The Court of Justice of the European Union (CJEU), Europe’s highest court, has recently handed down an interesting judgment on agency contracts. It ruled that express choice of law provisions will not be enforced in the EU against some commercial agents despite the general legal principle that parties should be free to choose governing law in their contracts. The decision has broad application and could have implications for technology companies doing business in the EU.
Background
The judgment concerns the Commercial Agents Directive (86/653/EEC). This is a piece of European legislation, intended to harmonise the rights of commercial agents across Europe. The Directive contains a number of measures to protect agents. For example, on termination of an agency contract, the agent is entitled to some financial compensation from the principal. Each EU member state has implemented the Directive into national law but there are differences in implementation. This means that the laws of some member states are more favourable towards commercial agents than others. This has resulted in forum shopping by principals. ‘Forum shopping’ is where a principal selects a member state where the law is more favourable to the principal than the agent and makes the law of that state the governing law of the agency contract.
The CJEU’s ruling may spell an end to that practice. The case concerned a Bulgarian principal and a Belgian agent. The contract was governed by Bulgarian law, which was significantly less favourable to agents than Belgian law. The contract was terminated and the agent challenged the governing law of the contract before the Belgian courts. He argued that Belgian law should apply to the contract and sought the compensation that, under Belgian law, he would be entitled to. The Belgian courts referred the case to the CJEU for a ruling on the relevant law.
Judgment
The CJEU considered the Rome Convention and the Rome I Regulation (these are pieces of European legislation dealing with both which courts have jurisdiction over a dispute and which laws should govern a commercial relationship). They provide that where a contract specifies which law should apply, this will not prevent any mandatory rules or overriding mandatory provisions in the parties’ home territories from also applying to the contract. As the Belgian laws implementing the Directive were expressed to be mandatory provisions, they could not be ousted by the express choice of Bulgarian law. In other words, the agent was entitled to the protections in the law of his home territory of Belgium, regardless of what the contract said.
The ruling is applicable across the EU. The result is that an agent based in a member state which provides that its agency laws are mandatory and cannot be ousted by a different contractual choice of law, will be able to claim the enhanced protections in the laws of their home territory. The judgment is somewhat surprising given the importance within Europe of the principle that parties should be free to contract on terms they choose. This is particularly so as the law governing the contract in this case was the law of the principal’s home territory, meaning there was a clear link between the contracting parties and the law chosen. This judgment may curb the practice of principals deliberately selecting a less protective governing law for their commercial agency contracts. There is also now an additional commercial risk for principals. To minimise this, when selecting an agent, a principal may want to consider which member state the agent is based in, how protective of the agent the laws of that member state are and whether it is possible to contract out of them.
Stéphanie Faber in our Paris office can be contacted for more information.
