EU - New Rules on Applicable Law

Where a dispute has a foreign element, one of the common problems is deciding under what jurisdiction legal action should be taken. This is avoided in many commercial contracts by specifying the applicable law in the contract, but in consumer contracts there is often no such clause. When the action arises because of a non-contractual issue, the problem is even more difficult.

Recently, the EU set out new regulations aimed at clarifying the issue of where action should be taken with regard to a range of non-contractual obligations in civil and commercial matters, excluding actions involving government bodies. These harmonise the rules for deciding jurisdiction across the EU (excluding Denmark), but also allow for the parties to elect for a specified jurisdiction to apply in certain circumstances. There is no freedom of choice in some types of action, for example those involving intellectual property and competition law.

Under the old rules, the applicable law was that of the country in which the event giving rise to the action took place. Under the new rules, the key concept is that the jurisdiction applicable will depend on the place where the damage occurs, or is likely to occur. This may well be different from the country in which the event giving rise to the action took place. There are some exceptions to this, however, the main one being that if both parties to a dispute are habitually resident in the same country, that country’s law will apply, no matter where the event took place.

Another exception will be where the event giving rise to the action is inextricably linked with a particular country, in which case the law of that country will apply.