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The Tension Between Party Autonomy and European Union Law: Some Observations on Ingmar GB Ltd V Eaton Leonard Technologies Inc1

Published online by Cambridge University Press:  17 January 2008

H L E Verhagen
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Extract

Party autonomy is the basic principle for international contracts. By making a ‘choice of law’, the parties to a contract can agree amongst themselves which law is to regulate their contractual relationship. In international transactions, the law of the parties' choice replaces the law that would otherwise have governed the contract, including the mandatory rules (ius cogens) of the latter law. Article 3 of the 1980 Convention on the Law Applicable to Contractual Obligations (hereafter: the ‘Rome Convention’) fully recognises this principle of party autonomy. Under Article 3 the parties are free to choose whichever law they deem appropriate to govern their contractual relationship. It is not even necessary for the transaction to display some connection with the chosen law.

Type
Shorter Articles, Comments and Notes
Information
International & Comparative Law Quarterly , Volume 51 , Issue 1 , January 2002 , pp. 135 - 154
Copyright
Copyright © British Institute of International and Comparative Law 2002

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References

1 Judgment of the ECJ, Case C-381/98, ECR 2000 1–9305

2 Art 16 of the Rome Convention.

3 Arts 5 (consumer contracts) and 6 (employment contracts) of the Rome Convention. See further below s IV.B amd VI.

4 Art 3(3) of the Rome Convention. See further below s IV.C.

5 Art 7 of the Rome Convention: discussed immediately below.

6 In Art 7 of the Rome Convention, no special provision is made for directly applicable rules belonging to the law governing the contract under Arts 3 and 4. Probably, the idea is that these rules are simply applicable as part of the law governing the contract. Cf Collins, L (gen ed), Dicey and Morris on the Conflict of Laws (13th edn, London 2000)Google Scholar, paras 1–049/51 and 32–136. A different view is possible. It could be argued that since the scope of a directly applicable rule is determined by the enacting state, on the basis of its socio-economic, political or cultural policies, it follows that the scope of these rules is therefore not determined by ‘classical’ multilateral conflict rules. Normal conflict rules only refer to rales of private law and not to ‘lois de police’. Cf AVM Straycken, Les conséquences de l'intégration européenne sur le développement du droit international privé, Recueil des Cours (232) 19921, NR 89. Under this reasoning, directly applicable rales of the lex causae can only be applicable by virtue of Art 7. In Germany and the Netherlands opinion is divided on this issue. Cf Reithmann, C and Martiny, D (ed), Internationales Vertragsrecht (5th edn, Cologne 1996), paras 452–4Google Scholar; Verbintenissenrecht (Vonken), Art 7 EVO, aant. 6.

7 HR 13 May 1966 NJ 1967, 3, Revue critique de droit international privé 1967, 521. The Alvati case is referred to in the Giuliano-Lagarde Report (comments to Art 7).

8 This is not because the courts (including the Hoge Road) have not had the opportunity to do so. In the Sewrajsing decision (HR 12 Jan 1979 NJ 1980, 526, Revue critique de droit international privé 1980, 68) the Hoge Road refused to give effect to Surinam currency control regulations as directly applicable rales, despite the fact that the party making the payments was domiciled in Surinam. For this reason, one commentator has observed that, in the light of the Sewrajsing case, ‘the Alnati promise to consider foreign interests seems little more than a mirage’. Boer, Th M de, Beyond Lex Loci Delicti, Conflicts Methodology and Multistate Torts in American Case Law (Deventer 1987), 84.Google Scholar

9 Cf for German and English private international law, Reithmann and Martiny, paras 450 et seq; Dicey and Morris, paras 32–137 et seq. It should be noted that both Germany and the United Kingdom have opted out of Art 7(1). However, this does not necessarily mean that German or UK courts cannot give effect to foreign directly applicable rales, as a matter of domestic private international law or within the framework of the law governing the contract.

10 See below s III.B.

11 Council Directive 86/653/EC of 18 Dec 1986 on the co-ordination of the laws of the Member States relating to self-employed commercial agents (OJ 1986 L 382/17; ‘the Directive’).

12 See the recitals to the Directive.

13 Other mandatory provisions of the Directive are: Arts 3 and 4 (see Art 5); Art 10(2) and (3) (see Art 10(4)); Art 11(1) (see Art 11(3)); Art 12(1) and (2) (see Art 12(3)); Art 13(1); Arts 17 and 18 (see Art 19) and Art 20(2).

14 Judgment, paras 23–4.

15 Judgment, para 25.

16 Ibid.

17 In exceptional cases this may be different, in particular when a Member State has failed to implement a directive in time. Cf Franzen, M, Privatrechtsangleichung durch die Europäische Gemeinschaft (Berlin, New York 1999), 248–55.CrossRefGoogle Scholar

18 See Judgment, paras 15–19.

19 In the Netherlands this view has been articulated by CA Joustra, ‘Europese richtlijnen en internationaal privaatrecht’, WPNR (6370) 1999, 664–70.

20 Art 20 specifies that ‘[T]he Convention shall not affect the application of provisions which, in relation to particular matters, lay down choice of law rules relating to contractual obligations and which are or will be contained in acts of the institutions of the European Communities or in national laws harmonised in implementation of such acts’.

21 In the same sense, Fallon, M, Les conflits de lois et de jurisdictions dans un espace économique intégré, L'expérience de la communauté européenne, Recueil des Cours (253) 1995, 185Google Scholar: ‘En d'autres termes, ces règies subissent une mutation formelle: de communautaires, elles deviennent nationales par les besoins du processus de leur application.’ Similar views have been endorsed by Reithmann and Martiny, para. 34; von Hoffmann, in Lagarde, P and B von, Hoffmann (eds), L' européanisation du droit international privé (Serie de Publications de l'Acédemie de Droit Européen de Tréves, Vol 8) (Cologne 1996, 127).Google Scholar

22 It is true that, in its judgment, the Court of Justice does not refer to the Rome Convention. The reason for this may have been, however, that the Convention was formally inapplicable because the agency agreement concerned had been concluded before the Rome Convention had entered into effect for the United Kingdom. See Art 17 Rome Convention. The Advocate General referred to the Rome Convention not ‘as a source of positive law’, but ‘purely for guidance, in so far as it usefully supplements the interpretation of the Directive which might be derived from its own content’. Opinion Advocate General, para 64.

23 Judgment, para 25.

24 In the same sense Fallon, Recueil des Cours (253) 1995, 185–6.Google Scholar

25 Cf Franzen, Privatrechtsangleichung durch die Europäische Gemeinschaft, with further references.

26 In the same sense, Lando, O, ‘The EEC Convention on the Law Applicable to Contractual Obligations’, CML Rev (1987), 181–2Google Scholar; Verhagen, HLE, Agency in Private International Law, The Hague Convention on the Law Applicable to Agency (The Hague/Boston/London 1995), 245–6Google Scholar; Kropholler, J, Internationales Privatrecht, 3rd edn (Tubingen, 1997), 274Google Scholar; Grundmann, S, Europdisches Schuldvertragsrecht, Zeitschrift fur Unternehmens- und Gesellschaftsrecht (15 Sonderheft 1999), 73.CrossRefGoogle Scholar

27 In such a situation the directly applicable rules of the Member State should be applied, whose law would have been applicable in the absence of a choice. In most cases of commercial agency this would mean that the provisions of the Member State in which the agent has his place of business should be applied (Art 4(2) Rome Convention).

28 However, where both parties are established in a Member State but the agreement is ‘functionally’ connected with a third country, eg. because it is part of a ‘network’ of contracts connected with third countries, the mandatory rules derived from a directive can be contracted out of.

29 Cf the directives listed in the next footnote.

30 Several consumer directives contain provisions stipulating that the choice of the law of a third country cannot prejudice the protection granted by the directive, if the consumer contract is closely connected with one or more Member States. Cf Art 12(2) of directive 97/7/EC on the protection of consumers in respect of distance contracts, OJ 1997 L 144/19 and Art 7 of directive 99/44/EC on the sale of consumer goods and associated guarantees, OJ 1999 L 171/12. It is submitted that Art 5 of the Rome Convention should be applied, in order to determine whether a close connection exists.

31 See below s V.

32 It has been argued that such obligation follows from Art 10 of the EC Treaty and from the principle of mutual recognition. Cf Wilmowski, P von, Europäishes Kreditsicherungsrecht (Tübingen 1996), 66 ff.Google Scholar

32a The Member States which have made such a reservation of Art 22(1) are Germany, Ireland, Luxembourg, and the United Kingdom.

33 Alternatively, it could be held that in situations like this a directive must be accorded direct effect, so that the directly applicable rules contained therein immediately govern the contract in question. Also, one could take the view that on the basis of Art 7(2) the courts could give effect to the forum's equivalent directly applicable rules.

34 Resolutions de l'Institut de droit international (1957–91), 409.

35 Cf Nygh, P, Autonomy in International Contracts, Oxford Monographs in Private International Law (Oxford, 1999)Google Scholar, with further references.

36 Cf Wilmowsky, P von, ‘EG-Vertrag und kollisionsrechtliche Rechtswahlfreiheit’ (RabelsZ 1998), 2–37.Google Scholar

37 Cf id, Europäisches Kreditsicherungsrecht.

38 It has been argued that only the ‘incorporation theory’, which allows the founders to set up a company in accordance with the law they consider most appropriate, is reconcilable with the freedom of establishment. Cf. for an elaborate treatment of this issue, Rammeloo, S, Corporations in Private International Law, Oxford Monographs in Private International Law (Oxford 2001)Google Scholar. A judgment by the Court of Justice on this issue is soon to be expected.

39 Zie Teyssié, B, Les groupes de contrats (Paris, 1975), nrs 447–73.Google Scholar

40 Cf Morgenstern, F, International Conflicts of Labour Law (Genève, 1984), 2Google Scholar: ‘No country has a monopoly of excellence in labour law.’

41 Cf Reithmann and Martiny, para 391; Batiffol, H and Lagarde, P, Droit international privé, Tome 1, 8th edn (Paris 1993)Google Scholar, no 254, 428; Dicey and Morris, para 1–056 (‘crystallised rules of public policy’).

42 HR 23 Oct 1987, NJ 1988, 842 (Sorensen v Aramco Overseas Company).

43 Art 6 BBA (Buitengewoon besluit arbeidsverhoudingen: Extraordinary Decree on Labour Relationships).

44 The Dutch labour market is sufficiently involved, according to the Hoge Raad, if it is likely that, following dismissal, the employee will benefit from Dutch social security.

45 Bundesarbeitsgericht 24 Aug 1989, IPRax 1991, 407, RIW 1990, 754.

46 In the same sense, Batiffol and Lagarde, no 254, 428.

47 The Rome Convention does not contain a protective conflict rule for rental agreements of living accommodation. Art 4(3) does refer to contracts whose subject matter is ‘a right to use immovable property’, but merely indicates that these contracts shall—in the absence of a choice of law by the parties—be presumed to be most closely connected with the country where the immovable property is situated. Art 5 only covers consumer credit transactions which are specifically entered into for the purpose of financing the contracts for the supply of goods or services covered by Art 5 (e.g. car loans or hire-purchase transactions). Loan agreements without such specific purpose are not within the scope of Art 5.

48 See below, s VI.

49 Opinion, para 65.

50 Opinion, para 68.

51 Joined Cases 89/85, 104/85, 114/85, 116/85, 117/85 and 125/85–129/85, ECR 1988, 5193 (Åhlström and others v Commission).

52 Cf Craig, P and Burca, G de, EU Law, Text, Cases and Materials, 2nd edn (Oxford, 1998), 891–939.Google Scholar

53 I refer to Art 81 of the present EC Treaty, although the cases themselves were decided when this provision was still Art 85 of the pre-Amsterdam European Community Treaty.

54 Opinion, para 69.

55 Opinion, para 72.

56 Opinion, paras 81–7.

57 Opinion, para 88.

58 Opinion, para 89. It seems that when discussing the binding force of Article 17 and 18 of the Directive, the Advocate General fails to make the fundamental distinction between ‘ordinary’ mandatory rules (Art 3(3) Rome Convention) and ‘internationally’ mandatory rules (Art 7 Rome Convention). All the mandatory rules of the Directive appear to be regarded as internationally mandatory rules in the sense of Art 7(2), which clearly contradicts the intention underlying this provision.

59 Cf Art 7(1) of the Rome Convention, which states that there should be a ‘close connection’ with the enacting state. Art 7(2), on the other hand, simply states, with respect to directly applicable rules of the lex fori, that nothing shall restrict the application of these rules, without mentioning the requirement that there should be a close connection with the forum state. Art 7 Rome Convention has been criticised for treating the directly applicable rules of third countries and those of the forum unequally. It is submitted, however, that the rationale of Art 7(2) entails that the courts should only apply directly applicable rules of the lex fori if there is a close connection. I cannot see why, despite the wording of Art 7, there should be a material difference in this respect between Arts 7(1) and 7(2).

60 Cf. Hof Amsterdam 14 Jan 1999, JOR 1999/35, NIPR 1999, 152. The Court of Appeal of Amsterdam had to determine the territorial scope of a provision of the Dutch Securities Markets Supervision Act (Wet toezicht effectenverkeer) (hereafter: ‘SMSA’), a statute in which several EC-directives have been implemented. Art 7 (formerly 6) of this statute requires a licence for securities brokers, in the absence of which the agreements entered into between these brokers and their clients are void. The Court of Appeal applied Art 7 SMSA on the basis of Art 7(2) of the Rome Convention. The court established that the German broker was subject to the licence-requirements of the Dutch SMSA, although the broker was established in Germany. The reason for this was that the broker, by entering into a brokerage contract with a counterparty established in the Netherlands, had offered its services as securities broker in the Netherlands. Also where the broker would offer securities services in one or more Member States from outside the Community, the application of similar rules originating from an EC directive would in my opinion be fully justified. Rules like this aim to protect investors established in the EC against dishonest or incompetent suppliers of services offering these services in the EC. This place of establishment in the EC of the persons protected by these rules constitutes a sufficient connection with a Member State, in order to justify the application of these rules pursuant to Art 7 of the Rome Convention. The fact that the suppliers are established outside the EC does not detract from this.

61 In fact, the Dutch cases which I have examined all concern situations where either the principal's law or that of the agent's jurisdiction was chosen. See the cases discussed in Verhagen, Agency in Private International Law, 232–8. The same is true for the lngmar case and a recent decision by the Cour de cassation (28 Nov 2000, No 98–11.335).

62 To this it may be added that not any principal would be able to evade the mandatory rules by choosing a system of law outside the EU to apply. If the principal also has his business establishment in the EU a choice of law will not be able to set aside mandatory rules implementing a directive. See above, s III.B.

63 See in particular Grundmann, Europäisches Vertragsrecht, 52–4. See also ECJ 13 Oct 1993, case C-93/92, ECR 1993,1–5009 (CMC Motorradcenter v Baskiciogullari) and ECJ 7 Mar 1990, case C-69/88, ECR 1990,1–583 (Krantz GmbH &C.v Ontvanger der Directe Belastingen en Stoat der Nederlanden). In both cases the Court of Justice held that the potential obstacles formed by national rules were too uncertain and indirect to be in violation of the EC Treaty. Also relevant is ECJ 24 Jan 1991, case C-339/89, ECR 1991, 1–107 (Alsthom Atlantique/Sulzer), where the Court of Justice held that national rules of the Member States which can be set aside by means of a choice of law by the parties, cannot be unlawful obstacles for the free movement of goods and services.

64 On the system of the Rome Convention, see below s VI.

65 Cour de cassation 28 Nov 2000, No 98–11.335, in which the Cour de cassation upheld a decision by the court of appeal, in which the court of appeal refused to apply the French provisions implementing Arts 17–19 of the Directive, because the parties had chosen for the law of New York to govern their agreement. The principal was a US corporation, while the agent was a company carrying out its activities in France. It should be noted that this decision was rendered nine days after the ECJ in the Ingmar case had ruled to the opposite effect.

66 Cf. Jayme, E and Kohler, C, ‘Das Internationale Privat- und Verfahrensrecht der EG— Spannungen zwischen Staatsverträgen und Richtlinien’ (IPRax 1993), 357–71Google Scholar, in particular 358–60.

67 Cf. Rammeloo, S, Das neue EG-Vertragskollisionsrecht (Cologne 1992), 340.Google Scholar

68 For three Member States (France, the Netherlands and Portugal) the conflict rules for commercial agency contracts are those of Chapter II of the 1978 Hague Convention on the Law Applicable to Agency. Under this convention, a commercial agency contract is governed by the law chosen by principal and agent (Art 5), whilst, in the absence of choice, the law of the country where the agent has his business establishment applies (Art 6). Originally, the drafters of the convention had proposed that the law governing the internal agency relationship (as a consequence of choice of law or objective connecting factors) should not be able to set aside ‘the mandatory rules, specially designed to protect the agent of the country where the agent has his principal place of business’. At a later stage this approach was found to be too restrictive in various respects and was accordingly dropped. As a consequence, the present Art 16 was drafted, along the lines of Art 7 of the draft EEC Convention on the Law Applicable to Contractual Obligations. Cf the discussions recorded at Hague conference on private international law, Actes et documents de la Treizieme session, Tome TV, Contrat d'intermédiares, Agency (The Hague), 130–2, 251–9, 312 and 347–50. Several controversial subjects in the debate, concerning directly applicable rules of agency law, are expressly stated by the Convention to be within the ambit of the law governing the internal relationship. Thus, Art 8(2e) makes clear that the clientele allowance is undoubtedly within the scope of the law specified by Chapter II. For an extensive review of the Hague Convention on the Law Applicable to Agency, see Verhagen, Agency in Private International Law.

69 See above s III.B.

70 This need not, of course, always be so in individual cases: the consumer may be a wealthy individual buying cigars in a small, privately owned, tobacco store and renting a room as pied-á-terre from a widow with a modest income from her deceased husband's estate.

71 It should be possible to define criteria for the category of agents to be covered by a protective conflict rule. For instance, Art 6 of the Dutch Extraordinary Decree on Labour Relationships (see above s IV.B), requiring the consent of the regional employment office, was written for contracts of employment. However, some commercial agents, who are in a similar position as employees, may invoke this provision as well. According to Dutch case law this is the case if the following conditions are satisfied: (i) the agent has to carry out his activities personally, (ii) the activities are usually carried out for not more than two principals and (iii) not more than two persons (other than members of his family) assist the agent in carrying out his activities. Similar criteria could be adopted for a protective conflict rule for commercial agents, or for applying Art 6 by way of analogy.

72 Opinion, para 72.