In a nutshell, a 28th regime is a separate legal framework of EU rules that sits alongside member states' national legal regimes. Parties based in the EU can opt to have such a framework govern their transaction instead of the relevant member state's national law. Because there are currently 27 member states in the EU, this type of framework is often referred to as the 28th regime. Another way to think of a 28th regime is as a legal equivalent of Esperanto - a governing law regime that is derived from member states' national laws, but has a separate existence from those regimes.

The concept of the 28th regime is seen as a way of resolving (or avoiding) the issues that arise when the EU attempts to harmonise different national laws. Recently, harmonisation issues have forced the EU to undertake a full-scale revision of the controversial draft Consumer Rights Directive, and you may have encountered references to the 28th regime in this context, as an optional 28th regime of consumer law has been mooted as an alternative to attempting this difficult harmonisation. (The draft Directive was originally proposed as a maximum harmonisation directive in October 2008. The European Commission intended the Directive to bring consumer protection rules across the EU into alignment; as such, member states would not be allowed to keep or introduce national measures that gave consumers a higher level of protection than that provided for by the Directive. Problems arose when member states and consumer organisations realised that this would result in consumer rights being reduced in certain countries.)

A 28th regime of private contract law is also currently being discussed by the EU bodies: the EESC has recently issued an opinion recommending the adoption of such a regime, which it envisages would potentially regulate all types of civil contracts, and PLC understands that the European Commission is about to publish a Green Paper on European contract law. The EESC considers that a 28th contract law regime would offer member states two regimes of domestic contract law, rather than another foreign law regime. This is significant because it would prevent courts and other tribunals from refusing to hear a case about a contract governed by 28th regime contract law on the grounds the contract is governed by "foreign law". This could be very helpful in relation to cross-border transactions within the EU. For instance, the German Insurance Ombudsman may currently refuse to deal with a complaint if the relevant contract is governed by the law of another member state. If the contract was governed by the 28th contract law regime, the German Insurance Ombudsman could not consider the contract to be governed by foreign law, but would have to regard it as governed by an alternative domestic law. For this reason, you will sometimes hear the 28th regime described as a "2nd regime" (the description favoured by the EESC). However, a 28th contract law regime presents certain challenges. For instance, the EESC concedes that the regime should not apply to employment contracts, and it would be necessary to ensure that parties could not use the regime to bypass national mandatory rules.

A third area in which the EU is showing an initiative towards a 28th regime concerns the insolvency law governing financial institutions that have a presence in more than one member state. The European Committee of Economic and Monetary Affairs (ECON) has passed a motion recommending European legislation to deal with the insolvency of a financial institution deemed systemically critical. This legislation would be intended, eventually, to extend to a much wider category of financial institutions. However, although the annex to ECON's motion includes reference to "a special '28th' regime for insolvency procedures for cross-border systemic banks", this is followed by an explanatory statement that contemplates the "delivery of a universal European resolution regime [that] will require an extremely complex harmonisation process" (see PLC Finance, Legal update, EU parliamentary committee recommends legislation on cross-border insolvency or "crisis management" for banks). It therefore remains to be seen whether the insolvency legislation proposed would be a true 28th regime, sitting alongside national laws, or whether it would make the relevant national laws redundant. In either case these proposals are likely to meet a large number of practical and ideological hurdles before becoming law.

In addition, there are certain EU instruments that could be described as applying 28th regime principles. These include the European Company Statute Regulation (2157/2001/EC), which provides for the formation of European Companies, and the European Economic Interest Grouping Regulation (2137/85/EEC), which provides for the formation of European Economic Interest Groupings (for further information on these vehicles, see PLC Corporate, Practice note, Joint venture companies: Types of corporate vehicle). Various initiatives could also be regarded as applying 28th regime principles, for instance, the 2004 EESC opinion recommending the development of an European insurance contract law (see Opinion of the EESC on ‘The European Insurance Contract’), and the proposals to introduce European intellectual property rights such as the EU patent and the EU trademark (see PLC IPIT & Communications, Legal update, European Commission publishes Communication on industrial property rights strategy). The Appendix to the EESC opinion on 28th regimes lists a number of instruments and initiatives that could be regarded as applying 28th regime principles.

For now, 28th regimes have little direct impact in the UK. Although this could change in the future, it is doubtful whether the more ambitious 28th regime proposals will come to fruition. For instance, an optional unified European contract code has been the subject of discussions and proposals for many years now (the current proposal for an European contract law instrument, the Common Frame of Reference, was first suggested in 2001: see the PLC Commercial legislation tracker).