Border crossings

The Rome II regulation came into force in the UK on 11 January this year. Its aim is to standardise across the European Union (with the exception of Denmark) the manner in which courts deal with cases that have an international dimension. These often give rise to complex issues involving jurisdiction and the conflict of differing national laws. For example, if an English holidaymaker is involved in a road accident in France with a French national who suffers injury, should the courts in France or England hear the dispute? Should they assess damages in accordance with French or English law?

Rome II applies to proceedings started from 11 January, where the cause of action arose after 19 August 2007. Its application is not restricted to cases involving only EU member states. For example, it also applies to proceedings brought in England in respect of an accident in Canada.

English law before Rome II

Cases involving an international element give rise to two issues. First, which national court should hear the dispute? The basic rule was, and remains, that a defendant should be sued in his or her place of permanent residence. However, the claim can be brought in the country where the event occurred.

Claimants are therefore able to “forum shop” – bring a claim in the country where they perceive they have an advantage. The often higher levels of damages awarded under English law used to give them an incentive to start proceedings here.

Once the country for the hearing has been decided on, the next issue is which country’s law should be used to decide the dispute. This means deciphering which is the “applicable law”. Here Rome II brings significant changes.

The general principle is that the applicable law is the law of the country in which the damage occurred. The focus is accordingly on the place where the claimant suffered direct damage; the fact that there might be ongoing consequences in another country is not relevant.

In straightforward personal injury cases, the position should be fairly clear. The place in which the damage occurred will generally be the place where the claimant suffered injury. In the example above, the accident happened in France – therefore French law is the applicable law, whether or not the proceedings are started in France or England.

There is scope for future argument in respect of more complex cases, for example, in a claim brought by dependants following a fatal road accident abroad. However, the guidance notes issued by the Ministry of Justice suggest that the fact that the dependants have suffered financial loss in a country different from that in which the damage occurred should not be relevant.

There are several exceptions to this general principle. In these cases, the law of a different country may be applied:

• If both the claimant and defendant have their “habitual residence” in the same country at the time the damage occurred, the law of their home country is applied. For example, if an accident in the UK involves two Italian nationals, then Italian law will be used to determine the dispute.

• Article 4(3) provides an “escape clause”. Where it is clear that there is a “manifestly closer connection” with a country different from that where the accident occurred, the law of that other country should apply.

• Subject to some exceptions, Article 14 provides that the parties can agree that issues relating to non-contractual obligations can be subject to the law of their choice. Any such agreement can be reached either before or after the event giving rise to the damage. This provides new clarity to English law.

Implications

The main effect is likely to be that English courts and insurers will need to adapt to assessing damages differently when a foreign element is involved. Before Rome II, the fact that proceedings started in England often meant damages would be assessed in accordance with English law. This is no longer the case.

This will be good news for insurers if, for example, an English claimant is injured in an accident in Poland, where damages in personal injury cases are much lower. However, the position will be less favourable if the accident is in the USA, where damages are typically higher.

Less favourably, the length and cost of proceedings where the court has to apply foreign law could rise.

How to prepare

Reserves should be set in relevant cases to reflect the fact that costs may be increased, at least in the early stages.

Insurers also may need to get advice from experts in foreign law, particularly in relation to how damages will be assessed in accordance with the applicable law. Panels of appropriate experts should be identified.

Finally, they should consider whether it might be best to agree a choice of law clause with a claimant at the outset, perhaps in response to a letter of claim.