EU rule threatens legal boom

London's 9 billion-a-year international commercial legal business is being threatened by a proposed European Union regulation on civil law, Financial Mail has learned.

The proposal, which is a priority of the current Finnish EU presidency, would give courts the right to decide which legal system should prevail in deciding intra-European civil cases.

It would apply even when the parties concerned had specified in the contract which country's law they wanted to govern the agreement. This would create major uncertainty, according to the Financial Markets Law Committee, which is chaired by former Lord Chief Justice Lord Woolf and has members from the Bank of England and the Financial Services Authority.

Sarah Garvey, litigation partner at City solicitor Allen & Overy, said the proposed regulation could undermine the key attraction of London as a commercial legal centre -- the popularity of English law. This in turn would damage the capital's booming commercial legal business.

"English law is a very popular choice for law governing contracts," she said. "It is predictable and well known.

"This regulation may cause banks, institutions and multinationals to ask if they really want to get involved in this."

They might choose to have their contracts governed by US law, she said.

The EU proposal, known as Rome I, would set aside the principle of the 1980 Rome Convention, under which contractual disputes are judged under the legal system specified in the contract.

Instead, the court would be required to look into whether the parties had a "close connection" with any other country, and if so, whether the laws of that country should be applied.

The Department for Constitutional Affairs said: "We are still involved in the negotiations and seeking to influence them."

Britain retains the right to opt out of Rome I, but if it were adopted by Continental EU countries, it would have serious implications for London's legal businesses.