Howard attack on European powers

Michael Howard, the most senior Euro-sceptic in the Cabinet, is in conflict with the government’s law officers and some ministers over a radical new proposal which could significantly reduce the influence of the European Court of Justice in Britain. The Home Secretary, a persistent critic of the European Court, has circulated a paper to Cabinet colleagues proposing changes to the 1972 European Communities Act that would prevent courts reaching findings based on European, rather than domestic law.

European law to reform UK business rules

Britain’s new Human Rights Act will change centuries of British legal theory by gradually incorporating into British law the 1949 European Convention on Human Rights (ECHR).

The likely effects on British commercial and corporate law are not yet clear.

The Convention is applied in the European Court of Human Rights, and is resorted to by British or other European applicants when fundamental rights are allegedly infringed and appeals in domestic law have been exhausted.

In 1996 the Court ruled that the British trial of Ernest Saunders, chief executive of Guinness, on financial charges was unfair. The Court’s reason was the use of pre-trial evidence given by Saunders in 1990 to British Board of Trade inspectors without the right of silence.

The Court has no power to impose decisions and can embarrass governments and defendants but not coerce them.

Neither is this system part of the EU. The ECHR and the Court are separate from the EU, and the only connection is an EU agreement which states that the ECHR will be “respected”. This is unenforceable and thus virtually meaningless.

The UN has a similar document to the ECHR called the International Covenant on Civil and Political Rights (ICCPR). This is part of public international law and all nations which have signed it are supposed to abide by it.

In reality, it is unenforceable and only resorted to for political reasons such as the present war crimes tribunals in the former Yugoslavia. It has no place in British law.

The Human Rights Act recently passed by Blair’s government takes the important step of gradually incorporating ECHR into English law.

This means that instead of going to a powerless court staffed by foreign judges in a process that can take up to ten years, UK citizens will be able to ask their own High Court judges to decide if the Convention has been breached.

Although judges will lack the power to contradict parliament’s wishes, they have the power to interpret all laws in line with the ECHR and indicate those Acts of parliament that conflict with it.

The judicial tradition in England suggests that judges will not hesitate to criticise government if they have the authority to do so.

The new Human Rights Act turns centuries of legal theory on its head. Britain has always adhered to “residual rights theory” which essentially means that whatever is not outlawed is acceptable.

Now the idea of a “right” is placed first, and all other legal consequences flow from it, as in most European civil law traditions.

This is quite alien to English legal thinkers who assert that one needs laws before rights in order to know what the rights can be.

Secondly,it will change the structure and content of all UK laws. Existing laws now must be interpreted consistently with the ECHR.

Judges were previously restricted in how they could read legislation, but now they have more scope to challenge Parliament.

New rights will also be introduced. For example, the ECHR includes a right to freedom from religious discrimination, but there was no such right in English law previously.

There is no doubt that the new Act will have important repercussions for business in the UK. Individuals or organisations will not only be able to sue central and local government, but all public bodies will be susceptible to challenge. The interface between business and government or regulation will be a potential arena of conflict.

Various business bodies must abide by the new legislation. These include tribunals and disciplinary panels of various organisations such as the Advertising Standards Authority, the Take-Over Panel, the Department of Trade and Industry (DTI), and privatised utility companies such as British Gas.

It will also affect “mixed enterprises”, the public enterprises in the form of limited companies in which the government owns shares.

One significant impact of the legislation will be on commercial crime investigations.

Presently, executives are obliged to answer questions from the DTI or other investigative bodies during large-scale fraud investigations.

In the past such answers were used in trials. This happened at the trial of Ernest Saunders during the Guinness scandal. The European Court later condemned this practice as an infringement of the right to a fair trial. It is likely that under the new law people will not be obliged to answer questions during such investigations.

Disciplinary proceedings will also be significantly affected. Tribunals regulating the legal profession and other self-regulating organisations in the City will feel the new pressure.

The ECHR guarantees a fair trial and a public hearing by an impartial tribunal. In tribunals there is presently no right to silence, and the burden of proof is often placed on the defendant.

Military Courts Martial have already been declared unfair by the European Court and there is little doubt that other tribunals will follow.

Major city business institutions whose disciplinary proceedings are almost always held in private will probably have to change.

As many individuals may not wish to broadcast their problems, it seems likely that individuals will be given a choice between a private and a public hearing. This will change the way disciplinary proceedings are conducted.

British business will also be affected by several new rights enshrined in the Act. For example, there will be a right to freedom from religious discrimination which might affect employment practices in relation to holy days and religious holidays. More importantly, for the first time in Britain there will be right to privacy, which will be crucial to the media. The main press may be exempt, but the Act would have to be observed by the BBC and other public organisations.

The new right to privacy is long overdue. It may be interpreted to cover non-public media organisations. The press may be brought within the reach of the new law. An individual may invoke a right to privacy. Another possibility is that the courts will be bound to interpret the common law to include a right to privacy.

Thus the new Human Rights Act may not bring a “quiet revolution” in English law, but a noisy one.

Large businesses and public organisations will have to closely watch future developments, because it is by no means clear exactly what the implications of the new Human Rights Act will be for commerce in the UK.

Commercial aspects of Italian law

Vincenzo Sinisi As with most other Western European countries, Italy has a civil law system. The basic rules governing contractual relationships are embodied in the Italian Civil Code which was enacted in 1942. Although these laws have not been substantially modified by the legislature during the past 50 years, Italian courts have been flexible in die interpretation of the Code’s provisions. Generally, the application of Italian Civil Code and the implementation of new legislation have reflected the changing needs of Italian society.

This discussion will focus primarily on “domestic law,” meaning the law contained in the Italian Civil Code. However, a lawyer drafting any contract which will be executed by Italian residents or in Italy should be aware that there are various international conventions which may be applicable. The most important conventions are:

The Treaty of Rome. This treaty was the founding document of the European Economic Community. Specifically, Italian contracts may be subject to the antitrust provisions contained in Articles 85 and 86, as well as pertinent regulations as they are interpreted and applied by current case law.

The United Nations Convention on Contracts for the International Sales of Goods. Effective in Italy since Jan. 1, 1988, this convention governs contract formation, obligations, risk allocation, and remedies. It applies to contracts for the sale of goods between parties whose places of business are in different countries.

Jurisdiction

The provisions regulating the choice of law, as well as other rules regarding private international law issues, are set forth in the “Preliminary Provisions to the Civil Code” (Disposizioni preliminari al codice civile). Article 25 of the Preliminary Provisions sets forth three criteria to determine the law governing a contractual relationship: nationality, place of formation, and agreement of the parties.

The first criterion is used for contracts executed by parties sharing the same nationality. In this case, the law governing the contract is that of the country of shared nationality. The second criterion refers to the place of formation of the contract and is used when a contract is entered into by parties of differing nationalities. Both of these criteria may be superseded by an agreement between the parties as to the governing law. However, there should be a logical connection between their choice of law and the transaction, especially with parties sharing the same nationality.

The parties to a contract may, indirectly, determine the law which will govern the formation of a contract. Article 26 of the Preliminary Provisions states that the formation of an instrument, whether or not contractual, is governed by the law of the place where the instrument is formed or, alternatively, by the law that governs the substance of the instrument. Thus, the parties may apply their choice of law with respect to the substance of the agreement to determine the validity of the formation of the contract.

Law No. 613 of Oct. 14, 1985, implementing the EC Convention of June 19, 1980 on the Applicable Law for Contractual Obligations, reiterates that parties have the liberty to choose the applicable law for their contractual obligations. The main exception to this right is that the parties cannot avoid the mandatory provisions of Italian law by selecting the laws of a country which has no minimum contacts with the parties or the dispute. In such an event, the laws of the designated country which lacks such minimum contacts would prevail only to the extent that such laws did not conflict with the mandatory provisions of Italian law. The above exception would not apply where the designated state had sufficient minimum contacts.

The contracting parties are limited in their choice of law by Italian legal principles governing the protection of public welfare. An Italian court would not enforce a provision of foreign law or a contractual provision, even if valid under the law chosen by the parties, if its enforcement would violate a fundamental principle of Italian public policy.

Choice of Forum

The Italian Code of Civil Procedure does not provide parties with as much flexibility with respect to the choice of forum. The parties to a contract may avoid the jurisdiction of the Italian courts and submit a contractual dispute to a court of the jurisdiction of their choice only if the parties are non-Italians or, in the event one of the parties is Italian, if this party is neither a resident of, nor domiciled in Italy (Article 2 of the Italian Code of Civil Procedure). The scope of this rather strict regulation is limited by the provisions of the Brussels Convention on Jurisdiction and the Enforcement of Judgments, Sept. 27, 1968, as amended, which is in force in all EC countries. According to Article 17 of die Convention, parties to a transaction may choose another signatory country (i.e., another EC country), as the competent forum, provided that at least one of the parties is domiciled in a signatory country and that the agreement does not conflict with the Convention’s jurisdiction provisions. These provisions state that the exclusive forum for disputes regarding real property, status of a corporate entity, public records, trademark, copyright and patent, and enforcement of judgments is the place where the matter in controversy is located.

Contract Principles

One of the basic principles of Italian contract law is that of leaving the parties free to govern their economic relationship. The Civil Code contains provisions governing general contract principles and also provides for specific types of agreements including sales contracts, agency agreements, lease contracts, loan agreements, and insurance agreements. The Code contains standard terms which facilitate drafting and performance. However, most rules may be modified by agreement between the parties.

Italian contract law also dictates certain requirements designed to protect a party in a weaker bargaining position or with less experience. For example, standard contracts prepared by one party which modify certain provisions of the Civil Code must provide for separate written approval of the modifications by the other party. These provisions include modifications on limitations of responsibility, the right to terminate or suspend the agreement, limitations on the right to raise objections, restrictions on relationships with third parties, automatic renewal or extension of the contract, arbitration clauses, and choice of forum.

Another protection which has recently been introduced in Italy is that of the “cooling off” period, which permits a customer who has signed a door-to-door salesman’s contract to cancel the contract within a certain period of time after its execution. Furthermore, any such contract must contain a warning that cancellation is permitted in this period. In the event the contract does not contain such a warning, the customer has the right to cancel the contract even after this time limit.

The rules governing the valid formation of a contract not executed simultaneously by the parties are set forth in the Italian Civil Code. An offer is deemed accepted when the offeror has received an acceptance at the place and in the manner indicated. This is normally at the offeror’s place of business or domicile, but the offeror may request specific formalities for a valid acceptance. An important point to note is that an acceptance which has terms even slightly different from the terms of the offer is considered a counter offer. Additionally, a contract is concluded when the offeror has received the acceptance, not, as in the United States, when the acceptance is sent. This point is particularly important with respect to international contracts, because, as noted above, the law governing a contract is, in the absence of an agreement to the contrary, the law of the place where the contract was concluded.

In theory, parties to a contract are free to determine the form of their agreement. In practice, however, this liberty is limited. Initially, the Civil Code requires that certain contracts be in writing, including contracts relating to the creation or transfer of rights to real property, long-term leases, and certain corporate documents. Furthermore, of those contracts not required to be in writing, the existence of only those with a value of less than 5,000 lire (approximately $4.35 at an exchange rate of 1,150 lire to one dollar) may be proven by oral testimony. Certain exceptions do exist. An exception is granted, for example, if the party asserting the existence of a contract produces some written documentation, originating from the other party, which evidences that a written agreement was entered into between the parties. In any event, upon consideration of the circumstances of the case, courts have discretion to permit oral testimony relating to the existence and contents of a contract.

Agency Agreements

Commercial agents have long enjoyed a protected status under Italian legislation. They may operate as self-employed persons carrying on their own business independently or on behalf of a principal. In either case, an agent has certain guarantees in the event of termination. Throughout the duration of an agency contract, a principal must make a contribution to an agent’s insurance fund (ENASARCO) in order to provide sickness, termination, and pension benefits.

Upon termination, the agent is entitled to compensation for the termination itself and for the clientele already provided to the principal. The termination payment comes from the ENASARCO fund and the compensation for clientele is based on the annual value of clientele serviced by the agent. This method has the virtue of providing certainty in calculating the compensation due. However, the situation has recently been complicated by the implementation of a new EC Commercial Agents Directive. The Legislative Decree that introduces the Directive (Italian Law No. 303 of 1991) adopts the option of compensation but without stipulating a clear formula. It also does not preclude further claims for damages arising out of termination. It may be that the practical result will be similar but there will be some confusion during the first months of application of the new law, which will come into effect on Jan. 1, 1993.

Distribution Agreements

Contracts which govern the relationship between manufacturers and distributors or wholesalers are not regulated by any special rules of law. Therefore, they are subject to the ordinary provision of the Italian Civil Code relating to contracts. Most distribution agreements operate by repeated sales of stock to the distributor, who may or may not be bound by a designated territory, exclusivity, competition, or confidentiality. They may operate by way of agency sale, but this is uncommon since it would not be favorable for a manufacturer to risk creating an agency relationship. There will be no compensation upon expiration of the contract unless otherwise stipulated, but there will be damages in the event of breach by either party.

The major limitation on distribution agreements, as well as franchising operations, is that they must not offend the rules against unfair competition. As anywhere else within the European Community, distributors in Italy must respect the principles of Articles 85 and 86 of the Treaty of Rome. They must also comply with the parallel rules of Italy’s own antitrust legislation.

The extent to which Italy’s antitrust legislation will be applied remains unclear. Although Italian law contains the EC prohibitions against competition restrictions, the EC block exemptions do not exist in Italy. Block exemptions permit conduct that would otherwise violate competition rules and are an essential part of the EC structure of distribution and franchising agreements. The pronouncements of Italy’s Competition Authority on this subject have not clarified the situation. It is probable that the Authority does not want to concern itself with agreements which comply with conditions equivalent to those of the EC block exemptions. On the other hand, any such unreported agreement could be rendered invalid if the Authority were to investigate. Though it would be prudent to report automatically all but the most minor agreements, very few enterprises actually do so.