ROME I: AN UPDATE ON THE LAW APPLICABLE TO CONTRACTUAL OBLIGATIONS IN EUROPE
Nils Willem Vernooij
After six years and many rounds of consultations and political debates, the Rome Convention on the Law Applicable to Contractual Obligations has been finally converted into a Community instrument: the Rome I Regulation. This Regulation entered into force on July 24, 2008 and shall apply EU-wide, with the exception of Denmark, as of December 17, 2009.
The adoption of Rome I is part of an ambitious project to lay down comprehensive choice-of-law rules for obligations in civil and commercial matters within the EU. To this end, Rome I is complemented by the Regulation on the Law Applicable to Non-Contractual Obligations, which has applied since January 11, 2009, and provides for choice-of-law rules regarding obligations arising out of tort/delict, unjust enrichment, negotiorum gestio, and culpa in contrahendo.
When compared to Rome II-which has no legal predecessor and, therefore, presents a milestone in the development of European private international law – Rome I is a relatively modest modernization of pre-existing choice of law rules designating the applicable law to contractual obligations. On the other hand, Rome I is by no means a verbatim copy of the Rome Convention; indeed, the wording of several articles has been rephrased or clarified, and a number of important changes have been implemented. These changes include, inter alia: a minor adjustment to the principle of party autonomy (Article 3); a complete revision of the choice of law rules regarding the applicable law in the absence of choice (Article 4); new provisions on transports of carriage and insurance (Articles 5 and 7 respectively); an expansion of the choice of law rules regarding consumer contracts; and a rephrasing of the so-called “mandatory rules” of law. The purpose of this note is to provide a brief overview of some of the changes mentioned above.
II. ARTICLE 3: THE PRINCIPLE OF PARTY AUTONOMY
The parties’ freedom to choose the law applicable to their contract, whether or not it is the law of an EU Member State, is still a fundamental principle in Rome I. The parties also continue to be allowed to choose the law applicable to only a part of their contract (depeçage). No departure from the Rome Convention has been intended in these respects.
In fact, except for one minor textual amendment, the principle of party autonomy has remained unaltered. This amendment relates to the criteria for making an implicit choice of law, which seem to have been tightened. Whereas under the Rome Convention an implicit choice must be demonstrated “with reasonable certainty” by the terms of the contracts or the circumstances of the case, Rome I says this choice must be demonstrated “clearly.” In this respect, Rome I embodies a preference for certainty over flexibility, limiting the courts’ discretion to determine whether the parties have made an implied choice of law.
Moreover, under Rome I, one of the factors to be taken into account in determining whether an implicit choice of law has been clearly demonstrated is an agreement between the parties to confer on one or more courts or tribunals of a Member State exclusive jurisdiction to determine disputes under their contract. In the absence of an express choice of law, a choice of court could, therefore, bring about an implicit choice for the law of the country where the court has jurisdiction (the law of the forum). This “soft” rule, which is not to be found in the Rome Convention, has been both praised for its efficiency and criticized for its inconsistency with the principle of party autonomy.
Like the Rome Convention, Rome I does not allow the contracting parties to choose anything but national law. Therefore, non-State rules of law-such as lex mercatoria, the Principles of European Contract Law, or the UNIDROIT Principles of International Commercial Contracts – cannot be chosen as the law applicable to the contract. This intentional omission has been criticized as being out-of-touch with international commercial reality, contradictory to the principle of party autonomy and inconsistent with the arbitration laws of many countries. However, Rome I does not preclude the contracting parties from incorporating by reference into their contract non-State rules.
III. ARTICLE 4: LAW APPLICABLE IN THE ABSENCE OF CHOICE
Rome I contains some major changes in respect of the choice-of-law rules regarding the law applicable to the contract in the absence of an express or implied choice of law by the contracting parties.
First, Rome I provides for a bright-line approach in respect of eight categories of contracts, stating for each category the determinative connecting factor to designate the applicable law (the first main rule). Included in this list of categories are, for example, contracts for the sale of goods, contracts for the provision of services, franchise contracts, and distribution contracts. According to Rome I, the aforementioned contracts are governed by the law of the country where the seller, service provider, franchisee, or distributor, respectively, has his habitual residence. This bright-line approach contrasts with that of the Rome Convention, under which the main rule for every contract is that the contract shall be governed by the law of the country “with which it is most closely connected,” subject to certain presumptions regarding, most importantly, “characteristic performance.” Note that Rome I also introduces a new provision on the definition of habitual residence.
Second, contracts which fall outside the aforementioned categories shall be governed by the law of the country where the party required to effect the characteristic performance of the contract has his habitual residence (the second main rule). This rule also applies to contracts which fall into more than one of the aforementioned categories. Thus, the presumption of the Rome Convention relating to characteristic performance has been turned into one of the two main rules of Rome I regarding the applicable law in the absence of choice.
Third, where the applicable law cannot be determined pursuant to the two main rules of Rome I mentioned above, the contract shall be governed by the law of the country with which it is most closely connected. Thus, the main rule of the Rome Convention has been turned into the residual rule in Rome I. Just as with the implicit choice of law, certainty wins over flexibility in Rome I with respect to the choice-of-law rules regarding the applicable law in the absence of a choice.
However, Rome I leaves some discretion to the courts in determining the applicable law in the absence of choice, by providing that the two main rules mentioned above (the “categories” rule and the “characteristic performance” rule) shall not apply where it is clear from all the circumstances of the case that the contract is “manifestly” more closely connected with a country other than that indicated by either of these two main rules. In such a case, the law of that other country shall apply. A similar exception is present in the Rome Convention, but without the adverb “manifestly.” This means that under Rome I courts have less leeway to resort to this exception than under the Rome Convention. Once again, therefore, Rome I provides for more certainty, albeit less flexibility, than the Rome Convention. On the other hand, the preamble of Rome I makes it clear that to determine the country with which the contract is manifestly more closely connected, account should be taken of, inter alia, whether that contract has a “very close relationship” with one or more other contracts. This suggests that the “manifestly more closely connected” exception may be more readily satisfied than on first sight.
Rome I is a welcome update of the choice-of-law rules previously laid down by the Rome Convention. Several important new provisions have been introduced, such as those on contracts of carriage and insurance contracts, and the language of pre-existing rules has been clarified, such as the rules that designate the applicable law in the absence of a choice. As a result, Rome I provides for more certainty than the Rome Convention, albeit sometimes at the cost of reduced flexibility. However, some issues, most notably the parties’ freedom to choose non-State rules as the law applicable to their contract, are not dealt with in Rome I and have been left for another day. It is clear, therefore, that Rome I is not an end product but merely another step in the development of private international law within the EU, albeit one that, together with Rome II and Brussels I, results in a more coherent framework of European choice-of-law rules.
 See, e.g., Commission Green Paper on the Conversion of the Rome Convention of 1980 on the Law Applicable to Contractual Obligations into a Community Instrument and its Modernization, COM (2002) 654 final (Jan. 14, 2003). The European Commission maintains an extensive list of replies to this Green Paper. For comments on this Green Paper, see, for example, Max Planck Inst. for Foreign Priv. and Priv. Int’l Law, Comments on the European Commission’s Green Paper on the Conversion of the Rome Convention of 1980 on the Law Applicable to Contractual Obligations into a Community Instrument and Its Modernization, 68 RABELS ZEITSCHRIFT 1 (2004); Von Ulrich Magnus & Peter Mankowski, The Green Paper on a Future Rome I Regulation-on the Road to a Renewed European Private International Law of Contracts, 103 ZEITSCHRIFT FÜR VERGLEICHENDE RECHTSWISSENSCHAFT 131 (2004). See also Commission Proposal for a Regulation on the Law Applicable to Contractual Obligations (Rome I), COM (2005) 650 final (Dec. 15, 2005) [hereinafter Proposal]. On this Proposal, see, for example, Max Planck Inst. for Foreign Priv. and Priv. Int’l Law, Comments on the European Commission’s Proposal for a Regulation of the European Parliament and the Council on the Law Applicable to Contractual Obligations (Rome I), 71 RABELS ZEITSCHRIFT 225 (2007) [hereinafter Max Planck Inst. 2007]; see also Eva Lein, Proposal for a Regulation on the Law Applicable to Contractual Obligations, in Y.B. PRIV. INT’L L. 389 (Petar Sarcevic et al. eds., 2005). An overview of the political process following this Proposal is available.
 Convention on the Law Applicable to Contractual Obligations, 1980 O.J. (L 266) 1 [hereinafter Rome Convention]. For the consolidated version of the Rome Convention, see 2005 O.J. (C 334) 1.
 Id. recital 46. Initially, the United Kingdom did not want to opt in to Rome I either. Id. recital 45. Following a consultation process, however, it changed its position. See UK MINISTRY OF JUSTICE, ROME I-SHOULD THE UK OPT IN?, 2008, Consultation Paper CP 05/08; see also Commission Opinion on the Request from the United Kingdom to Accept Regulation (EC) No. 593/2008 on the Law Applicable to Contractual Obligations (Rome I), COM (2008) 730 final (Nov. 7, 2008).
 Rome I, supra note 3, art. 29.
 See Council and Commission Action Plan on How Best to Implement the Provisions of the Treaty of Amsterdam on an Area of Freedom, Security and Justice, ¶ 39, 1999 O.J. (C 19) 1.
 For a detailed analysis of Rome II, see, for example, the works of various authors in Y.B. PRIV. INT’L L. 1-222 (Petar Sarcevic et al. eds., 2007).
 This was necessary, in part, to make the language of Rome I consistent with that of both Rome II and of Council Regulation 44/2001, On Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters, 2001 O.J. (L 12) 1 (EC) [hereinafter Brussels I]. See Rome I, supra note 3, recitals 7, 15, 17, 24.
 In this respect, Recital 11 of Rome I expressly states: “The parties’ freedom to choose the applicable law should be one of the cornerstones of the system of conflict-of-law rules in matters of contractual obligations.”
 Id. art. 3(1).
 Arguably, the wording “demonstrated with reasonably certainty” leaves more room for interpretation than the wording “clearly demonstrated”, albeit the difference is subtle. See Katharina Boele-Woelki & Vesna Lazić, Where Do We Stand on the Rome I Regulation?, in THE FUTURE OF EUROPEAN CONTRACT LAW 19, 24 (Katharina Boele-Woelki & Willem Grosheide eds., 2007). The preamble of Rome I makes the preference for legal certainty explicit. Rome I, supra note 3, recital 16 (“the conflict-of-law rules should be highly foreseeable”).
 Rome I, supra note 3, recital 12. Originally, the Commission proposed that, for the purpose of determining whether the contracting parties have made an implicit choice of law, they shall be presumed to have chosen the law of a particular Member State if they “have agreed to confer jurisdiction on one or more courts or tribunals of [that] Member State to hear and determine disputes that have arisen or may arise out of their contract.” Proposal, supra note 1, at 14. This proposal was eventually watered down to recital 12 during the legislative process. Rome I, supra note 3.
 The rule is “soft” in that a choice of forum does not automatically bring about an implicit choice of law, in the absence of an express choice by the contracting parties, but only serves as a factor in determining whether an implicit choice of law has been clearly demonstrated.
 See Ole Lando & Peter Arnt Nielsen, The Rome I Regulation, 45 COMMON MKT. L. REV. 1687, 1699 (2008) (supporting recital 12 of Rome I because (1) it is convenient for a court to apply its own law instead of a foreign law, (2) application of foreign law is often time-consuming and expensive, and (3) parallelism between choice of court and choice of law is likely to be in accordance with the expectations of the parties). But see Boele-Woelki & Lazić, supra note 13, at 25 (arguing that a choice of courts in a particular country does not mean that the parties intended that the law of that country would also govern their contract because they are likely to agree on the jurisdiction of the courts in a neutral country, otherwise unrelated to the parties and their legal relationship, as either party wishes to avoid proceedings before the courts in the country of the counterparty).
 There is no single definition of lex mercatoria. Among other things, lex mercatoria relates to usages developed in international trade and general principles of law. JULIAN D.M. LEW ET AL., COMPARATIVE INTERNATIONAL COMMERCIAL ARBITRATION 453-55 (2003).
 See OLE LANDO ET AL., PRINCIPLES OF EUROPEAN CONTRACT LAW – PARTS I, II AND III (2003).
 See International Institute for the Unification of Private Law (UNIDROIT), UNIDROIT Principles of International Commercial Contracts (2004).
 The Commission initially proposed to allow parties to choose non-State rules of law as the law applicable to their contract, including such rules as the UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law, but excluding the lex mercatoria, which, according to the Commission, “is not precise enough.” Proposal, supra note 1, at 5, 14. However, the proposed provision failed to gather sufficient support during the legislative process.
 Lando & Nielsen, supra note 16, at 1694-98; Fabrizio Marella, The New (Rome I) European Regulation on the Law Applicable to Contractual Obligations: What has Changed?, 19 ICC INT’L CT. ARB. BULL. 87, 89-90 (2008); Boele-Woelki & Lazić, supra note 13, at 27-30. The aforementioned scholars point out that non-State rules of law are often applied in commercial arbitration and that this practice is expressly allowed by the arbitration laws of many countries, including EU Member States, if only because this allows the parties to choose a “neutral” system of law. Party autonomy under arbitration laws and practices is, therefore, generally greater than under Rome I. But see Magnus & Mankowski, supra note 1, at 149-53 (arguing against the inclusion of non-State rules of law and pointing out that, in practice, parties to arbitration rarely opt to choose non-State law).
 Rome I, supra note 3, recital 13.
 Id. art. 4.
 Id. art. 4(1). This approach has been criticized for creating new problems of classification and delineation of categories, thereby offsetting the advantages of the hard-and-fast rules introduced in Article 4(1) of Rome I. Lando & Nielsen, supra note 16, at 1703-04; Zheng Tang, Law Applicable in the Absence of Choice-The New Article 4 of the Rome I Regulation, 71 MOD. L. REV. 785, 791 (2008); Michael Wilderspin, The Rome I Regulation: Communitarisation and Modernization of the Rome Convention, 9 ERA FORUM 259, 266-67 (2008); and Lein, supra note 1, at 403.
 Rome I, supra note 3, art. 4(1)(a).
 Id. art. 4(1)(b). According to recital 17 of Rome I, the terms “provision of services” and “sale of goods” should be interpreted in the same way as when applying Article 5 of Brussels I.
 Rome I, supra note 3, art. 4(1)(e).
 Id. art. 4(1)(f).
 Id. arts. 4(1)(a), (b), (e), and (f) respectively. With respect to contracts for the sale of goods, or the provision of services, the same result would follow under Article 4(2) of the Rome Convention, by virtue of applying the “characteristic performance” rule. Tang, supra note 24, at 787, 792. Other contracts included in the list of categories in Article 4(1) of Rome I are contracts relating to a right in rem in immovable property or to a tenancy of immovable property. Rome I, supra note 3, art. 4(1)(c). These contracts shall be governed by the law of the country where the property is situated. Id. Again, the same result would follow under Article 4(3) of the Rome Convention, which contains a presumption that such contracts are most closely connected with the country where the immovable property is situated. Tang, supra note 24, at 787. Rome I, however, newly introduces a limited exception for short-term tenancies, which are described as tenancies of immovable property concluded for temporary private use for a period of no more than six consecutive months where the tenant is a natural person and has his habitual residence in the same country as the landlord. Rome I, supra note 3, art. 4(d). Those tenancies shall be governed by the law of the country where both parties have their habitual residence. Id. Furthermore, contracts for the sale of goods by auction shall be governed by the law of the country where the auction takes place, if such a place can be determined. Id. art. 4(1)(g). Finally, contracts concluded within a multilateral system-which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments, in accordance with non-discretionary rules and governed by a single law-shall be governed by that law. Id. art. 4(1)(h).
 Rome Convention, supra note 2, art. 4(1); Rome I, supra note 3, art. 4(d).
 According to the Rome Convention, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has his habitual residence. Rome Convention, supra note 2, art. 4(2). The characteristic performance relates to the performance for which the payment is due, which usually constitutes the centre of gravity and the socio-economic function of the contractual transaction. MARIO GIULIANO & PAUL LAGARDE, REPORT ON THE CONVENTION ON THE LAW APPLICABLE TO CONTRACTUAL OBLIGATIONS, 1980 O.J. (C 282) 1, 20. Examples are, depending on the type of contract, the delivery of goods, the granting of the right to make use of an item of property, or the provision of a service, transport, insurance, banking operations, or security. Id.
 See Rome I, supra note 3, art. 19. Unlike Article 60(1) of Brussels I, which establishes three criteria for determining where companies and other legal bodies are domiciled, Article 19(1) of Rome I contains a single criterion: the place of central administration. According to Rome I, recital 39, this should prevent parties from being unable to foresee the law applicable to their situation.
 Rome I, supra note 3, art. 4(2).
 Id. art. 4(2).
 Id. art. 4(4).
 This approach has been criticized for its strictness, notwithstanding the legal certainty it promotes, because it leaves judges hardly any space to balance commercial interests and adapt the rule to the needs of commerce. Max Planck Inst. 2007, supra note 1, at 258. It also marks a considerable departure from the practice of most European countries prior to the enactment of the Rome Convention. Id.
 See Lando & Nielsen, supra note 16, at 1702-03. But see Tang, supra note 24, at 792-93 (arguing that the situation under Rome I has not substantially improved because clear rules are still lacking for most contracts where the “characteristic performance” rule cannot be used, such as contracts of exchange and joint venture contracts); Wilderspin, supra note 24, at 267.
 Rome I, supra note 3, art. 4(3).
 Rome Convention, supra note 2, art. 4(5).
 Rome I, supra note 3, recital 20.
 On the problem of linked contracts, see Trevor C. Hartley, The Proposed “Rome I” Regulation: Applicable Law in the Absence of Choice (Article 1), in VERS DE NOUVEAUX ÉQUILIBRES ENTRE ORDRES JURIDIQUES 717, 722-23, 726 (Jean-Pierre Ancel et al. eds., 2008).