The Tension between Party Autonomy and European Union Law: Some Observations on

Ingmar GB Ltd v Eaton Leonard Technologies Inc

Author(s): H. L. E. Verhagen
Source: The International and Comparative Law Quarterly , Jan., 2002, Vol. 51, No. 1
(Jan., 2002), pp. 135-154
Published by: Cambridge University Press on behalf of the British Institute of
International and Comparative Law

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 THE TENSION BETWEEN PARTY AUTONOMY AND EUROPEAN
UNION LAW: SOME OBSERVATIONS ON
INGMAR GB LTD V EATON LEONARD TECHNOLOGIES IN

I. PARTY AUTONOMY AND ITS LIMITATIONS

Party autonomy is the basic principle for international contracts. By mak

of law', the parties to a contract can agree amongst themselves which law
late their contractual relationship. In international transactions, the law of
choice replaces the law that would otherwise have governed the contract, in
mandatory rules (ius cogens) of the latter law. Article 3 of the 1980 Conve
Law Applicable to Contractual Obligations (hereafter: the 'Rome Conve
recognises this principle of party autonomy. Under Article 3 the partie
choose whichever law they deem appropriate to govern their contractual r
It is not even necessary for the transaction to display some connection wit
law.

There are, however, some restrictions on party autonomy in the Rome

There is the obvious rule that the application of the law elected by the pa
refused where such application would be manifestly incompatible with
(ordre public).2 It is only where essential values of the forum's legal
infringed that reverting to the 'safety-valve' of public policy will be justif
also in less extreme cases the principle of party autonomy may be subject t
In case of consumer contracts and employment contracts, a choice of la
have limited effect.3 Moreover, where the contract is essentially a domesti
choice of law by the parties will not be able to prejudice any mandatory
country with which the contract is objectively connected.4 Finally, the fu
ness of a choice of law by the parties may be frustrated by so-called 'dire
ble rules' (re'gles d'application immddiate).5
Many legal systems have certain mandatory rules the applicability of w
be set aside by a choice of law or by the operation of 'objective' conflict
rules purport to apply to those factual situations which they intend to cov
tive of the law otherwise governing these situations. In Article 7 o
Convention, the existence of these directly applicable rules is recognised.
allows the courts of the Contracting States to give effect to directly applic
the law of the forum, whilst Article 7(1) even refers to directly applicable ru
jurisdictions.6 An important precedent for Article 7(1) of the Rome Conven

' Judgment of the ECJ, Case C-381/98, ECR 2000 1-9305

2 Art 16 of the Rome Convention.
3 Arts 5 (consumer contracts) and 6 (employment contracts) of the Rome Con
further below s IV.B amd VI.
4 Art 3(3) of the Rome Convention. See further below s IV.C.
5 Art 7 of the Rome Convention: discussed immediately below.
6 In Art 7 of the Rome Convention, no special provision is made for directly applicable rules
belonging to the law governing the contract under Arts 3 and 4. Probably, the idea is that these
rules are simply applicable as part of the law governing the contract. Cf L Collins (gen ed), Dicey
and Morris on the Conflict of Laws (13th edn, London 2000), paras 1-049/51 and 32-136. A
different view is possible. It could be argued that since the scope of a directly applicable rule is

[ICLQ vol 51, January 2002 pp 135-154]

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136 International and Comparative Law Quarterly

celebrated Alnati case decided by the Dutch Hoge Raad.7 The Alnati decision has
widened the scope of the doctrine of directly applicable rules, in the sense that effect
may be given to the directly applicable rules of the law of any jurisdiction other than
the forum state with which the situation is closely connected. As yet, however, there
have been no decisions in the Netherlands in which the directly applicable rules of third
states were actually applied.8 In other Member States too, the courts appear reluctant
to give effect to directly applicable rules of other jurisdictions.9
However, this situation may well change in respect of those directly applicable rules
originating from EC directives. An increasing number of directives enacted by the
European Community contains mandatory rules concerning contracts. Where these
mandatory rules claim to be applicable irrespective of the law chosen by the parties,
there may well be an obligation for the courts of the Member States to apply national
regulations implementing these mandatory directive provisions.l0 Such obligation may
exist not only in respect of mandatory rules enacted by the forum state, but also in
respect of mandatory rules enacted by other Member States in implementation of a
directive. This furthermore raises the question as to what extent the parties can contract
out of these mandatory rules of EU origin when one of them is established outside the
EU and they have chosen a system of law outside the EU to apply. This issue was
brought before the Court of Justice of the European Community in the case Ingmar GB
Ltd v Eaton Leonard Technologies Inc. The preliminary question raised before the
Court of Justice asked whether certain provisions of the EC Directive on self-employed
commercial agents are to be applied where the relevant contract is governed by the law
of a third country.1I The Court of Justice answered this question in the affirmative.
The Ingmar case provides an insight into how the Court of Justice approaches the
relationship between the principle of party autonomy and the binding force of

determined by the enacting state, on the basis of its socio-economic, political or cultural policies,
it follows that the scope of these rules is therefore not determined by 'classical' multilateral conflict
rules. Normal conflict rules only refer to rules of private law and not to 'lois de police'. Cf AVM
Struycken, Les consdquences de l'intdgration europdenne sur le ddveloppement du droit interna-
tional privd, Recueil des Cours (232) 1992 I, NR 89. Under this reasoning, directly applicable rules
of the lex causae can only be applicable by virtue of Art 7. In Germany and the Netherlands opin-
ion is divided on this issue. Cf C Reithmann and D Martiny (ed), Internationales Vertragsrecht (5th
edn, Cologne 1996), paras 452-4; Verbintenissenrecht (Vonken), Art 7 EVO, aant. 6.
7 HR 13 May 1966 NJ 1967, 3, Revue critique de droit international prive 1967, 521. The
Alvati case is referred to in the Giuliano-Lagarde Report (comments to Art 7).
8 This is not because the courts (including the Hoge Raad) have not had the opportunity to do
so. In the Sewrajsing decision (HR 12 Jan 1979 NJ 1980, 526, Revue critique de droit interna-
tional priv6 1980, 68) the Hoge Raad refused to give effect to Surinam currency control regula-
tions as directly applicable rules, despite the fact that the party making the payments was
domiciled in Surinam. For this reason, one commentator has observed that, in the light of the
Sewrajsing case, 'the Alnati promise to consider foreign interests seems little more than a mirage'.
Th M de Boer, Beyond Lex Loci Delicti, Conflicts Methodology and Multistate Torts in American
Case Law (Deventer 1987), 84.
9 Cf for German and English private international law, Reithmann and Martiny, paras 450 et
seq; Dicey and Morris, paras 32-137 et seq. It should be noted that both Germany and the United
Kingdom have opted out of Art 7(1). However, this does not necessarily mean that German or UK
courts cannot give effect to foreign directly applicable rules, as a matter of domestic private inter-
national law or within the framework of the law governing the contract.
10 See below s III.B.
I Council Directive 86/653/EC of 18 Dec 1986 on the co-ordination of the laws of the
Member States relating to self-employed commercial agents (OJ 1986 L 382/17; 'the Directive').

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 Party Autonomy and European Union Law 137

mandatory rules enacted in a Member State to implement a directive. In this paper

this relationship will be examined and the Ingmar case will be subjected to critical
examination.

II. INGMAR GB LTD V EATON LEONARD TECHNOLOGIES INC

The Court of Appeal of England and Wales (Civil Division) had requested
nary ruling from the Court of Justice on the interpretation of Council
86/653/EC. That question was raised in proceedings between Ingmar
('Ingmar'), a company established in the United Kingdom, and Eaton
Technologies Inc. ('Eaton'), a company established in California, concerning t
cial settlement of a terminated agency agreement. Pursuant to this agreemen
had been appointed as Eaton's agent for the United Kingdom and Ireland. T
had elected the law of California to govern their contract. Ingmar instituted
ings before the High Court of Justice (Queen's Bench Division), claiming, pu
Regulation 17 (see below), compensation for loss suffered as a result of t
agreement having been terminated.
The Directive aims to harmonise the rules of the Member States pertainin
tionships between commercial agents and their principals. The Council believ
ences in the laws of Member States adversely affected competition
commercial agents and the conduct of their activities. The Council consid
differences detrimental both to the protection afforded to commercial agents in
to their principals and to the security of commercial transactions. These dif
therefore substantially inhibited the conclusion and performance of commer
contracts where the principal and agent were established in different Memb
According to the Council, the concept of the Common Market necessi
approximation of the legal systems of the Member States to the extent requir
proper functioning of the common market'. The Council stated that rules gov
conflict of laws, even if uniform, would not, by themselves, be able to achi
The Directive contains rules relating to the agent's duty to observe his princi
ests (Article 2), the principal's obligation to act dutifully and in good faith
remuneration (Articles 6-12) and the conclusion and termination of agency c
(Articles 13-20). Articles 17 and 18 of the Directive specify the circumsta
which the commercial agent is entitled, upon termination of the contract
indemnity or compensation for the damage he suffers resulting from the term
relations with his principal. Article 19 of the Directive provides that the parties
derogate from Articles 17 and 18 to the detriment of the commercial ag
expiry of the agency agreement.13 In the United Kingdom, the Directive
mented by the Commercial Agents (Council Directive) Regulations 1
Regulations').
By its judgment of 23 October 1997, the High Court held that the Regulations did
not apply because the contract was governed by the law of the State of California.
Ingmar appealed against this judgment to the Court of Appeal of England and Wales,

12 See the recitals to the Directive.

13 Other mandatory provisions of the Directive are: Arts 3 and 4 (see Art 5); Art 10(2) and (3)
(see Art 10(4)); Art 11(1) (see Art 11(3)); Art 12(1) and (2) (see Art 12(3)); Art 13(1); Arts 17
and 18 (see Art 19) and Art 20(2).

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 138 International and Comparative Law Quarterly
which decided to stay proceedings and refer the following question to the Court of
Justice for preliminary ruling: must Articles 17 and 18 of the Directive be applied where
the commercial agent carries on its activity in a Member State although the principal is
established in a non-Member State and the parties have elected the law of the principal's
jurisdiction to govern their contract? The Court of Justice considered that the purpose of
Articles 17 to 19 of the Directive is to protect, for all commercial agents, freedom of
establishment and the operation of undistorted competition within the internal market.14
For this reason, the Court of Justice held that it is essential for the Community legal
order that a principal established in a non-Member State, whose commercial agent
carries on his activity within the Community, cannot evade Articles 18 and 19 by simply
choosing a system of law outside the EU.15 The Court of Justice concluded:

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.16

The Court of Justice clearly considers the provisions of the Directive, which concern the
agent's statutory rights to compensation upon termination, as belonging to the category
of special mandatory rules which are immune to a choice of law clause (directly applic-
able rules). A wider meaning may even have to be attributed to the Ingmar decision. The
decision may very well entail that also in other respects the choice of law by the parties
is unable to deprive the commercial agent of the protection afforded to him by the law
of the Member State in which he carries out his activities. It is true that the decision itself
is only concerned with Articles 17 and 18 of the Directive. It is not unlikely, however,
that the other mandatory provisions of this directive, too, will be regarded by the Court
of Justice as being immune from a choice of law by the parties. This is because the Court
of Justice justifies the priority of Articles 17 and 18 with reference to the freedom of
establishment and undistorted competition within the internal market. It appears from
the recitals of the Directive that the other provisions of the Directive also aim to protect
these interests. On this basis therefore, the other mandatory provisions of the Directive
may also have to be regarded as directly applicable rules.
Before the merits of the Ingmar case will be discussed (sections 5 and 6), attention
will first be paid to the treatment of harmonised rules of contract under the Rome
Convention (section 3), as well as to the relationship between the principle of party
autonomy and directly applicable rules (section 4).

III. DIRECTIVES AND THE ROME CONVENTION

A. The international scope of Directives

Unlike the 1980 Vienna Convention on the International Sale of Goods, dire
not contain rules of uniform law which directly govern the contractual relat
between the parties." This secondary EU legislation is required to be implemen

14 Judgment, paras 23-4. 15 Judgment, para 25.

16 Ibid.
17 In exceptional cases this may be different, in particular when a Member State has failed to
implement a directive in time. Cf M Franzen, Privatrechtsangleichung durch die Europdiische
Gemeinschaft (Berlin, New York 1999), 248-55.

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 Party Autonomy and European Union Law 139
the national legislature of Member States, whereupon it becomes part of their domes-
tic law. Directives often leave a certain degree of freedom to Member States in imple-
menting the directive. They may define certain aims which Member States are obliged
to realise, whereby they are free to realise these aims in a manner that most accords
with their domestic laws. Directives may contain alternative provisions, merely
prescribe minimum standards or simply be interpreted in different ways by the legisla-
ture of the Member States. Owing to the fact that domestic rules covered by a directive
often differ, it therefore remains necessary to determine which domestic law applies.
In the Ingmar case, the view of the Commission and of the UK government appears
to have been that the question whether domestic legislation implementing a directive
applies to cross-border transactions lies outside the boundaries of ordinary rules of
private international law.18 This is in accordance with the theory that the international
scope of a directive is always to be determined by the directive itself, either by the
express conflict rules which it contains or, in their absence, by the directive's
purpose.19 It is clear that, where a directive contains an express conflict rule, such a
rule will have priority over the conflict rules of the Rome Convention. This corre-
sponds to Article 20 Rome Convention, which provides that the Convention shall not
prejudice rules of private international law stemming from Community legislation.20
However, the submission that every directive contains an express or an implied rule of
private international law rests on a fallacy. There are simply directives which merely
consist of rules of substantive law and which are unaccompanied by express or implied
conflict rules. In that event the international scope of the directive must be determined
in accordance with the forum's conflict rules. Rules by which a directive is imple-
mented are--despite their EU background-rules of national law. I see no plausible
reason why the application of these national rules implementing such directive should
not depend on the rules of the Rome Convention.21 The Convention has been ratified
by the Member States of the EU in their capacity as such and does not exclude
harmonised contract law from its scope. Determining a directive's applicability on the
basis of its 'purpose' is not really an attractive alternative to ascertaining the govern-
ing law according to the rules of the Rome Convention. Often, it is difficult enough to
determine with certainty the precise purpose of a rule of substantive law. Therefore, it
will, in all likelihood, be even more difficult to establish the international applicability
of a directive by referring to its purpose.
It cannot with certainty be deduced from the Ingmar case which approach is
favoured by the Court of Justice. It can only be established that the reasoning employed

18 See Judgment, paras 15-19.

19 In the Netherlands this view has been articulated by CA Joustra, 'Europese richtlijnen en
internationaal privaatrecht', WPNR (6370) 1999, 664-70.
20 Art 20 specifies that '[T]he Convention shall not affect the application of provisions which,
in relation to particular matters, lay down choice of law rules relating to contractual obligations
and which are or will be contained in acts of the institutions of the European Communities or in
national laws harmonised in implementation of such acts'.
21 In the same sense, M Fallon, Les conflits de lois et de jurisdictions dans un espace
economique intigre, L'expe'rience de la communautd europeenne, Recueil des Cours (253) 1995,
185: 'En d'autres termes, ces rbgles subissent une mutation formelle: de communautaires, elles
deviennent nationales par les besoins du processus de leur application.' Similar views have been
endorsed by Reithmann and Martiny, para. 34; von Hoffmann, in P Lagarde and B von Hoffmann
(eds), L'europdanisation du droit international privd (Serie de Publications de l'Ac6demie de
Droit Europ6en de Treves, Vol 8) (Cologne 1996, 127).

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 140 International and Comparative Law Quarterly

by the Court of Justice is in this respect reconcilable with the Rome Convention.22 The
Court of Justice's view is that, in principle, party autonomy prevails but that certain
mandatory rules must be applied, irrespective of the chosen law. This is precisely the
approach which has been adopted by the Rome Convention: Article 3 grants the parties
the right to choose the governing law, whilst Article 7 provides that effect may be given
to mandatory rules which must be applied irrespective of the chosen law. The scope of
Article 7 is confined to those mandatory rules that according to the enacting state must
be applied whatever the law specified by its conflict rules. In other words, the under-
lying intention of the provisions concerned must be examined in order to determine
whether they demand application, irrespective of the law governing the contract.
Arguably, it is precisely this issue which is addressed by the Court of Justice in the
Ingmar case, when it considers that 'the purpose served by the provisions in question
requires that they be applied where the situation is closely connected with the
Community'.23
In the absence of a clear ruling by the Court of Justice, it is submitted that where a
directive does not contain rules of private international law, the conflict rules of the
Rome Convention will (in contractual matters) determine whether the rules of a
Member State implementing a directive shall apply.24

B. The special nature of harmonised contract law under the Rome Convention

The fact that rules of harmonised contract law are within the scope of the Rome
Convention does not mean that special consideration should not be given to their
European context. When interpreting and applying national rules implementing a direc-
tive, it is clear that the courts of the Member States must take the directive's purposes
into account.25 Also, within the framework of the Rome Convention, there may be
reason to consider the origin of these rules. Under the Rome Convention, it will-
where necessary-be possible to prevent the parties from frustrating the purposes of a
directive by choosing to apply a system of law outside the EU.
First, where both parties are established in (different) Member States they should be
prevented from avoiding the applicability of mandatory rules enacted to implement a
directive by choosing the law of a third country. This would frustrate the principal aim
of directives which is to harmonise the rules governing cross-border transactions
between market participants established in the EU. For this reason, it is submitted also
that where parties to cross-border transactions are established in different Member
States, their agreement should be treated in a similar manner as essentially domestic
contracts. Article 3(3) of the Rome Convention should be given an extensive interpre-

22 It is true that, in its judgment, the Court of Justice does not refer to the Rome Convention.
The reason for this may have been, however, that the Convention was formally inapplicable
because the agency agreement concerned had been concluded before the Rome Convention had
entered into effect for the United Kingdom. See Art 17 Rome Convention. The Advocate General
referred to the Rome Convention not 'as a source of positive law', but 'purely for guidance, in so
far as it usefully supplements the interpretation of the Directive which might be derived from its
own content'. Opinion Advocate General, para 64.
23 Judgment, para 25.
24 In the same sense Fallon, Recueil des Cours (253) 1995, 185-6.
25 Cf Franzen, Privatrechtsangleichung durch die Europiiische Gemeinschaft, with further
references.

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 Party Autonomy and European Union Law 141
tation so that it covers 'internal' EU transactions.26 In such cases, the choice of a law
of a non-Member State should not, in principle, prejudice the application of mandatory
rules enacted in order to implement a directive.27 For instance, where a German prin-
cipal concludes an agency agreement with an English agent, the parties cannot-by
choosing Californian law--derogate from the English rules implementing the Directive
(the Regulations). Therefore, where both parties are established in the EU, the exten-
sive interpretation of Article 3(3) of the Rome Convention will lead to the result that
choosing the law of a non-Member State cannot prejudice a directive's mandatory
rules. In other words, where a contractual relationship is entirely connected with the
internal market, the application of national rules implementing a directive is safe-
guarded. 28
Secondly, where one of the parties to a contract is a consumer who has his habitual
residence in the EU, mandatory rules based on the 'consumer directives' may prevail
over the law chosen by the parties. So far, most directives dealing with contracts
contain mandatory provisions protecting consumers.29 Article 5 of the Rome
Convention has the consequence that, in a number of situations, the choice of the law
of a third country cannot deprive the consumer of the protection granted by harmonised
consumer laws.30 Article 6 of the Rome Convention has a similar effect for contracts
of employment.
Thirdly, outside the area of consumer protection and employment law, Article 7 of
the Rome Convention will enable the courts to give effect to rules implementing direc-
tives which are intimately connected with the protection of significant EU interests.31
However, one has to conclude that Article 7 is not entirely unproblematic in this
respect. As the text of Article 7(1) indicates ('effect may be given'), there appears to
be no obligation on the courts to give effect to directly applicable rules: the court
merely has the discretion to do so. It must be seriously doubted whether such a discre-
tionary power is appropriate in respect of directly applicable rules which have been
enacted in a Member State in order to implement a directive. It could be argued that

26 In the same sense, O Lando, 'The EEC Convention on the Law Applicable to Contractual
Obligations', CML Rev (1987), 181-2; HLE Verhagen, Agency in Private International Law, The
Hague Convention on the Law Applicable to Agency (The Hague/Boston/London 1995), 245-6; J
Kropholler, Internationales Privatrecht, 3rd edn (Tilbingen, 1997), 274; S Grundmann,
Europdiisches Schuldvertragsrecht, Zeitschrift ffir Unternehmens- und Gesellschaftsrecht (15
Sonderheft 1999), 73.
27 In such a situation the directly applicable rules of the Member State should be applied,
whose law would have been applicable in the absence of a choice. In most cases of commercial
agency this would mean that the provisions of the Member State in which the agent has his place
of business should be applied (Art 4(2) Rome Convention).
28 However, where both parties are established in a Member State but the agreement is 'func-
tionally' connected with a third country, eg. because it is part of a 'network' of contracts
connected with third countries, the mandatory rules derived from a directive can be contracted out
of.
29 Cf the directives listed in,the next footnote.
30 Several consumer directives contain provisions stipulating that the choice of the law of a
third country cannot prejudice the protection granted by the directive, if the consumer contract is
closely connected with one or more Member States. Cf Art 12(2) of directive 97/7/EC on the
protection of consumers in respect of distance contracts, OJ 1997 L 144/19 and Art 7 of directive
99/44/EC on the sale of consumer goods and associated guarantees, OJ 1999 L 171/12. It is
submitted that Art 5 of the Rome Convention should be applied, in order to determine whether a
close connection exists.
31 See below s V.

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142 International and Comparative Law Quarterly
under currently existing EU law the courts of the Member States are obliged to apply
the directly applicable rules of another Member State, to the extent that these rules orig-
inate from a directive. For example, in the Ingmar case, the Court of Justice held that
the purpose served by Articles 17-19 of the Directive required that they be applied
where the situation is closely connected with the EU. In other words, it may very well
be that, in relation to directly applicable rules originating from a directive, EU law
imposes upon the courts of the Member State a duty to exercise their discretionary
power in such a manner that these rules are applied whenever there is a close connec-
tion with the EU.32 A further problem connected with Article 7 is that Article 22(1)
Rome Convention allows the Contracting States to make a reservation with respect to
Article 7(1), thus possibly preventing the courts of the states concerned from giving
effect to the directly applicable rules of Member States other than the forum state.32a
However, if it is true that the courts of the Member States are bound as a matter of EU
law to give such effect in implementation of a directive, one must conclude that the
scope of Article 22(1) must be reduced, to the effect that the reservation does not
extend to these directly applicable rules.33
Finally, fundamental principles of EU law can be safeguarded under Article 16 of
the Rome Convention (ordre public). It is submitted that the 'ordre public' of the
Member States also incorporates fundamental principles or EU law.

C. Conclusion

The law of a Member State only governs a contractual relationship where the rules of the
Rome Convention designate such law as being applicable. In this respect, it does no
matter whether the relevant national rules are purely domestic or European in origin. Th
is only different where the directive concerned clearly contains a rule of private interna
tional law. For that situation Article 20 of the Rome Convention provides that th
Convention shall not prejudice rules of private international law stemming from E
legislation. The fact that directives (or rather national rules implementing them) are
within the scope of the Rome Convention does not mean that the purposes of these instru
ments will be frustrated. On the contrary, under the Rome Convention there are sufficien
tools available in order to prevent this (Articles 3(3), 5, 6, 7, and 16).

IV. PARTY-AUTONOMY AND DIRECTLY APPLICABLE RULES

A. Party autonomy: a fundamental principle of private internationa

Party autonomy has been declared by the Institut de droit international t

'fundamental principles of private international law'.34 The princi

32 It has been argued that such obligation follows from Art 10 of the EC Treaty
principle of mutual recognition. Cf P von Wilmowski, Europiiishes Kreditsic
(Tdibingen 1996), 66 ff.
32a The Member States which have made such a reservation of Art 22(1) are Ger
Luxembourg, and the United Kingdom.
33 Alternatively, it could be held that in situations like this a directive must be
effect, so that the directly applicable rules contained therein immediately govern
question. Also, one could take the view that on the basis of Art 7(2) the courts co
to the forum's equivalent directly applicable rules.
34 Resolutions de l'Institut de droit international (1957-91), 409.

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 Party Autonomy and European Union Law 143
entrenched in the laws of EU Member States (and indeed was before the Rome
Convention had been ratified), in many other jurisdictions as well as in many interna-
tional conventions.35 In EU law too, party autonomy is regarded as a fundamental right
and essential for the proper functioning of the internal market.36 In legal literature it is
even argued-with reference to the fundamental freedoms-that party autonomy
should be extended to areas where traditionally it has not been recognised, such as
property law37 and company law.38
There is usually a good reason for the parties to choose a particular law. Generally,
the parties are better equipped for finding the law most suitable to govern their contrac-
tual relationship than an 'abstract' conflict rule is capable of doing. A choice of law by
the parties can eliminate beforehand any uncertainty about the law governing the
contract. The parties may wish to have a 'neutral' law governing their contract, or a law
which is in conformity with market practice (e.g. English or New York law for financ-
ing transactions). Another reason for electing a particular law may be that because the
contract is commercially connected with other contracts (e.g. structured finance trans-
actions, securitisations, franchising) the parties involved consider it appropriate to have
all these contracts governed by the same law.39
In contractual matters where the parties themselves have selected the law govern-
ing their agreement, the law chosen by the parties must, as a matter of principle, be
respected. Only a very restrictive approach with respect to directly applicable rules
(Article 7 Rome Convention) will provide parties with certainty as to the law govern-
ing their contract and will respect the freedom of the parties to 'mould' their contrac-
tual relationship. This certainty and freedom would be seriously undermined if the
courts of the Member States were to allow too readily the mandatory rules of the forum
(or of other Member States) to take precedence over the law designated by the parties.
As will be elaborated below, under Article 7 of the Rome Convention there should be
some restraint in characterising a mandatory rule as a directly applicable rule capable
of overriding the chosen law.
All this is not to deny that there are usually good reasons for the mandatory nature
of domestic rules of contract law. On the contrary, in most cases such reasons will exist
and because of this the parties cannot-in domestic cases--derogate from them.
However, the systems of private international law of most (if not all) European juris-
dictions rest on the principle that legal systems are equivalent. They employ so-called
'multilateral' conflict rules, which operate with connecting factors (e.g. the situs of the
property, the business establishment or habitual residence of one of the parties) desig-
nating the governing law, irrespective of whether this is the law of the forum or a
foreign law. In a society that becomes increasingly international, one should respect-
within certain limits-that other legal systems may entertain different values to those

35 Cf P Nygh, Autonomy in International Contracts, Oxford Monographs in Private

International Law (Oxford, 1999), with further references.
36 Cf P von Wilmowsky, 'EG-Vertrag und kollisionsrechtliche Rechtswahlfreiheit' (RabelsZ
1998), 2-37.
37 Cf id, Europiiisches Kreditsicherungsrecht.
38 It has been argued that only the 'incorporation theory', which allows the founders to set up
a company in accordance with the law they consider most appropriate, is reconcilable with the
freedom of establishment. Cf. for an elaborate treatment of this issue, S Rammeloo, Corporations
in Private International Law, Oxford Monographs in Private International Law (Oxford 2001). A
judgment by the Court of Justice on this issue is soon to be expected.
39 Zie B Teyssie, Les groupes de contrats (Paris, 1975), nrs 447-73.

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144 International and Comparative Law Quarterly
of the forum state. Courts should be prepared to accept that-in international trans-
actions-the 'fairness' of the contract may be governed by the standards of another
legal system and that the chosen foreign law may provide less protection to one of
the parties to the contract than the law of the forum. 'No jurisdiction has a monop-
oly of excellence in contract law', including the European Union.40

B. The identification of directly applicable rules; the protection of

'weaker' parties

Much has been written on the identification of directly applicable rules in domestic
legal systems. A comprehensive examination of this issue falls outside the scope of
this paper; accordingly, I shall only outline some characteristics of directly applica-
ble rules. It is submitted that the scope of Article 7 of the Rome Convention should,
in principle, be confined to rules of a 'public law' nature, aiming to protect impor-
tant social, economic, cultural or other state interests.41 The involvement of state
interests justifies the priority that is attached to the rules protecting such interests,
provided there is a strong connection with the state which has enacted these rules. In
the context of the EU, one could think of unfair competition rules (Article 81 EC
Treaty, Merger Regulation), currency regulations, import- and export-restrictions
and regulatory provisions for the financial, securities and insurance markets.
Obviously, these rules are only directly applicable rules, pursuant to Article 7 of the
Rome Convention, to the extent that they influence the validity and enforceability of
contractual arrangements or create obligations (for example, duties of disclosure) for
the parties to certain contracts.
In order to attribute the status of a directly applicable rule to a statutory provi-
sion, it is not sufficient that such a provision is a mandatory rule which specifically
aims to protect certain parties. For instance, in the Aramco decision the Dutch Hoge
Raad had to decide whether a provision of Dutch law, requiring the consent of the
regional employment bureau for the termination of employment relationships,
should be applied to a contract of employment governed by foreign law. 42 The
statutory provision in question is generally considered to have two functions: (i)
protection of the individual employee from the termination of his contract and (ii)
protection of the Dutch labour market.43According to the Hoge Raad the first func-
tion does not, by itself, carry sufficient weight to justify the Dutch statutory provi-
sion applying to employment agreements governed by a foreign law; rather it is the
involvement of the Dutch labour market which does so.44 In a similar fashion, the
German Bundesarbeitsgericht has ruled that a directly applicable rule purports to

40 Cf F Morgenstern, International Conflicts of Labour Law (Geneve, 1984), 2: 'No country

has a monopoly of excellence in labour law.'
41 Cf Reithmann and Martiny, para 391; H Batiffol and P Lagarde, Droit international prive,
Tome 1, 8th edn (Paris 1993), no 254, 428; Dicey and Morris, para 1-056 ('crystallised rules of
public policy').
42 HR 23 Oct 1987, NJ 1988, 842 (Sorensen v Aramco Overseas Company).
43 Art 6 BBA (Buitengewoon besluit arbeidsverhoudingen: Extraordinary Decree on Labour
Relationships).
44 The Dutch labour market is sufficiently involved, according to the Hoge Raad, if it is likely
that, following dismissal, the employee will benefit from Dutch social security.

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 Party Autonomy and European Union Law 145
protect public interests and that it is not sufficient that the rule serves to balance the
diverging individual interests of the parties to the contract.45 Rules through which
directives have been implemented in the Member States should only be given effect
where the socio-economic relations within the EU or other 'public' EU interests (for
example, protection of culture) are involved to such an extent that there is good
reason for (wholly or partially) ignoring the choice of law made by the parties.
Mandatory rules protecting one of the parties to a contract will therefore only be
directly applicable rules if they also serve to protect a 'higher' interest, to which
sufficient weight must be attached justifying priority of such a provision in an inter-
national case. 46
Many rules concerning consumer contracts and employment contracts could
perhaps be regarded as also belonging to this category. It could be argued that disre-
garding the interests of structurally weaker parties such as consumers and employees
would threaten society as a whole and that, for this reason, many mandatory rules
concerning the protection of consumers and employees serve to protect 'higher'
interests. In Articles 5 and 6 of the Rome Convention, however, special 'protective'
conflict rules have been formulated for these categories of market participants,
making Article 7 (largely) obsolete for the protection of structurally weaker parties.
Article 7 could, however, still be relevant for parties who are in a similar position-
in particular, tenants of living accommodation and borrowers under consumer credit
transactions.47 These categories of parties are, generally, also in need of a minimum
level of social protection. However, as will be argued below, there is no reason for
treating commercial agents on the same footing as consumers, employees and
tenants.48

C. Conclusion

Directly applicable rules, which are immune from a choice of law, are exceptio
provisions. They serve to safeguard significant public interests to such degree t
they must be applied-irrespective of the chosen law. The mere fact that a rule serv
to protect the interest of the 'weaker' party to the contract does not attribute overr
ing effect to such a rule. Only a limited number of mandatory rules are therefore a
directly applicable rules. In international transactions, most mandatory rules of
law which would otherwise have governed the contract are set aside by the choice o
a different legal system.

45 Bundesarbeitsgericht 24 Aug 1989, IPRax 1991, 407, RIW 1990, 754.

46 In the same sense, Batiffol and Lagarde, no 254, 428.
47 The Rome Convention does not contain a protective conflict rule for rental agreements
living accommodation. Art 4(3) does refer to contracts whose subject matter is 'a right to
immovable property', but merely indicates that these contracts shall-in the absence of a choi
of law by the parties--be presumed to be most closely connected with the country where
immovable property is situated. Art 5 only covers consumer credit transactions which are spec
ically entered into for the purpose of financing the contracts for the supply of goods or serv
covered by Art 5 (e.g. car loans or hire-purchase transactions). Loan agreements without s
specific purpose are not within the scope of Art 5.
48 See below, s VI.

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146 International and Comparative Law Quarterly

V. THE INGMAR DECISION, THE FUNDAMENTAL FREEDOMS AND FAIR COMPETITION

A. The involvement of EU interests according to the Court of Justice and the

Advocate General

We have seen that, in the Court of Justice's opinion, the harmonisation measures of the
Directive purport to protect the freedom of establishment and fair competition within
the internal market. On this basis, the Court of Justice established that the function of
Articles 17 and 18 requires that they should be applied whenever the agent carries out
his activities within the territory of the EU. The reasons given by the Court of Justice
for its decision are not very elaborate. The Advocate General, on the other hand, did
make a real effort to substantiate the overriding effect of Articles 17 and 18 of the
Directive.

The Advocate General considered that the Community legislator intended to create
equal conditions under which agents active in the EU could pursue their commercial
activities. At the same time, the aim of harmonisation of commercial agency laws was
to ensure a minimum degree of protection to agents, which is also beneficial to fair
competition, the free movement of persons and the freedom to provide services. Thus,
all market participants will be subject to the same restrictions.49 If one were to allow
the parties to choose a legal system which would not impose a duty to compensate the
agent upon termination, this would adversely affect the protection of the agent. The
consequence of this would be to place the agent in a disadvantageous position in rela-
tion to other agents, whilst the principal would be in a better position vis-i-vis other
principals. According to the Advocate General, this would distort the balance in
competition between market participants carrying out their activities within the EU,
thereby contravening the purposes of the Directive.50
The Advocate General cited the Ahlstr/im case to support his conclusions.51 The
Ahlstrim case is an important decision concerning the territorial reach of Article 81
(formerly Article 85) of the EC Treaty. Article 81(1) prohibits agreements, decisions
and concerted practices between market participants which have the object or effect of
preventing, restricting, or distorting competition in the common market, to which arti-
cle 81(2) adds that these prohibited agreements and decisions shall be automatically
void.52 In the Ahlstrdm case, the Court of Justice held that there were agreements or
concerted practices between wood-pulp producers established in the United States
concerning prices charged to customers established in the EC. The Commission had
fined these producers because their practices infringed Article 81.53 The producers
argued, inter alia, that because they were established outside the Community their
actions could not be subject to EC law. The Court of Justice held that the place where
the offending agreement had been implemented was decisive and not the place where
it had been formed. The Court of Justice added that: '[I]f the applicability of prohibi-
tions laid down under competition law were made to depend on the place where the

49 Opinion, para 65. 50 Opinion, para 68.

51 Joined Cases 89/85, 104/85, 114/85, 116/85, 117/85 and 125/85-129/85, ECR 1988, 5193
(Ahlstrim and others v Commission).
52 Cf P Craig and G de B6irca, EU Law, Text, Cases and Materials, 2nd edn (Oxford, 1998),
891-939.
53 I refer to Art 81 of the present EC Treaty, although the cases themselves were decided when
this provision was still Art 85 of the pre-Amsterdam European Community Treaty.

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 Party Autonomy and European Union Law 147

agreement, decision or concerted practice was formed, the result would obviously be
to give undertakings an easy means of evading those prohibitions.' According to the
Advocate General, the reasoning followed by the Court of Justice in the Ahlstrim case
can be applied, mutatis mutandis, to the Ingmar case. The Advocate General consid-
ered:

In this case, it is not a question of a regime based on prohibition, but of a regime of contrac-
tual indemnification. In both cases, however, it is a question of determining the relevant
legal rules while ensuring that the purposes of the territorially applicable legal rules are not
compromised. Giving contracting parties the right to choose a law which is less protective
of the interests of the commercial agent would reflect an incorrect assessment of the
reasons underlying the Community legislation. The competitive advantage ensuing from
the choice of a different law would encourage any principal, provided that he was in a posi-
tion of economic superiority vis-ac-vis the other prospective contracting party, to insert in
the contract a clause designating the law of a non-EU State in order to benefit thereby.54

The Advocate General immediately added that the need not to frustrate the harmonisa-
tion process should not mean that any intention to derogate from the ordinary legal
rules applicable within the EC would be automatically condemned. The principle of
party autonomy which, under the Rome Convention is to prevail in contractual matters,
would-according to the Advocate General-be 'compromised' if the Community
process of harmonisation were systematically to prevail over the freedom afforded to
market participants in deciding the law applicable to their contractual relationship.55
However, the tribute thus paid to the principle of party autonomy proved to be
merely symbolic. A reading of the Directive shows, according to the Advocate
General, that two types of provision may be distinguished. The first category covers
rules coupled with a right of derogation. A second group which, according to the
Advocate General, needs to be identified, includes rules of a mandatory nature. Those
rules do not refer to any right of derogation: they clearly specify that the parties may
not contract out of them. According to the Advocate General, Article 19 of the
Directive belongs to that category of mandatory norms, as is clearly shown by its prohi-
bition on derogating from Articles 17 and 18. 56 The Advocate General remarks that
such a categorisation accords with that which is laid down in Article 7(2) of the Rome
Convention.57 According to the Advocate General these provisions of the Directive can
be compared with the category of rules which in private international law are charac-
terised as 'lois de police'.58 Thus, the Advocate General endorses the view that the
contracting parties cannot derogate from Articles 17 and 18, by choosing the law of a
non-Member State.

B. Critical review of the Ingmar case

According to the Advocate General's opinion in the Ingmar case, the main interest of
Ahlstrim and Others v Commission lies in the fact that the Community's jurisdiction

54 Opinion, para 69. 55 Opinion, para 72.

56 Opinion, paras 81-7. 57 Opinion, para 88.
5 Opinion, para 89. It seems that when discussing the binding force of Article 17 and 18 of the
Directive, the Advocate General fails to make the fundamental distinction between 'ordinary'
mandatory rules (Art 3(3) Rome Convention) and 'internationally' mandatory rules (Art 7 Rome
Convention). All the mandatory rules of the Directive appear to be regarded as internationally
mandatory rules in the sense of Art 7(2), which clearly contradicts the intention underlying this
provision.

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 148 International and Comparative Law Quarterly
appears to be legitimised in cases where economic operators have a link with EU terri-
tory, such that their conduct may affect the interests of the Community. As a matter of
principle, it is correct that parties established outside the EU can be subjected to rules
originating from EU legislation, to the extent that their agreements affect the internal
market. When one is really dealing with directly applicable rules aimed at one of the
parties to a contract, there will often be a sufficiently close connection with the juris-
diction which has enacted these rules if the party concerned is established or carries out
his activities in this jurisdiction.59 Although I disagree with the characterisation of
Articles 17 and 18 of the Directive as directly applicable rules, I have no objection
against giving effect to directly applicable rules protecting the agent (assuming they
exist), whenever the agent carries out his activities in one or more Member State(s).
The fact that the principal is established outside the EU should not make any difference
to this.60

It is also correct that, as a matter of principle, limitations may be imposed on the

parties' freedom to choose the law governing their agreement in order to protect EU
interests such as the fundamental freedoms and the exercise of fair competition.
However, it is submitted that not every involvement of these EU interests actually justi-
fies restricting the parties' freedom to choose the governing law. As will be elaborated
below, only where those fundamental interests protected by EU law are directly and
seriously harmed by the failure to apply rules of EU origin would it be acceptable for
the parties' choice of law to be contravened. My main criticism concerning the Ingmar
case is that priority is attributed to provisions of the Directive a little too readily by the
Advocate General and the Court of Justice. They too easily assume that Articles 17 and
18 of the Directive purport to protect EU interests, such as the freedom of establish-
ment and the exercise of fair competition, in such a manner that, even when one of the
parties is established outside the EU, the principle of party autonomy should give way.
The comparison whicfi the Advocate General draws with the facts of the Ahlstrim
case falls short. The distortion of fair competition by contracts which come within the
scope of Article 81 EC Treaty is, in several respects, of an entirely different nature
from that of a commercial agency agreement governed by the law of a non-Member
State.

In the Ahlstram case, the Court of Justice had to deal with a specific violation of a
provision of the EC Treaty containing an express prohibition of agreements adversely
affecting competition within the internal market. If here one would hold as decisive the
place where the agreement had been formed, the parties would indeed (as the Court of
Justice observed) easily be able to evade Article 81 EC Treaty by concluding the agree-

59 Cf Art 7(1) of the Rome Convention, which states that there should be a 'close connection'
with the enacting state. Art 7(2), on the other hand, simply states, with respect to directly applic-
able rules of the lexfori, that nothing shall restrict the application of these rules, without mention-
ing the requirement that there should be a close connection with the forum state. Art 7 Rome
Convention has been criticised for treating the directly applicable rules of third countries and
those of the forum unequally. It is submitted, however, that the rationale of Art 7(2) entails that
the courts should only apply directly applicable rules of the lexfori if there is a close connection.
I cannot see why, despite the wording of Art 7, there should be a material difference in this respect
between Arts 7(1) and 7(2).
60 Cf. Hof Amsterdam 14 Jan 1999, JOR 1999/35, NIPR 1999, 152. The Court of Appeal of
Amsterdam had to determine the territorial scope of a provision of the Dutch Securities Markets
Supervision Act (Wet toezicht effectenverkeer) (hereafter: 'SMSA'), a statute in which several
EC-directives have been implemented. Art 7 (formerly 6) of this statute requires a licence for

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 Party Autonomy and European Union Law 149

ment outside the territory of the EU. However, the suggestion in the Ingmar case that
a choice of law by the parties should equally be considered 'an easy means of evading'
provisions of EU law is inappropriate. In the Ingmar case no prohibition contained in
the EC Treaty (or elsewhere) was violated. On the contrary, a right attributed to the
parties by Article 3 of the Rome Convention was lawfully exercised by choosing the
law of the jurisdiction where one of the parties had its business establishment. This
right to choose the governing law is granted to the parties by a treaty (the Rome
Convention) which is in force in all the Member States of the EU.
Also, the Advocate General's remark that any principal in a position of economic
superiority vis-a-vis the agent would be encouraged to insert in the contract a clause
designating the law of a non-EU State in order to benefit thereby, fails to do justice to
what usually happens in practice. In most cases one will observe that the parties elect
the law of a state with which the contract is connected, either because it is the state
where one of the parties is established or because the contract has to be performed in
that state.61 Thus, the law chosen by the parties in the Ingmar case was not simply the
law of any non-EU state: it was the law of the country where the principal had his busi-
ness establishment.62 It is evident that it will be particularly in situations where the
principal is economically superior that he will insist on his own law governing the
contract. The reason for this will often be simply that this is the law with which the
principal is most familiar. An important reason for choosing this law could also be that
the principal has set up a network of agents and that it is intended that-by electing the
same law for each agreement-a uniform legal regime is created for all agents. It
cannot be denied that one of the reasons for choosing the principal's law may also be
to avoid mandatory rules protecting the agent. However, this is not necessarily a bad
thing. In international business transactions the principle of freedom of contract (party
autonomy) entails that one party may be able to use his bargaining power to come to
an agreement which in certain respects is more beneficial to him than to the other party.
Where the principal has really abused his bargaining power-by imposing a totally
unconnected law on the agent with the sole intention of thereby depriving him of all

securities brokers, in the absence of which the agreements entered into between these brokers and
their clients are void. The Court of Appeal applied Art 7 SMSA on the basis of Art 7(2) of the
Rome Convention. The court established that the German broker was subject to the licence-
requirements of the Dutch SMSA, although the broker was established in Germany. The reason
for this was that the broker, by entering into a brokerage contract with a counterparty established
in the Netherlands, had offered its services as securities broker in the Netherlands. Also where the
broker would offer securities services in one or more Member States from outside the Community,
the application of similar rules originating from an EC directive would in my opinion be fully
justified. Rules like this aim to protect investors established in the EC against dishonest or incom-
petent suppliers of services offering these services in the EC. This place of establishment in the
EC of the persons protected by these rules constitutes a sufficient connection with a Member
State, in order to justify the application of these rules pursuant to Art 7 of the Rome Convention.
The fact that the suppliers are established outside the EC does not detract from this.
61 In fact, the Dutch cases which I have examined all concern situations where either the prin-
cipal's law or that of the agent's jurisdiction was chosen. See the cases discussed in Verhagen,
Agency in Private International Law, 232-8. The same is true for the Ingmar case and a recent
decision by the Cour de cassation (28 Nov 2000, No 98-1 1.335).
62 To this it may be added that not any principal would be able to evade the mandatory rules
by choosing a system of law outside the EU to apply. If the principal also has his business estab-
lishment in the EU a choice of law will not be able to set aside mandatory rules implementing a
directive. See above, s III.B.

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150 International and Comparative Law Quarterly
protection-there will usually be sufficient tools available in order to remedy this.
However, it must really be doubted whether situations like this often occur. The prob-
lem perceived by the Advocate General of party autonomy as an instrument of abuse
is in practice a mirage.
Moreover, if one also looks at the nature of the impact on fair competition, the
disputed agreement in the Ingmar case cannot be aligned with that in the Ahlstr5m case.
The differences in legal status which could be the consequence of respecting the choice
of law by the parties (Ingmar case), seem to have a far more indirect effect on fair
competition than specific agreements which have been concluded in direct violation of
Article 81 EC, such as price-fixing arrangements (Ahlstr5m case). It cannot be denied
that the effect of some provisions of the Directive may go beyond the relationship
between the parties to a commercial agency relationship. In particular, provisions deal-
ing with non-competition clauses and, to a lesser extent, with termination and rescis-
sion, may have a certain impact on socio-economic relations in the EU. However, it
must be seriously doubted whether this impact is serious enough to justify these provi-
sions superseding the law governing agency agreements by virtue of a choice of law by
the parties. It has been observed by commentators that, in other areas, the Court of
Justice appears to aim at developing categories of situations where obstacles to the
internal market are so uncertain and indirect that EU law does not have to intervene.63
A similar approach would have been more appropriate with regard to the mandatory
provisions of the Directive. Of course, from the sole perspective of the internal market,
no ideal situation is created when commercial agents acting for principals established
outside the EU are not necessarily protected by the Directive. In theory, this could
potentially affect the competitive positions of agents and principals who are established
in the EU and provide a potential barrier for commercial agents to carry out their activ-
ities in the EU. However, this 'distortion' of free competition and this 'barrier' for the
freedom of establishment are not significant enough to disregard the fundamental
importance of party autonomy, the regard to be had to the laws of non-Member States
and the system of the Rome Convention.64 The concept of the internal market-
although extremely important from the perspective of EU law-should not always be
decisive all by itself. There are also other interests which must be taken into account.
The better view is that recently adopted by the French Cour de cassation, which in
respect of the French rules implementing Articles 17-19 of the Directive has decided
that these rules are not directly applicable rules in the sense of Article 7 of the Rome
Convention.65 The court held that the French statute implementing the Directive was a

63 See in particular Grundmann, Europdiisches Vertragsrecht, 52-4. See also ECJ 13 Oct 1993,
case C-93/92, ECR 1993,1-5009 (CMC Motorradcenter v Baskiciogullari) and ECJ 7 Mar 1990,
case C-69/88, ECR 1990, I1-583 (Krantz GmbH & C. v Ontvanger der Directe Belastingen en Staat
der Nederlanden). In both cases the Court of Justice held that the potential obstacles formed by
national rules were too uncertain and indirect to be in violation of the EC Treaty. Also relevant is
ECJ 24 Jan 1991, case C-339/89, ECR 1991, 1-107 (Alsthom Atlantique/Sulzer), where the Court
of Justice held that national rules of the Member States which can be set aside by means of a choice
of law by the parties, cannot be unlawful obstacles for the free movement of goods and services.
64 On the system of the Rome Convention, see below s VI.
65 Cour de cassation 28 Nov 2000, No 98-11.335, in which the Cour de cassation upheld a
decision by the court of appeal, in which the court of appeal refused to apply the French provi-
sions implementing Arts 17-19 of the Directive, because the parties had chosen for the law of
New York to govern their agreement. The principal was a US corporation, while the agent was a
company carrying out its activities in France. It should be noted that this decision was rendered
nine days after the ECJ in the Ingmar case had ruled to the opposite effect.

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 Party Autonomy and European Union Law 151

'loi protectrice d'ordre public interne', but not a 'loi de police applicable dans l'ordre
international'. Unfortunately, it must now be concluded that this decision does not
correctly reflect current EU law.

C. Conclusion

National rules implementing directives should only be applied as directly applicab

rules where they protect significant EU interests in such a way that failing to apply
them would jeopardise these interests. It must be seriously doubted whether the mand
tory provisions of the Directive are to be characterised as directly applicable rules. Th
impact which these mandatory rules have on EU interests such as the freedom of esta
lishment and fair competition is too indirect and too weak to justify their contravenin
the law chosen by the parties. However, in the Ingmar case the Court of Justice h
adopted a different view, by characterising Articles 17-19 of the Directive as directl
applicable rules.

VI. THE SYSTEM OF THE ROME CONVENTION

Beside the criticism raised above, there is another reason why it must
whether the Court of Justice's decision and the reasoning employed by th
General in the Ingmar case are correct: they are difficult to reconcile with
of the Rome Convention.

The two most important sources of EU private international law are still the Rome
Convention and the Brussels Convention. Commentators have observed that, in recent
times, these two conventions have been 'eroded' by rules of private international law
contained in directives, particularly in the areas of consumer law and insurance.66 As a
consequence, current EU private international law has been said to lack coherence and
accessibility. That the EU legislator apparently attaches little importance to a consis-
tent body of EU conflict rules is already a cause of some concern. However, when the
Court of Justice also starts contributing to uncertainty in this area, security in interna-
tional transactions could really be threatened. Article 18 of the Rome Convention states
that its provisions should be interpreted and applied in the light of their international
character and the desirability of achieving uniformity in their interpretation and appli-
cation. It is submitted that, in a similar manner, the Court of Justice should, when inter-
preting and applying other sources of EU contract law, respect the system of the Rome
Convention. This would enhance the security of commercial transactions: under the
rules of the Rome Convention the principle of party autonomy prevails and only in a
limited number of well-defined and predictable cases (Articles 5 and 6) will it be other-
wise.

Article 5 of the Rome Convention provides that, in certain circumstances, a choice

of law made by the parties cannot deprive the consumer of the protection afforded to
him by mandatory rules of the law of the country where he has his habitual residence.
In a similar fashion, Article 6 states that a choice of law made in an employment
contract cannot deprive the employee of the protection afforded to him by mandatory

66 Cf. E Jayme and C Kohler, 'Das Internationale Privat- und Verfahrensrecht der EG-
Spannungen zwischen Staatsvertrigen und Richtlinien' (IPRax 1993), 357-71, in particular
358-60.

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 152 International and Comparative Law Quarterly
rules of the law which would have governed the contract in the absence of a choice
(usually the law of the country where the employee carries out his work). Thus, the
Rome Convention has formulated 'protective' conflict rules for two types of
contract, both concerning 'structurally' weaker parties. For commercial agency
agreements, however, no protective conflict rule has been formulated. This was a
deliberate choice: the drafters of the Convention had in mind a reasonably well-
defined category of persons whose interests deserved special protection.67
Commercial agents were, apparently, not considered to fall within that category. We
have seen, however, that in the Ingmar decision, a rule of private international law
may arguably be implied which entails the parties' choice of law being unable to
deprive the commercial agent of the protection afforded to him by the law of the
Member State in which he carries out his activities. Such a 'protective' conflict rule
for commercial agents was not intended by the drafters of the Rome Convention and
is difficult to reconcile with the purposes of the Convention.68
This does not mean that there is no room to further develop the rules of the Rome
Convention, for instance by giving analogous application to some provisions (e.g.
Article 3(3)) or by reducing the scope of other provisions (e.g. Article 22(1)).69
However, this should be done in a manner which is consistent with the underlying
purposes of the Convention. Thus, I would consider it appropriate that, on the anal-
ogy of Articles 5 and 6, priority would be given, systematically, to rules protecting
tenants of living accomodation as well as to rules governing consumer credit trans-
actions generally. Article 7 of the Rome Convention could be used as the 'vehicle'
for this. Consumer transactions, contracts of employment and rental agreements of
living accommodation concern contractual relationships where typically there is
inequality between the parties.70 For this reason, it would be reconcilable with the
system of the Rome Convention to hold that a choice of law cannot deprive the tenant
of the protection afforded him by mandatory rules of the law of the country where

67 Cf. S Rammeloo, Das neue EG-Vertragskollisionsrecht (Cologne 1992), 340.

68 For three Member States (France, the Netherlands and Portugal) the conflict rules for
commercial agency contracts are those of Chapter II of the 1978 Hague Convention on the Law
Applicable to Agency. Under this convention, a commercial agency contract is governed by the
law chosen by principal and agent (Art 5), whilst, in the absence of choice, the law of the coun-
try where the agent has his business establishment applies (Art 6). Originally, the drafters of the
convention had proposed that the law governing the internal agency relationship (as a conse-
quence of choice of law or objective connecting factors) should not be able to set aside 'the
mandatory rules, specially designed to protect the agent of the country where the agent has his
principal place of business'. At a later stage this approach was found to be too restrictive in vari-
ous respects and was accordingly dropped. As a consequence, the present Art 16 was drafted,
along the lines of Art 7 of the draft EEC Convention on the Law Applicable to Contractual
Obligations. Cf the discussions
recorded at Hague conference on private international law, Actes
et documents de la Treizieme session, Tome IV, Contrat d'intermidiares, Agency (The Hague),
130-2, 251-9, 312 and 347-50.Several controversial subjects in the debate, concerning directly
applicable rules of agency law,
are expressly stated by the Convention to be within the ambit of
the law governing the internal relationship. Thus, Art 8(2e) makes clear that the clientele
allowance is undoubtedly within the scope of the law specified by Chapter II. For an extensive
review of the Hague Convention on the Law Applicable to Agency, see Verhagen, Agency in
Private International Law.
69 See above s III.B.
70 This need not, of course, always be so in individual cases: the consumer may be a wealthy
individual buying cigars in a small, privately owned, tobacco store and renting a room as pied-d-
terre from a widow with a modest income from her deceased husband's estate.

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 Party Autonomy and European Union Law 153
the property is situated. Similar reasoning applies to consumer credit transactions
which are not expressly covered by Article 5. The commercial agent, by way of
contrast, is a professional party who is by no means necessarily the 'structurally'
weaker party to a contract. The principal may even be a small privately owned
company, which relies on a much larger multinational corporation in order to sell its
products in the international markets. Here, there is no need to protect commercial
agents in a similar fashion as consumers or employees.
It cannot be denied that there are agents who are in a similar position to employ-
ees: they are natural persons whose income hardly exceeds that of the average
employee and who may be just as dependent on their principals as an employee on
his employer. For this reason, it must be considered whether, analogous to Article 6
of the Rome Convention, a 'protective' conflict rule should be adopted for this cate-
gory of agents. Such a conflict rule, specifically designed for a well-defined category
of agents in need of social protection,71 would in any case be more reconcilable with
the system of the Rome Convention than the undifferentiated approach adopted by
the Court of Justice in the Ingmar case.

VII. OUTLOOK

The opinion of the Advocate General in the Ingmar case contains the
the problem discussed in this paper: the principle of autonomy wou
mised if the Community process of harmonisation were systematic
over the freedom afforded to market participants in deciding the la
their contractual relationship.72 In the Ingmar decision, however, the C
has attributed a preferential status to rules originating from directives
tified. The Court of Justice's decision is the expression of an in
approach, which focuses exclusively on the needs of the internal mar
expected that the EU legislator will increasingly occupy itself wi
matters. The legislation of the Member States will contain more and m
rules of contract law implementing directives. These directives will h
with a view to the needs of the internal market, such as fair compe
movement of persons, goods and capital, the freedom to provide se
freedom of establishment. As in the Ingmar case, this could constitu
the Court of Justice to characterise all these future mandatory rules as
able rules in the sense of Article 7 of the Rome Convention. This would have the

effect that the principle of party autonomy-one of the fundamental principles

private international law-would be eroded. In many cases, the parties' choice for
system of law outside the EU would not be able to set aside a great many rules of EU

71 It should be possible to define criteria for the category of agents to be covered by a protec
tive conflict rule. For instance, Art 6 of the Dutch Extraordinary Decree on Labour Relationship
(see above s IV.B), requiring the consent of the regional employment office, was written fo
contracts of employment. However, some commercial agents, who are in a similar position
employees, may invoke this provision as well. According to Dutch case law this is the case if th
following conditions are satisfied: (i) the agent has to carry out his activities personally, (ii) the
activities are usually carried out for not more than two principals and (iii) not more than tw
persons (other than members of his family) assist the agent in carrying out his activities. Simila
criteria could be adopted for a protective conflict rule for commercial agents, or for applying A
6 by way of analogy. 72 Opinion, para 72.

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154 International and Comparative Law Quarterly
origin, even where one of the parties is established outside the EU. The result would
be a fundamental change in approach concerning the laws of other jurisdictions. This
would nullify the principle that legal systems are equivalent: EU legislation on contracts
would prevail, systematically, over the laws of third countries.

H LE VERHAGEN*

* Professor of Private International Law, Comparative Law, and Civil Law, University of
Nijmegen, member of the Amsterdam Bar and substitute judge in the Court of Appeal of 's-
Hertogenbosch.

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