EU: Law applicable to agency agreements – the UNAMAR v. Navigation Maritime Bulgare case (Judgment of the European Court of Justice of 17 October 2013).

Fabio Bortolotti | EU | 2014-01-16

Fabio Bortolotti

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The case concerned an agency contract between a Bulgarian shipping company (NMB) and a Belgian agent (UNAMAR), containing a choice-of-law clause in favour of the laws of Bulgaria and an arbitration clause in favour of a Bulgarian arbitration institution. When the contract was terminated, UNAMAR brought a claim before the Belgian courts requesting goodwill indemnity and compensation on the basis of the Belgian law on commercial agency contracts.

The issue brought before the Court of Justice was whether the Belgian court was entitled to disregard the choice of Bulgarian law and to apply Belgian law, which warrants a more favourable protection to the commercial agent, and which provides that ‘any activity of a commercial agent whose principal place of business is in Belgium shall be governed by Belgian law and shall be subject to the jurisdiction of Belgian courts’.

The question whether a court can apply mandatory rules of the forum instead of the law chosen by the parties is dealt with in article 7(2) of the Rome convention of 1980 on the law applicable to contractual obligations where it is said that ‘… nothing in this Convention shall restrict the application of the rules of the law of the forum in a situation where they are mandatory irrespective of the law otherwise applicable to the contract’. This means that a national court is entitled to apply ‘internationally mandatory rules’ (‘overriding mandatory provisions’ according to the terminology of article 9 of Regulation Rome I, which has replaced the Rome Convention) of the forum instead of the law which would otherwise apply.

However, in the present case there is an additional problem regarding the coordination of the above principle with European law, since the law which the Belgian courts would disregard by virtue of article 7(2) of the Rome convention (i.e. Bulgarian law) is based on the same European directive (directive 86/653) as the Belgian law on commercial agency.

In this situation the application of overriding mandatory rules of the forum (instead of the law chosen by the parties) could conflict with the harmonizing purpose of the directive and with the principle that the parties should be free to choose between laws that correctly implement the same directive. On the other side, since the directive does not create uniform rules, the member states are free to dictate more protective rules than required by the directive and to pretend their observance by their courts.

The European court has adopted a compromise solution by stating that the national court may apply the more protective rules of its own law (instead of the law chosen by the parties) only if it appears that the legislature of the forum held it to be crucial to grant the agent a protection going beyond that provided by the directive.

It would seem that, in order to prevail over the law of another country applying the same directive, the rules of the forum must not only provide a higher level of protection, but that this choice of the national legislator must also appear to be of crucial importance for the legal order of that country. In other words, the Court of Justice seems to require that, in order to have the effect of prevailing over the otherwise applicable law, it is not sufficient that the national law qualifies a given rule as a rule that must is to be applied whatever the law applicable to the contract (according to the definition of article 7(2) of the Rome convention), but that there must be a further condition, i.e. that such rule must be 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 …’ (according to the definition contained in article 9(1) or Regulation Rome I – n. 593/2008, which replaced the Rome Convention).

It remains to be seen how the principles affirmed by the European Court will be applied in practice. The only consideration that can be made at this stage is that the fact of qualifying certain provisions which implement a directive as ‘overriding mandatory provisions’ (which must be respected even where the contract is governed by a different law) does not automatically imply that they will prevail over the law of a country which has implemented correctly the same directive. In order to produce this effect a further analysis of the purpose and importance of the mandatory rules of the forum will be necessary.

Fabio Bortolotti, agency, distribution and franchising country expert for Italy

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