ROME II – Opportunities And Risks For The Financial Sector

This alert reports a French case that relates to a hedge fund registered in the Cayman Islands, the investment agreement of which was governed by Cayman law, and where the actions complained about (withdrawing from the fund) were arguably strongly connected with the Cayman Islands. Yet, applying Rome II, the Paris Court of Appeal held that the law applicable to the action was French law because the damage resulted from orders given in France and damage was suffered by a French entity.

The EU Rome II Regulation¹ on the law applicable to torts has been in force for close to five years. Appellate jurisdictions in the EU are just starting to grapple with the core principles contained in it. The decision of the Paris Court of Appeal,² involving claims totalling €60 million brought by an investment fund and a fund manager against a bank, demonstrates the importance of understanding how Rome II operates and how it may impact on financial structures in the EU.