07. December 07
The Justice and Home Affairs Council of the European Union reached a political agreement on the choice of law governing international contracts (the so-called <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />
Rome I Regulation).
The future regulation will apply to most of the private-law contracts that are related to several states, thus influencing the business environment and the operation of the internal market in the European Union.
The main goal of the regulation is to ensure legal certainty in entry into international contracts both for companies and residents of the EU. The new legislation will regulate the choice of law governing the settlement of disagreements, e.g. in the case that an Estonian company has entered into a contract for providing services in other EU member states or in the case of defects of a souvenir bought by an Estonian tourist abroad. The new regulation will also determine whether the parties to an employment contract signed in <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Estonia can agree upon the application of the law of another country.
The draft regulation prescribes that, for example, the law of France will generally apply to purchases made in France while staying there. However, when an Estonian consumer orders goods from a product catalogue distributed in Estonia, the consumer can rely on the consumer protection legislation effective in Estonia. Employment contracts will be governed by the law of the state in which the employee habitually performs the work.
According to the regulation, parties to a contract can generally agree upon the state whose law will govern their legal relations. Then again, the opportunities of making such an agreement are limited when it comes to the need to protect the weaker party, such as a consumer, employee or policyholder. These limitations must ensure that the party who is stronger in terms of its financial position or knowledge in legal issues, e.g. a large company or employer, cannot impose the application of the law that may be unknown or detrimental to the other party.
The regulation should be ready for adoption in the first months of the next year.
