I am writing in response to your letter of 28 March 2007[100] and to report the outcome of the discussion on Rome I at the Justice and Home Affairs Committee on 19 April. I note also that Rome I remains under scrutiny by the Committee.

JUSTICE AND HOME AFFAIRS (JHA) COUNCIL

  The Presidency took a package of provisions to JHA on 19 April which achieved political agreement, subject to a reservation by the Commission on the removal of references to European Contract Law in Article 3. I attach (not printed), for information, a copy of the Presidency's compromise package dated 30 March and the accompanying explanatory note (not printed) of the same date.

  The package, in the main, contained the less controversial articles which many Member States were already able to agree on. From the UK's perspective there was no real major areas of difficulty. The main areas of concern for the UK, namely Articles 5, 5a, 8(3) and 13, did not form part of the Presidency package.

  The articles included in the package covered:

—  Article 1 (Scope): In broad terms, this was the same as the equivalent provision in the Rome Convention. UK had, however, argued that there should be a limit to the scope to ensure that it properly conformed to the requirements in Article 65 of the EC Treaty that measures adopted under this were "necessary for the proper functioning of the internal market". The UK's position was not supported, however, by the majority of Member States who were in favour of universal application and preferred to retain consistency with Rome II. As this point had been raised several times and had not gained support, it was felt that there was little merit in arguing it further as the same debate had been made and lost in the Rome II negotiations.

—  Article 3 (Freedom of Choice): This is an important provision as it deals with party autonomy. The UK has done reasonably well in the negotiations here in that the new elements remain broadly similar to those in the Convention. Some changes in wording were necessary to deal with language differences and a recital will be included to clarify that an exclusive choice of court agreement would be taken into account in assessing whether a choice of law had also been demonstrated.

—  Article 4 (the Default Rules): This provision is now clearer than the equivalent Convention provision and contains specific choice of law rules and specific rules of displacement. In broad terms, we believe this is acceptable. The specific choice of law rules are, in general, more detailed than those in the Convention. Article 4(1)(j1), which relates to financial transactions, remains to be agreed and has been excluded from the Presidency package. Overall, our objective to achieve the necessary flexibility in the provision has generally been achieved.

—  Article 7 (Agency): The deletion of this provision is welcome, as it had been a "red line" issue for the UK. Its deletion had the unanimous agreement of all Member States. The position on agency will now be the same as it is under the Convention.

WORKING GROUP NEGOTIATIONS—RECENT DEVELOPMENTS

  Two Working Group meetings took place in April. Our main concerns continue to centre on Article 4a (contracts of carriage), Article 5 (consumer contracts), Article 5a (insurance contracts), Article 8(3) which deals with the application of the mandatory rules of a third country and Article 13 (voluntary assignment and contractual subrogation).

  I draw your attention to the most recent developments on these provisions.

—  Article 4a (Contracts of carriage): The Working Group discussed this provision for the first time on 25 April. There was general agreement that choice of law agreements should continue to be possible in relation to the carriage of goods but accordingly the proposed default rule would likely have a limited impact in practice. On carriage of passengers, however, the debate indicated positions that have the potential to have more serious consequences.

  I reported in my last letter that the UK position on carriage of passengers would be to support in principle those options (Options 1 and 3) which preserved party autonomy, and oppose those which did not (Options 2 and 4). We also argued the point that no case for any significant departure from the position under the 1980 Rome Convention had been made. Indeed, the Commission in its original proposal had not proposed such a departure from the Convention. The general preference, however, was for Option 4 (no party autonomy and the following default rule: law of passengers habitual residence provided either place of passengers departure or destination is situated there and if that is not the case then the law of the carriers country of habitual residence). There was also some interest in a suggestion from one Member State for limited party autonomy which would allow carriers to select the law either of the passenger's place of departure or his place of arrival. On both these points, the UK has stated that it is likely to prove difficult for operators to have to contend with potentially many different applicable laws operating in the context of a single trip. Member States appear, however, only to be concerned with the simplest form of international travel, ie from one country to another, and not with situations such as cruises or long haul flights where the vehicle in question stops in several different countries with passengers embarking and disembarking at different points along the way.

  Officials in the Department of Transport are currently assessing the potential implications of this with commercial operators in the various sectors (air, sea, road and rail) to ascertain the extent to which there are "red-line" issues at stake for us here.

—  Article 5 (Consumer contracts): This article was of major concern to the UK and one where we have consistently continued to argue for a more balanced provision that took account of the needs of business as well as the rights of consumers. The article was discussed further at the Working Group on 30 April where it appears that there may be some additional support for a somewhat better balanced provision. This reflects an increasing awareness by some Member States that there could be more serious effects on business than was first envisaged, particularly for small and medium enterprises and e-commerce. In light of this we will continue to seek improvements to Article 5 from the business perspective.

—  Article 5a (Insurance contracts): This is a complex area, which the UK has recently concluded a consultation exercise on. Although respondents to this consultation accepted that the current rules on insurance were complex, the overall view by the majority of respondents was that they did not support the kind of comprehensive solutions being proposed in Rome I. These were seen as being too inflexible and limiting of party autonomy, particularly in the area which currently falls outside the scope of the Community Directives on this subject. In light of this, the UK will explore the possibility of retaining the status quo in Rome I.

—  Article 8(3) (mandatory rules of a third country): I previously reported that UK were engaged in seeking compromise solutions on this difficult area. In view of its sensitivity, my officials remain in close contact with City stakeholders. There are welcome indications that all Member States are open, in principle, to compromise and not insisting on Article 8(3) in the terms in which it was originally proposed by the Commission. Negotiations on this matter continue.

—  Article 13 (voluntary assignment and contractual subrogation). The UK continues to argue that the rule proposed in Article 13(3) to regulate the priority of successive assignments is problematic and their priority issues should be determined by the law governing the debt. There is increasing support for this position within the Working Group but at the same time there is still significant support for the Commission's proposal. It remains unclear how this issue will be resolved within the Council.

12 June 2007

  The Committee is grateful for Baroness Ashton's letter of 12 June setting out the outcome of the discussions of Rome I at the Justice and Home Affairs Council on 19 April and identifying the points of difficulty which remain in this negotiation.

  We note that there are a number of matters which remain of difficulty to the UK and that Article 8(3) (Mandatory rules of a third country) may not be the only "red line" issue. It is, for example, disappointing that the majority of Member States appear to be moving in the direction of Option 4 for Article 4(a) (Contracts of carriage). On the other hand it is encouraging to see that other Member States are now beginning to appreciate the potential adverse effects on business of the rule proposed for Article 5 (Consumer contracts).

  The Committee decided to retain the proposal under scrutiny. We would be grateful if you would keep us informed of developments.

19 July 2007