UIA Seminar - “The Issues Which Really Count For Clients In International Agency, Distribution and Franchising Agreements - An Update For Some, An Eye Opener For Others!”, Atlanta May 2009 CHOICE OF LAW AND JURISDICTION CLAUSES IN CROSS-BORDER AGENCY AND DISTRIBUTION AGREEMENTS FROM AN EU PERSPECTIVE by Carlo H. Mastellone, avvocato by Carlo H. Mastellone, avvocato Firenze, Italia STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

I. NEGOTIATION STRATEGIES In addition to: In addition to: Taking into account different negotiation styles, language and culture Taking into account different negotiation styles, language and culture Aiming to a written contract enforceable in the countries of both parties Aiming to a written contract enforceable in the countries of both parties Avoiding conflicts by understanding respective rights and duties Avoiding conflicts by understanding respective rights and duties Address dispute resolution system completely and fairly Address dispute resolution system completely and fairly STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

LETTERS OF INTENT LOI should not have any binding effect except for the clauses that in the parties’ intention should have a binding effect - confidentiality of secret information disclosed; standstill / lock-out; right of first refusal except for the clauses that in the parties’ intention should have a binding effect - confidentiality of secret information disclosed; standstill / lock-out; right of first refusal Should include a choice of forum and choice of law clause Should include a choice of forum and choice of law clause STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

CHOICE OF LAW OF NON- CONTRACTUAL OBLIGATIONS Art. 14. Freedom of choice, Reg. (EC) No 864/2007 (“Rome II”) The choice shall be expressed or demonstrated with reasonable certainty by the circumstances of the case and shall not prejudice the rights of third parties. STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

WHAT DOES THE GOVERNING LAW DETERMINE? Duty to negotiate in good faith? Duty to negotiate in good faith? Legal content of an agreement to negotiate? Legal content of an agreement to negotiate? Effect of breaking off negotiations Effect of breaking off negotiations Liabilities for negotiating in bad-faith Liabilities for negotiating in bad-faith Remedies available Remedies available STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

COMMON LAW vs. CIVIL LAW No general rule requiring the parties to negotiate in good faith [“How can a court be expected to decide whether, subjectively, a proper reason existed for the termination of negotiations? ] No general rule requiring the parties to negotiate in good faith [“How can a court be expected to decide whether, subjectively, a proper reason existed for the termination of negotiations? ] parties have a duty to behave according to good faith [and culpa in contrahendo] vs. parties have a duty to behave according to good faith [and culpa in contrahendo] STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

JURISDICTION ABSENT A CHOICE OF COURT An action founded on the pre-contractual liability of the defendant is a matter relating to tort, delict or quasi-delict within the meaning of Article 5(3) of the Brussels Convention [ECJ judgment , in case C-334/00, Fonderie Officine Meccaniche Tacconi S.p.A. Vs., Heinrich Wagner Sinto Maschinenfabrik GmbH] An action founded on the pre-contractual liability of the defendant is a matter relating to tort, delict or quasi-delict within the meaning of Article 5(3) of the Brussels Convention [ECJ judgment , in case C-334/00, Fonderie Officine Meccaniche Tacconi S.p.A. Vs., Heinrich Wagner Sinto Maschinenfabrik GmbH] STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

COUNCIL REGULATION (EC) No 44/2001 Article 5 - A person domiciled in a Member State may, in another Member State, be sued: … 3. in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

GOVERNING LAW ABSENT A CHOICE OF LAW Reg. (EC) No 864/2007 (“Rome II”) applicable from Jan. 11, 2009 Reg. (EC) No 864/2007 (“Rome II”) applicable from Jan. 11, 2009 “Culpa in contrahendo, as an autonomous concept, includes the violation of the duty of disclosure and the breakdown of contractual negotiations (Recitals No. 30) “Culpa in contrahendo, as an autonomous concept, includes the violation of the duty of disclosure and the breakdown of contractual negotiations (Recitals No. 30) STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

GOVERNING LAW (continued) Absent an express choice of law (art. 14), the law applicable to a non- contractual obligation arising out of dealings prior to the conclusion of a contract, whether the contract is concluded or not, is the law that applies to the contract or that would have been applicable had it been entered into (art. 12) Absent an express choice of law (art. 14), the law applicable to a non- contractual obligation arising out of dealings prior to the conclusion of a contract, whether the contract is concluded or not, is the law that applies to the contract or that would have been applicable had it been entered into (art. 12) STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

GOVERNING LAW (continued) Alternative criteria, law of the country Alternative criteria, law of the country (a) in which the damage occurs (b) where both parties are resident (c) with which, having regard to all circumstances, the contract is manifestly more closely connected STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

II. LITIGATION STRATEGIES Which are the most appropriate contractual strategies to be implemented when litigation cannot be avoided? Which are the most appropriate contractual strategies to be implemented when litigation cannot be avoided? Arbitration or ordinary courts? Arbitration or ordinary courts? STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

ADVANTAGES OF ARBITRATION Neutrality Neutrality Specific competences Specific competences Excluding the other party’s courts Excluding the other party’s courts Simple and informal Simple and informal One instance only One instance only The time element The time element Cost considerations Cost considerations STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

ADVANTAGES OF ARBITRATION (cont.) Tailor made proceedings Tailor made proceedings Confidentiality Confidentiality Good relations Good relations Award can be based on fairness Award can be based on fairness Language of proceedings Language of proceedings Recognition of the foreign award Recognition of the foreign award STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

CIRCUMSTANCES IN FAVOUR OF ORDINARY COURTS Exporter in a merely defensive position Exporter in a merely defensive position Non arbitrability of the dispute Non arbitrability of the dispute Limited financial value of the dispute Limited financial value of the dispute STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

THE “ARBITRABILITY” OF DISPUTES The 1958 New York Convention The 1958 New York Convention The Belgian Supreme Court judgement of October 15, 2004 (Colvi v. Interdica) The Belgian Supreme Court judgement of October 15, 2004 (Colvi v. Interdica) STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

JURISDICTION ABSENT A CHOICE OF COURT Reg. (EC) No 44/2001, art. 5.1.(b) in matters relating to a contract: Reg. (EC) No 44/2001, art. 5.1.(b) in matters relating to a contract: - in the case of the provision of services, the court for the place in a Member State where, under the contract, the services were provided or should have been provided - in the case of the provision of services, the court for the place in a Member State where, under the contract, the services were provided or should have been provided STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

MAKE SURE THE CHOICE OF FORUM IS EFFECTIVE in writing or evidenced in writing in writing or evidenced in writing according to parties’ practices according to parties’ practices according with usage the parties are or ought to have been aware of and which in their trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned (art. 23) according with usage the parties are or ought to have been aware of and which in their trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned (art. 23) STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

EFFECTIVE CHOICE OF FORUM (continued) Jurisdiction shall be exclusive (unless otherwise agreed) Jurisdiction shall be exclusive (unless otherwise agreed) Durable communications by electronic means: equivalent to "writing“ Durable communications by electronic means: equivalent to "writing“ Validity of jurisdiction clause in a distributorship agreement tacitly renewed [ECJ, Iveco v Van Hool ] Validity of jurisdiction clause in a distributorship agreement tacitly renewed [ECJ, Iveco v Van Hool ] STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

SELECTING THE BEST FORUM CLAUSE “The parties agree to submit to the [exclusive] [non-exclusive] jurisdiction of the [English] courts” “The parties agree to submit to the [exclusive] [non-exclusive] jurisdiction of the [English] courts” STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

“Any legal proceedings instituted against the Distributor by the Principal shall be brought in the courts of the distributor’s country of domicile and any legal proceedings against the Principal by the Distributor shall be brought in the courts of the Principal’s country of domicile and for the purposes of such proceedings the law governing this agreement and such proceedings shall in each case be deemed to be the law of the country in which the relevant proceedings have been instituted in accordance with this clause. For the purpose of proceedings brought against it by the other party under this clause each party agrees to submit to the jurisdiction of the courts of the other party’s country of domicile” STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

MAKE SURE THE ARBITRATION CLAUSE IS EFFECTIVE very narrow definition of “writing”, art. II(2) Formal requirements under the 1958 New York Convention: very narrow definition of “writing”, art. II(2) Uncitral Model law, art. 7 (2): … or other means of telecommunication which provide a record of the agreement Uncitral Model law, art. 7 (2): … or other means of telecommunication which provide a record of the agreement Formal requirements under national laws STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

PATHOLOGICAL ARBITRATION CLAUSES Any dispute shall be referred to a Queen’s Counsel of the English Bar Any dispute shall be referred to a Queen’s Counsel of the English Bar Arbitration by the “Official Chamber of Commerce in Paris” Arbitration by the “Official Chamber of Commerce in Paris” The designation of a non existent appointing authority The designation of a non existent appointing authority STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

PRE-ACTION INJUNCTIONS - THE ECJ PERSPECTIVE Civil law jurisdictions generally find anti-foreign-suit injunctions offensive, even violative of international law Civil law jurisdictions generally find anti-foreign-suit injunctions offensive, even violative of international law Common law jurisdictions, especially courts in the UK and US, consider an anti-foreign-suit injunction appropriate under some circumstances. Common law jurisdictions, especially courts in the UK and US, consider an anti-foreign-suit injunction appropriate under some circumstances. STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

NOT COMPATIBLE WITH REG. 44/2001 Anti-suit injunction, concerning the applicability of an arbitration agreement, cited by a litigant in order to contest the jurisdiction of the court before which he is being sued: Anti-suit injunction, concerning the applicability of an arbitration agreement, cited by a litigant in order to contest the jurisdiction of the court before which he is being sued: Every court seised itself determines, under the rules applicable to it, whether it has jurisdiction to resolve the dispute before it anti-suit injunction, contrary to the general principle that every court Every court seised itself determines, under the rules applicable to it, whether it has jurisdiction to resolve the dispute before it anti-suit injunction, contrary to the general principle that every court STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

NOT COMPATIBLE WITH REG. 44/2001 An anti-suit injunction also runs counter to the trust which the Member States accord to one another’s legal systems and judicial institutions An anti-suit injunction also runs counter to the trust which the Member States accord to one another’s legal systems and judicial institutions Applicant would therefore be deprived of a form of judicial protection to which it is entitled [ECJ judgment 10 February 2009 in the West Tankers/Front Comor case] Applicant would therefore be deprived of a form of judicial protection to which it is entitled [ECJ judgment 10 February 2009 in the West Tankers/Front Comor case] STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

THE FUTURE: THE HAGUE CONVENTION Hague Convention of 30 June 2005 on Choice of Court Agreements Hague Convention of 30 June 2005 on Choice of Court Agreements Not yet in force, but signed by the EU (April 1, 2009) and by the United States of America (January 19, 2009) and ratified by Mexico (October 26, 2007) Not yet in force, but signed by the EU (April 1, 2009) and by the United States of America (January 19, 2009) and ratified by Mexico (October 26, 2007) STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

EXCLUSIVE CHOICE OF COURT AGREEMENT must be concluded or documented must be concluded or documented i) in writing; or i) in writing; or ii) by any other means of communication which renders information accessible so as to be usable for subsequent reference; ii) by any other means of communication which renders information accessible so as to be usable for subsequent reference; STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

THREE MAIN RULES The chosen court must hear the case The chosen court must hear the case Any court seized but not chosen must dismiss the case Any court seized but not chosen must dismiss the case Any judgment rendered by the designated court must be recognised and enforced in other Contracting States Any judgment rendered by the designated court must be recognised and enforced in other Contracting States STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

EU MEDIATION DIRECTIVE June 28, 2008 on certain aspects of mediation in civil and commercial matters: purpose to facilitate access to dispute resolution and to promote the amicable settlement of disputes by encouraging the use of mediation and by ensuring a sound relationship between mediation and judicial proceedings. on certain aspects of mediation in civil and commercial matters: purpose to facilitate access to dispute resolution and to promote the amicable settlement of disputes by encouraging the use of mediation and by ensuring a sound relationship between mediation and judicial proceedings. STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

III. CHOICE OF LAW STRATEGIES What choices are available? Law of the country of either of the parties to the contract Law of the country of either of the parties to the contract Law of a neutral third country (Swiss law) Law of a neutral third country (Swiss law) Combination of two laws, i.e. different laws to govern different aspects of the contract (depeçage) Combination of two laws, i.e. different laws to govern different aspects of the contract (depeçage) STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

WHAT CHOICES ARE AVAILABLE? (continued) Principles common to two or more specified legal systems will govern [“common principles of English and French law, and in the absence of such common principles, by such principles of international trade law as have been applied by national and international tribunals” ] Principles common to two or more specified legal systems will govern [“common principles of English and French law, and in the absence of such common principles, by such principles of international trade law as have been applied by national and international tribunals” ] STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

WHAT CHOICES ARE AVAILABLE? (continued) “floating choice of law clause” “floating choice of law clause” “saving clause” “saving clause” “general principles of law”, “transnational law” or “international commercial law” (lex mercatoria) “general principles of law”, “transnational law” or “international commercial law” (lex mercatoria) CISG CISG UNIDROIT Principles UNIDROIT Principles STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

COMMON ERRORS British Law British Law Law of the member states of the European Union Law of the member states of the European Union STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

MAKE SURE THE CHOICE OF LAW IS EFFECTIVE The choice must be: expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case (art. 3.1 Rome Conv.) expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case (art. 3.1 Rome Conv.) clearly demonstrated …. 3.1 Reg. Rome I) clearly demonstrated … (art. 3.1 Reg. Rome I) STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

LIMITS LAID BY MANDATORY RULES OF LAW A national court will normally apply its mandatory laws, whatever the applicable substantive law it applies A national court will normally apply its mandatory laws, whatever the applicable substantive law it applies mandatory law for international arbitration: the law of the place of arbitration, or where the contract was to be performed or of the place of enforcement. mandatory law for international arbitration: the law of the place of arbitration, or where the contract was to be performed or of the place of enforcement. STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

EC DIRECTIVE 86/653 ON SELF-EMPLOYED COMMERCIAL AGENTS The parties may not derogate from Articles 17 and 18 (termination indemnity or compensation) to the detriment of the commercial agent before the agency contract expires The parties may not derogate from Articles 17 and 18 (termination indemnity or compensation) to the detriment of the commercial agent before the agency contract expires ECJ judgment 9 November 2000, case C-381/98, Ingmar GB Ltd v. Eaton Leonard Technologies Inc ECJ judgment 9 November 2000, case C-381/98, Ingmar GB Ltd v. Eaton Leonard Technologies Inc STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

MIND YOUR BELGIAN DISTRIBUTOR! Belgian Law of 27 July 1961 on the unilateral termination of exclusive distribution agreements of indefinite duration: Belgian Law of 27 July 1961 on the unilateral termination of exclusive distribution agreements of indefinite duration: non-Belgian choice of courts or arbitration clause + foreign law clause: not always a watertight solution (ex art. 7.1 Rome Conv.) non-Belgian choice of courts or arbitration clause + foreign law clause: not always a watertight solution (ex art. 7.1 Rome Conv.) STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

GOVERNING LAW ABSENT A CHOICE OF LAW Law of the country with which the agreement is most closely connected Law of the country with which the agreement is most closely connected or of the country of residence of the party who is to effect the performance which is characteristic of the contract or of the country of residence of the party who is to effect the performance which is characteristic of the contract STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

ROME I REG., ART. 4 (b) Service contract: law of the service provider’s country of residence (b) Service contract: law of the service provider’s country of residence (e) Franchise contract: law of the franchisee’s country of residence (e) Franchise contract: law of the franchisee’s country of residence (f) Distribution contract: law of the distributor’s country of residence (f) Distribution contract: law of the distributor’s country of residence STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

DOES THE CISG APPLY TO DISTRIBUTION AGREEMENTS? Unless CISG is the chosen governing law: CISG applies if the Distributor Agreement (a framework agreement distinct from the sales contracts concluded in the performance of the former) can be characterized as a contract for the sale of goods [U.S. District Court, Southern District of New York 21 July 1997, Helen Kaminski Pty. Ltd. v. Marketing Australian Products, Inc.] Unless CISG is the chosen governing law: CISG applies if the Distributor Agreement (a framework agreement distinct from the sales contracts concluded in the performance of the former) can be characterized as a contract for the sale of goods [U.S. District Court, Southern District of New York 21 July 1997, Helen Kaminski Pty. Ltd. v. Marketing Australian Products, Inc.] STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

UIA Seminar - “The Issues Which Really Count For Clients In International Agency, Distribution and Franchising Agreements - An Update For Some, An Eye Opener For Others!”, Atlanta May 2009 CHOICE OF LAW AND JURISDICTION CLAUSES IN CROSS- BORDER AGENCY AND DISTRIBUTION AGREEMENTS FROM AN EU PERSPECTIVE THANK YOU FOR YOUR ATTENTION! ANY QUESTIONS? Carlo H. Mastellone, avvocato Firenze, Italia STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA

STUDIO LEGALE MASTELLONE FIRENZE MILANO ROMA VERONA