 or 2. The applicable law under Article 4(3) does not have to displace that indicated in both paragraph 1 and 2. Thus Article 4(3) could operate in a two-country situation. In terms of the balance of connections, the fact that damage occurred in Country A is a strong connection and if there are other weighty connections this could outweigh the common habitual residence connection. This would appeal to the English courts which, in a case decided under the common law tort choice of law rules, have used the flexible exception to apply the law of the country where the tort was committed.407 More significantly, the English courts have, under the statutory tort choice of law rules, (p. 819) applied Iraqi law under the general rule and refused to apply the displacement rule, despite the fact that both parties appeared to be habitually resident in England.408 The same result could be reached under the Regulation by applying Iraqi law by virtue of Article 4(3).409

(e)  Article 4 and road traffic accidents

The choice of law rules in Article 4 apply to the issue of the assessment of damages.410 So damages are assessed according to the law of the place of damage. This can be unsatisfactory in road traffic accident cases. The victim may be injured in a country other than the one in which he habitually resides. After the accident he will return to his home country and will have to live with the consequences of his injury in that state. It would be better for assessment to be determined by the law of the country in which the victim habitually resides. The European Parliament suggested an amendment to the Regulation to what is now Article 4 to produce this effect. This was not accepted but the European Parliament was able to secure the introduction in the recitals of a statement which ensures that the victim’s actual circumstances will be taken into account when damages are quantified.411 This is seen as a short-term solution. As regards a long-term solution, the European Parliament has managed to secure a commitment by the Commission to examine the problems arising where European Union residents are involved in a road traffic accident in a Member State other than the Member State of their habitual residence and to produce a study on this before the end of 2008.412 This study shall look at all options, including insurance aspects, for improving the position of cross-border victims from the European Union, which would pave the way for a Green Paper. There is a further problem in relation to road traffic accidents, namely that many Member States (but not the United Kingdom) have entered into the Hague Convention on the Law Applicable to Traffic Accidents of 1971.413 These states will continue to apply the choice of law rules in the Convention, rather than those in Article 4.414 The Commission was required to produce, by 20 August 2011, a report on the application of the Regulation, which will include a study on the effects of the 1971 Hague Convention.415 Both studies have not yet been produced by the Commission.

(iv)  Specific rules for special torts

Articles 5 to 9 set out what are described as specific rules for special torts,416 namely for product liability, unfair competition, acts restricting competition, environmental damage, infringement of intellectual property rights and industrial action. Some of these (product liability, acts restricting competition and infringement of intellectual property rights) are recognisable to common lawyers as torts. Others (unfair competition, environmental damage and industrial action) are broad concepts which are more familiar to civil lawyers than common lawyers but encompass what common lawyers would regard as a number of different torts. According to Recital (19) specific rules should be laid down “where the general (p. 820) rule does not allow a reasonable balance to be struck between the interests at stake”. The introduction of specific rules for special torts follows the model adopted in a number of European civil law jurisdictions417 and in relation to contract choice of law under the 1980 Rome Convention (now the Rome I Regulation) but rejected in England under its choice of law rules in tort418 on the ground that any special rule might be difficult to put into statutory language and would make the position more complex.419 In the United Kingdom, the case for having in the Regulation some of these specific rules was not thought to have been made out.420 The European Parliament was also unconvinced and unsuccessfully sought the deletion of some of these rules.421

(a)  Product liability422

Within the European Union, much of the substantive law of product liability has been harmonised by the EC Product Liability Directive.423 Nonetheless, choice of law problems still arise,424 in particular because liability based on fault is not covered by the Directive. Article 5 sets out a special choice of law rule to solve these problems. According to Recital (20), the special rule of Article 5 “should meet the objectives of fairly spreading the risks inherent in a modern high-technology society, protecting consumers’ health, stimulating innovation, securing undistorted competition and facilitating trade” by creating “a cascade system of connecting factors, together with a foreseeability clause”, as a “balanced solution in regard to these objectives”. Product liability has long been regarded as a special tort that requires specific choice of law rules. This was recognised at the Hague Conference on Private International Law, which in 1973 concluded the Hague Convention on the law applicable to products liability which entered into force in seven EU Member States.425 These Member States will continue to apply the 1973 Hague Convention, rather than Article 5 of Rome II.426

(i)  The scope of Article 5

Article 5 applies where there is “a non-contractual obligation arising out of damage caused by a product”. While “damage” is defined by Article 2 Rome II as any consequence arising out of a tort/delict,427 “product” is defined under the European Community Product Liability Directive428 and the intention is that recourse should be had to this definition when deciding whether Article 5 applies.429 Under the Directive, “ ‘product’ means all movables even if incorporated into another movable or into an immovable”, including electricity.430(p. 821) Different from the Directive, Article 5 is not confined to claims brought under the strict liability regime of the Directive (or to be more accurate, under national laws implementing the Directive).431 In England, claims which could have been brought under the Directive are sometimes brought in negligence, which is more familiar. Such a claim literally falls within the scope of Article 5. Moreover, it would be most undesirable for the claimant to be allowed to avoid the application of Article 5 (with the aim of getting a different law to apply under Article 4) by suing in negligence. Once it has been decided that there is damage caused by a product within the meaning of Article 5, it follows that there is a tort and the obligation that arises out of this tort must be regarded as non-contractual. Article 5 presupposes that damage432 occurs. This will necessarily be the case because damage is one of the elements of the tort of product liability.

(ii)  The law applicable to product liability

Article 5 has two paragraphs. The first paragraph is undeniably complicated, reflecting the wide range of possible connecting factors.433 It sets out a “cascading” series of rules to which there is a lack of foreseeability exception. All of this is subject to Article 4(2) (the common habitual residence exception). The second paragraph of Article 5 provides an escape from paragraph 1, based on a manifestly closer connection with another country.

A “cascading” series of rules434

The first of these is Article 5(1)(a), which provides that the law applicable is “the law of the country in which the person sustaining the damage435 had his or her habitual residence436 when the damage occurred, if the product was marketed in that country”. The victim will normally have acquired the product and been injured in the state of his habitual residence (and would expect the law of that state to apply) but even if he acquires it abroad (perhaps whilst travelling) and is injured in a state other than his habitual residence, the law of his habitual residence will still apply (provided the product or a product of the same type was marketed there). The requirement that the product was marketed in that country is designed to protect the interests of the producer. The latter normally controls its sales network and should thus, if the product is marketed in a certain state, be able to foresee that the law of that state will be applied. This holds true also if not the producer, but rather a supplier further down the line of distribution is responsible for marketing the product in the respective state.437 The reference to “the product” being marketed in the country of habitual residence does not make clear whether it is referring to the actual product that caused the injury or to the line of product from which the injuring product came, which seems to be what was intended.438

If the product is not marketed in the country in which the person sustaining the damage had his or her habitual residence, paragraph (a) does not apply and one moves on to paragraph (b). This provides that the law applicable is “the law of the country in which the product was acquired, if the product was marketed in that country”. The provision does not say who the (p. 822) product must have been acquired by, in particular it does not say that this must have been the victim.439 Failing paragraph (b), one moves on to paragraph (c). This provides that the law applicable is “the law of the country in which the damage occurred, if the product was marketed in that country”.

There is no fall back rule for cases that do not fall within paragraph (a), (b) or (c). Yet this is possible.440 Rules (a), (b) and (c) all require the product to have been marketed in the country whose law is applicable. But this may not have happened. If the case does not fall within (a), (b) or (c), the specific rules for product liability in Article 5 are inapplicable and one could have to go back to the “general rule” in Article 4. It is perfectly possible to apply those rules to the special tort of product liability.441 Indeed, the English courts have traditionally applied rules of general application to product liability cases. However, the foreseeability proviso in Article 5(1) last sentence provides for the application of the law of the country in which the person claimed to be liable is habitually resident if he or she could not reasonably foresee the marketing of the product, or a product of the same type, in the country the law of which is applicable under (a), (b) or (c). In light of the overarching aim of foreseeability, the scenario where the person claimed to be liable could not foresee the marketing of the product in a country seems to be comparable with the scenario where no such marketing occurred. Therefore, it appears preferable to apply the law of the country in which the person claimed to be liable is habitually resident to cases where paragraphs (a), (b) and (c) do not apply.442

Article 5(1)(a) requires the moment when the damage occurred to be identified (at least when a person is in the process of changing their habitual residence) and Article 5(1)(c) requires the country in which the damage occurred to be ascertained. This country will normally be easy to ascertain but not always. What of the situation where pills are taken as a person moves across Europe and these have a cumulative effect? The country in which the individual sustained damage will have to be artificially fixed, the best solution probably being to fix it where the first impact was felt.443

A lack of foreseeability exception

Article 5(1) provides an exception to (a), (b) and (c) in the situation where the person claimed to be liable “could not reasonably foresee the marketing of the product, or a product of the same type, in the country the law of which is applicable under (a), (b) or (c)”. This could happen where a product is marketed in a country against the will of the person claimed to be liable. In this situation, the law applicable is that of the country in which the person claimed to be liable444 is habitually resident. As concerns the timing of the acts of marketing by the person claimed to be liable, it should not be possible to invoke the foreseeability defense if a product has been marketed in a country any time before the date of damage (for paragraphs (a) and (c)) or before the date of acquisition of the (p. 823) product (for paragraph (b)).445 Such an interpretation avoids the defendant later terminating the marketing of the product in a specific area in order to rely on the foreseeability defense and thus his own law. The non-foreseeability exception appears to have been influenced by the 1973 Hague Convention, which contains a non-foreseeability rule.446

A common habitual residence exception

Article 5(1) is without prejudice to Article 4(2), which provides that “where the person claimed to be liable and the person sustaining the damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply”. Starting Article 5(1) with the words “Without prejudice to Article 4(2)” makes it clear that this common habitual residence exception operates not only as an exception to the law applicable under paragraph 1(a), (b) and (c) but also to the law applicable under the lack of foreseeability exception set out in the last sentence of Article 5(1).

The manifestly more closely connected escape clause

Paragraph (2) provides an escape from the law “indicated in paragraph 1”, based on a manifestly closer connection with another country. This provision is identical in wording to Article 4(3). The structure and wording of Article 5 would suggest that the Article 5(2) escape clause will not only override the law applicable under the cascading rules and the lack of foreseeability exception but also the law applicable under Article 4(2). Application of the law of the country of common habitual residence under Article 4(2) is “indicated in paragraph 1”. Moreover, this interpretation is consistent with Article 4 where the manifestly more closely connected escape clause operates as an escape also from the common habitual residence exception.447

(b)  Unfair competition448

Article 6 is concerned with two different torts, unfair competition (paragraphs 1 and 2) and acts restricting free competition (paragraph 3). The former will be considered in this section and the latter under the heading “Restricting free competition” in (c) below.

(i)  The scope of the unfair competition choice of law rules

Article 6 is headed, inter alia, “Unfair competition” and paragraph 1 goes on to provide that the rules on the applicable law apply to “a non-contractual obligation arising out of an act of unfair competition”. According to Recital (21), the special rule on Article 6 “is not an exception to the general rule in Article 4(1) but rather a clarification of it”. The purpose of rules against unfair competition is to protect competition by obliging all participants to play the game by the same rules.449 Thus, “the conflict-of-law rule should protect competitors, consumers and the general public and ensure that the market economy functions properly”.450 The understanding of the European legislator is that the “connection to the law of the country where competitive relations or the collective interests of consumers are, or are likely to be, affected generally satisfies these objectives”.451

(p. 824) The definition of “unfair competition” is particularly problematic. Although most civil law systems have a substantive law of unfair competition, there are huge differences over what is covered by these laws. The intention of the Commission was that an autonomous concept of unfair competition for the purposes of Article 6 Rome II should cover, among other things, “acts calculated to influence demand (misleading advertising, forced sales, etc), acts that impede competing supplies (disruption of deliveries by competitors, enticing away a competitor’s staff, boycotts), and acts that exploit a competitor’s value (passing off and the like)”.452 It was also intended to encompass industrial espionage, disclosure of business secrets and inducing breach of contract.453 Moreover, unfair competition covers the “use of unfair terms inserted into general terms and conditions, as this is likely to affect the collective interests of consumers as a group and hence to influence the conditions of competition on the market.”454

There is no tort of unfair competition under English law455 but there are specific torts of passing off, malicious falsehood, breach of confidence,456 interference with contractual relations, and defamation (which can be used in a business context). Passing off is clearly an act of unfair competition. Where malicious falsehood and defamation are used in a business context and involve a competitor’s goods or business, they should be regarded as coming within the ambit of unfair competition under Article 6.457 Under English law, disclosure of business secrets would be regarded as coming within breach of confidence. But for the purposes of Article 6 this should be regarded as an act of unfair competition. The specific tort of inducing breach of contract should likewise be so regarded. Once it has been decided that there is an act of unfair competition within the meaning of Article 6(1) it follows that this is a tort and the obligation that arises out of this tort must be regarded as non-contractual.

(ii)  The law applicable to unfair competition

There are two different choice of law rules in relation to unfair competition. The two separate rules reflect the fact that unfair competition law seeks to protect not only the market, competitors interests overall, consumers and the public in general but also specific competitors.458

Article 6(1)

The first and general choice of law rule for unfair competition provides that the “law applicable to a non-contractual obligation arising out of an act of unfair competition shall be the law of the country where competitive relations or the collective interests of consumers are, or are likely to be, affected” (Article 6(1)). According to Recital (21), the legislator considers this rule as an expression of the general lex loci damni (law of the place of damage) principle laid down in Article 4(1) to the field of unfair competition. Article 6(1) (p. 825) is concerned with the effect on the market in general, on competitors’ interests in general and the effect on the interests of consumers generally.459 This would cover also an action for an injunction based on unfair competition brought by a consumer association against the defendant, eg to enjoin the use of unfair terms inserted into general terms and conditions.460

Under Article 6(1), the law applicable is that of the country where competitive relations or the collective interests of consumers are, or are likely to be, affected. This is the market where competitors are seeking to gain the customers’ favour.461 In determining which markets are likely to be affected, the Commission’s original proposal provided that “only the direct substantial effects of an act of unfair competition should be taken into account”.462 However, different from the initial proposal (and from Article 6(3)(b)), Article 6(1) no longer includes the words “directly and substantial” which excludes a requirement of “substantial effect” to be read into Article 6(1).463 Rather, Article 6(1) is meant to be applied also to unsubstantial effects, since also for these effects a conflict rule on the applicable unfair competition law is required. Still, a limitation of Article 6(1)464 is to be accepted for mere unintended spill-over effects: such effects can be regarded as an (irrelevant) indirect damage,465 and the application of the law of a country which has not been targeted would run counter to the overarching principle of foreseeability of the applicable law under Rome II. However, an act of unfair competition affecting more than one country’s market, without this being a mere unintended spill-over effect, “gives rise to the distributive application of the laws involved”.466 In such a multi-state scenario, the legality of an act of unfair competition which affects several countries’ markets is to be assessed by the law of each of the countries affected, with the consequence that it might be lawful in some and unlawful in other jurisdictions.467

When it comes to the second element of Article 6(1), that is the country in which the collective interests of consumers are affected, this refers to the country of residence of the consumers to whom the undertaking directs its activities and whose interests are defended by the relevant consumer protection association by means of an action for an injunction.468 Often the place where the collective interests of consumers are affected will coincide with the place where competitive relations are affected. However, where the collective interests of consumers are affected by the use of unfair terms in general terms and conditions, the unfairness of the (p. 826) terms in consumer contracts which are the subject of an action for an injunction must, as an incidental question, be determined independently. Thus, where the action for an injunction aims to prevent such terms from being included in consumer contracts, the law applicable to the assessment of the terms must be determined in accordance with the Rome I Regulation, in particular Article 6 Rome I.469 This distinction is necessary to ensure that the same law applies to the unfairness of the terms, whether raised in a collective action by a consumer association or in an individual action raised by a consumer.470 Finally, Article 6(1), unlike Article 4(1), has no common habitual residence exception or manifestly more closely connected escape clause. The reason for this is that these exceptions are not suited to the matter of unfair competition, since Article 6(1) aims to protect collective interests—more extensive than the relations between the parties to the dispute—by providing for a rule specifically suited to that purpose. That aim would not be achieved if it were permissible to block the rule on the basis of personal connections between those parties.471

Article 6(2)

The second choice of law rule is concerned with where “an act of unfair competition affects exclusively the interests of a specific competitor” (Article 6(2)). In other words, a specific competitor is targeted. This would, for example, encompass enticing away a competitor’s staff, corruption, industrial espionage, disclosure of business secrets or inducing breach of contract.472 As the word “exclusively” makes clear, Article 6(2) does not apply to acts of unfair competition such as passing-off or misleading advertisement which, while targeting a specific competitor, also affect the market as a whole, in particular the decisions of the other side of the market.473

Under Article 6(2) it is provided that Article 4 will apply. In other words, the law of the country applies where the direct damage was sustained, which will normally be the country where the specific competitor affected by the act of unfair competition has his/her habitual residence (ie his/her central administration, unless the damage arises in the operation of a branch, agency or other establishment, Article 23(1)). It is to be noted that the whole of Article 4 will apply, not just the country of damage rule but also the common habitual residence exception and the manifestly more closely connected escape clause. The underlying philosophy is that where a specific competitor has been targeted, that person should enjoy the benefit of the flexibility in Article 4(2) and (3).474

Article 6(4)

This provides that the law applicable under Article 6 cannot be derogated from by an agreement of the parties as to the governing law pursuant to Article 14. This limitation rule was not in the Proposal for a Regulation and so there is no explanation for it in the Explanatory Memorandum. For the general rule of Article 6(1), the limitation of the parties’ autonomy can be justified by the same reasons which are brought forward against applying the exceptions of Article 4(2) and (3), namely that Article 6(1) aims to protect collective interests by providing for a rule specifically suited to that purpose; an aim that would not be (p. 827) achieved if it were permissible to block the rule on the basis of an agreement between those parties. It is more surprising to find this limitation on the parties’ normal freedom to choose the law applicable to a non-contractual obligation in Article 6(2) cases. After all, the choice of law rule is the flexible one set out in Article 4.475 So why not allow flexibility in the form of a choice of the applicable law by the parties? A possible justification for this could be that a denial of the freedom to choose also applies to infringements of intellectual property rights.476 Sometimes a claim for infringement is accompanied by one for disclosure of business secrets, a tort which would fall within Article 6(2). It might be considered undesirable for one part of the claim to be governed by the parties’ choice and the other part not so governed.

(c)  Restricting free competition

Article 6(3) sets out a choice of law rule for acts restricting free competition.477 The substantive law background to this rule is Articles 101 and 102 of the Treaty on Functioning of the European Union (TFEU), which deal with competition law within the European Union. In addition, individual Member States have their own competition laws. Any actionable breach of EU law which gives rise to a claim in damages should be categorised as a tort/delict, being a breach of statutory duty.478 An action for damages based on the breach of competition rules has been held to come within the scope of Article 7(2) of the Brussels I Recast.479

(i)  The scope of Article 6(3)

Article 6 is headed, inter alia, “acts restricting free competition” and Article 6(3) applies to “a non-contractual obligation arising out of a restriction of competition”. Recital (23) explains that the concept of restrictions of competition covers “prohibitions on agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition within a Member State or within the internal market, as well as prohibitions on the abuse of a dominant position within a Member State or within the internal market, where such agreements, decisions, concerted practices or abuses are prohibited by Articles 81 and 82 of the Treaty or by the law of a Member State”. This definition is taken almost verbatim from (now) Articles 101 and 102 TFEU, and those Articles can be consulted for particular instances of such agreements, decisions, concerted practices and abuses. Recital (22) adds that non-contractual obligations arising out of restrictions of competition cover infringements of both EU and national competition law, which includes the national competition law of non-EU Member States. Because of the limitation of the Rome II Regulation to non-contractual obligations, it is uncertain whether the law applicable under Article 6(3) covers also the infringement of competition law as such.480 Even if it does not, at least for EU competition law this will not make a large difference, as the European courts define the international scope of application of substantive EU competition rules either by reference to the implementation of the practices at issue in the European Economic Area or by demonstrating effects within this territory.481 If one of this requirements is met, the market in the respective territory is also very (p. 828) likely to be affected, with the consequence that the criteria of Article 6(3) would be met and the law of the respective territory to be applied. Many actions for breach of competition law are brought by the Commission or national competition authorities in administrative proceedings. Such actions fall outside the scope of the Regulation on the basis that they are not civil and commercial matters.482 In contrast, an action by an individual (or company) who has suffered damage would clearly satisfy this requirement.483

(ii)  The law applicable to acts restricting free competition

Article 6(3) sets out two choice of law rules. As the general rule, Article 6(3)(a) provides that the law applicable to a non-contractual obligation arising out of a restriction of competition shall be the law of the country where the market is, or is likely to be, affected. Being the general rule, Article 6(3)(a) is not limited to a scenario where the market is affected in just one country. Rather, the principle applies also to cases where markets in two or more states are affected, with the consequence of a distributive application of the law of each country in which the market was affected. As can be seen from the different wording in Article 6(3)(b), Article 6(3)(a) does not require direct or substantial effect on the market. However, as in the field of unfair competition, it appears reasonable to exclude spill-over effects, either as indirect damage by analogy to Article 4(1)484 or for a lack of foreseeability of the law of mere “spill-over states” being applied.

Article 6(3)(b) applies where the market is, or is likely to be, affected in more than one country. In this situation, the person seeking compensation for damage who sues in the court of the domicile of the defendant may choose to base his claim on the law of the court seised, provided that the market in that Member State is amongst those directly and substantially affected by the restriction of competition out of which the non-contractual obligation on which the claim is based arises.485 The purpose of this choice is to make competition law enforcement easier by allowing a concentration on one law in case of a multi-state infringement. The law applicable under Article 6(3) may not be derogated from by an agreement pursuant to Article 14.486

(d)  Environmental damage

Although there has been a gradual harmonisation within the European Union of the substantive law in relation to environmental damage,487 choice of law problems remain in the world-wide context and even within the European Union.488 So it is not surprising to find a specific rule in Article 7 of the Regulation for this situation.

(p. 829) (i)  The scope of Article 7

Article 7 is headed “environmental damage”. Recital (24) explains that “environmental damage” means “adverse change in a natural resource, such as water, land or air, impairment of a function performed by that resource for the benefit of another natural resource or the public, or impairment of the variability among living organisms”.489 Article 7 applies to “a non-contractual obligation arising out of environmental damage or damage sustained by persons or property as a result of such damage”. It is thus designed to cover two sorts of damage. First, it covers damage to the environment itself. Some civil law states have introduced special rules dealing with the protection of the environment. For example, it is conceivable that somebody who nonchalantly violates environmental law must compensate the state for the damage caused. However, many of such claims, including those introduced to implement Directive 2004/35 on Environmental Liability, will not qualify as civil and commercial matters, but rather as administrative actions. Secondly, it covers damage to persons or property which is a result of environmental damage. This would cover cases brought under the English law of nuisance, trespass and negligence as well as the rule in Rylands v Fletcher.490 With both types of damage, the damage must be the result of human activity.491 In light of the limitation to “environmental damage” and “damage sustained by persons or property as a result of such damage”, it is unclear whether Article 7 covers also pure financial loss as a consequence of environmental damage. The more convincing view is that such loss falls under Article 7, but does not—unlike environmental damage as such and damage sustained by persons or property—constitute direct damage, but rather an “indirect consequence” in the sense of Article 4(1). As a consequence, the location of financial loss is not to be taken into account when the applicable law is identified under Article 7.

(ii)  The law applicable to environmental damage

In cases coming within the scope of Article 7 the law applicable “shall be the law determined pursuant to Article 4(1), unless the person seeking compensation for damage chooses to base his claim on the law of the country in which the event giving rise to the damage occurred”. This provides for the application of the law of the country in which the damage occurs, but with the claimant having the option of choosing the application of the law of the country in which the event giving rise to the damage occurred.

The place of damage rule

The starting point under Article 7 is the application of the law determined under Article 4(1), which provides for the application of the law of the country in which the damage occurs. The applicable law will thus be the law of the country where the environmental damage occurs, or, if that damage leads to damage sustained by persons or property, the law of the country where this damage is sustained (which will in most places be the same country where the environmental damage occurred). Financial losses resulting from environmental damage are not relevant damage, but only an indirect consequence of environmental damage. Article 7 has been justified on the basis that it conforms to “recent objectives of environmental protection policy, which tends to support strict liability”.492 Moreover, it obliges operators established in low protection countries to abide by the greater protection afforded in neighbouring countries, removing the incentive to establish in low protection countries. This is said to be “conducive to a policy of prevention”.493 No recourse can be had to the Article 4(2) common habitual residence exception or the Article 4(3) manifestly (p. 830) more closely connected escape clause. This is probably because the place of damage rule provides for the application of the liability rules of the place where the environmental damage occurred to foster the preventive policies of that place so that the use of an exception and a let-out is regarded as being inappropriate. The place of damage rule is the default rule that operates unless the claimant exercises the option to base his or her claim on the law of the country in which the event giving rise to the damage occurred.

The option

This allows the person seeking compensation for damage to base his or her claim on the law of the country in which the event giving rise to the damage occurs, rather than on the law of the country in which the damage occurs. If the claimant exercises this option, the applicable law is that of the country in which the event giving rise to the damage occurred.494 The claimant can therefore choose the applicable law from two alternatives. This is a one-sided rule, with no such option given to the defendant. Article 7 can therefore be seen to be a pro-claimant rule which is justified by the desired high level of protection in environmental law, based on the precautionary principle and the principle that preventive action should be taken, the principle of priority for corrective action at source and the principle that the polluter pays.495 The claimant victim is given this option so as to provide him or her with greater protection than is afforded by a place of damage rule. The victim should get the same protection as victims in neighbouring countries.496 This can be illustrated by taking the following example:

A polluter establishes its facilities in Country A by a river which flows into the neighbouring Country B, a low protection country. The victim should get the same protection as victims in Country A.497

If the victim could only rely on the law of the place of damage this would encourage businesses to establish their facilities on the border of low protection countries. So overall the option should raise the level of environmental protection. The stage at which the victim must exercise this option is for the procedural law of the forum to determine.498 Giving the person seeking compensation the option of choosing to base his claim on the law of the country where damage was sustained or the law of the country in which the event giving rise to the damage occurred ties in with the jurisdictional choice of the same two countries given to the claimant under Article 7(2) of the Brussels I Recast.499

Rules of safety and conduct

Article 17 contains a general limitation on the law applicable under the Regulation, which is concerned with rules of safety and conduct in force at the place of the event giving rise to liability. Environmental damage is an area where this rule may come into play. Operators are required to comply with public law rules as to safety and conduct.

Let us assume that an operator complies with the rules, eg in relation to the level of toxic emissions, in the country in which it operates (Country A). Nonetheless, it causes damage in the adjacent Country B. The level of emissions exceeds those allowed under the rules of that (p. 831) country. Under the place of damage rule, the law of Country B will apply and the operator will be liable to the victim.

The effect of Article 17 is that the forum, in assessing the conduct of the operator, must take account “as a matter of fact and in so far as is appropriate, of the rules of safety and conduct” which were in force in Country A. This does not mean applying the law of Country A, rather it is a matter of taking account of its rules of conduct and safety to determine questions of fact, eg when assessing the seriousness of fault.500

(e)  Infringement of intellectual property rights

Article 8 provides specific rules for infringement of intellectual property rights. Such rules were considered necessary because of the significance given under intellectual property conventions501 to the territoriality principle which attaches great importance to the law of the country in which protection is claimed.502 Unfortunately, the Explanatory Memorandum seems to confuse the law of the country for which protection is sought (lex loci protectionis) principle (which is now enshrined in Article 8(1) and is a choice of law rule) and the territoriality principle (which is a substantive law rule providing that substantive intellectual property law covers only acts of infringement within the territory of the state granting the intellectual property right).503 As concerns the former, it is doubtful whether there are indeed specific and clear-cut choice of law rules in these conventions.504

(i)  The scope of Article 8

Article 8 is headed infringement of intellectual property rights and this provision applies to “a non-contractual obligation arising from an infringement of an intellectual property right”.505 Article 13 adds that Article 8 applies also to non-contractual obligations falling within Chapter III of the Regulation. Thus, an obligation based on unjust enrichment arising from an infringement of an intellectual property right is accordingly governed by the same law as the infringement itself.506 For the purposes of the Regulation the term “intellectual property rights” is to “be interpreted as meaning, for instance, copyright, related rights, the sui generis right for the protection of databases and industrial property rights”.507 “Industrial property rights” is a term used in the Paris Convention and in some civil law jurisdictions to encompass patents, utility models, trade marks and registered designs. These are only instances of intellectual property rights. There can be other instances such as plant variety rights.508 Outside the scope of Article 8 are claims for unfair competition (eg passing off, breach of confidence) which fall under Article 6 and non-contractual obligations based on a person’s personality rights (eg in a name or an image) which are excluded from the Regulation under Article 1(2)(g). Moreover, all (p. 832) questions which are regarded as procedural and not substantive fall, as always, outside the scope of Rome II.509

In intellectual property cases, the non-contractual obligations arising from infringement (which fall in the scope of the Rome II Regulation) are often closely linked with the creation, registration, validity, (first) ownership or transfer of the intellectual property right. While (first) ownership and transfer can be regarded as preliminary or incidental questions of a proprietary character which do not fall under Rome II,510 this is much more difficult to say for the creation, registration and validity of intellectual property rights, as these questions are often closely related to the extent and limitations of such rights which makes a separation between the two for choice of law purposes artificial.511 In many countries including the UK, this question can be left open in practice, as the choice of law rule for the creation, registration and validity of intellectual property rights under domestic law is the same rule as enshrined in Article 8(1), namely the law of the country for which protection is sought (lex loci protectionis).512

(ii)  The law applicable to intellectual property rights

Article 8 sets out two separate choice of law rules. The first rule is set out in Article 8(1), the second in Article 8(2).

Article 8(1)

This is concerned with infringements of intellectual property rights conferred under national legislation or international conventions, such as a United Kingdom patent or a European patent. Article 8(1) provides that: “The law applicable to a non-contractual obligation arising from an infringement of an intellectual property right shall be the law of the country for which protection is claimed.” The country (or countries) for which protection is claimed will be determined by the claimant’s presentation of his or her claim. It is in the claimant’s discretion to seek protection under the intellectual property laws of any country (or countries); this choice is not limited to countries where actual infringement occurred or damage was caused.513 The question whether or not an infringement actually occurred in that country is a matter for the applicable substantive law (ie the law of the country for which protection is sought, lex loci protectionis)514 of this country to decide. In so deciding, it will be relevant to know whether the allegedly infringing act(s) actually took place in the country for which the claimant has claimed protection under a certain intellectual property right; ie a localisation of the alleged act of infringement under the claimed substantive law becomes necessary.515 If, under the applicable substantive law, the alleged acts of infringement did not occur in the claimed country of (p. 833) protection, there will be no infringement of that country’s substantive intellectual property law, as this is limited under the principle of territoriality to “conduct engaged in within national territory”;516 the claim will then fail on the level of substantive law. To take an example of the operation of this rule, let us assume that a patent has been registered in the United Kingdom. It is claimed that this UK patent has been infringed. If, as is usually the case, validity is raised as a defence to the infringement, the UK courts will have exclusive jurisdiction517 and, by virtue of Article 8(1),518 will apply UK law to determine whether the defendant is liable for infringement and what (substantive law) remedies are available As there is a single patent for the whole country and a single patent law that applies in the whole of the country, patent judges have stopped referring to English or Scots law on this point and instead refer to UK law, with Actavis UK Ltd v Eli Lilly & Co being as case in point.519 UK law also governs the validity point.520 Let us now assume that the patent has been registered in ten different European countries. If validity is raised as a defence, each of the ten European countries will have exclusive jurisdiction in relation to the patent that is registered in its country.521 The claimant would have to bring ten actions in ten different Member States. Under Article 8(1) each Member State would then apply its own law to determine whether there has been infringement.522 Article 8(1) therefore builds on the territorial principle that is found in intellectual property conventions and adopts a corresponding choice of law rule.523 This principle is regarded as being so important that there is no common habitual residence exception or “manifestly more closely connected” escape clause from the “country for which protection is claimed” rule.

Article 8(2)

The second choice of law rule is concerned with infringements of unitary Community (EU) rights, ie a European Union trade mark,524 a Community design,525 a Community plant variety right526 or (in the future) a European patent with unitary effect.527(p. 834) A unitary Community (EU) right provides protection in every Member State.528 Article 8(1) works only as a starting point in this situation in that it identifies the entire European Union as the country for which protection is claimed.529 As the relevant EU instruments do not provide for a complete set of rules for infringement, in particular a complete set of remedies, a supplementary choice of law rule was needed which is provided by Article 8(2): “In the case of a non-contractual obligation arising from an infringement of a unitary Community intellectual property right, the law applicable shall, for any question that is not governed by the relevant Community instrument, be the law of the country in which the act of infringement was committed.” Article 8(2) only applies to questions that are not governed by the relevant EU instrument.530 For example, the EU Trade Mark Regulation harmonises the basic rules on infringement so the question of infringement itself is governed by the EU instrument.531 However, the EU Trade Mark Regulation has only very limited rules on sanctions. Many issues in relation to sanctions (what are available, in what circumstances, etc, but also issues such as prescription) are left to be dealt with by national substantive law. The resulting choice of law question will be determined in the first instance by the choice of law rules of the respective EU instruments.532 However, these rules533 refer, for non-procedural issues,534 back to the national law of the seised EU Trade Mark court, including its private international law, ie to the choice of law rules of the law of the forum,535 which is for unitary EU rights Article 8(2). Article 8(2) provides then for the application of the law of the country in which the act of infringement was committed.536 A particular complexity arises where an EU unitary right has been infringed by several acts in different EU Member States (eg production, advertisement, sale), which from an economic point of view cause a single damage. In order to avoid a mosaic of several national laws being applicable due to the different acts of infringement in different countries, a potential concentration on a single law could be achieved by focusing only on the last act of infringement directly causing the damage for which compensation is claimed, which will normally be the act of distribution.537 Article 8(2) does not provide for a common habitual residence exception or manifestly more closely connected escape clause.

Article 8(3)

provides that the law applicable under Article 8 cannot be derogated from by an agreement of the parties as to the governing law pursuant to Article 14. This is the same as with unfair competition, which can operate as a complementary tort to infringement of intellectual property rights. The only “explanation” given for this limitation in the case of (p. 835) infringement of intellectual property rights is that freedom of choice in this area would not be “appropriate”, which is no real explanation at all.538 The actual reason is presumably that the territorial principle that underlies the special choice of law rules for infringements is regarded as being so important that the parties should not be allowed to choose the law of a country other than the one arrived at by the application of that principle.

(f)  Industrial action

Article 9 provides that:

Without prejudice to Article 4(2), the law applicable to a non-contractual obligation in respect of the liability of a person in the capacity of a worker or an employer or the organisations representing their professional interests for damages caused by an industrial action, pending or carried out, shall be the law of the country where the action is to be, or has been, taken.539

(i)  The scope of Article 9

Article 9 is entitled “Industrial action” and the choice of law rule is concerned with the law applicable to “a non-contractual obligation in respect of the liability of a person in the capacity of a worker or an employer or the organisations representing their professional interests for damages caused by an industrial action, pending or carried out”. No definition of industrial action is provided. However, Recital (27) gives two examples of such action, namely strike action and lock-outs. More cryptically, Recital (27) points out that the exact concept of industrial action varies from one Member State to another “and is governed by each Member State’s internal rules”. As a consequence of the great diversity between Member States in this political sensitive subject, “industrial action” is one of the few cases where there shall be no EU autonomous definition of a concept. The reference to national law raises the question which Member State’s internal rules should provide the definition. The obvious answer would be the forum. But Recital (27) goes on to say: “Therefore, this regulation assumes as a general principle that the law of the country where the industrial action was taken should apply.” This and the purpose of Article 9, namely the preservation of different national concepts of industrial action at the place where such action is taken suggests that the law of the country where the action was taken should determine whether it is industrial action.540 In English and other common law jurisdictions, there is no tort of industrial action as such. However, a number of torts can arise out of strikes and lockouts: namely, inducement of breach of contract; causing loss by unlawful means; intimidation and unlawful conspiracy.

(ii)  The law applicable to industrial action

In cases coming within the scope of Article 9, the law applicable is “the law of the country where the [industrial] action is to be, or has been, taken”. This rule is designed to protect (p. 836) the rights of workers and employers.541 It has been justified on the basis of the difficulty in defining “industrial action”.542 Some Member States were not happy with this rule because it means that vessels would be exposed to substantive law rules which varied according to the laws of the states of their ports of call, irrespective of whether those vessels were in full conformity with the laws of the flag state.543 The general rule of Article 9 is without prejudice to Article 4(2), the common habitual residence exception. However, the manifestly more closely connected escape clause in Article 4(3) does not apply. Finally, the specific rule on industrial action is “without prejudice to the conditions relating to the exercise of such action in accordance with national law and without prejudice to the legal status of trade unions or of the representative organisations of workers as provided for in the law of the Member States”.544

(e)  The applicable law for unjust enrichment, negotiorum gestio and culpa in contrahendo

Chapter III is concerned with obligations that arise neither out of a contract nor out of a tort/delict within the meaning of Chapter II.545 More specifically it is concerned with obligations that arise out of unjust enrichment, negotiorum gestio and culpa in contrahendo. Obligations arising out of these three concepts are necessarily non-contractual obligations.546 The first two concepts are concerned with the law of restitution. The third is concerned with the very different matter of pre-contractual obligations. The Commission, in the Proposal for a Regulation, acknowledged the difficulty in devising choice of law rules for these areas. It accepted that the substantive law and the choice of law rules were still evolving rapidly in most of the Member States, which meant that the law was far from certain.547 The answer in the Proposal was to avoid technical terms and to provide a mixture of specific rules, whilst leaving sufficient flexibility to Member States to adapt the rules to their national system.548 The final version of the Regulation is markedly different from the Proposal. It is much clearer in that it adopts separate regimes of specific rules for each of the three concepts dealt with in Chapter III, rather than a confusing combination of general rules and specific rules for particular concepts.549 But this development has necessitated the use of technical terms with attendant definitional problems.

Before turning to examine these special rules, it should be noted that there is one exception to the principle that non-contractual obligations that arise out of unjust enrichment, negotiorum gestio and culpa in contrahendo are dealt with by the special choice of law rules in Chapter III. This exception is concerned with non-contractual obligations that arise from the infringement of intellectual property rights. For example, a non-contractual obligation may be based on unjust enrichment arising from an infringement of intellectual property rights. In theory two sets of special choice of law rules under the Regulation could come into play in (p. 837) respect of the same dispute, namely the infringement of intellectual property rules in Article 8 of Chapter II and the unjust enrichment rules in Article 10 of Chapter III. To avoid this, Article 13 provides that Article 8 shall apply to non-contractual obligations arising from an infringement of an intellectual property right.550 This means that the non-contractual obligation based on unjust enrichment is governed by the same law as the infringement itself.551

(i)  Unjust enrichment

Article 10 sets out the special choice of law rules for unjust enrichment.

(a)  The scope of Article 10

Article 10 is headed “Unjust enrichment” and applies where there is “a non-contractual obligation arising out of unjust enrichment”.552 Unjust enrichment includes “payment of amounts wrongly received”553 which would cover a claim for restitution of an overpayment of money. This gives an example of unjust enrichment but there is no attempt to go further and to define “unjust enrichment”.

(i)  Characterisation as unjust enrichment
The nature of the problem

Difficult problems of classification arise in relation to unjust enrichment. It is not always clear whether an obligation arises out of unjust enrichment, contract, tort, or equity. If the obligation arises out of unjust enrichment it will fall within Article 10. If the obligation arises out of contract it will fall outside the scope of the Regulation altogether, but within the Rome I Regulation. If the obligation arises out of tort it will fall within Chapter II of the Regulation. If the obligation arises out of equity, it depends on the nature of the obligation.554 If the matter is essentially proprietary, it will fall outside the Regulation and instead come within the property choice of law rules.

Does it make any practical difference which set of choice of law rules is applied?

In many cases it will make no practical difference whether the contract or unjust enrichment choice of law rules are applied. This is because under Article 10 of the Regulation, normally, the law governing the contractual relationship will also govern the non-contractual obligation arising out of unjust enrichment.555 Nonetheless, in a minority of cases the effect of Article 10(4) is that the law of some country other than that whose law is applicable to the contract will apply. It is therefore crucial to decide whether the contract choice of law rules or the unjust enrichment choice of law rules should be applied. The same is true in relation to whether the tort choice of law rules556 or the unjust enrichment choice of law rules are applied. The difference between the unjust enrichment choice of law rule under Article 10 and the English choice of law rules for property is much more marked and makes the question of characterisation on this borderline particularly important.

The approach to be adopted towards characterisation

At common law the English courts characterised the cause of action and the issue. The leading pre-Regulation case on characterisation in the context of restitution is Macmillan Inc v Bishopsgate Investment Trust plc (No 3),557 which concerned the developing notion of a receipt-based restitutionary claim. In this case, the Court of Appeal accepted that the claim was one in restitution, but characterised (p. 838) the issue as being proprietary with the result that the property choice of law rules applied. Auld LJ referred to the danger of looking at characterisation through domestic eyes, and said that “the ‘receipt-based restitutionary claim’ is a notion of English domestic law that may not have a counterpart in many other legal systems and is one that it may not be appropriate to translate into the English law of conflict”.558 In the absence of an issue whose characterisation is so clear-cut, it will be the characterisation of the cause of action that matters. This is what will happen in many cases.

Under the Regulation, it has to be decided whether there is a non-contractual obligation and, if there is, whether this arises out of unjust enrichment. This does not tell us precisely what is being characterised. If the facts of Macmillan were to arise under the Regulation, is one supposed to characterise the issue or the cause of action? In the context of the Regulation the process of characterisation should not be carried out through English eyes. The approach adopted in Macmillan is designed to ensure that this does not happen. Ultimately the question is which set of choice of law rules in the Regulation should you apply and the flexible approach adopted in Macmillan is particularly well suited to answering this.

(ii)  Specific problems
Property or unjust enrichment?

Under English substantive law it is unclear to what extent proprietary claims should be characterised as restitutionary.559 At first sight, this produces a considerable dilemma for the private international lawyer. However, under the pre-Regulation law it appeared that, regardless of the characterisation of the cause of action, where the issue in the case was essentially a proprietary one, recourse had to be had to the choice of law rules in relation to property issues.560 The leading pre-Regulation case is Macmillan Inc v Bishopsgate Investment Trust plc (No 3).561

The plaintiff, a Delaware corporation, brought an action against a number of banks claiming that it was beneficially entitled to shares in a New York corporation, that these were held on constructive trust by the defendants for the benefit of the plaintiff, and seeking their return or compensation for their loss. The question arose of the applicable law. This in turn raised a question of characterisation: was the issue in the case restitutionary, in which case the restitution choice of law rules would apply, or proprietary, in which case the property choice of law rules would apply?

The Court of Appeal held that the issue in the case, namely whether the defendants could defeat the plaintiff’s interest by establishing that they were bona fide transferees for value without notice, was essentially a proprietary one. Turning therefore to the choice of law rules in relation to property issues, it was held that the law applicable to questions of title to shares in a company was that of the place where the shares were situated, which in the ordinary way was that where the company was incorporated. Accordingly, New York law applied.

It has earlier been submitted that the Macmillan approach towards characterisation should be adopted in Regulation cases. This means that, if the facts of Macmillan were to arise now, the result should be the same, namely the property choice of law rules should apply, rather than the Regulation.

(p. 839) The question of characterisation as unjust enrichment or property also arises in relation to proprietary restitution.562 A claim for proprietary restitution would arise where, for example, a seller delivers goods to the buyer and the latter fails to pay. The seller wants the goods themselves back. If title has passed to the buyer the seller would ask that the goods revest in him. The question is whether such a claim is based on unjust enrichment (and thus falls within Article 10 in Chapter III) or is based on the law of property (and thus falls outside the scope of the Regulation altogether). Under English substantive law there is considerable controversy over the classification of such claims.563 While there is certainly much force in the argument that claims for proprietary restitution should be regarded as being based on property, since property rights are ultimately at stake,564 the claim itself is not necessarily based on property (as title has already passed).565 In order to be classified as proprietary, however, it should be decisive whether the claim to return the goods is based on property, because under the law governing property in the goods (normally the law of the situs where the property is located), the claimant preserved some form of (legal or equitable) ownership in them. If, on the other hand, the claim is not based on any form of ownership, because the claimant has lost any form of ownership, it should be classified as a “mere” obligation. Provided that this obligation is not contractual in nature,566 it would qualify as a form of unjust enrichment in the sense of Article 10 Rome II.

Contract or unjust enrichment?

A claim by a buyer of goods for restitution of an overpayment of money to the seller arises out of unjust enrichment, rather than contract. This can be said with confidence because Article 10(1) provides that unjust enrichment includes “payment of amounts wrongly received”.567 If however, a contract is void ab initio and one of the parties seeks return of money paid in advance, Article 12(1)(e) of the Rome I Regulation568 makes it clear that “the consequences of nullity” are to be characterised as contractual for the purposes of EU private international law of obligations. Thus, courts in the United Kingdom will apply the contract choice of law rules under the Rome I Regulation.

A restitutionary obligation may also arise out of discharge of a contract. This does not relate to “the consequences of nullity”.569 Under English law this would probably be regarded as restitutionary rather than contractual570 and, if this classification is adopted for the purposes of the Rome II Regulation, recourse has to be had to Article 10. However, in some civil law countries, eg Germany, the right to have a contract unwound, and obtain restitution, (p. 840) following a serious breach of contract is regarded as contractual.571 Moreover, if even the consequences of nullity of a contract are deemed to be contractual under Article 12(1)(e) Rome I, the same should be true for claims arising out of the discharge of a contract, or upon a breach of contract, where even a valid contract has existed. These cases would thus fall within the Rome I Regulation.572

Tort or unjust enrichment?

The borderline between unjust enrichment and tort has previously been examined when discussing the scope of Chapter II.573

Equity and unjust enrichment

Prior to the Rome II Regulation it was suggested that the equitable parts of the law of restitution, such as the restitutionary remedy of rescission for common mistake in equity, should be characterised as restitutionary (unjust enrichment) rather than as equitable.574 The question now is whether this should be regarded as falling within the meaning of unjust enrichment under the Regulation. As the remedy of rescission seems to allow escape from a contract, it is probably best regarded as contractual and thus falling in the scope of the Rome I Regulation.575 This is not called into question by the observation that such a remedy may also reverse unjust enrichment where a contract has been wholly or partly executed, because these consequences can also be considered, like the consequences of nullity or avoidance of a contract, as being contractual in nature.576

It was also suggested that the question whether a person holds on constructive trust is best regarded as coming within the restitution choice of law rules.577 It is no doubt true that constructive trusts are restitutionary in cases where the constructive trust is imposed where there is unjust enrichment by subtraction or restitution for wrongdoing.578 With the introduction of the Regulation, such cases would fall within Article 10.579 But there are other cases where a constructive trust is held to exist where there is no unjust enrichment by subtraction or restitution for wrongdoing.580 A claim may assert that property is held on constructive trust because the transferee has equitable title to the property. The basis of such a claim is proprietary.581 The appropriate choice of law rule to be applied will depend on whether the constructive trust falls within the Recognition of Trusts Act 1987,582 which gives effect to (p. 841) the Hague Convention on the Law Applicable to Trusts and on their Recognition. If it does, then the choice of law rules in the Act will apply. This is unaffected by the advent of the Regulation, which does not prejudice the application of this Hague Convention.583 If the constructive trust does not fall within the 1987 Act, the property choice of law rules should apply.584

The position is equally unsettled when it comes to resulting trusts. Although it has been argued that, in principle, there are restitutionary resulting trusts and that these should be characterised as restitutionary,585 the better view is that, as a matter of substantive law, resulting trusts should be regarded as proprietary.586 This would suggest a proprietary characterisation for the purposes of choice of law. The property choice of law rules would then apply587 (rather than those in the Regulation), except to the extent, and this is unclear,588 that resulting trusts fall to be dealt with by the choice of law rules contained in the Recognition of Trusts Act 1987,589 in which case the choice of law rules in the Act would apply, unaffected by the Regulation.

Finally, it was suggested that, in the situation where the cause of action is in unjust enrichment, the right to trace should be determined by the unjust enrichment choice of law rules.590 This is on the basis that tracing is a process of identification. With the introduction of the Regulation this would mean that Article 10 would apply.

Restitution for wrongdoing and unjust enrichment

Under English substantive law there is a concept of restitution for wrongdoing. The wrongdoing which must be established may be contractual or tortious or an equitable wrong. An example of restitution for contractual wrongdoing would be where a seller breaks his contract with the buyer and sells goods for £1,000 more to a third party. The original buyer seeks restitutionary damages of £1,000. An example of restitution for tortious wrongdoing would be where A wrongfully sells goods belonging to B (the tort of conversion) and B claims for the value of the sale, rather than the loss caused to him. An example of restitution for equitable wrongdoing would be where a person in a fiduciary position (such as a company director) makes an unauthorised profit and a claim is made for him to disgorge it by way of an account of profits. Under English (p. 842) substantive law the classification of restitution for wrongdoing is particularly difficult. A number of different views have been expressed on this.591 Some leading common law commentators regard this category as coming within the category of unjust enrichment, but consider that unjust enrichment by wrongdoing (or dependent unjust enrichment) is different from the more usual unjust enrichment by subtraction (or autonomous unjust enrichment).592 With unjust enrichment by wrongdoing, the defendant’s gain has been acquired by committing a wrong against the claimant. So the enrichment results from the wrongful act of the person enriched. However, the better view, which enjoys the greatest academic support, is that the cause of action is in tort, contract or equity, and this triggers a restitutionary remedy.593 Under English law, then, restitution for wrongdoing exists and it is almost universally agreed that it is very different from unjust enrichment by subtraction.594

In civil law jurisdictions the position is entirely different. The concept of restitution for wrongdoing is not known as such.595 Civil law jurisdictions such as Germany, Greece596 and France597 tend to classify such actions under unjust enrichment by subtraction.598 In the light of this, it is not surprising to find that the Regulation does not contain a special choice of law rule for restitution for wrongdoing or explain which of the choice of law rules it falls within. However, the failure to provide an explanation under the Regulation leaves uncertainty in relation to claims based on restitution for wrongdoing.

One possibility would be to adopt the English substantive law classification. Lack of agreement on this classification makes this a rather unattractive proposition. But if one adopts, for the purposes of the Regulation,599 the most commonly held view, namely that the cause of action is in tort, contract or equity, and this triggers a restitutionary remedy,600 the result is as follows. Where the obligation is tortious, Chapter II (Article 4) will apply.601 Where the restitution is sought for breach of a fiduciary duty, this approach would apply the law governing the fiduciary duty. But where the obligation is contractual, this will be excluded from the scope of the Regulation altogether and rather fall within the scope of the Rome I Regulation.602

A better alternative would be to adopt the civil law classification, namely that situations falling within the common law concept of restitution for wrongdoing simply come under unjust enrichment by subtraction.603 Article 10 would then apply. This is supported by the wording of Article 10(1), which envisages that there can be unjust enrichment where the parties do not have just a contractual relationship but also have a tortious or other relationship that is (p. 843) closely connected with the unjust enrichment. The most obvious example of this situation is where there is what common lawyers would call restitution for tortious or equitable wrongdoing. As the legislative history and the difference in wording to Article 4(3) suggests, the relationship in Article 10(1) need not be “pre-existing”, but it is sufficient that it is “existing between the parties”, which means that it may arise at the same time as the claim for restitution (eg by commission of a tort).604 As a consequence, most restitutions for wrongdoing, while being classified as unjust enrichment, will be governed by the same law which governs the existing relationship with which they are closely connected (eg contract, tort, or a fiduciary duty). The result would therefore be very similar to the first approach, with the main difference being that it is reached via Article 10 and not by directly applying the law which governs the relationship as such.

(iii)  Other aspects of scope

Once it has been decided that there is unjust enrichment within the meaning of Article 10 it follows that the obligation that arises out of this unjust enrichment must be regarded as non-contractual.605 Article 10 does not presuppose that there is damage. This is not surprising given that damage is not one of the essential elements of unjust enrichment.

(b)  The law applicable to unjust enrichment

Article 10 contains four rules, with a separate paragraph for each rule. The first paragraph is concerned with the specific situation where there is a relationship existing between the parties. The second paragraph is a fall-back provision which deals with the situation where the applicable law cannot be determined on the basis of the first paragraph. The third paragraph is a further fall-back provision now dealing with the situation where the applicable law cannot be determined on the basis of the first and second paragraphs. The fourth paragraph contains a manifestly more closely connected escape clause, which allows an escape from the first three paragraphs. Article 10 is very similar to the position under German law.606

(i)  Where there is a relationship existing between the parties

Article 10(1) provides that:

If a non-contractual obligation arising out of unjust enrichment, including payment of amounts wrongly received, concerns a relationship existing between the parties, such as one arising out of a contract or a tort/delict, that is closely connected with that unjust enrichment, it shall be governed by the law that governs that relationship.

This rule adopts the philosophy of secondary connection that is also to be found in Article 4(3).607 The justification for the rule is that the non-contractual obligation arising out of unjust enrichment is so closely connected with the pre-existing relationship between the parties that it is preferable for the entire legal situation to be governed by the same law.608 The same approach had its advocates in England.609

(p. 844) When does Article 10(1) apply?

In order for Article 10(1) to apply, the following must be shown:

First, there must be a non-contractual obligation arising out of unjust enrichment. In other words, the obligation must come within the scope of Article 10, examined above.

Secondly, the non-contractual obligation must concern a relationship existing between the parties. Article 10(1) goes on to give two examples of such a relationship, namely “one arising out of a contract or a tort/delict”. Unjust enrichment most commonly arises out of the situation where the parties have a contractual relationship.610 But the relationship between the parties can also arise out of a tort/delict.611 Where there is such a relationship, it may be that the obligation arises out of tort, rather than unjust enrichment and therefore Chapter II will apply, rather than Chapter III. So what is envisaged here is that there is a relationship existing between the parties arising out of a tort but that, nevertheless, the obligation arises out of unjust enrichment. The most obvious example of this situation is where there is what common lawyers would call restitution for tortious wrongdoing (assuming that this falls within Article 10 in the first place).612 The wording of Article 10(1) makes it clear that the relationship between the parties can arise out of something other than a contract or tort. This would include a relationship based on equity, such as a fiduciary relationship. The relationship must be implicitly limited by the need to fall within a category that has choice of law rules governing that relationship.

Article 10(1) refers to a relationship “existing” between the parties, “such as one arising out of a contract or a tort/delict”. A relationship “arising out of” a contract would obviously encompass the relationship between the two parties to that contract. However, the use of the present tense (“existing”) in Article 10(1) raises the question whether a past relationship that has subsequently ceased, such as where a contract has been avoided, would come within this provision.613 While the legislative history sheds doubt on the inclusion of past relationships, it could be argued that an “existing” relationship is sufficiently wide to include mere pre-contractual relationships or void contracts. On the other hand, the systematic context of Article 10(1) has to be observed. Where, for example, a party seeks the return of money paid in advance under a contract that is void ab initio, this will fall outside the scope of the Rome II Regulation and thus also Article 10 altogether.614 But would it cover a pre-contractual relationship, which can give rise to pre-contractual obligations and where there may be no contract entered into by the parties? Article 12 deals with these cases and so Article 10 should be interpreted as not covering them. Finally, as the legislative history and the difference in wording to Article 4(3) suggests, the relationship in Article 10(1) need not be “pre-existing”, but it is sufficient that it is “existing between the parties”, which means that it may arise at the same time as the claim for restitution (eg by commission of a tort).615 While it may be true (p. 845) that Article 10(1) is to a certain extent rooted in the legitimate expectations of the parties, this is not its only justification. Another important justification is to avoid an unnecessary application of different laws to obligations which are closely connected, which justifies applying Article 10(1) also to cases where the relationship arises at the same time as the claim for restitution.616 Thirdly, the relationship existing between the parties must be closely connected with that unjust enrichment.

Application of the law that governs the relationship between the parties

Where the parties have a contractual relationship, the law governing that contract will also govern the non-contractual obligation arising out of unjust enrichment. An example of the operation of this rule where there is a tortious relationship between the parties is as follows. A wrongfully sells goods belonging to B (the tort of conversion) and B claims for the value of the sale, rather than the loss caused to him. This is an example of tortious wrongdoing. Under Article 10(1) the law governing the tort of conversion will also govern the obligation to pay the value of the goods. In a case of restitution for equitable wrongdoing the law governing the fiduciary relationship would also govern the obligation to restore the benefit obtained by the defendant by his wrongdoing.

(ii)  Where the law applicable cannot be determined on the basis of paragraph (1)

Article 10(2) provides that: “Where the law applicable cannot be determined on the basis of paragraph 1 and the parties have their habitual residence in the same country when the event giving rise to unjust enrichment occurs, the law of that country shall apply.”

When does Article 10(2) apply?

There are two requirements for this provision to apply. First, the law applicable cannot be determined on the basis of paragraph 1, so this is a fall-back provision. We are familiar with the idea of a choice of law rule based on the parties’ habitual residence from Article 4 but that operates as an exception to the general principle in Article 4(1), rather than as a fall-back where the law applicable cannot be determined on the basis of that provision. The law applicable cannot be determined on the basis of Article 10(1) where the non-contractual obligation arising out of unjust enrichment does not concern a relationship existing between the parties that is closely connected with that unjust enrichment. This could be because there is no relationship existing between the parties, eg a seller delivers goods to the wrong person with whom it has no contractual or other relationship and seeks restitutionary damages equivalent to the value of the goods,617 or there may be such a relationship but it is not closely connected with that unjust enrichment. If the law can be determined on the basis of paragraph 1, then that provision will apply, not Article 10(2). This will be the case even though the parties have a common habitual residence in some other country, which is different from Article 4(2) where the common habitual residence rule operates as an exception to Article 4(1), applying it to trump that provision. However, it is important to bear in mind that Article 10(4) operates as an escape from paragraph 1 (as well as paragraphs 2 and 3) and where the parties have a common habitual residence this can be one factor to argue that the non-contractual obligation is more closely connected with a country, ie the common habitual residence, other than that indicated in paragraph 1.

(p. 846) The second requirement for Article 10(2) to apply is that the parties must have their habitual residence in the same country. The meaning of habitual residence has previously been examined.618 The habitual residence of a party can change as events unfold. Article 10(2) is concerned with habitual residence at the time when the event giving rise to unjust enrichment occurs. For example, in a case of payment of amounts wrongly received it would be when the money is received.

Application of the law of the country of common habitual residence

This common habitual residence rule is familiar to us from Article 4(2). However, as has been seen, the place of the rule within the scheme of the Article as a whole is much reduced in Article 10 from that in Article 4. The common habitual residence rule has been justified on the basis that it reflects the legitimate expectations of the parties where they are habitually resident in the same country.619

(iii)  Where the law applicable cannot be determined on the basis of paragraph 1 or 2

“Where the law applicable cannot be determined on the basis of paragraphs 1 or 2, it shall be the law of the country in which the unjust enrichment took place.”

When does Article 10(3) apply?

Paragraph 3 requires that the law applicable cannot be determined on the basis of paragraph 1 or 2. In other words, this is a further fall-back provision to that in Article 10(2). We are therefore dealing with a situation where there is no relationship between the parties that is closely connected with that unjust enrichment (and thus paragraph 1 does not apply) and, where that is the case, there is no common habitual residence (and thus paragraph 2 does not apply).

Application of the law of the country in which the unjust enrichment took place

Where paragraph 3 applies, the applicable law is that of the country in which the unjust enrichment took place. The only explanation of the adoption of this fall-back rule620 is that it is found in Swiss law621 and in the European Group for Private International Law’s Proposal for a European Convention on the law applicable to non-contractual obligations.622 The major problem with this rule is the definitional one. Which is the country in which the unjust enrichment took place?623 This could be referring to: the place where the legal event giving rise to the claim occurred (the lex loci condictionis); the place in which the act was committed responsible for conferring the benefit or enrichment (the lex loci actus); the place where the impoverishment occurs;624 or the place where the enrichment occurs. Deciding on the place does not end the definitional problem. Whichever solution is adopted, there is an attendant definitional problem under that solution.625

The Swiss choice of law rule for unjust enrichment refers directly to the law of the State in which the enrichment occurred,626 rather than the more ambiguous law of the country in which the unjust enrichment took place. The position is the same under German law627 and under the Proposal of the European Group for Private International (p. 847) Law.628 Common lawyers have also directly applied the law of a country in which the enrichment occurred rule.629 Dicey, Morris and Collins sets out a sub-rule using this point of contact.630 Given the popularity in the European Union of reference to a country in which the enrichment occurred rule, particularly in Germany whose law appears to have been influential in the development of Article 10, it is submitted that the country in which the unjust enrichment took place should be defined in terms of the country in which the enrichment occurred.631

However, the concept of the country in which the enrichment occurs itself involves a definitional problem: is this the place where the benefit accrues to the person who is enriched; or where the loss to the person who is impoverished occurs; or does it vary, depending on the particular situation? The best solution looks to be where the benefit occurs,632 but is this where it first occurs or, if goods or money are moved to another country, where the person continues to benefit?633 If money is paid into a branch in Country A to be transferred to an account in a branch of the same bank in Country B does the benefit accrue where the immediate benefit occurred (A) or in the country of ultimate enrichment (B)?634 What if money is paid mistakenly into bank accounts in a number of different countries?635 Rather than applying a series of different laws as determined under Article 10(3), it would be better to apply the escape clause under Article 10(4). The place where the benefit occurs will be difficult to ascertain where this consists in saving the defendant from expenditure; presumably it is where the expenditure would have been incurred.636

The other problem with a country in which the enrichment occurred rule is that this may be in a country with which the facts have little real connection, for example money may have merely been paid into a bank account there.637 However, in such a case recourse can be had to the manifestly more closely connected escape clause in Article 10(4).

(iv)  The manifestly more closely connected escape clause

Article 10(4) contains an escape clause, which provides that: “Where it is clear from all the circumstances of the case that the non-contractual obligation arising out of unjust enrichment is manifestly more closely connected with a country other than that indicated in paragraphs 1, 2 and 3, the law of that other country shall apply.” This adopts the manifestly more closely connected escape clause that is used in Article 4(3) of the Regulation, subject to one difference. Article 4(3) goes on to give an example of a manifestly closer connection, (p. 848) explaining that this might be based in particular on a pre-existing relationship between the parties, such as a contract. Article 10(4) omits this example. This is because a scenario whereby basing Article 10(4) on a pre-existing relationship would produce a different result from that produced by Article 10, paragraph (1) (which is itself based on the parties’ pre-existing relationship), (2) or (3) is not going to arise. The absence of any example as to what might constitute a manifestly closer connection under Article 10(4) means that it is going to be more uncertain as to when the escape clause operates here than under Article 4(3).

Article 10(4) operates as an escape from paragraphs (1), (2) and (3).638 In determining whether the escape clause should operate as an escape from paragraph (1), it needs to be remembered that that paragraph adopts the secondary connection principle, which is one that is strongly held under the Regulation. The position here is therefore very different from that of Article 4(3) where it is a strongly held principle that forms the basis of the escape clause. Nevertheless, we have already seen a situation where it can at least plausibly be argued that Article 10(4) could operate as an escape from paragraph (1), namely where there is a relationship existing between the parties who have a common habitual residence.

Escaping from paragraph (2) is harder to envisage. Where the applicable law is that of the common habitual residence under paragraph (2) it may be difficult to show that the non-contractual obligation is manifestly more closely connected with some other country. If Article 10(2) applies, this necessarily means that paragraph (1) does not apply so there is no relationship between the parties that is closely connected with that unjust enrichment. So the classic case for the application of the escape clause in Article 4(3), namely where there is a pre-existing relationship between the parties, is not going to arise.

When it comes to escaping from paragraph (3), one is dealing with a situation where there is no relationship between the parties that is closely connected with that unjust enrichment (and thus paragraph (1) does not apply) and there is no common habitual residence (and thus paragraph (2) does not apply). As has been seen, the place in which the unjust enrichment took place may have little connection with the facts, eg money is simply paid into a bank account in that country. In such a case, it may be easier to show that the non-contractual obligation is manifestly more closely connected with some other country.

Until there is guidance from the Court of Justice on the interaction of paragraphs (1) and (4) there is a risk that courts in Member States will be influenced by their traditional national choice of law rules for unjust enrichment. Thus in England, where there has been strong support for the secondary connection principle without any escape clause, there may well be an unwillingness to use the paragraph (4) escape clause. On the other hand, in Scotland, where there has been support for a flexible solution,639 the courts may be much more willing to be persuaded that paragraph (4) should apply.

(ii)  Negotiorum gestio

There is a special provision in Article 11 dealing with negotiorum gestio, which has been referred to as agency without authority.640 The technical definition of this concept is, according to Article 11, “an act performed without due authority in connection with the affairs of another person”. Negotiorum gestio is concerned with the situation where services are rendered by a person that (p. 849) enable another person to avoid personal injury or loss of assets.641 The idea is that there has been the voluntary bestowal of a benefit entitling the intervenor (gestor) to a measure of recovery. Civil law jurisdictions recognise this concept, whereas there is no such recognised concept or cause of action in common law systems.642 Still, claims under English law which fit into the definition of negotiorum gestio fall under Article 11, even if English law does not describe them as such.643

Trans-border cases involving negotiorum gestio have been rare in the past.644 The classic case where this has arisen has been that of salvage, ie one ship rendering help to another ship.645 Continental writers regard negotiorum gestio as coming within the broad ambit of restitution or quasi-contract, albeit distinct from unjustifiable enrichment. The Regulation follows this classification by placing negotiorum gestio in Chapter III, which is concerned with obligations that arise neither out of a contract nor out of a tort/delict within the meaning of Chapter II. Having a separate provision for negotiorum gestio recognises that it is different from unjust enrichment.

(a)  The scope of Article 11

Article 11 applies where there is a non-contractual obligation arising out of an act performed without due authority in connection with the affairs of another person. Some cases involve acts of assistance, meaning one-off initiatives taken on an exceptional basis by the “agent”, who acted in order to preserve the interests of the “principal”. Some cases instead involve measures of interference in the assets of another person, as in the case of payment of a third-party debt. The choice of law rules do not distinguish between these two situations.646 Article 11(2) (the common habitual residence rule) presupposes that damage occurs.

(b)  The rules on the applicable law

These are in substance the same as those in Article 10.647 There are obviously, though, some differences in language to reflect the fact that concern is now with “an act performed without due authority in connection with the affairs of another person”, rather than with unjust enrichment. The use of the same choice of law rules in each article is not surprising when one bears in mind that both articles are concerned with the law of restitution.

(iii)  Culpa in contrahendo

Article 12 is headed “Culpa in contrahendo” and sets out special choice of law rules for a non-contractual obligation arising out of dealings prior to the conclusion of a contract.648 Such liability649 raises difficult problems of classification both under substantive domestic law and under private international law. Some Member States may regard the obligation that arises out of pre-contractual dealings as contractual, others as tortious, yet others as sui generis.650 The Rome II Regulation introduces a special rule for such cases in order to avoid (p. 850) the danger of different classifications being adopted in different Member States. It is thereby adopting a sui generis classification. The fact that obligations arising out of dealings prior to the conclusion of a contract are placed within the Rome II Regulation has in turn led to its express exclusion from the Rome I Regulation.651 According to the Commission, culpa in contrahendo does not arise out of tort/delict as understood in Chapter II,652 so it cannot fall within that Chapter. It is therefore placed in Chapter III, even though it is very different from unjust enrichment and negotiorum gestio.

Under English substantive domestic law there are no general principles of culpa in contrahendo.653 However, a wide range of claims can arise “as a result of negotiations failing or an argument that a concluded contract is the result of untruths made in the course of the negotiations that preceded it”.654 Not surprisingly, prior to the Rome II Regulation, under English law there were no special choice of law rules for culpa in contrahendo. A difficult question of classification would arise as to whether the pre-contractual obligation on which the cause of action was based was contractual, tortious, restitutionary or equitable. Different causes of action could well involve a different classification and different choice of law rules.

(a)  The scope of Article 12

(i)  Culpa in contrahendo

Article 12 applies to “a non-contractual obligation arising out of dealings prior to the conclusion of a contract”.655 According to Recital (30), culpa in contrahendo for the purposes of the Regulation “is an autonomous concept and should not necessarily be interpreted within the meaning of national law”. Recital (30) goes on to give two examples of what this concept includes, namely the violation of the duty of disclosure and the breakdown of contractual negotiations. These two situations reflect the two different types of pre-contractual liability under the substantive law.

First, there is pre-contractual liability where no contract ensues. This includes duties in negotiation of a contract. For example, under Italian law656 there is a requirement to act in good faith during the negotiation of a contract.657 There is no such requirement or cause of action under English law but there may be liability in tort658 under Hedley Byrne v Heller659 for negligent misstatements made during the course of negotiations or liability in tort for fraudulent misrepresentation. However, in the context of jurisdiction, the Court of Justice has accepted that an action for damages founded on an abrupt termination of a long-standing business relationship can be contractual if a tacit contractual relationship existed between the (p. 851) parties.660 If the same applies to choice of law, then there is apparently a further distinction to be added between a general duty to negotiate in good faith (falling under Article 12 Rome II) and a specific (tacit) duty not to abruptly terminate a long-standing business relationship (arising from a contract and falling under Rome I).

Secondly, there is pre-contractual liability where a contract ensues. In most countries, once a contract ensues there is no need for pre-contractual liability. Nonetheless, most countries have duties of disclosure. Under English law there can be an action to avoid (ie rescind) an insurance contract on the basis of non-disclosure prior to entering the contract.661 The English law of misrepresentation also constitutes a form of pre-contractual liability. This would cover liability for fraudulent misrepresentation (such as a claim under the tort of deceit),662 negligent misrepresentation (such as a claim for damages under the Misrepresentation Act 1967663 or, more rarely, in tort for negligent misstatement) and innocent misrepresentation (such as a claim for damages in lieu of rescission under the Misrepresentation Act 1967).664

The problem of characterisation

The introduction of the special category of culpa in contrahendo does not avoid the question of characterisation altogether. This question of characterisation will still arise as to whether the non-contractual obligation arises out of dealings prior to the conclusion of a contract or out of contract, in particular where a contract has later been concluded. While Art 1(2)(i) Rome I excludes “obligations arising out of dealings prior to the conclusion of a contract” from the scope of the Rome I Regulation (and thus mirrors Article 12(1) Rome II), it seems difficult to regard any effects of the parties’ dealings prior to the conclusion of a contract as non-contractual, as these dealings may impact on the interpretation, validity and enforceability of the contract. An example is the situation where a claim is made for rescission of a contract induced by mistake or misrepresentation.665 Arguably such a claim could be regarded as being based on contract, rather than unjust enrichment.666 But a further possibility is that it should be regarded as arising out of dealings prior to the conclusion of the contract. The result, though, would be the same, regardless of whether a contractual or culpa in contrahendo characterisation is adopted. In both cases, the law applicable to the contract would govern the non-contractual obligation.667

(ii)  A non-contractual obligation

Article 12 is concerned with “a non-contractual obligation” arising out of dealings prior to the conclusion of a contract. Once it has been decided that there is culpa in contrahendo within the meaning of Article 12 it follows that the obligation that arises out of this must be regarded as non-contractual.668 If one were to say that there was a contractual obligation arising out of culpa in contrahendo this would open up a gap in the law since such an obligation would fall not only outside the Rome II Regulation but also outside the Rome I Regulation.

(p. 852) (iii)  Arising out of dealings

The non-contractual obligation must arise out of dealings prior to the conclusion of the contract. There must be a direct link between the non-contractual obligation and the dealings.669 This means that if, while a contract is being negotiated, a party suffers personal injury, Article 4 or another relevant provision of the Regulation will apply, rather than Article 12.670 Another example where no direct link exists are cases where a third party relies on a representation made during pre-contractual dealings between different parties, or where a party provides services in anticipation of a contract.671

(iv)  Prior to the conclusion of the contract

The non-contractual obligation must arise out of dealings prior to the conclusion of a contract. It follows that a negligent misrepresentation/negligent misstatement made at the pre-contractual stage will come within Article 12 and Chapter III, whereas a negligent misstatement made after a contract has been entered into will come within Chapter II (or be regarded as contractual and thus fall under the Rome I Regulation).

(v)  Regardless of whether the contract was actually concluded or not

Article 12(1) provides that Article 12 applies “regardless of whether the contract was actually concluded or not”. This reflects the two types of pre-contractual liability under the substantive law, namely pre-contractual liability where no contract ensues and pre-contractual liability where a contract ensues.

(vi)  Damage

Article 12 presupposes that there is damage.672

(b)  The rules on the applicable law

Culpa in contrahendo is a very different concept and cause of action from unjust enrichment and negotiorum gestio. It is not surprising to find that the rules on the applicable law are also different. Article 12(1) sets out a primary rule. There is then in Article 12(2) a fall-back position to deal with the situation where the law applicable cannot be determined on the basis of paragraph 1.

(i)  The primary rule

Article 12(1) provides that: “The law applicable to a non-contractual obligation arising out of dealings prior to the conclusion of a contract, regardless of whether the contract was actually concluded or not, shall be the law that applies to the contract or that would have been applicable to it had it been entered into.”

It will be recalled that Article 12 applies regardless of whether the contract was actually concluded or not. If it was concluded the law applicable to the non-contractual obligation will be the law that applies to the contract. Identification of this law presents no particular difficulty, or at least no more difficulty than any other case where the law applicable to a contract has to be determined.673 If a contract was not actually concluded, the law applicable to the non-contractual obligation will be the law that would have been applicable to the contract had it been entered into. This presents particular difficulties. First, there is a difficulty over choice of the applicable law. Let us assume that the parties were negotiating over the terms of the (p. 853) contract, with each party trying to impose its preferred choice of law or choice of jurisdiction clause on the other. However, the parties had not agreed on these terms. In determining which law would have been applicable had the contract been entered into, is the court supposed to speculate on which party was likely to win in this battle of the terms? This would be absurd and an agreement on the applicable law could only operate if the parties have actually agreed those terms, even if they have not entered into a contract.674 In other words, the parties may have agreed on a choice of law clause providing for the application of English law but have never agreed, for example, on the contract price. Secondly, what happens where the contractual negotiations are broken off at a very early stage? It may be impossible to ascertain the applicable law in any meaningful way.675 Where it is impossible to determine the law applicable to the contract, as opposed to being merely difficult to do so, the fall-back position under Article 12(2) will come into play and provide an answer as to the law applicable to the non-contractual obligation.

Article 12(1) is a rigid rule that has no exception, for example for cases where the parties have a common habitual residence, and no escape clause for cases where the non-contractual obligation is manifestly more closely connected with another country. It is only when one moves on to the fall-back position in Article 12(2) where the law applicable cannot be determined on the basis of paragraph 1 that familiar rules based on the common habitual residence of the parties and a manifestly more closely connected escape clause come into play. The lack of an exception or escape from Article 12(1) means that it is very different therefore from Article 4(1). Perhaps more interestingly it is also different from Articles 10 and 11. We are familiar with a fall-back position under those Articles where the law applicable cannot be determined under the primary rule in the first paragraph of those Articles but they at least have a manifestly more closely connected escape clause that allows escape from the primary rule. Article 12 does not. The reason for this is probably the interest to align contractual and pre-contractual duties as closely as possible.676

(ii)  The fall-back position

Article 12(2) sets out the fall-back position. This only comes into play in the situation where the law applicable cannot be determined on the basis of paragraph 1. That would be the case where it is impossible to identify the law applicable to the contract. It is hard to see this operating in the situation where a contract has been concluded, but it is possible to envisage this operating in the situation where the contract was not actually concluded. The contractual negotiations may have been at such an early stage that it is impossible to identify the law that would have been applicable to the contract. At the same time, though, for Article 12 to apply in the first place there must have been sufficient dealings between the parties to give rise to an obligation. This scenario is likely to be rare.

The rules on the applicable law in Article 12(2) are very similar to those in Article 4. So, where contract choice of law does not provide an answer, tort choice of law has to do so. Recourse to tort choice of law rules may appear at first sight to be rather unprincipled but can be forgiven when one bears in mind that there is a case for classifying culpa in contrahendo(p. 854) as tortious.677 Familiar rules are used in Article 12(2), ie country of damage rule, a common habitual residence rule and a manifestly more closely connected rule but all within a limited fall-back framework. Article 12(2), like Article 4, contains three provisions: a general rule; an exception; and a manifestly more closely connected escape clause.

The general rule

Article 12(2)(a) provides that the applicable law is “the law of the country in which the damage occurs, irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occurred”. This is virtually identical to Article 4(1).678 In a case of negligent misstatement, or negligent or fraudulent misrepresentation, identification of the country in which the damage occurs can be problematic.679 There can also be losses incurred in more than one country. For example, as a result of a negligent misstatement concerning the mileage of a classic car in an auction catalogue in England, a claimant may incur loss in England in the form of the cost of an airline ticket to go to an auction in Monaco, where there is further loss in the form of entering into an adverse contractual commitment to pay an excessive amount for the car.680 Under the mosaic principle,681 English law will apply to the damage occurring in England and the law of Monaco to that occurring in Monaco.

The exception

Article 12(2)(b) provides that “where the parties have their habitual residence in the same country at the time when the event giving rise to the damage occurs, the law of that country” shall apply. This is the same as Article 4(2) except that under Article 12(2)(b) one is concerned with the habitual residence at the time when the event giving rise to the damage occurs, whereas with Article 4(2) one is concerned with habitual residence at the later time when the damage occurs.

The manifestly more closely connected escape clause

Article 12(2)(c) provides that “where it is clear from all the circumstances of the case that the non-contractual obligation arising out of dealings prior to the conclusion of a contract is manifestly more closely connected with a country other than that indicated in points (a) and (b), the law of that other country” shall apply. This is identical to Article 4(3). However, that provision goes on to provide that a manifestly closer connection with another country might be based in particular on a pre-existing relationship between the parties. Article 12(2)(c) has no such provision.682 This is because a scenario whereby basing paragraph 12(2)(c) on a pre-existing relationship would produce a different result from that produced by paragraph (1), (2)(a) or (b) is not going to arise.683

(f)  Choice of the applicable law

(i)  Freedom of choice

Chapter IV is entitled “Freedom of choice” and contains just one Article, Article 14. This is also headed “Freedom of choice” and sets out the basic principle that: “The parties may agree to submit non-contractual obligations to the law of their choice.” Recital (31) gives two justifications for allowing the parties to choose the law applicable to a non-contractual obligation: (p. 855) first, the principle of party autonomy; secondly, the enhancement of legal certainty. This freedom of choice applies to all non-contractual obligations, except for those arising from an act of unfair competition,684 a restriction of competition685 or an infringement of an intellectual property right.686 The extension of freedom of choice to non-contractual obligations follows the national private international law rules in a number of European states687 and makes clear what was previously unclear under English law.688 By an analogy to Article 3(2) Rome I Regulation, the freedom to choose should extend to allowing the parties to vary the governing law, subject to the rights of third parties (Article 14(1) final sentence).

(ii)  Conditions imposed on the choice

In order to protect the weaker party, certain conditions are imposed on the choice.689 The agreement must satisfy one of two alternatives. It must have been entered into after the event giving rise to the damage occurred690 or, where all the parties are pursuing a commercial activity, also by an agreement “freely negotiated” before the event giving rise to the damage.691

An agreement entered into after the event giving rise to the damage occurred is less problematic than one entered into before that event. Once a dispute has arisen, it is assumed that the weaker party is not going to agree to the application of a foreign law that adversely affects him. The situation where there is an obvious need for protection of the weaker party is that where the agreement was entered into before the event giving rise to the damage.692 The requirement that this agreement was “freely negotiated” is designed to provide this protection.693 There is no explanation of what precisely is meant by these words. Inspiration might be drawn from the similar term “(not) individually negotiated” in Directive (EC) No 93/13 of 5 April 1993 on unfair terms in consumer contracts.694 According to Article 3(2) of this Directive, a pre-formulated standard contract clause (such as a standard choice of law clause) is to be regarded as not individually negotiated where the other party has not been able to influence the substance of the term. Even if we allow for more flexibility outside the consumer context, it will be difficult for the party relying on a choice of law clause to prove that the other party has been able to influence the clause, making enforceable choice of law agreements before the event likely to be rare in practice.

Let us assume, then, that the agreement was not freely negotiated. In this situation, the parties’ choice of the law to govern non-contractual obligations will not take effect under Article 14. Curiously, though, the parties’ agreement on the law applicable to their contractual obligations, which may not have been freely negotiated, will operate indirectly to fix the law applicable to (p. 856) non-contractual obligations by virtue of Article 4(3).695 Thus, it will in practice very often not matter whether the strict requirements of Article 14 are met, as the secondary connection under Article 4(3) will lead to the application of the same law which governs the contract, which is much easier to choose under the Rome I Regulation.696

(iii)  An express or inferred choice

The choice must be “expressed or demonstrated with reasonable certainty by the circumstances of the case”.697 This phrase has been taken from the Rome Convention.698 Suffice it to say in the present context that an express choice refers to a choice of law clause. A choice demonstrated with reasonable certainty by the circumstances of the case refers to an inferred choice, two examples of which are a choice of jurisdiction clause and an arbitration clause.699 One issue that will arise in the context of the Rome II Regulation is whether a choice of law clause or a jurisdiction clause in a contract between the parties is wide enough in its scope to cover a dispute in relation not to contract, but to a non-contractual obligation.700 This issue has arisen before the English courts in relation to choice of jurisdiction clauses (in the context of jurisdiction)701 but not choice of law clauses because of the lack of freedom to choose the governing law under the English traditional tort and restitution choice of law rules. Questions concerning the existence and validity of the parties’ choice of law agreement are, by analogy to Article 3(5) and Article 10(1) Rome I, to be determined by the law which would apply if the choice of law was valid.

(iv)  Choice and the English rules on pleading and proof of foreign law702

The same problem arises under the Rome II Regulation as arises under the Rome I Regulation,703 namely what happens if the parties choose Utopian law to apply but subsequently neither party pleads Utopian law? The Regulation does not provide an answer to this. It is suggested that the English courts should take a pragmatic line and simply apply English law under the English procedural rule that is preserved by Article 1(3) of the Regulation, which provides that the Regulation shall not apply to evidence and procedure.704

(v)  Choice and third parties

The parties’ choice will not prejudice the rights of third parties.705 The typical example of this is said to be the insurer’s obligation to reimburse damages payable by the insured.706

(p. 857) (vi)  Limitations on choice

The Regulation lays down restrictions on the parties’ right to choose the governing law which will now be examined. Article 14 itself sets out two such limitations. The first of these (Article 14(2)) is concerned with provisions of law that cannot be derogated from by agreement in a domestic context; the second (Article 14(3)) with provisions of EU law that cannot be derogated from by agreement. More generally, the Regulation imposes limitations on the dominance of the applicable law.

(a)  Article 14(2): Provisions that cannot be derogated from by agreement

Article 14(2) provides that:

Where all the elements relevant to the situation at the time when the event giving rise to the damage occurs are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement.

This provision is in substance the same as Article 3(3) of the Rome I Regulation707 and is concerned with rules which cannot be departed from in a domestic context (dispositions imperatives). The most noticeable difference between Article 3(3) of the 1980 Rome Convention and Article 14(2) of the Rome II Regulation708 is that the latter wisely does not use the term mandatory rules to describe provisions which cannot be derogated from by agreement.709 In accordance with the principle of consistency between these two instruments,710 Article 14(2) of the Rome II Regulation should be interpreted in the light of the interpretation of Article 3(3) Rome I Regulation.

(b)  Article 14(3): Provisions of EU law that cannot be derogated from by agreement

Article 14(3) provides that:

Where all the elements relevant to the situation at the time when the event giving rise to the damage occurs are located in one or more of the Member States, the parties’ choice of the law applicable other than that of a Member State shall not prejudice the application of provisions of Community law, where appropriate as implemented in the Member State of the forum, which cannot be derogated from by agreement.

This provision treats the European Union as effectively one country and highlights the importance of EU mandatory rules. It adds to Article 14(2) that in an international, but purely intra-EU case mandatory provisions of EU law may not be derogated from, which would arguably be possible under Article 14(2) as not all the elements relevant to the situation at the time when the event giving rise to the damage occurs are located in a single country (but rather in at least two countries, namely two Member States).

(c)  Overriding mandatory provisions711 and public policy712

These limitations are more appropriately dealt with later on, where they will be looked at in detail.

(p. 858) (d)  Certain special torts

The law applicable to a non-contractual obligation arising out of an act of unfair competition or a restriction of competition cannot be derogated from by an agreement under Article 14.713 Likewise, the law applicable to a non-contractual obligation arising from an infringement of an intellectual property right cannot be derogated from by an agreement under Article 14.714 No other torts are singled out for their own special limitation on the right to choose the applicable law.

(g)  Scope of the law applicable

Chapter V is entitled “Common rules”, ie rules common to Chapters II, III and IV. The first of these is Article 15, which is entitled “Scope of the law applicable” and in paragraphs (a) to (h) gives a number of examples of issues coming within the scope of the law applicable to non-contractual obligations by virtue of Chapters II, III and IV.715 Giving examples helps to clarify the position in relation to certain issues, such as limitation periods and assessment of damage, in respect of which different Member States have traditionally adopted a different classification, some regarding the issue as one of substance to be determined by the applicable law, others as procedural to be determined by the law of the forum.716 In line with the general concern for certainty in the law, Article 15 confers a very wide function on the law designated.717 Moreover, in contrast to the 1995 Act,718 the Regulation does not provide for the application of different laws to different issues of the case (dépeçage), so that in most cases a single substantive law governs the entire non-contractual obligation.719

Paragraphs (a) to (h) are not intended to be an exhaustive list,720 and it is implicit that there are other issues that are governed by the rules on the applicable law. At the same time it is important to bear in mind that the Regulation in Articles 18 to 22721 contains some special rules for particular issues and for those issues it is to these special rules that one must turn, rather than to the rules on the applicable law in Chapters II, III and IV. For example, Article 15 does not cover the issue of the burden of proof,722 which is dealt with in Article 22. Moreover, Art 1(3) excludes evidence and procedure from the scope of the Regulation altogether.

The examples provided by Article 15 are broadly drawn from the 1980 Rome Convention.723 In addition, also the Hague Convention on the Law Applicable to Traffic Accidents of 1971 and the Hague Convention on the Law Applicable to Products Liability of 1973 appear to have been influential. The striking similarity between the provisions on the scope of the law applicable in these two Conventions724 and the provisions on scope of the law applicable (p. 859) in Article 15 of the Rome II Regulation means that the Reports accompanying the two Conventions725 are a valuable source on the meaning of the terms used in Article 15. The examples listed in Article 15 are as follows.

(i)  The basis and extent of liability, including the determination of persons who may be held liable for acts performed by them726

The basis of liability is concerned with intrinsic factors of liability727 and encompasses such matters as: “the nature of liability (strict or fault based); the definition of fault, including the question whether an omission can constitute fault; the causal link between the event giving rise to the damage and the damage; the persons potentially liable”.728

The “extent of liability” encompasses the maximum extent of liability laid down by law,729 such as a ceiling on liability, and the contribution to be made by each of the persons liable for the damage which is to be compensated.730 It also includes “the determination of persons who may be held liable for acts performed by them”. This is designed to cover also the division of liability between joint perpetrators in the external relationship as towards the victim.731 The law governing actions for contribution or indemnity between persons jointly liable (eg joint tortfeasors), ie the internal relationship between them, is determined by Article 20.732

(ii)  The grounds for exemption from liability, any limitation of liability and any division of liability733

This provision is concerned with three issues relating to liability. All three can be regarded as extrinsic factors of liability,734 ie conditions for exoneration from liability.735 First, there is the issue of grounds for exemption from liability. This would cover acts of God and supervening acts of a third party,736 as well as such well-known (at least in common law jurisdictions) phenomena as guest statutes (preventing a guest passenger suing a host driver), interspousal immunity laws (preventing a wife from suing her husband and vice versa),737(p. 860) or intra-family immunity laws (preventing children suing their parents and vice versa). It would also cover “force majeure, necessity, third-party fault and fault by the victim”.738 Under English law the fault of a victim is known as contributory negligence and operates to reduce damages rather than as an exemption of liability. As both the exemption and any limitation or division of liability fall under Article 15(b), contributory negligence reducing damages falls in any event under this provision.739 Grounds for exemption from liability would also cover laws which exclude the perpetrator’s liability in relation to certain categories of persons.740 Any limitation of liability would cover provisions on limitation of liability for maritime claims as provided for by international convention.741 It seems that grounds for exemption from liability and any limitation of liability is intended to cover an exemption or limitation clause in a contract, which is used as a defence to a claim in respect of a non-contractual obligation. Admittedly, although the Explanatory Memorandum mentions a significant number of examples of exemption from liability,742 it does not mention exemption or limitation clauses in contracts. But the Essen Report on the Hague Convention on the Law Applicable to Traffic Accidents of 1971, which was the template for Article 15 of the Regulation, explains that grounds for exemption and limitation of liability (in Article 8(2) of that Convention) seemingly encompass contractual exemption or limitation clauses.743 Under the Hague Convention the validity of such clauses falls within the scope of the law applicable to liability in that Convention.744 Under the system of the Rome Regulations, however, the scope of the Rome II Regulation is to be interpreted consistently with the Rome I Regulation.745 This suggests that the law governing the non-contractual obligation will decide whether a contractual limitation clause is permissible as a defence. The existence and scope of such a clause, however, will be regarded as a contractual matter to be judged by the rules of Rome I. The significance of this will be examined in more detail below746 when the topic of contractual defences to an action in tort is considered more fully.747 Article 15(b) does not seem to effect any change in English private international law since the issues coming within it would all be regarded as ones of substance and accordingly governed by the applicable law.

(p. 861) (iii)  The existence, the nature and the assessment of damage or the remedy748 claimed749

(a)  The existence and the nature of damage

This is concerned with determining the damage for which compensation may be due; eg whether this includes for personal injury, damage to property, moral damage, environmental damage, financial loss or loss of an opportunity750 and whether loss of profits can be recovered.751 Existence of damage would no doubt cover the issue of remoteness of damage.752 Article 15(c) should also include the question whether compensation can be recovered for pain and suffering or loss of amenity, ie the question of recovery of heads of damage. Under the English common law the issues of heads of damage available and of remoteness of damage are ones of substance for the applicable law, so the Rome II Regulation does not effect a change in English private international law on this point. The issue may arise of recovery of punitive and exemplary damages. This too should be determined by the law applicable to the non-contractual obligation, on the basis that it falls within the concept of the existence and nature of damage. If it falls outside that concept it should still be a matter to be determined by the law applicable to the non-contractual obligation, because Article 15 only provides examples of matters falling within the scope of the applicable law. There can be other examples which do not fall within Article 15(a) to (h) but which, nonetheless, are within the scope of the applicable law, and this would be one such example. In the case of punitive or exemplary damages, the question arises of whether the application of a law providing for such damages is manifestly incompatible with the public policy of the forum. This question will be examined below when discussing more generally the public policy limitation on the applicable law.753

(b)  Assessment of damage

Article 15(c) provides that the assessment of damage is a matter to be determined by the law applicable to the non-contractual obligation. This adopts the position taken in most Member States, which regard assessment of damages as a substantive matter to be determined by the applicable law. It also broadly follows Article 10(1)(c) of the 1980 Rome Convention,754 although there are some noticeable differences in the wording of the two provisions which will be examined below. In contrast, English private international law has traditionally regarded the assessment or quantification of damages as a procedural matter for the law of the forum.755 Article 15(c) therefore represents a major change in English private international law. Subjecting this issue to the law governing the non-contractual obligation has the virtue of preventing forum shopping within the European Union for an assessment of damages advantage.

In so far as the foreign applicable law has legal rules in relation to assessment of damage, the effect of Article 15(c) is clear enough. The English court must apply these rules. This includes (p. 862) not only the rules on the applicable law in so far as assessment is prescribed by a black-letter rule of law, but also—which is less clear—in so far as it is prescribed by judicial conventions and practices (such as particular tariffs, guidelines or formulae to calculate damages under the applicable law756).757 Also foreign case law on the appropriate level of damages is to be applied: “in assessing damages in accordance with French law the English judge should endeavour to decide how, in practice, a French judge would assess damages”.758 However, applying foreign substantive law on the assessment of damages does not mean that an English court must adopt also foreign procedures to decide the case in the exact same manner as the foreign court would. Mere methods of proving recoverable loss, in particular what (expert) evidence is required to prove the claimant’s injuries and losses is a matter of evidence and procedure in the sense of Article 1(3) Rome II and thus governed by English procedural rules.759 Moreover, the assessment of damage can involve questions of fact as the amount of damages may be influenced by the specific needs of the victim which depend on the social and economic conditions in his domicile.760

This leaves the difficulty of determining whether there is a rule of law, convention or practice in relation to assessment or whether it is a question of evidence or facts of the case. A ceiling on damages in a statute or an international convention clearly involves a rule of law761 and is subject to the applicable law.762 With a ceiling on damages it could be argued that this is concerned with limiting liability (in which case it would fall within Article 15(b)), rather than with assessment of damages. In either event, the law governing the non-contractual obligation would apply to determine this issue. Similarly, a rule which requires accrued benefits (state benefits, employment pension, personal pension) to be deducted when assessing damages is subject to the applicable law.763 The more difficult thing to classify is the calculation of (p. 863) damages. Under Article 4(1) and Article 15(c) the amount of compensation will have to be calculated according to the law and standards of the country in which the damage occurred, and not those of the country where the victim habitually resides. The European Parliament regarded this as unsatisfactory and secured the introduction of Recital (33), which ensures that the court seised of the dispute will “take into account all the relevant actual circumstances of the specific victim, including in particular the actual losses and costs of after-care and medical attention.” In order to reconcile Article 15(c) with Recital (33), it seems that where the evidence is simply that a foreign court applies a different method of assessment,764 or would make a lower award of general damages in tort than an English court,765 this method of calculation is to be applied. In applying the foreign method of assessment, however, Recital (33) seems to suggest that the calculation should take into account as a question of fact the social and economic conditions in the country where the victim habitually resides.

One particular problem that is likely to arise is where in the state whose law is applicable a jury fixes the amount of damages in tort cases.766 This does not normally happen under English law, so there is no mechanism for adopting this procedure. Is the English court now required to introduce such a mechanism? In the case of contractual obligations the answer is no. It could be argued that this involves a matter of fact rather than a rule of law.767 More importantly, there is an explicit procedural limitation on the scope of Article 12(1)(c) of the Rome I Regulation from the opening words of that Article. These provide that “within the limits of the powers conferred on the court by its procedural law” the assessment of damages is a matter for the applicable law. If the forum has no mechanism for jury trials to assess damages it cannot be expected to use this method of assessment, even though the applicable law is that of a state which uses this method. However, Article 15(c) of the Rome II Regulation contains no such procedural limitation.768 Nonetheless, common sense requires that Article 15(c) should be interpreted as being implicitly procedurally limited in the same way as Article 12(1)(c) of the Rome I Regulation is explicitly so limited.769

(c)  The remedy

This would cover, for example, whether in a case of conversion recovery should take the form of money damages or return of goods.

(iv)  Within the limits of powers conferred on the court by its procedural law, the measures which a court may take to prevent or terminate injury or damage or to ensure the provision of compensation770

This provision is concerned with two sorts of measures. First, it is concerned with measures which a court may take to prevent or terminate injury or damage. A claimant may seek an (interlocutory or final) injunction to prevent damage occurring or to stop further damage where this has already occurred. This will commonly happen in cases, for example, of infringement of intellectual property rights and nuisance. The applicable law will determine whether a court may take this measure, in other words whether the (substantive law) criteria for the grant of an (p. 864) injunction have been met. Secondly, it is concerned with measures which a court may take to ensure the provision of compensation.771 This refers to forms of compensation, such as the question whether the damage can be repaired by payment of damages,772 and would cover the issue of whether lump sum compensation is adequate or whether periodic payments of compensation are required or whether interest can be ordered. Where an English court awards a lump sum for special damages whereas a foreign court would only award instalments,773 the applicable law should determine which of the two is to be used.774 In both cases, Article 15(d) is concerned only with the availability of the remedies mentioned, not with the conditions which must be satisfied for their (procedural) admissibility.775 Moreover, the scope of Article 15(d) is limited by its opening words “within the limits of the powers conferred on the court by its procedural law”. In other words, the forum is not required to order measures that are unknown in the procedural law of the forum.776 English law allows for the grant of injunctions in the case of non-contractual obligations and has a mechanism for the grant of periodical payments of compensation.

(v)  The question whether a right to claim damages or a remedy may be transferred, including by inheritance777

This provision is largely self-explanatory.778 A right to claim damages may be transferred in various ways, most obviously by assignment or by inheritance. The applicable law will govern the question whether the right to claim damages that the deceased victim would have had if he had survived is capable of being transferred on death to his estate.779 The question of who will benefit from the survival of the cause of action is a matter governed by the law governing the succession.780 As far as English private international law is concerned, this provision represents no change in the law.781 Assignment could be by contract or it could be by a method which is non-contractual, for example by way of gift. The law applicable to the non-contractual obligation will determine whether a claim in respect of this obligation is assignable and the relationship between the assignor and debtor.782

(vi)  Persons entitled to compensation for damage sustained personally783

This is concerned with the issue of whether a person can recover for damage he himself has suffered by reason of injury to another person (the direct victim).784 For example, this would cover whether a widow and children can recover for financial loss to them following the death (p. 865) of the husband/father785 and whether a person can recover for emotional distress suffered by having witnessed physical injury being done to another. It would also encompass the issue of whether a person can recover solatium (damages for injury to feelings) in respect of the death of a relative under Scots law. The applicable law will determine the answer to these questions, as was the position at common law.786

(vii)  Liability for the acts of another person787

This is concerned with the issue of vicarious liability.788 This could be liability of parents for their children, of principals for their agents or of employers for their employees. This represents no change in English private international law, which has traditionally regarded vicarious liability as a matter of substance to be determined by the law applicable to the tort.789

(viii)  The manner in which an obligation may be extinguished and rules of prescription and limitation, including rules relating to the commencement, interruption and suspension of a period of prescription or limitation790

This provision is almost identical with a provision in the 1980 Rome Convention.791 It brings together what are, to English eyes, two very different sorts of issue. The first of these is the manner in which a non-contractual obligation may be extinguished: eg by payment of compensation or repayment of money in a case of unjust enrichment; by a judgment; by accord and satisfaction; by waiver; by bankruptcy; or by death. Any choice of law problems that arise in relation to these situations are matters for the applicable law under the Regulation.

The second issue covered is prescription and limitation of actions, which is likewise subject to the applicable law as determined by the Regulation. Prescription and limitation includes rules relating to the commencement, interruption and suspension of a period of prescription or limitation. Prescription and limitation involves loss of a right by failure to exercise it792 and accordingly can be seen to have some similarity to the manner in which an obligation may be extinguished. At one time the matter of limitation was regarded under English law as being a procedural one for the law of the forum. However, the Foreign Limitation Periods Act 1984 changed this rule by adopting the principle that the English court is to apply to the issue of limitation the law which governs the substantive issue according to the English choice of law rules. Thus, even before the Rome II Regulation came into force, the English law on limitation produced the same effect in non-contractual obligation cases as that now produced by Article 15(h).793

(ix)  Capacity

Article 15 does not mention the issue of capacity to incur liability. This would include the issue of the age at which a person can incur capacity. It would also include the question of whether a company can incur liability on some basis other than vicarious liability, which is (p. 866) already covered under Article 15(g). However, Recital (12) makes it clear that the law applicable should also govern the question of the capacity to incur liability in tort/delict.794

(h)  Limitations on the dominance of the law applicable

Considerations of public policy are said to justify giving the courts of Member States the possibility of applying exceptions based on the overriding mandatory provisions of the forum and public policy.795 It is envisaged that these two exceptions will only apply in exceptional circumstances.796

(i)  Overriding mandatory provisions of the forum

(a)  Article 16

Article 16 is headed “overriding mandatory provisions” and goes on to provide that “Nothing in this Regulation shall restrict the application of the provisions of the law of the forum in a situation where they are mandatory irrespective of the law otherwise applicable to the non-contractual obligation”. It makes clear that the forum can continue to apply its own mandatory rules to override the rules on the applicable law under the Regulation, including the rules allowing a choice of the applicable law. Article 16 is in substance worded identically to Article 7(2) of the 1980 Rome Convention, but shorter than Art 9 Rome I. Much has already been said in the context of contract about the concept of (overriding) mandatory rules and about how such rules are to be identified.797 What is said there is equally relevant in the present context. In particular, the definition of overriding mandatory provisions in Article 9(1) Rome I798 can be applied by analogy to Rome II.799 Article 16 is concerned with overriding mandatory rules, as contrasted with provisions of the law of a country that cannot be derogated from by agreement, as in Article 14(2) of the Regulation. The addition of the word “Overriding” in the heading to Article 16 is to be welcomed. It is noticeable that under the Rome II Regulation the drafters have been concerned to avoid the confusion caused under the Rome Convention by using the same term “mandatory rules” in two different senses. Under the Regulation not only is Article 16 headed “Overriding mandatory rules” but also Article 14(2) avoids using the term mandatory rules altogether.

(b)  English overriding mandatory rules

English law is familiar with the concept of overriding mandatory rules of the forum in tort cases. The statutory tort choice of law rule expressly preserved the mandatory rules of the forum exception that existed at common law.800

(i)  Examples of statutory mandatory rules of the forum

There is a distinct lack of authority in relation to the application of the mandatory rules of the forum exception in tort cases. This is because, under the common law tort choice of (p. 867) law rules, there was an automatic reference to English law anyway. Nonetheless, in a pre-Regulation case, the right to contribution, which can arise between joint tortfeasors under the Civil Liability (Contribution) Act 1978, has been held to be a matter solely of construction of the language of the Act.801 The argument that the Act was only applicable where the law governing the right to contribution was English law was rejected. The Act is applicable once liability against joint tortfeasors has been established, applying tort choice of law rules. It might also be considered that English statutory rules limiting the effect of certain exclusion clauses in contracts of employment802 might operate as (overriding) mandatory rules in a negligence action brought by an injured employee against the employer.803 It could also be argued that the provisions on limitation of liability for maritime claims contained in the Merchant Shipping Act 1995,804 giving the force of law to an international Convention, should be regarded as mandatory rules.805 In the past, these provisions have been given a procedural characterisation,806 and so the question of whether they were mandatory rules did not arise. But the Regulation provides that limitation of liability comes within the scope of the rules on the applicable law.807 Finally there is judicial authority stating that section 4 of the Fatal Accidents Act 1976808 is a mandatory rule of English law.809

(ii)  Common law rules of substantive law

The examples given so far all involve statutory provisions. But much of the English law of tort is of common law origin. In principle, it is possible to have a common law mandatory rule of the forum. But this leaves the practical problem of how such rules are to be identified. With a statutory provision, it may be possible to ascertain that it was Parliament’s intention that this provision should apply, regardless of the law applicable to the tort. This can be done by looking at other provisions in the statute expressly stating that the whole or part of it is to have overriding effect or imposing a territorial limit on the scope of the statute. But with a common law rule, how is this intention to be ascertained? Indeed, whose intention are we concerned with? Presumably that of the judges, but which particular judge or judges? The upshot is that it is likely that examples of common law mandatory rules of the forum will be very rare. One possible example, concerned with passing off, has been suggested, namely that English law would apply to an act of passing off that occurred in England where the claimant has goodwill in England, even though the law applicable to the tort is that of a foreign country.810 After the introduction of the Regulation, the specific choice of law rules for the special torts of unfair competition and infringement of an intellectual property right ensure that