1. CHOICE OF LAW and ROME I REGULATION
G. Zarra
Adjunct Professor
27 April 2017

2. Summary Introduction and General Theory of Private International Law
Rome 1:
A. Party Autonomy
B. Law Applicable in the Absence of a Choice-of- Law Clause
C. Form
D. Protection of the Weaker Party
E. Mandatory Rules/ Public Policy

3. Why Applicable Law?
Lord Diplock, Amin Rasheed Shipping Corporation v. Kuwait Insurance Co. [House of Lords, 1984 AC 50] «contracts are incapable of existing in a legal vacuum. They are mere piece of papers devoid of all legal effects unless they were made by reference to some system of private law which defines the obligations asumed by the parties». Reasonable expectations of the parties. Public purposes.

4. Traditional choice-of-law theory
1) Legal category
2) Connecting factor
3) Applicable law

5. Classical connecting factors
The situs of land
The domicile, habitual residence or nationality of a person
American theories: interests analysis; primacy of forum law; “better-law” theory

6. Lex situs
Very important with regard to immovable property. The location is known to third parties and the courts of the situs are the only ones able to enforce legal rights concerning to immovable property.

7. Persisting basic ideas
The personal law shall play a major role in personal matters (e.g. capacity to marry).
How shall personal law be determined? Domicile (UK)? Nationality (Italy)?
Several international conventions are today referring to the place of abitual residence. It has the merit of being quite a flexible criterion and better suited to determine the country to which a person belongs.

8. continued
For companies the reference can be to the place of incorporation, the siège statutaire, the siège réel. Substantial differences…
It determines:
Whether the company has been validly created;
Powers of its organs;
What is the status of the company (existing,dissolved, whether there has been a merger) etc.

9. American Theories Interest analysis
A judge will consider the policies behind its legislator choices and determine whether there is an interest of its system of law to be applied to a certain case. Otherwise, foreign law will be applied.
Better-law theory
Make a comparison and choose the better law for the case at hand. E.g., in tort case, the more favourable to the victim.
Primacy of forum law: foreign law applies only in the special cases where there is a good reason to do so.

10. Characterization (Qualificazione)
Let’s imagine that the connecting factor in matters of successions is the place where the de cuius had its habitual residence.
How do we decide whether a certain issues regards a matter of successions?
E.g. a marriage renders null a previous will. Is this a matter of successions law or family law? This could determine the change of applicable law.

11. continued
A first theory looks at the law of the court (lex fori). Problem: you do not apply the “proper law” of the dispute.
Second theory looks at the law to which the question belongs (lex causae). Problem: you do not know with certainty which law will be applied.
Choice on the basis of the best result: look at the various plausible ways of characterizing an issue and choose the one which best gives effects to the policy of the law (e.g. favor filiationis).

12. Renvoi
When a foreign system of law shall be applied, do we refer also to its conflict of laws rules?
If so, such a foreign law could refer back to the original system or on to another system. In this last case we risk a regressus ad infinitum. Art. 13 Law 218/1995.
Problem of total/partial renvoi in case of renvoi back:
Italian judge applies French law on the basis of its conflict of laws rules. French law renvois back to Italian law. If the French theory of renvoi accepts the renvoi back, French law should finally apply.

13. continued
Even if stimulating from the theoretical point of view, renvoi is an extremely problematic theory from the practical perspective.
That’s why the majority of international conventions (including Rome I and Rome II) exclude renvoi.
This means that once the system of applicable law has been chosen, the reference does not apply to its conflict of laws rules. Such a system will be surely applied.
Renvoi no longer exists also in Italy where EU law applies and it excludes renvoi.

14. Proof of foreign law
England: foreign law is a fact to be proved by the parties and pleaded before the judge. Pay an expert which can support your case through interpretation of foreign law. If parties do not introduce foreign law, the judge will apply English law.
Italy: foreign law is law. Iura novit curia applies. It is possible to make a “ricorso in cassazione” and the constitutionality of foreign law with respect to the foreign constitution can be evaluated by Italian judges.
However the two systems are not far as it may appear at first glance. In both cases experts will be usually involved.

15. ROME I REGULATION (EC) No 593/2008 on the law applicable to contractual obligations

16. Scope of the Applicable Law
Art. 12 Rome I:
The applicable law shall govern in particular:
interpretation;
performance;
the consequences of a total or partial breach of obligations, including the assessment of damages in so far as it is governed by rules of law;
the various ways of extinguishing obligations, and prescription and limitation of actions;
the consequences of nullity of the contract.

17. Rome I Regulation 593/2008
•Applies to contractual obligations in civil and commercial matters (sales, services, employment contracts etc.) •Applies where an element of «internationality» of the contract is present – Parties from different States – Parties from the same State, but law of another State applies after choice of the parties •Applies also where the designated law is not one of a Member State, Art. 2 Rome I.

18. Difference with Brussels
Rome I, unlike Brussels, does not apply only to conflicts between the legal systems of the European Union. A choice between the law of Mexico and Peru falls just as much within its scope as one between the laws of France and Germany. It is not required, for Rome I to apply, that the defendant is domiciled in a Member State: courts apply Rome I to all cases in which the applicable law shall be determined (unless in cases of article 1).

19. Art. I Rome Regulation
This Regulation shall apply, in situations involving a conflict of laws, to contractual obligations in civil and commercial matters. It shall not apply, in particular, to revenue, customs or administrative matters. It shall not apply to legal capacity, family relations and others, as specified in paragraph 2.

20. A. Party Autonomy

21. A. Party Autonomy
“Freedom of contract is an essential part of the market economy… No State can hope effectively to control international contracts.” (Peter Nygh, Autonomy in international contracts, 1999) Choice of law clauses enable parties to solve a conflict of laws “by themselves”.

22. A General Principle of PIL
Most widely recognized principle of PIL Substantial connection to the chosen law is not required

23. Art. 3 Rome I Regulation
1. A contract shall be governed by the law chosen by the parties. The choice shall be made expressly or clearly demonstrated by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or to part only of the contract. (No connection is required with the chosen law) 2. The parties may at any time agree to subject the contract to a law other than that which previously governed it, whether as a result of an earlier choice made under this Article or of other provisions of this Regulation. Any change in the law to be applied that is made after the conclusion of the contract shall not prejudice its formal validity under Article 11 or adversely affect the rights of third parties.

24. Depeçage
Art. 3 (1) 3 Rome I Regulation: By their choice the parties can select the law applicable to the whole or to part only of the contract. Not advisable in practice. Real pending case: Contract of sale of a shipping company. All governed by Greek law unless a clause on the «caparra» (i.e. an advanced payment, with function of guarantee, which may also function as termination) governed by Italian Law. Is termination governed by Italian or Greek law?!?!?!?!?

25. Express and Tacit Choice
Choice must be express, “evident”, “clearly evident” or “clearly demonstrated” Amin Rasheed Shipping Corp. v. Kuwait Insurance Co. (House of Lords) Marine insurance contract of a Liberian Company and a Kuwaiti insurer (through London company). Policies issued in Kuwait but brokers were Londoners, policies were sent to London. No express choice of law. Amin Rasheed wanted to sue in London and apply English law. HoL: circumstances point to English law. There was no indigenous marine insurance law in Kuwait!!!

26. Recital 12 Rome I Regulation
Interference among choice of courts and choice of law: “An agreement between the parties to confer on one or more courts or tribunals of a Member State exclusive jurisdiction to determine disputes under the contract should be one of the factors to be taken into account in determining whether a choice of law has been clearly demonstrated.” For English courts this has traditionally been a strong factor pointing to a choice of law. Courts are familiar with their own law. The same applies for arbitration clauses.

27. Oldendorff v. Libera Corporation
Charterparty (10 years) between a German and a Japanese shipping companies. English language.
Choice of arbitration in London. No choice of law.
High court to determine law applicable to arbitration proceedings in presence of a dispute between the parties.
It is usual in shipping matters to choose a neutral forum. Arbitrators competent in that area of the law. Negotiations in English law. It would be nonsensical for the parties to have selected a system of law different from English law.

28. Change of Choice
You can change the applicable law the contract at any time (see art. 3(2)). The only way to “freeze” the applicable law to its state at the time of the conclusion of the contract is to insert a stabilization clause. Be aware that the rights of third parties under the contract will not change.

29. Validity of choice of law clause
Art. 3 (5) Rome I Regulation The existence and validity of the consent of the parties as to the choice of the applicable law shall be determined in accordance with the provisions of Articles 10, 11 and 13.

30. Autonomy of the clause
Choice of law clause is itself a contract (as well as jurisdictional clause), whose life is autonomous from the rest of the contract.

31. Which law to ascertain consent?
10(1) Rome I: normally, the allegedly chosen law applies to the validity of the choice of law clause BUT: Art. 10 (2) Rome I Regulation “Nevertheless, a party, in order to establish that he did not consent, may rely upon the law of the country in which he has his habitual residence if it appears from the circumstances that it would not be reasonable to determine the effect of his conduct in accordance with the law specified in paragraph 1.”

32. Article 13 - Capacity
In a contract concluded between persons who are in the same country, a natural person who would have capacity under the law of that country may invoke his incapacity resulting from the law of another country, only if the other party to the contract was aware of that incapacity at the time of the conclusion of the contract or was not aware thereof as a result of negligence.

33. Case 1
Company A from Bordeaux orders goods from B in Rome over the internet. B sends the goods in a box. When A’s employee opens the package, he finds inside a sheet with B’s standard terms and conditions, which include a choice of the law of X. Under the law of X, the choice-of-law clause has become part of the contract, but not under French law. Which law would a court in Bordeaux apply to understand whether B did not consent to terms and conditions?

34. Case 2
Student B from Berlin sells his VW beetle for 7500 € to Student M from Madrid. The sale takes place in Berlin. As M is not familiar with German law they subject the contract to Spanish law. Possible? Could B and M choose Swiss law to govern their contract? How does the case need to be assessed if B and M (who choose to apply another law) both have their habitual residence in Germany?

35. B. Law Applicable in the Absence of a Choice-of-Law Clause

36. Clash of cultures
Civil law: certainty: application of rules preexisting to the case at hand
Common law: flexibility and appropriateness: look at the concrete case and see what is the most suitable choice: the theory of the closest connection.
Rome Convention and Regulation had to mediate between these two very different positions.

37. Old theories
(1) lex loci contractus = place of contracting (problems in cases of parties in different countries or in cases of parties meeting in a place for reasons of convenience) (2) lex loci solutionis = place of performance (problem of cases where there is multiple performance) Vs (3) closest connection

38. Art. 4 Rome I: Balance
4(1) List of rules relating to specific types of contracts in Article 4(1).
Idea: clarity and legal certainty
4(2): default rule referring to the country of the habitual residence of the party required to effect the “characteristic performance”
Interplay with Art. 19 (definition of “habitual residence”)

39. Art. 4 Rome I Regulation - Applicable law in the absence of choice
1. To the extent that the law applicable to the contract has not been chosen in accordance with Article 3 and without prejudice to Articles 5 to 8, the law governing the contract shall be determined as follows: (a) a contract for the sale of goods shall be governed by the law of the country where the seller has his habitual residence; (b) a contract for the provision of services shall be governed by the law of the country where the service provider has his habitual residence; (c) a contract relating to a right in rem in immovable property or to a tenancy of immovable property shall be governed by the law of the country where the property is situated; (d) … (e) a franchise contract shall be governed by the law of the country where the franchisee has his habitual residence; (f) a distribution contract shall be governed by the law of the country where the distributor has his habitual residence; (g) …

40. 2. Where the contract is not covered by paragraph 1 or where the elements of the contract would be covered by more than one of points (a) to (h) of paragraph 1, the contract shall be governed by the law of the country where the party required to effect the characteristic performance of the contract has his habitual residence. (For companies it is the place of central administration – art. 19). Note: such a party is considered more connected to the dispute. Not apply the law of the place where the characteristic performance is to be carried out. Some contracts (e.g. barter) do not have characteristic performance.

41. 3. Where it is clear from all the circumstances of the case that the contract is manifestly more closely connected with a country other than that indicated I paragraphs 1 or 2, the law of that other country shall apply. 4. Where the law applicable cannot be determined pursuant to paragraphs 1 or 2, the contract shall be governed by the law of the country with which it is most closely connected.

42. B. Law Applicable In the Absence of a Choice-of-Law Clause
The “characteristic performance” is that one which distinguishes this type of contract from others.
Most of the times the non-monetary obligation. This obligation is common to many contracts and is disregarded.
E.g. sales contract: delivery of good; service contract: performance of service.
Exception: loan: disbursing the loan (= monetary obligation that is at the same time characteristic).

43. Art. 4 Rome I Regulation – “Escape Clauses”
Two escape clauses retained in view of flexibility (strongly desired by English lawyers):
Art. 4(4) - Law of the country with which the contract is most closely connected applies, if law applicable cannot be determined otherwise (e.g. contracts of exchange)
Article 4(3) – Law of the country with which the contract is "manifestly" more closely connected (as established according to paras. 1 and 2 of art. 4) shall prevail over law identified as applicable (e.g. contracts of guarantee)

44. Continued
Recital 20: When there are several contracts linked with each other, in the closest connection analysis this shall be a circumstance duly taken into account. If several linked contracts are governed by different laws, it could happen that one is valid and another is invalid…

45. continued
Bank of Baroda v. Visya Bank (High Court in London) An Indian buyer asked to its bank in India (Visya) to let it have a letter of credit in London. Visya, who did not have office in London, asked Bank of Baroda through its English branch to confirm the letter. No choices of laws. The Buyer did not pay. Baroda paid the seller. It asked for reimbursement to Visya in London under the contract between themselves. The characteristic performance of this contract was the confirmation, which rendered English law applicable. This, in turn, rendered English law applicable also to the contract between Visya and the buyer.

46. Case 1
A opens a Burger King restaurant next to the motorway outside London. He concludes a franchise contract with BK USA. Which law applies to the contract according to Rome I?

47. Case 2
Sancho from Sevilla and Pascal from Paris became friends during their camping holidays in Tuscany. Pascal has a brand new but small tent. Sancho has a less modern, but bigger tent. As Pascal has fallen in love with Raffaella from Rome he is exchanging tents with Sancho. While trying to pitch his new tent in a romantic beach, he realises that some key parts are missing and so he is unable to get it constructed. Raffaella is not amused and decides to leave. Furious, Pascal reckons that jealous Sancho deceived him in bad faith and wonders if the contract of exchange with Sancho is invalid. Which law applies?

48. Golden Rule
A choice-of-law clause in a contract solves many PIL problems. It is advisable to be clearly drafted. If you insert a choice-of-forum clause, insert a choice-of-law clause as well or clarify that you do not wish to choose the applicable law!

49. Real Example
Sell/supply of orange juice from Italy to Poland. Based on a no contract. Jurisdiction: Poland (art. 7 Brussels I-bis) Applicable law: Italian (art. 4 Rome I)….

50. Article 5: Contracts of carriage
Carriage of goods
Law chosen by the parties
Law of the country of habitual residence of the carrier, if place of receipt or of delivery or habitual residence of consignor is also situated there
Otherwise: Law of the country where agreed place of delivery is located

51. Article 5: Contracts of carriage
Carriage of passengers. Not mainly based on characteristic performance because passengers are weak parties.
Limited ability to choose the law for the parties (5 options)
Law of the country where the passenger has his habitual residence, provided that either the place of departure or of destination is situated in that country
Otherwise: Law of the country of habitual residence of the carrier. (The characteristic performance here comes back!)
Escape clause, Art. 5 (3): law of the place manifestly most closely connected if this result from the circumstances.

52. Possibilities of choice
Place where the passenger has his habitual residence.
Place where the carrier has his habitual residence.
Place where the carrier has his central administration.
Place of departure.
Place of arrival.

53. Art.5: Contracts of carriage - Scenarios
Carrier A, who has his principal place of business in Germany, enters into an agreement pursuant to which his branch in Prague has to deliver goods of an English trade chain from Prague to Vienna.
UK Passenger flies with Seychelles Airlines from London to Berlin. Choice of law in favour of the Seychelles? 53

54. C. Form

55. Form Is treated separately in most systems Art. 11 Rome I
Must follow the principle of favor validatis
=> contract is valid if it satisfies either:
(1) the law of the place where the contract was entered into or
(2) the law applicable to the contract or some other law connected to it

56. Art. 11 Rome I Regulation
1. A contract concluded between persons who, or whose agents, are in the same country at the time of its conclusion is formally valid if it satisfies the formal requirements of the law which governs it in substance under this Regulation or of the law of the country where it is concluded.
2. A contract concluded between persons who, or whose agents, are in different countries at the time of its conclusion is formally valid if it satisfies the formal requirements of the law which governs it in substance under this Regulation, or of the law of either of the countries where either of the parties or their agent is present at the time of conclusion, or of the law of the country where either of the parties had his habitual residence at that time. …

57. Art. 11 Rome I Regulation
Exceptions: Consumer Contracts (law of the country where the consumer has his habitual residence). Contracts the subject matter of which is a right in rem in immovable property or a tenancy of immovable property shall be subject (mandatory rules of lex rei sitae)

58. Golden Rule :
Keep cool about form: it suffices in most cases to comply either with the law in force at the place of contracting or with the law that applies to the contract.

59. D. Protection of the Weaker Party

60. Protection of the Weaker Party
Most systems protect the weaker party in the process of selection of the applicable law
Parties that are typically considered to be “weaker”:
consumers,
employees,
insured persons
See e.g. Art. 6 Rome I

61. Protection of the Weaker Party
Most PIL rules:
provide for the law of the domicile/ habitual residence of the consumer as a default rule
limit the effect of a choice of law to prevent consumers from being deprived of their “home country protection”

62. Conditons of Art. 6 Rome I Regulation
A. Consumer contract
Art. 6: “1. Without prejudice to Articles 5 and 7, a contract concluded by a natural person for a purpose which can be regarded as being outside his trade or profession (the consumer) with another person acting in the exercise of his trade or profession (the professional)…”

63. Conditons of Art. 6 Rome I Regulation
B. Pursuing/ Directing Activity
“provided that the professional…
(a) pursues his commercial or professional activities in the country where the consumer has his habitual residence, or
(b) by any means, directs such activities to that country or to several countries including that country, and the contract falls within the scope of such activities.”

64. Conditons of Art. 6 Rome I Regulation
C. Application of the consumer’s “home country protection”
“…shall be governed by the law of the country where the consumer has his habitual residence…”

65. Limited choice of law under Art. 6
The parties may choose the law applicable to a consumer contract, but:
“Art. 6(2): Such a choice may not… have the result of depriving the consumer of the protection afforded to him by provisions that cannot be derogated from by agreement by virtue of the law which, in the absence of choice, would have been applicable…”
What are “mandatory provisions”?

66. Consequences of such choice of law
Consumer protection provisions of the law of habitual residence of the consumer apply along with provisions of the chosen law
- results of chosen law and consumer protection provisions of consumer’s home country need to be compared in the concrete case; whole set of more favourable rules applies (“no cherry-picking”).
- mix of legal systems causes uncertainty.

67. Art. 6 Rome I Regulation resumed
Applicable law is the law of the country where consumer has his habitual residence
Limited choice of law possible
no deprivation of provisions which cannot be derogated from by agreement); consumer protection provisions of law of habitual residence apply if more protective
Condition for the application of Art. 6
B2C relationship as defined in Art. 6(1)
the professional, by any means, pursues his commercial or professional activities in the country of habitual residence of the consumer or directs them to that country or to several countries including that country
otherwise Art. 3 and 4 apply

68. Art. 6 Rome I: Defining “Directing Activity”
Is it sufficient that a website is accessible from consumer’s MS and a sale is conducted over the internet?
Recital 24 Rome I Regulation:
‘the mere fact that an Internet site is accessible is not sufficient …, although a factor will be that this Internet site solicits the conclusion of distance contracts and that a contract has actually been concluded at a distance, by whatever means. In this respect, the language or currency which a website uses does not constitute a relevant factor.
But: See CJEU joined cases C-585/08 Pammer, C-144/09 Hotel Alpenhof on Art. 15 (1) Brussels I Regulation

69. CJEU, C-585/08, C-144/09 Pammer/ Hotel Alpenhof

70. Pammer/ Hotel Alpenhof
Consumer domiciled in Austria filed suit in Austrian court seeking to recover prize for a cruise on a freight vessel. The trip was publicised on the website of the company’s German agent.
Hotel Alpenhof
Austrian hotel company sued in Austria against German consumer for payment of hotel bill. German consumer discovered hotel through its website and made and confirmed his reservation by .

71. CJEU on “Directing Activity”:
Clear expression of intent to target consumers in the MS in question needs to be apparent from websites and trader’s overall activity.
Mere accessibility of trader’s/ his intermediary’s website in consumer’s MS or use of a language or a currency which are the ones generally used in trader’s MS are insufficient.

72. CJEU on “Directing Activity”
Indications that trader’s activity is directed to consumer’s MS:
international nature of the activity,
mention of itineraries from other MS for going to the place where trader is,
use of language or currency other than the ones generally used in trader’s MS with possibility of making and confirming reservation in that other language,
mention of telephone numbers with international code,
outlay of expenditure on an internet referencing service in order to facilitate access to trader’s/ its intermediary’s site by consumers from other MS,
use of top-level domain name other than that of trader’s MS
mention of an international clientele of customers from various MS

73. Case Scenario
A, a UK consumer wants to buy goods from a Romanian enterprise via an interactive website of this business.
The page is drafted in English and indicates clearly, that goods will be delivered to the UK and that customers can pay in GBP.
A evaluated the offer, but did not manage to complete the order before leaving for holidays in Thailand.
Sitting in a Thai internet-café, he finally orders the goods.
Applicable law?

74. Case Scenario 2 Ernie, a UK based student, is surfing in the internet.
He finds the website of a Polish seller P, offering an electric guitar for a really good price.
P’s standard terms include a choice of law clause in favour of Polish law.
Ernie agrees to them by mouse-click as he thinks that a choice of law clause is not possible in a B2C context. Is he right?

75. Illustration

76. Overriding Mandatory Rules/ Public Policy

77. Art. 3 Rome I Regulation (continued) - Limitations
Purely Domestic cases (3) Where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement.

78. Art. 3 Rome I Regulation (continued) - Limitations
Purely European Cases (4) Where all other elements relevant to the situation at the time of the choice are located in one or more Member States, the parties' choice of applicable law other than that of a Member State shall not prejudice the application of provisions of Community law, where appropriate as implemented in the Member State of the forum, which cannot be derogated from by agreement.

79. Definition in Art. 9 (1) Rome I Regulation
“Overriding mandatory provisions are provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation.”
See CJEU, C-369/96 and C-376/96, Arblade/ Leloup

80. Overriding Mandatory Rules
Rules that “want to be applied” to international cases regardless of the otherwise applicable law
Protect crucial economic or social interests of the Community
Antitrust law, protection of cultural heritage, embargos, trade restrictions (e.g. for weapons, drugs), provisions against bribery, protection of tenants, distributors

81. Overriding Mandatory Rules of the Forum
EU courts must apply overriding mandatory rules of the forum, see Art. 9(2) Rome I Regulation:
“2. Nothing in this Regulation shall restrict the application of the overriding mandatory provisions of the law of the forum.”

82. Overriding Mandatory Rules of Third States
Application of overriding mandatory rules of third States => positions split:
Courts in most states do not apply them
Courts in some states apply them under certain, limited circumstances (Art. 9(3) Rome I – mandatory rules of the country in which the place of performance is located “may be given effect”).

83. See Art. 9 (3) Rome I Regulation:
“3. Effect may be given to the overriding mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed, in so far as those overriding mandatory provisions render the performance of the contract unlawful.
In considering whether to give effect to those provisions, regard shall be had to their nature and purpose and to the consequences of their application or non-application.”
This is a permission, not an obligation. Ground for judicial discretion.

84. Please note Rome I Regulation distinguishes between
“Provisions of law which cannot be derogated from by agreement” (see Art. 3 (3) or 6 (2) 2 Rome I Regulation)
and
“Overriding mandatory provisions” (see Art. 9 Rome I Regulation)
Not always easy to determine which rules belong to which category and how courts will consider them.
Distinction between mandatory provisions and public policy limitation in Art. 21.

85. Public Policy Art. 21 Rome I Regulation
“The application of a provision of the law of any country specified by this Regulation may be refused only if such application is manifestly incompatible with the public policy (ordre public) of the forum.”

86. Ingmar GB Ltd v Eaton, C-381/98
In 1989, Ingmar and Eaton concluded a contract under which Ingmar was appointed as Eaton's commercial agent in the United Kingdom. A clause of the contract stipulated that the contract was governed by the law of the State of California.
The contract was terminated in Ingmar instituted proceedings before the High Court England and Wales, seeking payment of commission and compensation for damage suffered as a result of the termination of its relations with Eaton pursuant to the “Commercial Agents Regulations 1993” implementing directive 86/853/EEC.
The Court of Appeal of England and Wales (Civil Division) submitted the case to the CJEU asking whether the rules of the Directive were to be considered mandatory in the Contracting Parties.

87. Ingmar GB Ltd v Eaton, C-381/98
Question:
Are the provisions relating to the payment of compensation to agents on termination of their agreements with their principals of Council Directive 86/653/EEC, as implemented in the laws of the Member States, applicable where the law applicable to the agency contract is a Non-EU Member State law?

88. Compensation - Art. 17 Dir. 86/653/EEC
2. (a) The commercial agent shall be entitled to an indemnity if and to the extent that:
he has brought the principal new customers or has significantly increased the volume of business with existing customers and the principal continues to derive substantial benefits from the business with such customers, and
the payment of this indemnity is equitable having regard to all the circumstances and, in particular, the commission lost by the commercial agent on the business transacted with such customers. ...
(b) The amount of the indemnity may not exceed a figure equivalent to an indemnity for one year calculated from the commercial agent's average annual remuneration over the preceding five years and if the contract goes back less than five years the indemnity shall be calculated on the average for the period in question;...

89. 3. The commercial agent shall be entitled to compensation for the damage he suffers as a result of the termination of his relations with the principal. Such damage shall be deemed to occur particularly when the termination takes place in circumstances: - depriving the commercial agent of the commission which proper performance of the agency contract would have procured him whilst providing the principal with substantial benefits linked to the commercial agent's activities, - and/or which have not enabled the commercial agent to amortize the costs and expenses that he had incurred for the performance of the agency contract on the principal's advice.

90. Compensation - Art. 18 Dir. 86/653/EEC
The indemnity or compensation referred to in Article 17 shall not be payable:
(a) where the principal has terminated the agency contract because of default attributable to the commercial agent which would justify immediate termination of the agency contract under national law;
(b) where the commercial agent has terminated the agency contract, unless such termination is justified by circumstances attributable to the principal or on grounds of age, infirmity or illness of the commercial agent ...

91. Ingmar GB Ltd v Eaton, C-381/98
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.

92. continued
The Directive is aimed at protecting commercial agents after the termination of the contract.
This is extremely important in the EU internal market and this provision cannot be overridden just by the fact that a principal establishes itself in a foreign country.