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Can parties choose an alternative governing law to opt out of the applicability of the Commercial Ag

DATE: 24.06.2011

 

In a recent High Court case in England, it was held that even where parties choose a non-EU governing law in an agreement, the Commercial Agency Regulations (and indeed any other mandatory EU laws) must be followed. Parties should therefore exercise caution when choosing a governing law for their agreements if mandatory EU laws are relevant.

In the case of Accentuate v Asigra, an English distributor entered into a distribution agreement with a Canadian licensor of software. The agreement contained an arbitration clause stipulating that the agreement was governed by Canadian law. As a result of a breach of the agreement, the distributor threatened to bring a claim in England under the Commercial Agents (Council Directive) Regulations 1993 (the “Commercial Agency Regulations”). However, the licensor commenced arbitration for a declaration that the distributor had no such claims against it. The arbitrator directed that Canadian law applied and that the Commercial Agency Regulations were accordingly not relevant.

The distributor made a district court application in England to serve the licensor out of jurisdiction claiming that it was entitled to compensation under the Commercial Agency Regulations. The licensor applied to the court to stay the proceedings on the grounds that the parties had agreed to refer any disputes to arbitration under Canadian law.

The English High Court held that the requirements of the Commercial Agency Regulations were mandatory such that an arbitration clause in favour of Canadian law was “null and void” and “inoperative” to the extent that it required the submission to arbitration of questions pertaining to mandatory provisions of EU law. The High Court permitted the distributor to serve the licensor out of the jurisdiction. In the case of Ingmar GB Limited v Eaton Leonard Technologies Limited [2000] EUECJ C-381/98, the European Court of Justice held that all EU laws were mandatory notwithstanding a choice of law provision. However, the English High Court in this case went further holding that an arbitration agreement should be invalid on this basis and the resulting award unenforceable. This decision is somewhat surprising as, in line with previous case law in the EU, one would expect a tribunal would apply the mandatory EU law alongside the chosen governing law. However, this point was not considered as the distributor brought its case in the English courts.

The facts of this case are a little extreme in that the entire subject matter of the proceedings (i.e. the entitlement of the agent to compensation) was governed by EU law (thereby leaving nothing for Canadian jurisdiction). If there were Canadian law issues forming part of this dispute it would have been interesting to see whether or not the English High Court would have come to a different decision.

Conclusion

Even though this case was brought in the English Courts, as the commercial agency regulations in Ireland derive from the same EU directive as the English Commercial Agency Regulations, parties should be very cautious when entering into agreements with a non-EU choice of law where mandatory EU laws may apply as it is possible that this case would have a persuasive effect in the Irish courts.

 
 

 

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