Wwwjusletterchcliffhangers In International Distribution Agreements October 2018 [608453]

Martin Rothermel
Cliffhangers in International Distribution
Agreements
Applicable Law – Mandatory Provisions – Competent
Courts: avoiding suspenseful moments in LitigatingInternational Distribution Agreements when using your
standard set of Terms and Conditions.
Internationale Geschäfte erfordern internationale Verträge, die perfekt auf
Ähnlichkeiten, Unterschiede und Besonderheiten der nationalen Rechtsord-
nungen abgestimmt sind. Dies kann je nach Land und Region (z.B. innerhalb
oder außerhalb der EU), in denen Ihr Unternehmen tätig ist, mehr oder weni-
ger schwierig sein. Internationale Konventionen, das geltende nationale Recht
und das zuständige Gericht geben die Richtung vor; dennoch haben national
und/oder international zwingende Bestimmungen starken Einfluss. Sie müs-
sen die Basics richtig machen, um spannende Momente in Rechtsstreitigkeiten
vor nationalen Gerichten oder in internationalen Schiedsverfahren zu vermei-
den.
Beitragsart: Beiträge
Rechtsgebiete: Handelsrecht; Europarecht; Europäisches Wirtschaftsrecht
Zitiervorschlag: Martin Rothermel, Cli ffhangers in International Distribution Agreements, in:
Jusletter 15. Oktober 2018
ISSN 1424-7410, https://jusletter.weblaw.ch, Weblaw AG, [anonimizat], T +41 31 380 57 77

Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
Table of contents
I. Preface – General Questions
II. General Answers within the EU
III. General Answers outside the EU
IV. The Swiss Law Perspective
V. Details within the EU
1. Choice of Law within the EU
a. Applicability, Exceptions and Scope of the Rome I Regulation
b. Choice of Law under Rome I Regulation
c. Formalities for Choice of Law under the Rome I Regulation
2. Choice of court within the EU
a. Applicability, Exceptions and Scope of the Brussels Ia Regulation
b. Choice of Court Agreements the Brussels Ia Regulation
i. Scope
ii. Formalities
iii. E ffectiveness according to the law of the court – the «new conflict
rule»
iv. Terms and conditions
v. Place of Performance as Place of Jurisdiction
vi. Consequence of a Choice of Court Agreement
vii. Strengthening of choice of court agreements after the reform of the
European Convention
VI. Arbitration
1. General about Arbitration
2. Advantages, Disadvantages, Reflections on Arbitration
VII. Nationally unavoidable (internally mandatory) und internationally mandatory provisions
and ordre public within the EU
1. Nationally unavoidable – internally mandatory provisions
2. Overriding mandatory provisions – intervention norms
3. Ordre public
VIII. Details for Distribution in the EU
1. Agency Law
a. Similarities and Di fferences
b. Internally Mandatory Law
c. Internationally Mandatory Law
d. Implications on Choice of Court Agreements
2. Distribution Law
a. Similarities and Di fferences
b. Internally Mandatory Law
c. Internationally Mandatory Law
d. Implications on Choice of Court Agreements
3. Franchise Law
a. Similarities and Di fferences
b. Internally Mandatory Law
c. Internationally Mandatory Law
d. Implications on Choice of Court Agreements
IX. Details for Distribution outside the EU
1. Choice of law outside the EU
2. Choice of court outside the EU
a. Hague Convention on the Choice of Court Agreements
b. Other Details for Countries outside the EU
3. Nationally unavoidable and internationally mandatory provisions outside the EU
a. Agency
b. Distribution
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
c. Franchise
X. Summary and Recommendation
[Rz 1] We often see – as a pragmatic approach1– national standard agreements and general terms
and conditions being used for international agreements. Entrepreneurs, companies and their legal
departments may strive for a unification and standardization with their most familiar choice of
law at their proven place of venue2, e.g. with the national law of their home countries at their
district courts at the registered place of business. But: does this really work? What are the pitfalls?
What has to be considered?3
[Rz 2] This article will first describe the typical questions (see below I.) and then provide general
answers within the EU (see below II.) and outside the EU (see below II.). The Swiss law perspective
is mentioned as well (see below III.). Then the author outlines details within the EU (see belowV.), touches Arbitration (VI.), explains the concept of internally mandatory and internationally
mandatory provisions (see below VII.) and highlights details on agency, distribution and franchise
in the EU (see below VIII.) and abroad (see below IX.).
I. Preface – General Questions
[Rz 3] Cross-border business – as in international purchase, sales, supply and distribution agree-
ments – is perceived as being less secure and predictable than national business. This especially
is true with countries outside of at least partly legally harmonised areas such as the European
Union (EU), the European Economic Area (EEA) or where international conventions (such as theLugano Convention) for Switzerland do not exist
4or do not apply.
[Rz 4] Companies, businesspersons and their advisors, whether they are in-house lawyers or ex-
ternal counsels, have to answer a number of general or even detailed critical questions, such as:
• Which law is applicable?
• Which provisions do we have to fear in the law of the contracting party?• Are there any unfamiliar or disadvantageous provisions that are nationally (un)avoidable /
internally mandatory or internationally mandatory?
1Seen from a German practitioner’s perspective and maybe also from a Swiss perspective.
2Which might determine the choice of law clause without even considering di fferences, advantages and disadvanta-
ges of other national law or other places of venue.
3Taken from Martin Rothermel , Internationales Kauf-, Liefer- und Vertriebsrecht, 2016 – 415 pages, Handbook o ffe-
ring Basics and Details on Applicable Law (Rom I & II Regulation, [Inter-]National Conflict of Law Rules), Compe-
tent Courts (Brussels I & Ia Regulation, Lugano Convention [Inter-]National Competence Rules), Mandatory Provi-
sions in Distribution (for 50 regions and countries) and Antitrust Law (EU plus 13 countries), retention of title in54 countries, Major Similarities and Di fferences between German Law, Swiss Law, CISG and Common Law, et al.
4According to the website Eidgenössisches Departement für auswärtige Angelegenheiten EDA, Internationale Ver-
träge, https://www.eda.admin.ch/eda/de/home/aussenpolitik/voelkerrecht/internationale-vertraege.html , Switz-
erland has a number of bilateral international treaties in the field of alimonies and custody but very few except of
the Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commerci-
al matter dated October 30, 2007 (Lugano-Übereinkommen, LugÜ; SR 0.275.12 ). Most treaties with EU countries
were replaced by the Lugano Convention. Beyond that, there is a treaty with Liechtenstein from 1968 and there
are treaties respectively corresponding letters with procedural content with Pakistan, Turkey and other countries;
see: Bundesamt für Justiz, Die internationale Rechtshilfe in Zivilsachen, Wegleitung, 3. Auflage 2003 (Stand Januar
2013), https://www.rhf.admin.ch/dam/data/rhf/zivilrecht/wegleitungen/wegleitung-zivilsachen-d.pdf . The same
or similar applies for Germany for example as beyond EU Regulations there are only very few international treaties
such as with Israel, Norway and Tunisia.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
• Which court is competent in case a dispute arises?
• How does the trial take place – especially if it is a procedure abroad?
• Can/shall we avoid certain jurisdictions?
• Can a judgement be enforced anywhere?
• Does it bring any advantages or disadvantages to have an international arbitral tribunal to
decide instead of an ordinary court?
• What should I do?
• What can go wrong?
• What is the most pragmatic approach?
[Rz 5] One pragmatic approach can be: «You take your standard contracts and choose your national
law and a competent court at your place of business». This article shall elaborate as to what extent
this pragmatic approach answers the questions above and to what extent this is feasible within
the EU and/or even outside of the EU.
II. General Answers within the EU
[Rz 6] Within the EU, the pragmatic approach works for cross-border business but it does not
work for domestic cases :
•Choice of law is largely possible in the EU when it comes to cross-border business, accord-
ing to the Rome I Regulation (Regulation (EC) No 593/2008 of the European Parliament and
of the Council of 17 June 2008 on the law applicable to contractual obligations). If there is a
domestic case , you can choose another law as well, but then nationally unavoidable rules,
respectively internally mandatory5rules (they cannot be derogated from) apply (Art. 3 (3)
Rome I Regulation) – so-called ius cogens (see below V.1.b. and VII.).
• According to the national laws of EU countries a ffecting purchases, sales and deliveries ,
there are relatively few internationally mandatory provisions which could undermine
a choice of law (see Art. 9 Rome I Regulation) on such purchase, sales and delivery agree-
ments within the EU (see below VII.). And there are no prominent national EU provisions in
this field that violate ordre public considerations of other EU member states (Art. 21 Rome
I Regulation).
•F o r distribution (agency, distribution and franchise) agreements , however, there are in-
ternally mandatory rules in EU countries (see below VIII.) and considerable international-
ly mandatory provisions in EU countries (see below VIII.).
• When choosing a national law of an EU country, the choice of a court of such country may
seem practical; such a choice of court agreement is possible according to the formal requi-
rements of the Brussels Ia Regulation (see V.2. below). Due to the same regulations, within
the EU, a decision of a national court of an EU country is easily enforceable .
5SeeUlrich Magnus/Peter Mankowski/ Mankowski, Rome I Regulation (2017) Art. 3 margin 378 (the author of the
respective paragraph is in italics).
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
•Arbitration agreements are also possible and arbitral awards are enforceable in every EU
country (see below VI.).
• If the choice of national law and the agreement of a national court is chosen in general
terms and conditions or standard contracts , these terms and conditions must be e ffectively
included and valid in accordance with the law chosen or applicable to the agreement and the
terms and conditions (see below V.1.). For the choice of a court agreement or an arbitration
clause, nevertheless, some formalities must be fulfilled (see below V.2.b.).
III. General Answers outside the EU
[Rz 7] Outside the EU, the choice of a national law and a national court which is not the law
and/or court of the contractual partner may pose a problem (see below IX.). Due to the lack of
general harmonisation (as in the EU), this might di ffer from one country to another; e.g. there
are countries which have concluded international treaties with other countries and more or less
reciprocally accept choice of law and choice of court agreements even if the law and/or court
chosen is not the one of the contractual partner:
• In many cases, no choice of law is possible at all or is subject to certain additional require-
ments.
• Where choice of law is possible, it is nevertheless sometimes di fficult to determine whether
the legal consequences of a provision of the chosen law (even EU country’s national law)
violate the public policy ( ordre public )of another law.
• In many cases, there are also internationally mandatory provisions in countries outside
the EU and this sometimes appears to be similar to or is even mixed with ordre public .
• Sometimes no choice of court agreement is possible or special form requirements in the
country of the contractual partner must be met, so it might be the case that you cannot
prevent a certain court from accepting the file and/or you cannot achieve the competency
of your court of choice.
• In addition, the choice of a national court in any other country than that of the counterparty
would often be impractical because national court judgments may not be enforceable in
the counterparty’s country outside the EU; therefore, arbitration clauses should be given
consideration (see VI. below). At times, however, even arbitration clauses are difficult or
arbitral awards in the country of the contracting party are not enforceable.
IV. The Swiss Law Perspective
[Rz 8] Fom a Swiss law perspective the questions are similar: Is it possible to use the pragma-
tic approach, which means – under the Swiss Federal Law on International Private Law (Swiss
IPRG) – to agree to a certain law and to the competence of a certain court in Switzerland? Do
national unavoidable (internally mandatory) provisions or even internationally mandatory pro-
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
visions exist which have to be applied by a Swiss court (or not)? Would a Swiss court decision
be enforceable in the country of the contractual partner and/or are any Swiss rules incompatible
with ordre public of another country? And/or is it possible to agree to Swiss law (or any other law)
if the trial takes place in another country besides Switzerland and would the court apply inter-
nationally mandatory provisions in this case, respectively, can such a trial be generally avoided
and/or or is the outcome of such a trial enforceable in Switzerland?
[Rz 9] Swiss Provisions on applicable law, choice of law, mandatory provisions, competent court,
choice of court and enforcement are to be found in Swiss IPRG. For international sales of goods,
the Hague Convention on the Law Applicable to International Sales of Goods from 1955 applies
(Art. 118 IPRG). These provisions may be structured di fferently (for example, it might appear
peculiar to have all these topics in one legal act) than those in the comparable EU Regulations
(Rome I, Brussels Ia), but the content is similar. In relation to the EU, Norway, Iceland the Lu-
gano Convention on jurisdiction and the recognition and enforcement of judgments in civil and
commercial matters of 30 October 2007 apply.
[Rz 10] This article shall focus on other than Swiss sources of law, which might be of relevance if
the contractual partner is not located in Switzerland, especially when another court than a Swiss
court is seized and the other law than Swiss law is lex fori .
V. Details within the EU
[Rz 11] In the EU, the harmonisation of law pertaining to choice of law and applicable law as well
as choice of court and competent court and enforcement gives reliable and predictable answers
to a number of questions that are dealt with here.
1. Choice of Law within the EU
[Rz 12] Choice of law is largely possible in the EU6when it comes to cross-border business, due
the EU-wide (except for Denmark and some of the shore regions of EU Member States) synchroni-
zed conflict of laws rules in the Regulation (EC) No 593/2008 of the European Parliament and of
the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I Regulation)7.
Such choice of law requires a substantive law referral contract (no petrification or stabilization
clauses) for the whole agreement or parts of it (even floating choice of law clauses are possible
– but might be impractical). It is possible to choose neutral law (not soft law) but there are in-
ternally mandatory provisions (in domestic a ffairs) and international mandatory provisions. The
choice of law must be express or su fficiently certain in general terms and conditions (where the
battle of forms is won) and should be in the language of the negotiations.
6SeeRothermel , Footnote 3, Section C.III.
7On 7 December 2007, the Council of Ministers of Justice endorsed the text of the Rome I Regulation adopted by
the European Parliament on 29 November 2007. The Rome I Regulation was published in the O fficial Journal of the
European Union on 4 July 2008 (Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17
June 2008 on the law applicable to contractual obligations (Rome I)) and applies to all contracts concluded from 17
December 2009.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
a. Applicability , Exceptions and Scope of the Rome I Regulation
[Rz 13] The Rome I Regulation applies to contractual obligations in civil and commercial mat-
ters that are linked to the law of di fferent states (Art.1 (1) Rome I Regulation) when the contract
is closed after 16 December 2009 (Art. 29 Rome I Regulation). It is binding on all Member States
of the EU except on Denmark (Art.1 (4), recital 46 Rome I Regulation) and is directly applicable
to those states, Art.288 (2) TFEU (Treaty of the functioning of the European Union). However, for
certain Rome I Regulation provisions, Denmark must be regarded as a Member State within the
meaning of the Regulation – Art.3 (4), (7) Rome I Regulation (Art.2 (4) Rome I Regulation). The
matters do not have to be linked to the Member States . Beyond that, the law specified by the
Rome I Regulation does not have to be a law of a Member State (Art. 2 Rome I Regulation); the
Rome I Regulation is therefore a so-called loi uniforme .
[Rz 14] Exceptions to the scope of application are laid down in Art. 1 (2) Rome I Regulation
and include, in particular, questions involving the status or legal capacity of natural persons
(lit. a), family relationships (lit. b) matrimonial property regimes (lit. c), obligations arising from
bills of exchange, checks, bank drafts and other tradable notes (lit. d), arbitration and choice of
court agreements (lit. e), questions concerning company law (lit. f), substitution questions (g) and
obligations arising from negotiations before concluding a contract (i).
[Rz 15] According to Art. (1) para. 2 lit. e) Rome I Regulation, the Regulation does not apply to
arbitration and choice of court agreements8(see below VI.).
[Rz 16] Arbitration tribunals can apply the Rome I Regulation, but they do not have to (see below
VI.)9.
[Rz 17] The Rome I Regulation does also not apply to the conflict of laws rules . In international
contract law, the renvoi , i.e. the question of whether there can also be a referral, have di fferent
rules compared to the general conflict of laws (for other subjects). Art. 20 Rome I Regulation sti-
pulates that the referrals of Rome I Regulation are always references to material law. However, thecontracting parties may also choose the conflict of laws rules of a particular country. Therefore,
the choice of law of the parties is in principle understood as a choice of substantive law. A referral
back or further is therefore irrelevant unless the parties explicitly include the right of conflict in
the choice of law.
[Rz 18] In principle, the prerequisites of the conflict of laws rules in the Rome I Regulation are
to be determined according to the terms of the court appealed, the so-called lex fori principle.
However, as a legal act of the European Union, the Rome I Regulation must nevertheless be in-
terpreted in an autonomous manner . Therefore, the results should be harmonized, but there is
no guarantee for that.
[Rz 19] The scope of the Rome I Regulation comprises (in accordance with its Art. 12) the inter-
pretation of the contract ;t h e fulfilment of its obligations; the consequences of full or partial
8The reason for this is that these agreements have not only substantive, but also procedural e ffects and are cove-
red by other EU and international regulations such as Art. 25 of the Regulation (EU) No 1215/2012 of the Euro-
pean Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of
judgments in civil and commercial matters (Brussels Ia) or Art. 23 of the Lugano Convention or the UN Convention
on Choice of Court Agreements and the 1958 New York Convention on Arbitration and others.
9This is a repeating, frequently discussed and unsolved issue: do arbitration tribunals have to apply international
provisions as Rome I Regulation or Brussels Ia Regulation or other bodies of law understood as lex fori in cases
where national courts would decide.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
failure to comply with these obligations, including damage assessment ; the ways in which the
obligations are extinguished as well as the limitation period and the legal losses at the expiry
of limitation periods and the consequences of the nullity of the contract.
[Rz 20] Pursuant to Art. 18 (1) Rome I Regulation, the law applicable is also relevant for ques-
tions of presumptions of law and the burden of proof . However, the lex fori and the statute of
form according to Art. 11 Rome I Regulation determine which types of evidence are admissible,
Art. 18 (2) Rome I Regulation.
b. Choice of Law under Rome I Regulation
[Rz 21] The Rome I Regulation basically provides for freedom of choice (Art. 3 Rome I Regula-
tion); the principle of party autonomy applies. The choice of law is made by a so-called conflict
of law referral contract (kollisionsrechtliche Verweisung) . This must be distinguished from the
substantive law referral contract (materiellrechtliche Verweisung10); the former refers to a legal
system as such, the latter merely refers to rules that are applicable in addition to the existing
legal system.
[Rz 22] In principle, it is also possible that the contract is subject to a choice of law only in parts
which leads to split choice of law within one contract (Art. 3 (1) of the Rome I Regulation) – a
so-called Dépeçage11.
[Rz 23] But in the case of so-called national domestic a ffairs, when all elements relevant to the
situation at the time are located in one country, the choice of law of another country is only valid
as a substantive law referral contract, because of Art. 3 (3) and (4) of the Rome I Regulation,
which provides, that «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» – so-called ius cogens12or
internally mandatory provisions (for internationally mandatory provisions see below VII., Art. 9
Rome I Regulation). There are also EU-wide-domestic a ffairs, where compulsory EU law applies
(Art. 3 (4) Rome I Regulation).
[Rz 24] It is also possible to subject the contract to a so-called neutral law13, which means to
choose a law that has nothing to do with the agreement or its parties. Limits are, however, again
set for domestic a ffairs (Art. 3 (4) Rome I Regulation) and in the principle of the application of
overriding mandatory provisions (Art. 9 Rome I Regulation – see VII. below).
[Rz 25] Sometimes you also see so-called floating choice of law clauses14, according to which the
applicable law is determined by who files a lawsuit first or who is about to become the defendant.
This is possible, even if it leads to uncertainties in detail, e.g. what law is applicable if there is no
lawsuit what type of counterclaims and other constellations exist.
[Rz 26] Another question is whether soft law (not national state law), such as the UNIDROIT
Principles, the Lando Principles or the lex mercatoria, can be chosen. For the most part, in such
cases, only a so-called substantive law reference is assumed, which means that the aforementio-
10Magnus/Mankowski/ Mankowski , Footnote 5, Article 3 margin 79.
11Magnus/Mankowski/ Mankowski , Footnote 5, Article 3 margin 313 et al.
12Magnus/Mankowski/ Mankowski ,Footnote 5, Article 3 margin 381.
13Magnus/Mankowski/ Mankowski, Footnote 5, Article 3 margin 201.
14Magnus/Mankowski/ Mankowski , Footnote 5, Article 3 margin 344–360.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
ned soft law regulations can only be applied if the rules of the state law which are to be applied
(the law of the country where the party required to e ffect the characteristic performance of the
agreement has his domicile – the characteristic connection or objective determination ) are not
unavoidable or mandatory but dispositive.
[Rz 27] Petrification and stabilization clauses15are doubtful. Such clauses attempt to freeze the
state of the chosen law at a specific time. Such clauses are usually rejected by courts or understood
as substantive law references.
[Rz 28] Sometimes the parties want to deselect all state legal systems. However, such self-regula-
tory contracts orcontrats sans lois16go beyond the framework of private autonomy and are no
longer covered by Art. 3 Rome I Regulation. A negative choice of law clause17is, however, per-
missible in which the parties expressly opt out of a specific national law. This is often used in apractical manner in the context of the CISG (Convention on the International Sale of Goods
18), as
this is part of the national law of the Convention’s Member States, unless expressly voted out.
[Rz 29] Thus, in the following cases, there are exceptions to the principle of free choice of law:
• Purely domestic national issues: Art. 3 (3) Rome I Regulation;
• Purely domestic EU issues: Art. 3 (4) Rome I Regulation;• Passenger transport contracts: Art. 5 para. 2 Rome I Regulation;
• Consumer protection: Art. 6 (2) Rome I Regulation;
• Insurance agreements: Art. 7 (3) Rome I Regulation;• Employee agreements: Art. 8 Rome I Regulation;
• Mandatory provisions: Art. 9 Rome I Regulation;
•Ordre public : Art. 21 Rome I Regulation.
c. Formalities for Choice of Law under the Rome I Regulation
[Rz 30] The choice of law must be included expressly or prove to be su fficiently certain from the
terms of the contract or from the circumstances of the case (Art. 3 (1) of the Rome I Regulation).The conclusion and the e ffectiveness of the agreement are governed by the law that has been
selected or should have been selected (Art. 3 (5), 10 and 11 Rome I Regulation). The existence
and validity of a contract or general terms shall be determined by the law which would govern it
under the Rome I Regulation if the contract or terms were valid. Nevertheless, a party, in order to
establish that it did not consent, may rely upon the law of the country in which it has its registered
place of business if it appears from the circumstances that it would not be reasonable to determine
the effect of its conduct in accordance with the other law (Art. 10 (2) Rome I Regulation). This is
especially of relevance in case of tacit
19acceptances of general terms and conditions which are
very critical in national and international transactions20.
[Rz 31] In the interest of the validity of the contract ( favor negotii ), Art. 11 (1) Rome I Regulation
regulates the cases in which the contract is concluded in the same state (then formal provisions
15Magnus/Mankowski/ Mankowski, Footnote 5, Article 3 margin 79–80.
16Magnus/Mankowski/ Mankowski, Footnote 5, Article 3 margin 305–307.
17Magnus/Mankowski/ Mankowski , Footnote 5, Article 3 margin 308.
18United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) – see www.uncitral.org .
19Magnus/Mankowski/ Mankowski , Footnote 5, Article 3 margin 104–192.
20SeeRothermel/Dahmen , Schweigen ist Silber, in: Recht der internationalen Wirtschaft, 2018, S. 179 ff.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
at this location or the Rome I Regulation shall apply – lex loci actus ), Art. 11 (2) Rome I Regula-
tion concerns formalities in distance business, Art. 11 (3) addresses unilateral legal transactions,
Art. 11 (4) applies special rules for consumer contracts and Art. 11 (5) has special provisions for
land agreements. For consumer contracts , Art. 11 (4) of the Rome I Regulation must be observed
and consumer contracts that fall under Art. 6 Rome I Regulation are subject to the law of the state
in which the consumer has his habitual residence; for a di fferent choice of law, the principle of
favourability in Art. 6 (2) Rome I Regulation must be applied, which means that consumers can
always rely on their national law whenever it provides better protection.
[Rz 32] A tacit choice of law may be derived from certain factual circumstances (indicia)21. These
include, for example:
• agreement on a single place of jurisdiction (recital 12 Rome I Regulation) or arbitration as
well as a common place of performance;
• consistent process behaviour with regard to the applicable law;
• reference to provisions of a specific law with reference to usages;
• the use of terms and conditions or forms based on a legal system.
[Rz 33] An express choice of law is assumed, if the parties have established by individual agree-
ment or in terms and conditions a specific law that is to be applied to their contract. Thus, if the
choice of foreign law is made, the formal requirements of this law must be met.
[Rz 34] The choice of law in terms and conditions22requires that they are e ffectively included
and are also e ffective in terms of content (e.g. in German law: the «famous» §§ 305 ff. BGB include
strict control of content of general terms and conditions). In particular, with choice of law clauses
in general terms and conditions, it frequently happens that buyers and sellers each refer to their
own terms and conditions, each containing their own national law as a choice of law – then the
choice of law contradicts. This is called a « battle of forms ». How should the parties proceed then?
Generally, the principles of the law which has been elected or should have been chosen should
be used for the conclusion of a choice of law agreement. But what happens if such an election is
not clear because contradictory statements are being made? Many laws have turned away from
the «theory of the last word» or « last shot doctrine » and treated conflicting conditions in a way
that both of the contradicting provisions in the terms and conditions law are irrelevant, accordingto the so-called « knock-out rule ». Then, if no law has been chosen, none can «step in» instead
of the ine ffective clauses in terms and conditions. The law that would apply in that case would
be the law of the country where the party required to e ffect the characteristic performance of
the agreement has its registered place of business (the objective determination), Art. 4 Rome I
Regulation (see the catalogue in Art. 4 (1) Rome I Regulation). However, this may be judged
differently in di fferent countries because, for example, the «last shot doctrine» prevails in some
countries (as in the UK, for example) whereas most countries adhere to the «knock-out rule».
[Rz 35] In international business transactions, the so-called language risk is also a regular topic.
In principle, it is decided by the law applicable to the agreement according to the objective de-
termination or choice of law in which language the contract must be concluded or whether such
contract has been concluded. In most cases, however, it should be su fficient for the general terms
and conditions to be available in the language of negotiation – sometimes it is based on a world
21Magnus/Mankowski/ Mankowski , Footnote 5, Article 3 margin 104 et al.
22Magnus/Mankowski/ Mankowski , Footnote 5, Article 3 margin 468–477.
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language or a world trading language, of course, without saying which languages fall into this
category.
2. Choice of court within the EU
[Rz 36] Choice of court is largely possible (with exclusive e ffect) due to the Brussels I (now Ia
or Ibis) Regulation in civil and commercial matters in the EU23when it comes to cross-border
business and the defendant or the court designated by a choice of court agreement is located in
a Member State. Due to formal requirements, a choice of court agreement should be in written
form (even in general terms and conditions), and still, in such cases due to the «new conflicts
rule», the prorogated court’s law governs the material validity of the choice of court agreement.
Besides choice of court agreements, a designated place of performance can be determining for the
competent court as well.
a. Applicability , Exceptions and Scope of the Brussels Ia Regulation
[Rz 37] The former EU Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction
and the recognition and enforcement of judgments in civil and commercial matters – (Brussels I),
wasvalid for all Member States (except for Denmark) with e ffect from 1 March 2002 replacing
the Brussels Convention from 1968. The long-discussed revision of the regulation was adop-
ted on 12 December 2012 and has been in force since 10 January 2015 – Regulation (EU) No
1215/2012 of the European Parliament and of the Council of 12 December 2012 (Brussels Ia)24.
Denmark has only «acceded» to the old version on 19 October 2005 with e ffect from 1 July 2007
and was free to apply the amendments in the recast. Denmark has already stated that it intends
to apply the changes.
[Rz 38] Generally, Brussels Ia Regulation applies in the relationship between the Member Sta-
tes(Art. 68 Brussels Ia Regulation – for Denmark see above) including the overseas departments
of France (excluding Saint-Pierre-et-Miquelon and Mayotte) Madeira, the Azores, the Canary Is-
lands, the Balearic Islands, Gibraltars and the Åland Islands; it does not apply to the British
Channel Islands, the Isle of Man and the sovereign territories of the United Kingdom of Great
Britain and Northern Ireland on Cyprus.
[Rz 39] The Scope covers civil and commercial matters , Art. 1 Brussels Ia Regulation. The term
is not defined in the regulation itself. The European Court of Justice has already opted for a so-
called European concept of civil and commercial matters (concerning the distinction between
civil and commercial matters on the one hand and public disputes on the other hand – Euro-
control25). The Brussels Ia Regulation does not apply to questions of civil status, legal capacity,
legal representation of natural persons, matrimonial property regimes, the area of inheritance
law, insolvency proceedings, social security and arbitration (Art. 1 (2) Brussels Ia Regulation).
[Rz 40] The Regulation applies to all persons (including legal persons) who have their domicile
or their registered o ffice in a member state of the Regulation (with special features in Art. 7 No.
23SeeRothermel , Footnote 3, Section C.I and Section C.IV.
24SeeMagnus/Mankowski , Brussels Ibis Regulation (2016).
25Judgment of ECJ C-29/76 – Eurocontrol, 14 October 1976, NJW 1977, 489 f.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
2, Art. 9 (1) (b), Art. 18 (1) – for definition, see Art. 62, 63 Brussels Ia Regulation). The defendant
must be domiciled in a Member State (Art. 6 and Recital 14 Brussels Ia Regulation) and there
must be a cross-border situation , what is now stated in recital 13 of the Regulation. However,
the external link does not have to be one to another Member State, it is su fficient to have a foreign
connection with a third country, as long as the basic condition of the place of residence is fulfilled
in a Member State26.
[Rz 41] So, contrary to the intention of the EU Commission, even after its update, the Regulati-
on has not become a universally applicable regulatory framework – i.e. not a loi uniforme :But:
Jurisdiction agreements were also included in the scope of the regulation, which were conclu-
ded by parties that are not domiciled in the EU, but in which a court of a Member State was
chosen as competent court (Art.25 (1) of the Brussel Ia Regulation).
[Rz 42] Despite the original Commission proposal, the scope of the Brussels Ia Regulation was
not extended to arbitration agreements (same as the Rome I Regulation – see above V.1.a.) follo-
wing the reform. As is apparent from Recital 12 of the recast, the Regulation is not intended to
prevent the courts of a Member State from referring the parties to arbitration under national law
or reviewing an arbitration agreement.
[Rz 43] Arbitration tribunals might consider (even if the topic might be very special in such a
case) consulting the Brussels Ia Regulation, but they are not obligated to do so (see below in Sec.
VI. on Arbitration)27.
b. Choice of Court Agreements the Brussels Ia Regulation
i. Scope
[Rz 44] The Brussels Ia Regulation provides for the possibility of a jurisdiction clause or choice
of court agreement in Art. 25; but such clauses or agreements are subject to special requirements
within the scope of the Brussels Ia Regulation. Also, jurisdiction clauses in insurance matters,
consumer and labour law matters as well as in international exclusive jurisdictions must comply
with special regulations (Art.25 (5) Brussels Ia Regulation).
ii. Formalities
[Rz 45] Of particular importance for choice of court agreements under the Brussels Ia Regulation
are the formalities28:
•Written form (Art. 25 (1) (a) alt. 1 Brussels Ia Regulation) states that both parties must sign
a jurisdiction clause; separate documents are su fficient if the agreement with regard to the
chosen place of jurisdiction is su fficiently clear. However, it is questionable whether a mere
acknowledgment of a pre-formulated clause is su fficient.
26SeeMagnus/Mankowski/ Magnus , Brussels Ibis Regulation (2016), Introduction margin 89 – see margins 42 et all
for general application and details in every Member State.
27This is a repeating, frequently discussed and unsolved issue: do arbitration tribunals have to apply international
provisions as Rome I Regulation or Brussels Ia Regulation or other bodies of law understood as lex fori in cases
where national courts would decide.
28SeeMagnus/Mankowski/ Magnus , Footnote 24, Art. 25 margin 27–64.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
•Electronic transmissions (Art. 25 (2) Brussels Ia Regulation) in a form permitting a per-
manent record of the agreement are equivalent to the written form; this applies to e-mail
and Internet business transactions, if printable, but not if the terms and conditions are only
confirmed by clicking on a box.
•Written confirmation of an oral agreement (so-called half-written form, Art. 25 (1) (a) alt.
2 Brussels Ia Regulation) in the case of prior contract conclusion and subsequent written
confirmation in full (in part also by the party which introduced the choice of court agree-
ment): here it is questionable how objection to confirmation must be considered.
•I na form that corresponds to the practices that have arisen between the parties
(Art. 25 (1) (b) Brussels Ia Regulation) customs or habits can replace the written form, but
not the agreement.
•I na form that corresponds to a commercial custom or habit in international trade
(Art. 25 (1) (c) Brussels Ia Regulation) that the parties knew or should have known and
generally know and that is regularly observed by the parties to this type of contract and to
the business concerned. The existence of appropriate commercial practices is to be judged
autonomously under EU law (widely accepted for commercial confirmation letters)29.
[Rz 46] The purpose of the required formalities is that they should above all ensure that juris-
dictional agreements do not go unnoticed in the content of a contract. However, the jurisdiction
agreement can be valid independently from the main contract – the ine ffectiveness of the main
contract does not automatically indicate the ine ffectiveness of the jurisdiction agreement.
iii. Effectiveness according to the law of the court – the «new conflict rule»
[Rz 47] For the first time, the new version of the Brussels Ia Regulation introduced a provision
on the substantive validity of the choice of court agreement. It is sometimes called « the new con-
flicts rule ».30Pursuant to Art.25 (1) sentence 1 last half sentence of the Brussels Ia Regulation,
the prorogated court’s law governs the material validity of the choice of court agreement. It is
modelled in accordance with Art.5 (1) of the Hague Convention on Choice of Court Agreements.
Recital 20 Brussels Ia Regulation says that this is not a so-called substantive reference, but an
overall referral; thus, the conflict of laws of the respective Member State must be taken into ac-
count. However, this should not lead to a standardization because the Rome I Regulation (for the
law applicable to contractual obligations) on jurisdiction agreements is explicitly silent (Art.1 (2)
(e) Rome I Regulation)31.
[Rz 48] The question is: what does that mean? This still cannot be clearly answered at the mo-
ment. On the one hand, there is the hope that the relevant court will come to the decision that its
conflict of law rule is applicable to the other contract (possibly agreed or objectively attached).
29SeeRothermel/Dahmen , Footnote 20, page 179 ff.
30SeeMagnus/Mankowski/ Magnus , Footnote 24, Art. 25 margin 77 et al.
31Some advocate the analogous application of the Rome I Regulation, see Magnus/Mankowski , Brussels Ibis Regula-
tion (2016), Art. 25 margin 81a.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
On the other hand, it is to be feared that a court will use the rules of its state law which could
lead to anti-autonomous decisions.
iv . Terms and conditions
[Rz 49] It is possible to have jurisdiction agreements in general terms and conditions. It is unlikely
that such clauses in general terms and conditions would be controlled under national law, because
generally Art. 25 Brussels Ia Regulation is to be interpreted in accordance with European law32–
but see «the new conflicts rule» above.
[Rz 50] In principle, the written form requirement can also be satisfied by reference to the
general terms and conditions . It is probably necessary that the contract signed by the parties ex-
pressly refers to the general terms and conditions with the jurisdiction clause and that the terms
and conditions are present to the other part at the time of the conclusion of the contract. However,
an explicit reference shall be deemed unnecessary if the terms and conditions in question have
been the basis for the business relationship between the parties for many years, their validity is
therefore that of a practice established between them, or if the terms and conditions are of a type
commonly used in an industry accepted by a recognized organization or body, which had to be
known to the parties.
v . Place of Performance as Place of Jurisdiction
[Rz 51] Instead of choosing a court of competent jurisdiction, the parties may reach an agree-
ment on the place of performance and this will then determine the place of jurisdiction in
accordance with Art. 7 (1) Brussels Ia Regulation. The agreement on place of performance does
not have to fulfil the formal requirements of Art. 25 Brussels Ia Regulation – since it is not exclu-
sive to one jurisdiction, but only an additional, special jurisdiction. Their e ffectiveness is judged
solely by the lex causae .
vi. Consequence of a Choice of Court Agreement
[Rz 52] Pursuant to Art. 25 (1) Brussels Ia Regulation, the elected court has exclusive jurisdic-
tion (except in the case of place of performance agreements).
vii. Strengthening of choice of court agreements after the reform of the European Con-
vention
[Rz 53] One of the objectives of the reform of the European Convention was to strengthen the
effectiveness of choice-of-court agreements by stopping torpedo lawsuits33. Torpedo suits work
32See case law and a list insu fficient form with Magnus/Mankowski , Footnote 24, Art. 25 margin 96 et al.
33SeeMagnus/Mankowski/ Magnus , Footnote 24, Art. 25 margin 1.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
like this: Instead of waiting for a performance claim of the opponent, one submits a negative
declaratory action (possibly even in an incompetent court) – and preferably with a court in the EU,
which does not decide too quickly (such as Italy – the Italian torpedo). Because of the Brussels Ia
Regulation-specific prohibition of double lis pendens (Art. 27 Brussels Ia Regulation) the possibly
favoured by the opponent, e.g. a more acquainted, faster court would have to wait until the court
first seized decides (even if it is not competent) – and that may take time. Now, according to
the new Regulation (Art. 31 (2) and (3) Brussels Ia Regulation), it is no longer always the court
first seized – instead, in the case of a choice of court agreement, the agreed court has the right to
declare its jurisdiction (regardless of whether appealed first or second).
VI. Arbitration
[Rz 54] Arbitration is always a considerable alternative in cross-border business agreements since
enforceability of an arbitral award is much better than such of a state court (especially outside le-
gally harmonized areas such as the EU). Also, arbitration might be faster, more cost e fficient, less
public and more influenced (and even decided) by specific experts (maybe even under specifical-
ly chosen law without internal or international mandatory provisions) than state court decisions;
but, this – of course – depends on the single case and the nominated arbitrators. Crucial, there-
fore, is an apt arbitration clause in the agreement, the choice of the right arbitrators and e ffective
influence on the procedural rules before the proceedings begin.
1. General about Arbitration
[Rz 55] An arbitral tribunal is a private court that meets solely by agreement of the respective
parties without the influence of a state and makes a decision, a so-called arbitral award. There
is virtually only one instance, i.e. only one arbitral award, which can only be reviewed by a state
court with regard to very few questions.
[Rz 56] The regulations on the procedure are under strong influence of both parties and if the
parties do not take influence, the arbitrators have great freedom in the procedure; if no special
regulations are made, then mostly national procedural law (as for example in Art. 176 et seq.
Swiss International Private Law, IPRG, for international arbitration and Art. 353 et seq. SwissCode of Civil procedure for national arbitration or §§ 1029 et seq. of the German Code of Civil
Procedure, ZPO) of the country where the procedure takes place applies.
[Rz 57] National laws are often based on the UNCITRAL Model Law
34of 1985; a certain first
impression can be derived from this.
[Rz 58] If the parties have not made any special arrangements, this is referred to as an ad hoc
arbitration court. In addition to ad hoc arbitration courts, there are also permanent and insti-
tutional arbitration courts. These are set up by institutions, e.g. the Chambers of Commerce
and Industry, the Bar Associations, etc. Examples are the DIS (German Institution of Arbitration,
www.disarb.org) or the ICC (International Chamber of Commerce, www.iccwbo.org ) or the Swiss
Chambers’ Arbitration Institution, SCAI (www.swissarbitration.org). These institutions have al-
34Seewww.uncitral.org .
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
so issued rules of arbitration. However, such arbitration rules regularly have gaps or give the
arbitrators a relatively wide discretion as to how they conduct the proceedings.
[Rz 59] The number of arbitrators may be determined by the parties themselves. If the parties do
not come to an agreement, the tribunal often consists of three arbitrators – but this depends on
the applicable arbitration rules. In a tribunal of three arbitrators, each party usually appoints one
arbitrator, and – depending on the rules – the two nominated arbitrators then agree on a chair-
person or the institution appoints the chairperson. If no agreement is reached, the chairperson
is often appointed by an appointing authority. All arbitrators must be independent. In some ca-
ses, the arbitration rules specify certain other requirements (nationality, profession, etc.); in some
cases, the arbitrators must also be selected from a list.
2. Advantages, Disadvantages, Reflections on Arbitration
[Rz 60] The advantages of private arbitration are usually an acceleration of proceedings (also due
to the lack of litigation) and possibly cost advantages in proceedings with a very high amount
in dispute. In addition, arbitral awards are internationally better enforceable due to internatio-
nal conventions such as the Convention on the Recognition and Enforcement of Foreign Arbitral
Awards of 10 June 1958 (the so-called New York Convention or the United Nations Convention
on the Recognition and Enforcement of Foreign Arbitral Awards) to which more than 150 stateshave acceded
35. Furthermore, «your lawyers» might directly act as counsel and no registered at-
torney before a specific state court is needed. Also, the appointment of arbitrators by the parties
makes it possible to appoint specifically competent arbitrators (e.g. with special industry expe-
rience, special nationality, special legal or technical training, etc.). It is also sometimes seen as
an advantage that arbitration proceedings are not public and disputes do not necessarily become
public. It should also not be underestimated that the language of the proceedings can be deter-
mined in arbitration courts (in national courts, mostly all documents have to be translated into
the national language first). Sometimes the relative freedom of the arbitrators in the conduct of
proceedings is also particularly welcomed.
[Rz 61] Disadvantages include the fact that, depending on the amount in dispute, an arbitral tri-
bunal can appear disproportionately expensive (this may be true especially in the case of amounts
in dispute that do not exceed 250,000.00 Euros); however, when comparing the costs between or-
dinary and arbitration proceedings, it should be borne in mind that ordinary proceedings can
have several instances and arbitration proceedings cannot (unless the parties have agreed other-
wise). Sometimes the relative freedom of the arbitrators in conducting proceedings is criticised –
depending on their nationality and training as well as the mental attitude of the arbitrators, there
may be unpleasant surprises for one or the other, e.g. discovery proceedings and similar – which
is at least not known in the German ZPO.
[Rz 62] Ultimately, the advantages and disadvantages of arbitration and the satisfaction or dissa-
tisfaction that one associates with it depend on four factors:
• The actual circumstances – certain constellations simply inevitably lead to unpleasant pro-
cedures (these can be: of factual and legal nature, geography, political developments, parti-
cipants, etc.).
35www.uncitral.org
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
• The selection of the arbitrators – one cannot be careful enough and should not be afraid to
consider the worst scenario before deciding (all personal characteristics such as nationali-
ty, gender, age, intellect, education, competence, experience, accuracy, diligence, readiness
for conflict, assertiveness, communication skills, vanity, pragmatism, organisational talent,
etc.).
• The more experience one has with arbitration proceedings, the more time and e ffort one
usually invests in the agreements before the arbitration case occurs in order, for examp-
le, to reach or avoid certain contents of the arbitration rules, to make certain sta ffing and
procedural guidelines, etc.
• You can do everything right and still have bad luck, but this may also be true in state courts.
[Rz 63] When dealing with cli ffhangers in litigating international agreements on Distribution in
the EU and abroad, arbitration is specifically interesting since (1) on a worldwide basis, enforce-
ability and acceptance of a choice of venue clause (arbitration clause) is generally spoken better
and broader than such of a national court, (2) admissibility of choice of law may or may not be
influenced by national conflicts of law rules (see above V.1.a), (3) overriding mandatory provisi-
ons might not be considered in an arbitration to the same extent as before a national court with
itslex fori (see above V.1.b and below VII.), (4) «your lawyer» can act as worldwide counsel and
(5) arbitrators may be selected.
VII. Nationally unavoidable (internally mandatory) und internationally
mandatory provisions and ordre public within the EU
[Rz 64] Even if the choice of law is admissible by Rome I Regulation (see above V.1.) and the
chosen place of venue is accepted by Brussels Ia Regulation (see above V.2.), there might be natio-
nally unavoidable (internally mandatory36) and internationally overriding mandatory provisions
in the EU that could or should be applied by the court in accordance with Art. 3 (3) and/orArt. 9 Rome I Regulation. The application of such provisions might di ffer if one court decides
or another (since there is a di fference between domestic or foreign intervention norms); also, it
might help to avoid such norms by choosing arbitration instead of state courts (as above VI.).
1. Nationally unavoidable – internally mandatory provisions
[Rz 65] Internally mandatory provisions result from the lack of choice of law possibilities in
domestic a ffairs (see above V.1.b.) as in Art. 3 (3) and (4) Rome I Regulation.
2. Overriding mandatory provisions – intervention norms
[Rz 66] Art. 9 (1) Rome I Regulation contains a definition of the overriding mandatory provision
(so-called loi de police ). It is a provision «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 other-
36SeeMagnus/Mankowski/ Mankowski, Footnote 5, Art. 3 margin 378.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
wise applicable to the contract under this Regulation» . Such so-called «intervention norms» are thus
characterized by their compelling nature, by the protection of overriding public interests and by
their claim to be applied without regard to the applicable law. Furthermore, a su fficiently strong
domestic or Union reference is required in that specific case.
[Rz 67] In the case of the intervention norms, a distinction must be made between the following
types: domestic intervention norms (lex fori intervention norms – Art. 9 (2) Rome I Regulation)
andforeign intervention norms , the latter being lex causae (as the applicable law under choice
of law or characteristic connection) or the place of performance ( lex loci solutionis intervention
norms – Art. 9 (3) Rome I Regulation).
[Rz 68] Art. 9 (2) Rome I Regulation stipulates that the lex fori’s intervention norms remain unaf-
fected. Intervention norms at the place of performance are only considered under Art. 9 (3) RomeI Regulation under certain circumstances.
[Rz 69] The fact that the intervention standards are among the most controversial issues in inter-
national contract law can be seen, for example, by the fact that the United Kingdom vehemently
opposed the EU Commission’s original proposal and threatened not to accede to the regulation.
The EU Commission’s original proposal provided that mandatory third-country intervention ru-les should also be taken into account, which the United Kingdom perceived as a threat to legal
certainty and an obstacle to incalculable deviations from the Treaty.
[Rz 70] According to Art. 9 (3) of the Rome I Regulation, such intervention norms of the place of
performance are to be observed, which concern the lawfulness of the fulfilment . The prerequi-
sites (rule of intervention, place of performance, e ffect of the unlawfulness of the performance
of the contract) are di fficult to decide on. For this purpose, the court still has some discretion to
take into account the nature and purpose of the standard and the consequences of its application
and non-application (Art.9 (3) of the Rome I Regulation). But these are not standards derivedfrom the country of the court (these fall under 9 (2) Rome I Regulation), but foreign rules of law.
So obviously, the task the state judge has to undertake is di fficult and questionable results are
inevitable – this again might influence the choice of venue clause
37.
[Rz 71] Furthermore, in the case of arbitration before an arbitral tribunal, the question arises as
to whether this is at all tied to the Rome I Regulation. This is anything but clear (see above VI)38.
[Rz 72] Sometimes it is also criticized that Art. 9 of the Rome I Regulation does not regulate
intervention norms of the lex causae (i.e. the applicable law). According to one opinion, the in-
tervention norms of the lex causae can only be applied if they fulfil the requirements of Art. 9
(3) Rome I Regulation. As claimed by a second opinion, they do not have to fulfil any special
conditions of application. According to a third point of view, the lex causae intervention norms
always apply when they meet the general requirements of such rules and do not exceed the limits
of either the right of intervention at all or the public policy of the court hearing them. It is not an
exaggeration to call that complicated.
[Rz 73] Although Art. 9 of the Rome I Regulation now provides a theoretical definition of overri-
ding mandatory provisions (as above), it is often uncertain which national statutory provisions
37SeeMagnus/Mankowski/ Romano Bonomi, Footnote 5 ,Art. 9 margin 193–206.
38This is a repeating, frequently discussed and unsolved issue: do arbitration tribunals have to apply international
provisions as Rome I Regulation or Brussels I a Regulation or other bodies of law understood as lex fori in cases
where national courts would decide.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
have the corresponding international compulsory character. Although such overriding mandato-
ry provisions must be interpreted in a way that is autonomous in terms of European law, there are
differences between the di fferent legal systems in the EU when assessing whether a standard has
an overriding character. For example, French case law tends to apply rules of intervention more
often than German jurisdiction. And since Rome I Regulation has a broad international reach
(art. 2 Rome I Regulation), overriding mandatory provisions of Non-Member States would/could
apply as well.
[Rz 74] The problem of such overriding mandatory provisions for agreements with distributors,
sales agents and in the field of franchise law is particularly relevant. A leading case is, for ex-
ample, the Ingmar ruling of the European Court of Justice in the Ingmar decision39, according to
which the compensation claim for commercial agents under the EU Commercial Agents Directive
is of international mandatory nature. In addition, for example, the rupture-brutal cases in French
distribution law or the 1961 Belgian law on exclusive traders must be mentioned.
3. Ordre public
[Rz 75] The concept of the overriding mandatory provisions is to be distinguished from the con-
cept of public order ( ordre public )40. According to Art. 21 Rome I Regulation, the application of
the law governed by the regulation (choice of law or objective determination) may be refused if itis incompatible with the public policy ( ordre public ) of the forum – the lex fori .
[Rz 76] Most likely, ordre public should neither play such a large role in contract law nor in distri-
bution law – but there are, of course national di fferences
41.
VIII. Details for Distribution in the EU
[Rz 77] In the EU, one must di fferentiate between Agency Law, Distribution Law and Franchise
Law42.
[Rz 78] Generally spoken, choice of law and choice of court is admissible in the EU for Agency,
Distribution and Franchise due to the Rome I Regulation (see above V.1.) and the Brussels Ia
Regulation (see above V.2.). However, the law itself might provide for some di fferences.
39Judgment of ECJ C-381-98 – Ingmar GB Ltd. V. Eaton Leonard Technologies Inc., 9 November 2000, ECR 2000-1,
p. 9305.
40SeeMagnus/Mankowski/ Bonomi, Footnote 5, Art. 9 margin 42–44.
41SeeRothermel , Footnote 3, Sec. H for 50 regions and countries, where sources have been used that cannot be found
in book form – e.g. country reports by lawyers in various organisations such as the IDI ( www.idiproject.com )
or the AIJA ( www.aija.org ) or lawyer reports in other publications such as Getting The Deal Through
(www.gettingthedealthrough.com ), etc. Some countries (80 in total) are very shortly described (on 20 pages) in
Klaus Detzer/Claus Ullrich , Internationale Vertriebsvereinbarungen 2014, 1. Auflage, with references to further
sources such as German Trade and Invest (GTAI), www.gtai.de ; WKO country reports at www.wko.at ; statements
on country groups can also be found there. Some (19) countries are dealt with in Michael Martinek/Franz-Jörg
Semler/Eckhard Flohr , Handbuch des Vertriebsrechts 2016.
42SeeRothermel , Footnote 3, Sec. H for 50 regions and countries.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
1. Agency Law
[Rz 79] All EU countries basically have the same Agency Law on the basis of the Council Di-
rective of 18 December 1986 on the coordination of the laws of the Member States relating to
self-employed commercial agents (Council Directive of 18 December 1986 on the coordination
of the laws of the Member States relating to self-employed commercial agents 86/653 / EEC,
Commercial Agents Directive).
a. Similarities and Differences
[Rz 80] Only where the Commercial Agent Directive gives the Member States the freedom of
choice, di fferences arise43.
[Rz 81] In some cases, there are differences in the notice periods in the EU: according to the
Directive, a notice period of three months is to be respected from the third year of the contractual
relationship, but the Member States may waive the deadlines (with one month per year of contract
duration) and increase to six months (Art.15 (3) Directive). Many EU Member States have adopted
this model: Belgium, Denmark, Finland, Greece, Italy, Croatia, Luxembourg, Austria, Romania,
Sweden, Slovenia, Spain, Cyprus. In Germany, the notice period between the third and the fifthyear of the contractual relationship is three months and after the fifth year – six months, § 89
German Commercial Code. In Latvia and Lithuania, the notice period is four months from the
fourth year of the contractual relationship. In the Netherlands, the minimum notice periods are
as prescribed by the Directive; however, if the contract does not regulate this explicitly, longer
deadlines apply – four months during the first three years of the contractual relationship, five
months between the fourth and sixth years and six months thereafter.
[Rz 82] The Commercial Agency Directive also allows Member States to choose between two in-
struments for the post-contractual compensation of the commercial agent: indemnity, Art. 17 (2)
Directive or compensation, Art. 17 (3) Directive. Prerequisite for the compensation claim is that
the sales representative has increased the customer base of the principal and the principal still
benefits from it. In the case of a claim for damages, on the other hand, it is examined whether
the commercial agent escaped commission claims which he would have granted if the legal rela-
tionship continued, and whether he su ffered disadvantages due to the non-amortization of costs
and expenses. Member States must include one of the two claims in their national regulations.
While most have opted for the right to compensation, some countries ensure the claim for da-
mages – such as France and Ireland. Other countries – e.g. Greece and Malta – grant both claims
in parallel. In Lithuania and the UK, the sales representative can choose between the two claims.
In Slovakia and Spain, in addition to the right to compensation, the commercial agent is entitled
to a claim for compensation under specific conditions – in Slovakia if he does not receive com-
missions, and in Spain if the principal unilaterally terminates a contract of indefinite duration. In
addition, a claim for damages under general civil law can be asserted in the case of an unlawfultermination.
[Rz 83] Some jurisdictions grant the agent a right of retention or lien on property and docu-
ments of the principal until he settles the claims arising from the agency agreement: Lithua-
43Of course there are even more di fferences outside the EU.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
nia (Art.2.161 of the Lithuanian Civil Code), Poland (Art.763 of the Polish Civil Code), Slovenia
(Art.829 of the Slovenian Law on Obligations) and Norway (Art.16 Norwegian Agency Law).
[Rz 84] Registration obligations44within the EU, however, are rare and the ECJ has already de-
cided that registration requirements as a condition for the e ffectiveness of the agency agreement
within the EU are incompatible with the Commercial Agents Directive45. Nevertheless, in Italy,
commercial agents have to be registered with the state agency Enasarco and the principal has to
pay social security for them. However, the registration requirement does not apply to principals
who are not Italian or who have neither a registered o ffice nor a branch in Italy – they have the
option of registering.
[Rz 85] In certain countries, particular care must be taken when di fferentiating the commercial
agency agreement and the actual legal relationship with the employee – for example, in Franceit is very important to di fferentiate between the employee and the voyageur représentant placier
(VRP); for the latter, the labour law regulations apply, but he also has an indemnity claim.
b. Internally Mandatory Law
[Rz 86] In the EU, internally mandatory rules result from the Commercial Agency Directive (see
below for internationally mandatory provisions in Ingmar cases). Such typically mandatory rules
in favour of the commercial agent in the EU include:
• the right to compensation/indemnity at the end of the contractual relationship, which may
amount to an average annual commission of the commercial agent (§ 89b German Commer-
cial Code, Art. 17 Directive);
• the provision that the commercial agent receives commission even if the solicited transac-
tion is not carried out for reasons for which the principal is responsible (§ 87a (3) German
Commercial Code, Art. 10, 11 Directive);
• the right to a commission advance if the principal has executed the transaction (§ 87a (1)
German Commercial Code, Art. 10, 11 Directive); Billing and payment periods of max.
three months (§§ 87a (4) and 87c (1) German Commercial Code, Art. 12 (1) Directive);
•Mutual fiduciary duties (§§ 86 et seq. German Commercial Code, Art. 3, 4 para. 1 Direc-
tive);
• the right to information and book excerpt as well as book inspection (§ 87c para. 2 to 5
German Commercial Code, Art. Art. 12 para. 2 to 4 Directive);
•Minimum notice periods (depending on the duration of the contract between one and six
months, § 89 German Commercial Code, Art. 15 Directive);
• as prerequisites for a post contractual non-competition agreement: written form, extension
to the district or clientele assigned to the commercial agent as well as to contractual objects
44Such are outside of EU specially known in the Middle East and South America.
45Judgment of ECJ C-215/97 – Barbara Bellone and Yokohama SpA, 30 April 1998.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
and limitation to max. two years with payment in advance (§ 90a German Commercial
Code, Art. 20 Agency Directive) etc.
[Rz 87] Exceptions – from a German law perspective – to the mandatory rules are possible – even
when choosing German law (§ 92c German Commercial Code) – if the commercial agent operates
outside the EU and the EEA .
c. Internationally Mandatory Law
[Rz 88] With respect to internationally mandatory rules for the protection of commercial agents,
the Ingmar decision of the European Court of Justice46is of fundamental importance.
[Rz 89] Ingmar decision: Californian law was the agreed choice of law between a commercial
agent in the UK and a Californian company. Californian law does not know goodwill compen-
sation claims at termination of commercial agency contracts (unlike the Commercial Agency
Directive). Nevertheless, the sales representative claimed compensation under Section 1 of the
UK Commercial Agents Regulations (1993), which transposed Articles 17 and 18 of the Agency
Directive. The court stated that Art. 17 and Art. 19 of the Directive seeks to protect the commer-
cial agent and thus constitutes an internationally mandatory provision. The Directive serves to
protect the freedom of establishment of the commercial agent and to protect undistorted com-
petition in the internal market. Adherence to Art. 17-19 of the Directive is indispensable for the
achievement of this objective. If the facts are strongly related to the European Community (e.g.
activity of the commercial agent in a Member State), it is of fundamental importance to the Com-munity legal order that those provisions, even in contracts with third-country nationals, cannot
be circumvented by a choice of law
47.
[Rz 90] It can therefore be assumed that many of the standards set out in commercial agency law
for the protection of the agent (such as provision of commission, commission billing, termination,
lien, compensation claim, and competition agreements) cannot be circumvented by choice of law.
[Rz 91] The ECJ has, however, ruled that the principles of the Ingmar decision cannot simply
be transferred to purely EU internal a ffairs ( Unamar Decision48). If the parties to a commer-
cial agency contract have chosen the law of a EU Member State which provides the minimumprotection required by the Agency Directive, the court seized of another Member State may de-
rogate from that right in favour of the mandatory provisions of its lex fori only if the court seized
substantiates that the legislator of its State considered it essential, in the context of transposing
the Directive to grant protection to the commercial agent in the relevant legal order beyond that
provided for in that Directive, taking into account the nature and subject-matter of those man-
datory rules. The starting point for the problem was the fact that the Agency Directive causes
a minimum harmonization. Thus, the Belgian lex fori , which guarantees a more comprehensive
protection than the Directive, and the (chosen) Bulgarian law, which, while correctly transposing
the Directive, faced (only) the minimum level of protection required by the Directive, faced each
other.
46Judgment of ECJ C-381/98 – Ingmar GB Ltd and Eaton Leonard Technologies Inc., 9 November 2000.
47SeeMagnus/Mankowski/ Bonomi, Footnote 5, Art. 9 margin 48 and 49 to Ingmar and Unamar and Art. 9 Rome I
Regulation (at the time Art. 7 Rome Convention which was not even mentioned in the Ingmar decision but in the
Unamar decision).
48Judgment of ECJ C-184/12 – United Antwerp Maritime Agencies (Unamar) NV v Navigation Maritime Bulgare, 17
October 2013.
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d. Implications on Choice of Court Agreements
[Rz 92] Within the EU the Brussels Ia Regulation applies (see above V.2.), according to which the
parties can choose a place of jurisdiction and, failing that, can sue either at the place of perfor-
mance (Art. 7 No. 1 Brussels Ia Regulation or at the domicile of the defendant (Art. 4 (1) Brussels
Ia Regulation). The possibility of arbitration on disputes arising from distribution agreements
exists, basically, in both the EU and in the common law legal systems. However, a jurisdiction
or arbitration clause in a supply and distribution contract does not per se encompass all possi-
ble disputes that may arise between the contracting parties. For example, it is decided49that a
jurisdiction clause or arbitration clause in the supply contract only includes claims for antitrust
damages if this is expressly stipulated.
[Rz 93] From the above-mentioned Ingmar decision of the European Court of Justice and the
mandatory nature of the EU law protection regulations for commercial agents, however, con-
sequences were drawn in e.g. German jurisdiction for the choice of venue clauses ; the Higher
Regional Court of Munich50decided that an arbitration agreement in a commercial agency agree-
ment between a US manufacturer and a German commercial agent would be ine ffective against
the background of mandatory European agency law if the law at the place of arbitration (here:
California) does not comply with any provisions of European goodwill compensation provisions.
This follows from the fact that, in individual cases, a choice of court agreement serves the purpo-
se and should practically lead to the application of the law of the country whose exclusive placeof jurisdiction has been agreed. Since, however, according to the Ingmar ruling of the European
Court of Justice, the choice of non-EU law cannot deprive a commercial agent operating in the EU
of the mandatory provisions applicable in its favour, it was decided to be consistent in conside-
ring an arbitration agreement leading to an arbitration outside the EU ine ffective. In that specific
case, it is seriously doubtful that California courts, in view of the choice of law, would apply to
the application of the German rules on commercial agent compensation, in particular because
California (arbitration) courts are not bound by EU directives or the case law of the ECJ.
[Rz 94] The German Federal Court
51left the question open as to whether Articles 17 to 19 of the
Agency Directive contain mandatory provisions for the recognition of choice-of-court agreements
to the Member States with which the exclusive jurisdiction of the courts of a third state is agreed.
In any event, those provisions of the Directive do not prevent the denial of recognition of a right
to compensation of the commercial agent in favour of a third state if the law chosen by the par-
ties does not know the right to goodwill compensation and the court of the third country does
not apply the mandatory European law. The refusal to recognize the choice of court agreement
ensures the internationally binding nature of Art. 17 – 19 Agency Directive.
[Rz 95] In a more recent ruling, the Munich Higher Regional Court also determined52that the
possibility that foreign mandatory laws are not taken into account in a German arbitration award
is no reason to deny the admissibility of arbitration proceedings. The court argued that the possi-
ble non-recognition of the German arbitral award abroad must be accepted in the interest of the
49Judgment of ECJ C-352/13 – Cartel Damage Claims (CDC) Hydrogen Peroxide SA v Akzo Nobel NV et al., 21 May
2015.
50Higher Regional Court of Munich, 17 May 2006 – 7 U 1781/06 .
51German Federal Court, 5 September 2012 – VII ZR 25/12 .
52Higher Regional Court of Munich, 7 July 2014 – 34 SchH 18/13 .
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uncomplicated application of German arbitration law. However, the judgment did not deal with
the recognition of the arbitration agreement but with the issue of arbitrability.
[Rz 96] Besides the peculiarities in Ingmar cases (as set out above), for agency agreements, there
are no special provisions on choice of court clauses in EU countries due to the Brussels Ia Regu-
lation.
2. Distribution Law
a. Similarities and Differences
[Rz 97] The law on distributors is not regulated by law in most EU Member States53. One of the
few countries expressly regulated by the law on dealerships is (the almost notorious) Belgium –
where the Law of 27 July 1961 on authorized dealers regulates the unlimited, exclusive rights
of the distributor; since 2014, the law has been incorporated into the Belgian Commercial Code
(Book X, Title 3, Art. X.35 to X.40). In Greece, for example, the analogous applicability of the
Agency Directive is regulated by law; in France and Lithuania there are some legal regulations;
in Spain there are already proposals on the codification of distribution contracts.
[Rz 98] But within the EU, commercial agency law is applied by analogy to different degrees
by the courts (e.g. Belgium, Germany, Denmark, Finland, Greece, Austria, Portugal, Slovenia andSpain).
b. Internally Mandatory Law
[Rz 99] In some Member States (especially in Germany, for example) there is an extensive and
foreseeable jurisdiction, according to which commercial agency law applies analogously when
the distributor is integrated into the supplier’s sales organization in such a way that, economically
speaking, it is to a considerable extent comparable with the tasks a commercial agent has to ful-fil. Specifically, according to the German case-law, two conditions must be met for the analogous
application of the equalization claim under § 89b German Commercial Code: (i) the distributor
is integrated into the supplier’s sales organization and (ii) it must provide the customer data tothe supplier during or at the end of the cooperation to transfer. An explicit obligation to provide
the customer base is not required, but it is su fficient if the distributor was obliged to keep the
manufacturer or supplier informed of the names and addresses of customers during the contract
period – or even if that was the case at all. Such a compensation claim may amount to an annual
average remuneration (gross profit) of the distributor. If the analogy conditions are met, the claim
is mandatory. But up to now, this analogous application of agency law is not considered interna-
tionally mandatory . There are similar rules in Denmark, Greece, Netherlands, Austria, Portugal,
Spain.
[Rz 100] According to the German case law, there are also other distributor rights to be obser-
ved – regardless of whether commercial agency law is applied analogously or not, whereas it is
not clear if these are internally mandatory (but it should be clear that these provisions are not
internationally mandatory):
53SeeRothermel , Footnote 3, Sec. H for 50 regions and countries.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
• For example, the distributor is entitled to return the warehouse (if one had to maintain it)
at the end of the collaboration. Such an obligation for the supplier to take back (packaging?)
also exists if a service contract (repair and maintenance agreement) between the same par-
ties is concluded immediately after the dealer contract (which contains a return clause) is
terminated.
• When determining the permissible notice periods , e.g. the distributor’s interest in conti-
nuing its business relationship with the manufacturer as well as its investments should be
taken into account – the periods of notice may be longer due to greater dealer investment
than they are for agency agreements.
• There are special loyalty and information requirements .
[Rz 101] There are other internally mandatory provisions (see below for the internationally man-datory provisions as well) for distributors in Austria, Belgium, Bulgaria (might be considered
internationally mandatory as well), Denmark, Finland, France, Greece, Italy, the Netherlands,
Spain.
c. Internationally Mandatory Law
[Rz 102] Even within the EU, internationally mandatory provisions of some countries must be
observed:
• For example, distribution law in Belgium : It is considered by the national courts to be
internationally binding and also contains certain restrictions on the choice of law and ju-
risdiction: The exclusive or quasi-exclusive Belgian distributor is entitled to a compelling
compensation claim that not only takes into account «goodwill» but also expenses, incurred
in the execution of the distribution agreement and sums that the distributor may have to
pay their employees for dismissals due to the termination of their contracts; for a long time,
the law also provided for a mandatory Belgian jurisdiction before it was declared ine ffective
against the background of the Brussel I Regulation (but only in 2013).
•France , for example, only regulates certain aspects of the distribution contracts by law,
and only with respect to the exclusive and quasi-exclusive distributor. Interesting is e.g.
Art. L330-1 of the French Commercial Code, according to which the maximum duration
of the contract is ten years; however, the parties are free to conclude a new contract af-
ter this time has passed. Even when concluding a distribution agreement, pre-contractual
information obligations must be fulfilled, Art. L330-3 of the French Commercial Code. Fur-
thermore, Art. L442-6-I-5 of the French Commercial Code has to be observed, according to
which a terminated business relationship without a justified cause is entitled to a claim for
damages (« rupture brutale») – if notice periods of 36 months or more are not considered; this
can drive a claim for compensation to almost insane heights. This standard is considered by
French jurisdiction to be internationally mandatory (« loi de police») .
•I n Greece , for instance, the analogous applicability of the commercial agency law to distri-
butor contracts is regulated by law – in Art. 14 § 3 L. 3557/2007, whereby the conditions
for the analogy are similar to those in Germany: An exclusive dealer agreement must be
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
present and exclusive and the dealer is integrated into the supplier’s sales organization.
Whether this is an overriding mandatory provision, is not clear, yet.
[Rz 103] The Ingmar Decision is not (yet) considered internationally binding – this is at least the
prevailing understanding in German legal text books. The main argument is that the interpreta-
tion of the ECJ relates solely to commercial agency law. The counter-argument is based on ECJ’s
Volvo ruling54, according to which the principle of a directive-compliant interpretation of EU
rules applies not only to the direct scope of application of those rules but also to their analogous
application. But it can be argued that it leads to a restriction of the principle of freedom of choice.
[Rz 104] There are other internationally mandatory provisions for distributors in Bulgaria as well
as in other countries55.
d. Implications on Choice of Court Agreements
[Rz 105] For distribution, there are no special provisions on choice of court clauses in EU coun-
tries, due to the Brussels Ia Regulation. But French courts, for example, might be considered
competent in any cases of rupture brutale.
3. Franchise Law
a. Similarities and Differences
[Rz 106] Franchise law is not specifically regulated in many legal systems in the world – not even
in Germany56. In countries where there are legal regulations, one can distinguish between two
broad categories of laws: the Franchise Disclosure Laws , which regulate the pre-contractual in-
formation obligation, and the Franchise Relationship Laws , which govern the legal relationship
between the parties to an existing franchise agreement. In some states, there are legal norms that
cover these two aspects of the franchise legal relationship. In some cases, however, only the pre-contractual information obligations (e.g. in Belgium, Spain) are regulated and in some cases only
the legal relationship with an already concluded contract (e.g. in Lithuania) is regulated. There
are comprehensive franchise laws worldwide that can serve as blueprints in some of the states ofthe USA and Canada, in China, Indonesia, Japan and Australia etc. In some other countries such
as the Dominican Republic, Saudi Arabia and the United Arab Emirates, the same rules apply as
for commercial agents and authorized dealers.
[Rz 107] In countries where there is no expressed regulation of pre-contractual information re-
quirements, these obligations are derived from the general principle of good faith conduct, and
termination rights and claims for damages are derived from the same principles and from the
legal institution of culpa in contrahendo , e.g. in Germany, Austria, Finland, Switzerland, Turkey.
[Rz 108] There are also franchise associations in many countries that set up a code of ethics. While
such codes of ethics are not legally binding (unless if at all for members of the organization); they
are often used as guidelines for the proper conduct of the parties. The European Union also has
54Judgment of ECJ C 203/09 – Volvo Car Germany GmbH v Autohof Weidensdorf GmbH, 28 October 2010.
55SeeRothermel , Footnote 3, Sec. H for 50 regions and countries.
56SeeRothermel , Footnote 3, Sec. H for 50 regions and countries.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
a European Franchise Federation (EFF) and Code of Ethics. The EFF, along with over 40 other
franchise associations, is a member of the World Franchise Council.
[Rz 109] The Unidroit has issued a model law on pre-contractual information requirements: The
Model Franchise Disclosure Law of Unidroit of 2002.
[Rz 110] In some countries’ jurisdictions (such as Germany57) agency law analogously applies
to franchise agreements, if the basic idea behind a specific provision is the equality of interests
and if it applies to the relationship between franchisor and franchisee. Also in Austria and in
Switzerland – for example – an analogous application of commercial agent law is possible under
similar conditions.
b. Internally Mandatory Law
[Rz 111] Franchise law in the EU58is deemed to be internally mandatory (see below for interna-
tionally mandatory provisions in Sweden, Spain and eventually in Belgium, France, Italy) in the
following countries (whereas such countries marked here with «*» have no special franchise laws
but general principles) in Germany59, Austria60, Belgium, Estonia*, Finland*, Latvia*, Lithuania*,
Portugal*, Romania*.
c. Internationally Mandatory Law
[Rz 112] Internationally mandatory provisions on franchise agreements within the EU61apply in
Sweden and Spain and might be considered mandatory in Belgium, France, Italy.
d. Implications on Choice of Court Agreements
[Rz 113] For franchises, there are no special provisions on choice of court clauses in EU countries,
due to the Brussels Ia Regulation.
[Rz 114] Arbitration clauses might be critical in franchise agreements. Even in Germany, which is
fundamentally arbitration-friendly, an arbitration clause can be declared ine ffective if it consti-
tutes a disadvantage for the franchisee as the weaker distribution partner. Three German Higher
Regional Courts have each decided on the recognition and enforcement of arbitral awards against
German franchisees, which had been issued in the US state of Connecticut. All three franchise
agreements involved a Dutch company acting as a franchisor in Europe for its American parent
57German Federal Court, 17 July 2002 – VIII ZR 59/01 .
58SeeRothermel , Footnote 3, Sec. H for 50 regions and countries.
59In Germany, four decisions of the Higher Regional Court Munich are fundamental for the pre-contractual informa-
tion obligations and the duty to inform or to disclose; on 13 November 1987 ( 8 U 2207/87 ), the court decided that
a franchisor must inform about the real situation of the system and that the franchisor bears the burden of pro-
of for the correctness of his information. On 16 September 1993 ( 6 U 5495/92 ), the court further developed these
principles and, in particular, ruled on the calculation of the damages payable for breach of the information requi-
rements. On 24 April 2001 ( 5 U 2180/00 ), the court held that liability for forecasts was in principle ineligible and
that the franchisee was able to make a contributory negligence. On 1 August 2002 ( 8 U 5085/01 ), the court then
held that liability for forecasts may intervene in exceptional cases (for example, if there was insu fficient basis for
the forecast).
60Similar to Germany.
61SeeRothermel , Footnote 3, Sec. H for 50 regions and countries.
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company. According to the franchise agreements, the law of Liechtenstein was applicable, which
in turn prescribes the validity of the Austrian General Civil Code. According to the arbitration
clause, the arbitration was to be conducted in New York. In all three cases, the German Higher
Regional Courts62considered this arbitration clause ine ffective under applicable Austrian law
because it constituted a gross disadvantage for the franchisees.
IX. Details for Distribution outside the EU
[Rz 115] Outside the EU and other areas with a certain degree of harmonisation and judicial
cooperation, the validity of a choice of law and choice of court agreement is di fficult to predict
since it depends on the national law of the contractual partners. It is therefore conceivable that
choice of law is not admissible at all or only for the application of the law of the contractual
partner or the weaker partner, etc. Also, it is conceivable that a choice of court agreement is not
accepted by the court that shall not be competent neither the court that shall be competent and
no court of both (or even more courts) held themselves competent.
1. Choice of law outside the EU
[Rz 116] Choice of law is largely possible in the EU when it comes to cross-border business.Nevertheless, there are peculiarities and di fferences
63.
[Rz 117] In some countries for distribution matters (agency, distribution, franchise) a choice of
law is simply inadmissible: Columbia (unless combined with arbitration), Lebanon (for exclusive
agencies and distributors), Saudi Arabia.
[Rz 118] In some countries, choice of law in general is very closely linked to questions of ordre
public: Russia, Brazil (in agency matters, unless combined with arbitration), USA (in franchise
matters), China (in franchise matters), Indonesia (in franchise matters), United Arab Emirates
(for registered agents, distributors and franchisees).
[Rz 119] In some other countries, a choice of law might be possible but would trigger problems
in enforcement of decisions: Turkey, Ukraine.
2. Choice of court outside the EU
[Rz 120] Choice of court outside of the EU depends on the national law as there is hardly any
harmonization in national jurisdiction matters outside the EU (since there is nothing comparableto the Brussels Ia Regulation). So, it is very well conceivable, that a choice of court agreement is
inadmissible in the country of the contractual partner or that national law provides for mandatory
competence of local courts or that even two parallel lawsuits can be initiated and pursued and
that a decision of a court in one country cannot be enforced in another country.
62Dresden Higher Regional Court, 7 December 2007 – 11 Sch 8/07 ; Bremen Higher Regional Court, 6 October 2008 –
2 Sch 2/08 ; Celle Higher Regional Court, 4 December 2008 – 8 Sch 13/07 .
63SeeRothermel , Footnote 3 Sec. H for 50 regions and countries
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
a. Hague Convention on the Choice of Court Agreements
[Rz 121] Therefore, generally it might be deemed a progress that institutions and organisations
work on more worldwide harmonization in jurisdiction matters. Thereafter, the Hague Confe-
rence adopted the Convention on Choice of Court Agreements («CCC») on 30 June 2005, which
emerged as a compromise from the failed negotiations in 2001 on a comprehensive jurisdiction
and enforcement agreement.
[Rz 122] This convention represents a real step forward, as there is currently no legal certainty
on jurisdiction agreements with contracting parties in non-EU or Lugano countries. That would
change. Instead of comprehensively regulating the conditions of international responsibilities,
as originally planned, the CCC only deals with jurisdiction agreements. The conditions for the
recognition and enforcement of foreign judgments are not fully regulated; however, judgmentsof a court of another contracting state are to be recognized and enforced if they are based on
an effective choice of court agreement – this is reminiscent of the New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards of 1958 (UNU). First, only the US and
the EU (19 January 2009 and 1 April 2009, respectively) signed this Convention, but did not
ratify it; Mexico has ratified, but not signed. Most recently, Singapore signed the agreement on
25 March 2015. On 4 December 2014, the Council adopted Decision 2014/887 / EU, by which
the EU authorizes the CCC. The Convention entered into force on 1 October 2015 for all EU
Member States (with the exception of Denmark) and Mexico, while the US is still fighting on thedomestic front with questions of responsibility for ratification – although the US was the initiator
of the negotiations; in the USA, the question of whether federal law is needed or whether each
individual federal state implements the convention in its own law while taking account of the
peculiarities of its own law is disputed.
b. Other Details for Countries outside the EU
[Rz 123] There are countries
64: where a choice of court is inadmissible: Columbia, Egypt, Lebanon
(exclusive agents and distributors), Saudi Arabia, United Arab Emirates.
[Rz 124] There are countries where choice of court is very closely linked to ordre public : Canada
(for franchisees), USA (for agents, distributors, franchisees).[Rz 125] There are countries where a choice of court may not prevent double competencies or
enforcement issues: Canada (agents and distributors), Argentina (agents and distributors), China,
Russia, Brazil (agents), India, Ukraine, Chile, Indonesia, and Australia.
3. Nationally unavoidable and internationally mandatory provisions out-
side the EU
[Rz 126] There are internally and internationally mandatory provisions in countries outside of
the EU; it must be reviewed in detail on a country-per-country basis. For some countries65, this
can be outlined as follows:
64SeeRothermel , Footnote 3, Sec. H for 50 regions and countries.
65SeeRothermel , Footnote 3, Sec. H for 50 regions and countries.
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
[Rz 127] In some countries, the national law is practically mandatory since not choice of law is
admissible (NCL) or nor choice of venue (NCV) can be met and or enforceability is critical (E).
This leads the following impressions:
a. Agency
[Rz 128] Internationally mandatory are the provisions for protection of the agent in Norway, Co-
lumbia (NCL), Egypt (NCV, E), Lebanon (NCL, NCV), Saudi Arabia (NCL, NCV), United ArabianEmirates; the provisions for protection of the agent might be internationally mandatory in Russia,
Argentina, Brazil, Indonesia (E).
b. Distribution
[Rz 129] Internationally mandatory are the provisions for protection of the distributor in Colum-
bia (NCL), Egypt (NCV, E), Lebanon (NCL, NCV), Saudi Arabia (NCL, NCV); the provisions forprotection of the distributor might be internationally mandatory in Russia, Argentina, Brazil, In-
donesia (E).
c. Franchise
[Rz 130] Internationally mandatory are the provisions for protection of the franchisee in Canada
(5 districts), Columbia (NCL), Lebanon (NCL, NCV), Saudi Arabia (NCL, NCC), United Arabian
Emirates, Indonesia (NCL); the provisions for protection of the franchisee might be internatio-
nally mandatory in Mexico, USA, Brazil, China, Australia.
X. Summary and Recommendation
[Rz 131] As outlined in the beginning, the frequently used and very pragmatic approach «we
simply use our standard agreements and general terms and conditions for our national and in-
ternational business» may work within the EU. It is more di fficult abroad. Crucial is a smart
combination of choice of law and choice of court in order to avoid surprises like unenforceable
decisions, incompetent courts or unexpected overriding mandatory provisions.
Dr.Martin Rothermel studied in Würzburg, spent his legal clerkship for Siemens in Munich
and Procter & Gamble in the USA, earned his doctorate in antitrust law, first worked as legal
counsel for a medium-sized IT company and then as a management consultant for Roland Berger
Strategy Consultants. He is with Taylor Wessing since 2004 and Head of the Commercial and
Distribution Law Practice Area since 2014. He advises companies in the areas of purchasing,
quality assurance, sales, distribution (e-commerce, sales agent, authorised dealer and franchise
systems) and product liability. His work includes drafting contracts as well as representing clients
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Martin Rothermel, Cli ffhangers in International Distribution Agreements, in: Jusletter 15. Oktober 2018
in disputes before courts and in arbitration proceedings. Martin Rothermel frequently publishes
and lectures on international sales, supply and distribution law.
31