Winter has truly arrived. Bot AG skates around lex societatis issues in KA Finanz.

In Case C-483/13 KA Finanz AG, the CJEU is asked to clarify the ‘corporate exception’ to the Rome Convention and subsequent Regulation on the law applicable to contractual obligations. The two main questions ask whether the ‘company law’ excepted area includes (a) reorganisations such as mergers and divisions, and (b) in connection with reorganisations, the creditor protection provision in Article 15 of Directive 78/855 concerning mergers of public limited liability companies, and of its successor, Directive 2011/35. I have a little more on the background in previous posting. The Opinion itself has a complete overview of the issues at stake.

I suggested in my previous posting that lest the complete file posted with the Court give more detail, quite a few of the preliminary questions might be considered inadmissible due to a lack of specification in the factual circumstances.

Bot AG, who opined yesterday (at the time of posting, the English version of the Opinion was not yet available), has considerably slimmed down the list of questions eligible for answer, due to the (non-) application ratione temporis of secondary EU law at issue: this includes the Rome I Regulation. However he also, more puzzlingly, skates around the question concerning the application of the corporate exception of the 1980 Rome Convention, despite the judgment which is being appealed with the referring court, having made that exception the corner piece of its conflicts analysis. In particular, it considered that the consequences of a merger are part of the corporate status of the company concerned and that the transfer of assets within the context of a merger consequently need to be assessed viz-a-viz the company’s lex societatis: Austrian law, and not, as suggested by claimants, German law as the lex contractus relevant to the assets concerned (bonds issued by the corporate predecessor of the new corporation).

The AG focuses his analysis entirely on the specific qualification of the contract at issue (conclusion: sui generis), and on Directive 2005/56. In paras 47-48, he suggests that contractual obligations of the bank’s predecessor, per Directive 2005/56, are transferred to the corporate successor, including the lex contractus of those agreements. One can build an assumption around those paras, that the AG suggests a narrow interpretation of the corporate exception to the Rome Convention, etc. However it is quite unusual for one to have to second-guess an AG’s Opinion. Judicial economy is usually the signature of the CJEU itself, not its Advocate Generals.

I am now quite curious what the CJEU will make of it all.

Geert.

Of tractors and trailers. Insurance contracts, subrogration, contracts and torts. Sharpston AG on the scope of Rome I and II.

Update 22 January 2016 The CJEU held today. More on that judgment here.

First, a quick heads-up on precedent: the difference between ‘contract’ and tort’ in European private international law is crucial, as regular readers of this blog will have observed. Crucial, yet the concept is left undefined in the Brussels I (and Recast) Regulation (which has a different special jurisdictional rule for both), the Rome I Regulation on applicable law for contracts, and the Rome II Regulation on applicable law for torts. Undefined, for these foundational elements of private law are outside the reach of legal and political compromise in the legislative process. Yet courts of course do have to apply the rules and in doing so, have to distinguish between both.

The CJEU pushes an ‘autonomous’ EU definition of both concepts which in the past has led to the seminal findings in Jakob Handte (C-26/91) and Kalfelis. In Handte the Court held: the phrase ‘matters relating to a contract [ ] is not to be understood as covering a situation in which there is no obligation freely assumed by one party towards another.’ (the double negative exercised scholarship for some time). In Kalfelis the Court had earlier defined ‘tort’ as ‘all actions which seek to establish liability of a defendant and which are not related to a ‘contract’ within the meaning of Article 5(1).’ (5(1) has become 7(1) in the Recast).

Is the relationship between two insurers, having covered liability for a towing vehicle cq a trailer, each subrogated in their insured’s rights and obligations, one of them currently exercising a claim against the other in partial recovery of the compensation due to the victim, non-contractual?

Per Kalfelis, tort as a category is residual. Sharpston AG’s starting point in Joined Cases Ergo Insurance and AAS Gjensidige Baltic, Opinion issued yesterday, therefore is to examine whether the recourse action is essentially contractual in nature. In the negative, the action is non-contractual. The case is evidently made more complex by the underlying relationships between insurer and insured, and the presence of subrogration. In question is not therefore the relationship between the insurer and the victim: this is clearly non-contractual. The question is rather whether the action of one insurer against the other is contractual in nature, given the contractual relationship between insurer and insured, cq the non-contractual relationship between the insured and the victim.

Sharpston AG first gets two issues out of the way. Lithuania (both referred cases are pending in Lithuanian courts) is a signatory State to the Hague Convention on the law applicable to traffic accidents, which is left unaffected by Rome II by virtue of Article 28. However the Convention itself holds that it does not apply to recourse action and subrogation involving insurance companies. Further, a suggestion that Directive 2009/103 (relating to insurance against civil liability in respect of the use of motor vehicles, and the enforcement of the obligation to insure against such liability) includes a conflict of laws (applicable law) rule which is lex specialis vis-a-vis the Rome Regulation, was quickly dismissed. Indeed the Directive’s provisions do not indicate whatsoever that they can be stretched.

Then comes the core of the issue, the nature of the relationship underlying the claim. This, the AG suggests, is contractual. Relevant precedent referred to includes Brogsitter and OFAB. Essentially the AG puts forward an ancestry test: what is the ancestry of the action, without which the parties concerned would not be finding themselves pleading in a court of law?: she uses ‘centre of gravity’ (‘the centre of gravity of the obligation to indemnify is in the contractual obligation’); ‘rooted in’ (‘the recourse action by one insurer against the other…is rooted in the contracts of insurance’); and ‘intimately bound up’ (‘[the action] is intimately bound up with the two insurers’ contractual obligation‘). (at 62).

Incidentally, in para 20 of her Opinion the AG refers, in giving context, to the difference between Lithuanian and German law (the accidents both occurred in Germany) as regards the limitation periods for bringing a recourse action. In Rome II, limitation periods are included in Article 15 as being covered by the lex causae; ditto in Article 12 of Rome I. This pre-empts discussion on the matter for whether limitation periods are covered by lex fori (as a procedural issue) or the lex causae is otherwise not necessarily the same in all Member States.

If the CJEU confirms, preferably using the terminology of its AG, the tort /contract discussion in my view will have been helpfully clarified.

Geert.

Hague principles on Choice of law in international commercial contracts. A quick and dirty comparison with Rome I.

I have delayed reporting on the Hague Principles on choice of law in international commercial contract for exam reasons. The principles (and accompanying commentary) have not taken the form of a classic Hague convention, rather, it is hoped that they inspire practice. Bottom-up harmonisation, in other words. For the EU, the Rome I Regulation evidently already harmonises choice of law hence the principles must not be followed where Rome I applies. However in particular given the principles’ ambition to be applied by arbitral tribunals, they may have some effect in the EU, too.

I asked my students to compare the Principles with the Rome I Regulation. Such quick and dirty scan, without wishing to be complete, reveals the following: (I take a bullet-point approach such one might follow in an exam setting. = refers to similarities; to differences

  • ≠ The Hague principles concern choice of law principles only. Rome I covers applicable law in the wider sense (it also determines applicable law if no choice of law has been made).
  • ≠: The Principles apply to courts and arbitral tribunals. General consensus is that arbitral panels subject to the laws of an EU Member State as the lex curia are not bound by Rome I.
  • ≠The Hague principles only apply B2B, not B2C. They deal with international ‘commercial’ contracts only. Famously Rome I includes and indeed pampers B2C contracts.
  • Purely domestic contracts are covered by Rome I, with choice of law being corrected to a considerable degree. ≠ Hague principles: these do not cover purely domestic contracts because they are not ‘international’.
  • = party autonomy and depecage are supported in both.
  • = universal character: Parties may choose any law, they or the contract need not have any material link with that law.
  • ≠ rules of law. Rome I probably allows choice of State law only (its recitals are inconclusive, as is its legislative history). Hague Principles: allows parties to opt for non-State law.
  • Tacit choice of law is effectively dealt with the same in both.
  • Scope of the chosen law: while more or less similar, one obvious ≠ is that the Hague Principles cover culpa in contrahendo. In the EU, this is subject to the Rome II Regulation.
  • Article 11 of the Hague Principles allow for a wider remit for courts and tribunals to apply overriding mandatory law that is not that of the forum.
  • Article 9(2): formal validity of the contract may be established by many a law that might have a bearing on it. Favor negoti, in other words: as in Rome I.

A fun exercise, all in all. I for one am curious how arbitral tribunals will approach the principles.

Geert.

KA Finanz: On the ‘corporate exception’ of European private international law

In Case C-483/13 KA Finanz AG, the ECJ is asked to clarify the ‘corporate exception’ to the Rome Convention and subsequent Regulation on the law applicable to contractual obligations. The two main questions ask whether the ‘company law’ excepted area includes (a) reorganisations such as mergers and divisions, and (b) in connection with reorganisations, the creditor protection provision in Article 15 of Directive 78/855 concerning mergers of public limited liability companies, and of its successor, Directive 2011/35.

(Creditor protection, incidentally, was also addressed in C-557/13 Lutz, judgment held last week, within the context of insolvency proceedings. I shall have a posting on that case soon).

Reuters tells me ‘KA Finanz was split off from nationalised lender Kommunalkredit in an attempt to secure a sustainable future for the rest of the public sector finance specialist firm following the global financial crisis’. KA Finaz therefore is what is generally referred to as a ‘Bad Bank’.

The referring court, Austria’s Oberster Gerichtshof, would seem to be hedging its bets on whether the Rome Convention or the Regulation applies to the contract, and ditto for the 1978 Directive or the 2011 Directive aforementioned. The file may reveal more factual detail than the application as published, however the questions as phrased (namely quite speculatively rather than file related) probably will run into trouble on the admissability front, I imagine.

At the time of adoption of the convention, the Giuliano Lagarde Report went into a bit more detail as to what is and is not excluded:

Confirming this exclusion, the Group stated that it affects all the complex acts (contractual administrative, registration) which are necessary to the creation of a company or firm and to the regulation of its internal organization and winding up, i. e. acts which fall within the scope of company law. On the other hand, acts or preliminary contracts whose sole purpose is to create obligations between interested parties (promoters) with a view to forming a company or firm are not covered by the exclusion.

The subject may be a body with or without legal personality, profit-making or non-profit-making. Having regard to the differences which exist, it may be that certain relationships will be regarded as within the scope of company law or might be treated as being governed by that law (for example, societe de droit civil nicht-rechtsfahiger Verein, partnership, Vennootschap onder firma, etc.) in some countries but not in others. The rule has been made flexible in order to take account of the diversity of national laws.

Examples of ‘internal organization’ are: the calling of meetings, the right to vote, the necessary quorum, the appointment of officers of the company or firm, etc. ‘Winding-up’ would cover either the termination of the company or firm as provided by its constitution or by operation of law, or its disappearance by merger or other similar process.

At the request of the German delegation the Group extended the subparagraph (e) exclusion to the personal liability of members and organs, and also to the legal capacity of companies or firms. On the other hand the Group did not adopt the proposal that mergers and groupings should also be expressly mentioned, most of the delegations being of the opinion that mergers and groupings were already covered by the present wording.

This explanation does not necessarily of course clarify all. For instance, the Report would seem to suggest that ‘mergers and groupings’, at issue in KA Finanz, are covered by the exception. Presumably, given the nature of the remainder of the exception, this is limited to the actual final agreement creating the JV or merged company, and not to the complex set of agreements leading up to such creation, such as Memoranda of Understanding (MOUs), or non-disclosure agreements (NDAs). Along those lines and without at this time having revisited relevant scholarship outside my own, I would suggest creditor protection is not covered by the exception.

The Gerichtshof also seeks clarification on whether there areany requirements concerning the treatment of mergers in relation to conflict of laws to be inferred from European primary law such as the freedom of establishment under Article 49 TFEU, the freedom to provide services under Article 56 TFEU and the free movement of capital and payments under Article 63 TFEU, in particular as to whether the national law of the State of the outwardly merging company or the national law of the target company is to be applied?’ Again, without having seen more reference to fact in the actual referral, this question to me seems far too academic to prompt the ECJ into entertaining it.

The Court’s ledger shows the application as having been lodged on 31 October 2014. That means some movement on it ought to be expected soon.

Geert.

Employment, foreign mandatory rules and Greek public finance.

Postscript 21 September 2015: the case is C-135/15 Hellenic Republic v Grigorios Nikiforidis.

The German Federal Labour Court, the ‘Bundesarbeitsgericht’, has provided the ECJ with an opportunity to provide much needed clarity on the application of Rome I to continuing (employment) contracts, and on the Regulation (or as the case may be, the Rome convention)’s provisions on overriding mandatory law. The Bundesarbeitsgericht has issued a press release on the case, Giesela Rühl flagged the case in March, and Lisa Günther has more detailed input on the overall context. Claimant is a Greek, employed by the Greek State at the Greek primary school in Nuremberg (Germany). His salary was reduced in accordance with relevant Greek Saving Laws. Claimant asks for payment of the sums withheld. Is the German court bound to apply the Greek Saving Laws?

The case (which as yet to appear on the ECJ’s website) first of all seeks clarification on the temporal scope of Rome I. Article 28 Rome I provides that it applies to contracts concluded ‘as from 17 December 2009’ (this is the corrected format; initially Article 28 read ‘after’). When exactly a contract is ‘concluded’ needs to be determined in accordance with the lex causae as identified by the Regulation (an extension of Article 10(1), suggested by most if not all of relevant scholarship). There has hitherto been much less noise about the application of Article 28 to ‘continuing’ contracts’: those concluded before the temporal scope of the Regulation, continuing after, however renewed, renegotiated, amended…: do these continue to be covered by the Rome convention ad infinitum, or is there a cut-off point at which these continuing contracts become newly concluded? Any suggestion along these latter lines presumably requires determination of a threshold. For instance, adaptation of price in line with inflation presumably is not sufficient to speak of a ‘new’ contract. But would contractually foreseen price renegotiation to take account of economic cycles, lead to such a new contract?

One’s intuitive assumption may be to prefer autonomous interpretation of the concept ‘concluded’ however in the current state of (lack of) harmonisation of contractual law, it is more likely that the Court will prefer an Article 10(1) type solution.

Next up is the application of Article 9’s provision on overriding mandatory provisions. This is the first time the ECJ will rule on that Article (Unamar was held under the Rome Convention). The Regulation quite deliberately limited the room for manoeuvre for the court seized to apply overriding mandatory law other than that of the forum: only such laws of the country where the obligations arising out of the contract ‘have to be performed’ can come into calling. That place is likely to be Germany in the case at issue (the Regulation does not define ‘place of performance’ under Article 9(3)).

No doubt the ECJ will cut some corners, per judicial economy, however the case nevertheless promises to be entertaining.

Geert.

Fern v Intergraph: High Court takes a narrow view of mandatory requirements on choice of law and court viz Commercial Agents Directive

In [2014] EWHC 2908 (Ch) Fern v Integraph, Mann J was asked whether a clear Texas governing law and Texas jurisdiction clause should be set aside, jurisdiction upheld by the English courts and applicable law to be held to be English law, on the basis of an alleged infringement of the UK implementation of the Commercial Agents Directive. (The procedural context is one of permission to ‘serve out of the jurisdiction’).

Fern was the agent of Intergraph in the EU. Fern claims compensation for breach of the Commercial Agents Regulations (UK), which implement the Commercial Agents Directive.  Some core EU law considerations pass before the High Court, including Marleasing, Faccini Dori, von Colson and Inter-Environnement. The High Court’s main pre-occupation would seem to have been with the rescue of choice of court and of governing law as much as possible, even within the constraints of the ECJ’s decision in Ingmar.  In that judgment (which was confined to choice of law; the jurisdiction of the English courts was not sub judice), the ECJ held

It must therefore be held that it is essential for the Community legal order that a principal established in a non-member country, whose commercial agent carries on his activity within the Community, cannot evade those provisions by the simple expedient of a choice-of-law clause. The purpose served by the provisions in question requires that they be applied where the situation is closely connected with the Community, in particular where the commercial agent carries on his activity in the territory of a Member State, irrespective of the law by which the parties intended the contract to be governed.’ (in the case at issue, a choice of law clause had been inserted which made the contract applicable to the laws of California).

However, the operative part of the ECJ’s decision in Ingmar focussed on the compensation element only: ‘Articles 17 and 18 of Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents, which guarantee certain rights to commercial agents after termination of agency contracts, must be applied where the commercial agent carried on his activity in a Member State although the principal is established in a non-member country and a clause of the contract stipulates that the contract is to be governed by the law of that country.’

In the case at issue, the High Court seems to have leapt at the more narrow operative part in Ingmar (and  its non-consideration of choice of court) in an effort to uphold the choice of court and governing law agreement: the right to compensation derives from statutory law, not from contractual obligations. Whence it does not affect aforementioned clauses. In reaching that conclusion, however, Mann J effectively refused to consider effet utile of the Commercial Agents Directive when interpreting English rules of civil procedure for serving out of jurisdiction. Effet utile does resurface, however, for parties have been given time to submit their views on whether the right to compensation as a statutory right, infringement of which would amount to a tort, would fall outside the scope of the relevant contractual clauses and would lead to jurisdiction in the English courts.

Even if this will be the eventual decision of the High Court after re-submission of arguments, it is likely that the confines of that jurisdiction in England will be narrowly defined. (Viz the right to compensation only). This is a striking difference with e.g. the German courts. (I have previously posted on the view of the Bundesgerichtshof: a much swifter and absolute rejection of choice of court and governing law ex-EU in the context of the commercial agents Directive).

A rather complex and as yet unfinalised ruling.

Geert.

Belgian supreme court holds on gold-plated provisions in Unamar. Appeal judgment annulled, case to be revisited.

Writing a case-note on Unamar is becoming an ever moving target: the Belgian Supreme Court (Hof van Cassatie /Cour de Cassation) held on 12 September, following the ECJ’s judgment in same – I would recommend reading my earlier posting. (Relevant databases, it would seem, do not yet hold a copy of the judgment in Cassatie. Please be in touch should you like one. (Language of the case: Dutch)).

The Court has annulled the Court of Appeal judgment for lack of due justification. In doing so, it (only) refers to the ECJ’s dictum, in full, followed by the conclusion that the Court of Appeal has not duly justified its decision. Now, Supreme Court judgments are not necessarily easy to read: often lengthy and verbatim reference is made in particular to applicants’ legal argument, followed by much more succinct conclusion by the court itself. Interpretation therefore hinges on being able to identify those specific arguments which may have swayed the court. I confess I have not found it easy to do so in this instance.

In my view, the ECJ’s judgment clearly implies a presumption against the mandatory nature of gold-plated provisions: ‘only if the court before which the case has been brought finds, on the basis of a detailed assessment, that, in the course of that transposition, the legislature of the State of the forum held it to be crucial, in the legal order concerned, to grant the commercial agent protection going beyond that provided for by the directive, taking account in that regard of the nature and of the objective of such mandatory provisions.‘ (emphasis added)

The Court of Appeal at Antwerp had focused its analysis on the correct transposition of the minimum requirements of the commercial agents directive in Bulgarian law. It had referred to discussion in the Belgian parliament, suggesting the altogether limited mandatory character of the Belgian rules from the moment a conflict of laws context is present.

In other words, paraphrasing the ECJ,  there was no ‘detailed assessment, that, in the course of that transposition, [Belgium] held it to be crucial, in [its] legal order, to grant the commercial agent protection going beyond that provided for by the directive. Neither, though, did applicants’ arguments, at least as referred to in the Supreme Court’s judgment, include such detailed assessment. Had there been so in applicants’ submission, I would have assumed the Court would have referred to it.

There is in my view no active requirement for the courts to scout for indications of mandatory character. The default position is against such character. In the absence of indications of detailed assessment (not just one or two references to passing discussion in parliament) by applicants themselves, I believe the Antwerp Court of Appeal has been wrongly rebuked for not having duly entertained such assessment.

The case now goes back to appeal (this time at the Brussels Court of Appeal).  The ball must be squarely in the court of the applicants. They seek to establish the mandatory character: they ought to provide the ‘detailed assessment’ that the ECJ requires, which the Brussels Court of Appeal at its turn may or may not be convinced by. (Please note that the Court does not address at all the issue of non-abitrability, which as I noted, was not part of the reference to the ECJ).

Geert.

 

 

 

 

 

It’s not the grammar, stupid! The High Court in Anchorage on exclusive (or not) choice of court, anti-suit injunctions, Rome, Brussels and much more

In Anchorage (BNP Paribas v Anchorage Capital Europe et al). a bank and a hedge fund are at odds as to whether a handful of instant message communications resulted in a binding contract or contracts and if so, between which parties and on what terms. The issue for decision at the High Court was whether the disputes should be determined in London (home to the London Branch of BNP Paribas and allegedly identified as the exclusive – or not – court of choice in the alleged contracts), New York (home to the hedge fund which however also has a separate LLP domiciled in London) or possibly Luxembourg (home to two funds within Anchorage Group).

For review of the facts reference is best made to the text of the judgment, for there are many framework agreements etc at stake. The High Court’s review of the case though is most interesting for highlighting the limits to what Article 23 of the Brussels I Regulation harmonises. The Article aims to ensure a non-formalistic deference to parties’ agreement to have their disputes adjudicated in a particular court. As Males J notes (and the ECJ acknowledges), one should not be overly formalistic in applying Article 23.

Article 23 though does not harmonise the underlying contractual (or not) issues: with whom were contracts made, especially in an agent /principal context; what law applies to the (alleged) choice of court agreement (an issue more or less resolved in the new Brussels I Regulation). Males J applies English law to the issue of validity of the clause, on the basis it would seem of lex contractus (which arguably will no longer be possible come January 2015, as a result of the new Brussels I Regulation): either because of the express determination of such by the parties, or because the lex contractus of the agreement of which it forms part is English law by virtue of the Rome I Regulation (contract for the sale of goods; I am not sure though whether the underlying contract truly is a sale of a good). Arguments for the alternative (in particular, application of New York law to the choice of court agreement) are dismissed on the basis that they represent the kind of semantic approach to such clauses which English law has left firmly behind. Surely a poster-argument indeed for the use of English law in international commerce and an approach which is to be commended.

Even were the validity of the clause not to be upheld, the High Court outlines other jurisdictional grounds: Article 5(1) of the Jurisdiction Regulation on the basis of the place of performance of the obligation in question; Article 5(5) on the basis of a contractual dispute closely connected to the operation of a branch; Article 6(1) on the basis of the cases being closely connected. (Use of Anchorage London as an anchor defendant (lousy pun intended I fear) against the investment funds).

Forum non conveniens (potentially applicable should none of the jurisdictional grounds be valid and given the possibility of New York proceedings) was dismissed; the anti-suit injunction was granted. Here, Males J reviews the rather grammatical arguments made vis-a-vis the choice of court agreement being used transitively or not: again, the Court takes a non-formalistic approach and (respectfully) dismisses the grammatical argument as being elusive.

This is the kind of case upon which one could build an entire conflicts course. If you happen to be preparing one over the holidays period: good luck and enjoy. To all readers past, current and future: Merry Christmas and /or applicable and appropriate season’s greetings. Geert.

Unamar: Better get those travaux préparatoires out. The ECJ does not rule out gold-plating as being ‘mandatory rules’ however the final judgment is up to the forum. Legality of arbitration rules undecided.

I reported earlier on the AG’s Opinion in Unamar, Case C-184/12.  The Court held this morning.

The facts  of the case were as follows:  in 2005, Unamar, as commercial agent, and NMB, as principal, concluded a commercial agency agreement for the operation of NMB’s container liner shipping service. The agreement was for a one-year term and was renewed annually until 31 December 2008. It provided that it was to be governed by Bulgarian law and that any dispute relating to the agreement was to be determined by arbitration in Bulgaria. On 19 December 2008, NMB informed its agents that it was obliged, for financial reasons, to terminate their contractual relationship. The agency contract concluded with Unamar was extended only until 31 March 2009.

Unamar brought an action on 25 February 2009 before the Antwerp Commercial Court for an order that NMB pay various forms of compensation provided for under the Law on commercial agency contracts.  NMB in turn brought an action against Unamar for payment of outstanding freight.

In the proceedings brought by Unamar, NMB raised a plea of inadmissibility alleging that the Belgian court did not have jurisdiction to hear the dispute before it because there was an arbitration clause in the commercial agency contract. By judgment of 12 May 2009, after joining the cases referred to it by each of the parties, the court ruled that NMB’s plea of lack of jurisdiction was unfounded. As regards the applicable law in the two disputes brought before it, that court ruled, inter alia, that Article 27 of the Belgian Law on commercial agency contracts was a unilateral conflict-of-law rule which was directly applicable as a ‘mandatory rule’ and which thus rendered the choice of foreign law ineffective.

Appeal brought the case in judicial review before the ECJ. The Court did not rule on the issue of jurisdiction, given that the Hof van Cassatie had not raised this in its request. This means that the debate on whether Belgian’s trumping of foreign arbitration in cases such as these continues to be unresolved.

According to NMB, the application of the Law on commercial agency contracts to the dispute in the main proceedings cannot be considered to be ‘mandatory’ within the meaning of Article 7(2) of the Rome Convention, given that the dispute concerns a matter covered by Directive 86/653 and the law chosen by the parties is precisely the law of another Member State which has also transposed that Directive into its national law. Thus, according to NMB, the principles of the freedom of contract of the parties and legal certainty preclude the rejection of Bulgarian law in favour of Belgian law.

The Court emphasises the harmonising purpose of the commercial agency contracts Directive.  It also highlights that the wording of Article 7(2) of the Rome Convention does not expressly lay down any particular condition for the application of the mandatory rules of the law of the forum.  However the ECJ then insists (at 46) that the possibility of pleading the existence of mandatory rules under Article 7(2) of the Rome Convention does not affect the obligation of the Member States to ensure the conformity of those rules with EU law. The considerations underlying such national legislation can be taken into account by EU law only in terms of the exceptions to EU freedoms expressly provided for by the Treaty and, where appropriate, on the ground that they constitute overriding reasons relating to the public interest (reference is made to Arblade). The classification of national provisions by a Member State as public order legislation applies to national provisions compliance with which has been deemed to be so crucial for the protection of the political, social or economic order in the Member State concerned as to require compliance therewith by all persons present on the national territory of that Member State and all legal relationships within that State.

The plea relating to the existence of a ‘mandatory rule’ within the meaning of the legislation of the Member State concerned, as referred to in Article 7(2) of the Rome Convention, must therefore be interpreted strictly: for otherwise it risks upsetting the core rule of that Convention, which is parties’ freedom to choose applicable law.

The Court finally holds that it is for the Belgian court,

in the course of its assessment of whether the national law which it proposes to substitute for that expressly chosen by the parties to the contract is a ‘mandatory rule’, to take account not only of the exact terms of that law, but also of its general structure and of all the circumstances in which that law was adopted in order to determine whether it is mandatory in nature in so far as it appears that the legislature adopted it in order to protect an interest judged to be essential by the Member State concerned. As the Commission pointed out, such a case might be one where the transposition in the Member State of the forum, by extending the scope of a directive or by choosing to make wider use of the discretion afforded by that directive, offers greater protection to commercial agents by virtue of the particular interest which the Member State pays to that category of nationals.‘ (at 50)

The Court then distinguishes Ingmar, in which the law which was rejected was the law of a third country, while in Unamar, the law which was to be rejected in favour of the law of the forum was that of another Member State which, according to all those intervening and in the opinion of the referring court, had correctly transposed Directive 86/653.

The Court concludes ‘Articles 3 and 7(2) of the Rome Convention must be interpreted as meaning that the law of a Member State of the European Union which meets the minimum protection requirements laid down by Directive 86/653 and which has been chosen by the parties to a commercial agency contract may be rejected by the court of another Member State before which the case has been brought in favour of the law of the forum, owing to the mandatory nature, in the legal order of that Member State, of the rules governing the situation of self-employed commercial agents only if the court before which the case has been brought finds, on the basis of a detailed assessment, that, in the course of that transposition, the legislature of the State of the forum held it to be crucial, in the legal order concerned, to grant the commercial agent protection going beyond that provided for by the directive, taking account in that regard of the nature and of the objective of such mandatory provisions.‘ (emphasis added)

The Courts instructions are therefore clear: there is a strong presumption against mandatory law, in light of the correct implementation by Bulgaria; and the national court has to conduct a proper review of the preparatory works of the relevant Belgian Act which transposed the Directive. Discussions in Belgian scholarship reveal that there is no clear view on the exact nature of the ‘mandatory’ character of the gold-plated provisions.

The ECJ does also refer in passing to the Rome Regulation. This Regulation introduces two types of mandatory provisions: simple ‘mandatory’ ones, with reference to national as well as to EU law and with specific reference to gold-plating for the latter; and ‘overriding mandatory’ ones, with reference to the Arblade criteria but no reference to gold-plating.

It is not therefore entirely certain what the precedent value is of Unamar viz the future application of the Regulation, neither is it in my view what the Hof van Cassatie’s research of the travaux préparatoires of the 1995 Act will reveal.

Geert.

‘More closely connected’ in employment contracts – The ECJ in Schlecker emphasises tax and national insurance (social security)

I reported earlier on Wahl AG’s Opinion in C-64/12 Schlecker. The ECJ held last week. Reminder: formally the judgment relates to the application of the similar provision in the predecessor of the Rome I Regulation, the 1980 Rome Convention. The relevant provisions have not materially changed, however. The ECJ in fact refers to the slightly more precise provisions of Rome I in support.

In the case at issue, a closer connection with Germany was suggested by the circumstances as a whole, in particular by the following facts: the employer is a legal person governed by German law; the remuneration was paid in German marks (prior to the introduction of the euro); the pension arrangements were made with a German pension provider; Ms Boedeker had continued to reside in Germany, where she paid her social security contributions; the employment contract referred to mandatory provisions of German law; and the employer reimbursed Ms Boedeker’s travel costs from Germany to the Netherlands.

The Court concurs with the AG that the closer connection test must apply as suggested by its formulation: even if there is a habitual place of performance, this may be trumped by other circumstances. However the Court also held that the sheer amount of ‘other criteria’ in and of itself does not suffice to rebut the presumption: ‘the court called upon to rule in a particular case cannot automatically conclude that the rule laid down in Article 6(2)(a) of the Rome Convention must be disregarded solely because, by dint of their number, the other relevant circumstances – apart from the actual place of work – would result in the selection of another country‘ (at 40).

In other words: the actual place of work has considerable gravity. Nevertheless, among the other criteria, there are two, the Court suggested (however without reference to specific support in preparatory works or otherwise), which are particularly relevant:

among the significant factors suggestive of a connection with a particular country, account should be taken in particular of the country in which the employee pays taxes on the income from his activity and the country in which he is covered by a social security scheme and pension, sickness insurance and invalidity schemes. In addition, the national court must also take account of all the circumstances of the case, such as the parameters relating to salary determination and other working conditions.’ (at 41).

As always, much misery may be avoided by inserting a proper choice of law in the contract, in accordance with the Convention (now Regulation).

Geert.

%d bloggers like this: