What happens when different legal systems give conflicting answers to the same question, and arguably, each set of rules applies? Episode #10 of Borderlines introduces U.S. and European Union approaches to Conflict of Laws in interstate and international contracts. Three experts join us: UC Berkeley Professor Andrew Bradt, author of Complex Litigation, UC Davis Professor Bill Dodge, author of Transnational Business Problems, and Montpellier Professor Claude Ferry, president of IABA, the International Association of Berkeley Law Alumni in Europe. They clarify technical issues with huge stakes: explaining, for instance, how American firms, but not European firms, can easily use governing law clauses to circumvent local labor and consumer protections. For listeners interested in more, Bill Dodge’s Transnational Litigation Blog has up-to-the moment updates.
Katerina Linos (00:02):
What happens when different legal systems give conflicting answers to the very same questions and arguably, both sets of rules apply? I’m Katerina Linos, Tragen professor of law at UC Berkeley. In episode 10 of Borderlines, we’ll introduce a complex but high stakes area, conflicts of law. With us today to discuss American and European approaches are three experts: UC Berkeley professor, Andrew Bradt, author of Complex Litigation, UC Davis professor, Bill Dodge, author of Transnational Business Problems, and Montpellier professor, Claude Ferry, president of the International Association of Berkeley Law Alumni in Europe. We’ve just come back from a fascinating talk on how European and American approaches to conflicts have evolved over time, where they are today, and where they might be in the future. Today, we’ll continue that conversation.
My first question is for Bill, but others can chime in. I teach international business transactions and I use Bill’s casebook, and I tell the students on Day One that if they decide that they don’t like the class and want to move out or if they take the class and forget everything after the exam, there is one thing they need to remember, which is that in every contract, they should include a governing law provision and select a forum for dispute resolution. That’s the most important thing because otherwise, a mess will result. Am I right? What does happen if you don’t include that provision? I think that’s one way to introduce the amazing topic of conflicts of law. Bill.
Bill Dodge (01:53):
Great. Thanks, Katerina. Yes, you’re absolutely right. I tell my students the same thing when I teach international business transactions. Every international contract needs a choice of forum clause and a choice of law clause. If you do have a choice of law clause, then most legal systems will respect that. There may be some limits, but most legal systems will let you choose the law that applies to your contract, and then if you get into a dispute, the same law is going to govern no matter where the suit is brought. If you don’t have a choice of law clause, you can’t guarantee that the same law is going to govern because each country, each jurisdiction, applies its own choice of law rules, and those choice of law rules differ from place to place and they might point towards different applicable law.
Katerina Linos (02:43):
Thank you so much for that. Can we make it a little bit more concrete? I’ll start with Claude on this one. We have an American company that wants to contract with a French company. Could they pick the law of Mozambique to govern their contract?
Claude Ferry (03:00):
Well, it will depends where the forum is. If you are choosing to bring the case before a forum, which is located in one of the 27 members state of the European Union, there is no limit to the choice of law by the party. So they could pick a state which has no connection whatsoever with the contract. However, in practice, we never do that because it’s kind of a shot in the dark. There is no case law. It’s risky. Lawyer will never advise to do that.
Katerina Linos (03:39):
So only for a law school hypothetical would I do that kind of problem. Let me talk about some similarities and some differences in the European and the American approaches. You gave us these wonderful lectures with historical overviews and this is a question for Professor Bradt. I love the European approach for two reasons. I love it because it is very predictable. I can read the Rome Regulation and it makes so much sense. I understand what’s going to happen. I also love it because I think it puts in place some provisions that favor the weaker party. Is that fair as a characterization of how the American and the European systems differ?
Andrew Bradt (04:29):
Yes and no, I would say. I think that you’re quite right that there is a great allure to any system with rules that can be looked up, relatively easily applied, and particularly if those rules are what I would call smart rules. That is, they’re rules that are tailored to a particular controversy and who the parties are likely to be. For instance, when you’re talking about a situation with contracts that are negotiated at arms length by sophisticated parties, then we might be more willing to give those parties latitude to choose whatever law they want because we’re not terribly worried about an imbalance of power between them. But if it’s a consumer contract as the Rome rules provide, we might want to ensure that for those kinds of contracts, we give the drafter of the agreement, whom is almost certainly the more powerful party, less latitude to choose law.
So both of those things, I think, are real advantages of the European system. As I said a little bit earlier though, I think in the American system, we have a real skepticism of the ability of rules both to cover the full panoply of likely disputes that will arise in multistate or multinational cases and also the ability or even willingness of judges to follow the rules when they’re not thrilled with what the outcome might be. And so for that reason, American courts by and large, and it’s very hard to generalize about “an American” approach because the states differ quite a lot, but the American approaches, we’ll say, are far more skeptical of the ability of rules to provide either a kind of uniformity or ensure justices between the parties.
Katerina Linos (06:29):
I want to talk about the two specific examples that Claude mentioned in his talk and discuss how they might be similar or different in American states. One example he mentioned concerned wills and he said, “Look, the policy preference is to follow the terms that were set by the person who drafted the will and the choice of law rules say that a will will not be invalidated for formal reasons as long as one of five bodies of laws that have some reasonable connection are selected.” Is it fair that in the US context, a lot of deference, the same policy objective would be achieved in a similar way?
Andrew Bradt (07:14):
I think that’s likely the case. I think one caricature of American approaches is that they’re ultimately always ad hoc or that they can be too divorced from the body of law underlying a particular area. That is, once you let the conflicts people get their grubby hands on what law you could apply to a will, well, they’ll louse it all up because they’re not looking at the right things. I think neither is true. Yes, there is a strong preference in both systems to try to fulfill whatever the substantive policies are underlying in an area of the law. As Claude said earlier today, you can easily do that through the mechanism of a rule or through the mechanism of some other kind of more flexible process. In lots and lots of conflicts cases, the result’s roughly straightforward. It’s not surprising to me that both approaches could lead to the same perfectly reasonable result.
Katerina Linos (08:17):
I want to ask about employment law in a little bit because I think we might have some differences there. But first, let me follow up and ask each of you, what are some situations in which both approaches would lead to the same results? Would we see this in real property? Would we see this in places where parties are, as you said, sophisticated commercial parties and have picked not the law of Mozambique, but the law of one of the two jurisdictions where they’re domiciled? What are some straightforward cases first?
Claude Ferry (08:53):
When the party choose the applicable law, of course both in the US and in France, well in European Union since now we have unified rules, the will of the party finds some limits and that the limits should be more or less the same, either an overriding mandatory provision or in the US, you will say, well there’s a fundamental policy underlying this rule of law, so stop. Example, rent control. I assume that in the US, the state where the immovable property is located has a strong interest in advancing its policy in underlying rent control rules and it will prevail over the policy of the state of the landlord, for example, which will be to have no limits to rental agreement concerning real estate property because this is a way of boosting investment in housing, or . . . I will think that in both situations, the rent control will apply.
Katerina Linos (09:59):
Thank you so much. I want to turn for another example to Bill.
Bill Dodge (10:04):
I would say real property is probably another example. Most legal systems say that when we’ve got property issues, you should apply the law of the place where the property is, at least with respect to immovable property. So I think you find a lot of uniformity there, but others, correct me if I’m wrong.
Andrew Bradt (10:22):
No, I think that’s right. As we all know, one of the real bugaboos for modern American choice of law theorists has been the stubborn persistence of the situs rule for cases involving real property, particularly when the parties who have ownership stakes in that property, they all hail from different locations. But I think you’re right in the sense that it’s hard to come up with a rule that everybody could agree to that’s better than the rule that if the case involves property, then it should be governed by the law of the state where the property is located.
Katerina Linos (10:54):
Great. I love how you each check with one another like, does anyone know of exceptions? This is the beauty of comparative law, that maybe we’ll learn many new things. Let me turn back to Claude. In your talk, you spoke about employment contracts and you mentioned three possible governing laws or three possible bodies of law. One would be the law of the place where the employee performs his duties typically. Another would be mandatory provisions of European or other bodies of law that might override that. And a third would be a law in the employment contract that was perhaps chosen by the employer. Which of these would typically govern a dispute?
Claude Ferry (11:40):
Well, they are combined. You can let the party choose the law applicable to the employment contract. Definitely, this is the UE regulation that said it’s possible, but it will find two limits. The first limit will be that the law of the country where the employee is performing his task is more protective for the issue at stake than the law chosen by the bodies. That’s the first limit. The second limit that you could bring in an overriding mandatory provisions which will not belong to the law of the country where the employee habitually carries on his work. Let me explain. If you are, for example, a French company which is employing a Venezuelan in Venezuela habitually, so that lasts for three years and suddenly, the Venezuelan employee is sent to France for six month. Then okay, the party will have chosen Venezuelan law. Fine. But even though he is not carrying out his work habitually in France, some French provision of the labor code may apply as overriding mandatory rules.
We have this case. It’s called the Club Med case in 1975. Club Med sent six musicians to Yugoslavia at that time to play music in a village. It was not the employee, but social security came after Club Med because they haven’t paid the social contribution related to paid vacation indemnity. So Club Med said, “Well, the employee habitually carries out their work in Yugoslavia, so Yugoslavian law shall apply.” At that time, Yugoslavian labor law – I’ll let you imagine. So the Court of Ascension said, “No, because the rule concerning paid indemnity wants to apply as an overriding mandatory rules to [a] French employee hired in France by a French company to be sent temporarily abroad.”
Katerina Linos (14:06):
Thank you so much for that. I want to go one step back and just make sure I understand the more basic situation and then turn to how that more basic situation would be treated under US conflicts principles. Let’s say we have a French multinational that has subsidiaries all over Europe and it says all employment disputes shall be governed by the law of France. Some employee in Greece has some kind of grievance and it turns out that Greek law – this employee in Greece habitually resides in Greece – is more favorable, but it’s not a mandatory provision.
Claude Ferry (14:44):
Well, it will be because almost all labor law are mandatory. You cannot escape labor law, but making a derogation in the contract. So by definition, it’s mandatory. But the question is, is it over mandatory? I will say that all labor law is over mandatory.
Katerina Linos (15:05):
So just to be 100% clear and repeated for Americans, I’ve picked French law. It’s a totally reasonable choice. I’m a French multinational with subsidiaries all over Europe. I can’t, through that technique, get out of some labor law provision of Greek labor law. Is that right?
Claude Ferry (15:21):
Exactly. You may not.
Katerina Linos (15:23):
What if instead I was a Delaware corporation with subsidiaries in all of the states and I’d selected Delaware labor and employment law, how would a California and how would a Texas court deal with some grievance brought by an employee in those two states?
Andrew Bradt (15:45):
Well, I’ll start. I think that in the United States currently, and this is yet another example of how different historical stories often lead to similar results, although not entirely identical results, I think in the United States, we have developed a very strong solicitude for choice of law clauses in contracts, particularly if the choice of law is a law of one of the US states. And so while you and Bill both tell your students in international business transactions that they should include a choice of law provision in their agreements and a choice of forum provision in their agreements, I make the same point to my US civil procedure students because those are likely to be enforced far more so than perhaps any other time in our history. So as a practical matter, if the law that’s chosen by the parties is particularly one of the law of the state of incorporation of one of the parties, that’s almost certainly going to be enforced in the United States regardless of what state you’re in.
Now of course, the difficulty with all conflicts in contract cases is that when the parties make the contract, presumably, they’re all on the same page and they make the contract with the view that the contract will be enforceable and they don’t anticipate the dispute that might arise later that may implicate the conflict of laws. Then it’s only, if there’s no choice of law provision, do you have to figure out what to do with that, and that’s when you get either an appeal to the kind of rule structure Claude was talking about or one of the more flexible approaches that are adopted by most of the US states.
Bill Dodge (17:32):
I would only add to that that most US states follow an approach that does recognize the possibility of applying the law of a different jurisdiction if two conditions are satisfied. First, if the issue is not one that the parties could have resolved by contract. We let parties do lots of things in their contract, set the rate of interest, for example, on overdue amounts. And if a state has a rule that says the overdue amounts interest shall be this, the parties can vary that rule, often. But if the issue is one that can’t be varied by the parties and another state has a much stronger interest in applying its law then that state is allowed to apply its law. That exception is almost always applied by US courts to apply their own law, which is to say, they very rarely say that some other state has enough of an interest that they will apply that state’s law.
But if the contract has chosen Oregon law and you’ve got a California court, a California court might say, “Well, California has the stronger interest.” It’s an idea that’s similar to mandatory overriding provisions, but Americans don’t talk about it in those terms.
Andrew Bradt (18:52):
And that initial one of the provisions that Bill mentioned, I think, is the key one, the question of whether or not it’s something that we think the parties may be allowed to resolve via contract. For instance, one of the areas that we think that parties can’t resolve via contract is capacity. You can’t say through a contractual provision that somebody who under the relevant state law would be not allowed to enter a contract waives that protection. Then you might get to the second step of saying, okay, under those circumstances, might we apply the law of a different state? One of the example of where this comes up in employment law is in covenants not to compete. That is non-competition agreements such that if somebody leaves their employer, that they’re not allowed to compete in some respect for a certain period of time. California rejects those contractual provisions as a matter of its public policy.
That has created quite a lot of difficult cases where you have either a defendant that’s based in another state or you have an employee that is in California but leaves for some other state and the question becomes, well, if the parties have chosen the law of some other state, nevertheless, would you ignore the party’s stated preference and apply the law of California on the ground that it’s not something that California would allow the parties to contract around and that California has the greatest interest in its law applying? In a country where we have so much movement of employees and perhaps in a country where we’re likely to have more and more employees working from home in a place that’s different from where their employers carry out a lot of their other tasks, the question of whose law applies to their employment agreement may be one that becomes more complicated rather than less complicated.
Katerina Linos (20:36):
It sounds like Claude would advise a French firm with a Greek subsidiary, “You’re not going to get out of the most onerous provisions of Greek employment and labor law by some choice of law provision. That’s not going to happen.” Is that right?
Claude Ferry (20:51):
If given a dispute, it turns out that Greek labor law is more protective than the French labor law that you have chosen in the contract, according to Article VIII of the Rome I Regulation, the Greek labor law will prevail.
Katerina Linos (21:12):
And that would not be the advice you would give to an American employer, right? An American employer could be told that you could pick any one of the US state laws, especially the law of the state where you’re incorporated perhaps where you have your presentable place of business, apply it to all of your subsidiaries and count on having those governing law provisions.
Andrew Bradt (21:35):
I think that’s right. Section 187 of the Restatement not withstanding, most of the time, that will be the result in the United States. Now of course, in the United States, we do have what might be a tangential analog to mandatory or overriding provisions, which is federal law. Federal law may come in and preempt state law, and that’s one of those areas where the results may wind up being consistent. That is to say, even if the different states may disagree on one or the other provisions of labor or employment law, if there’s a federal law that preempts the states, then that law’s going to apply regardless of what the parties say they intend in the contract. That’s a feature of various aspects of American law that we shouldn’t forget about in this context. Bill, I don’t know if you agree with that.
Bill Dodge (22:27):
I do. For example, you can’t opt out of federal anti-discrimination law. Title VII of the 1964 Civil Rights Act prohibits employment discrimination on various bases and there’s nothing you can put in your choice of law clause to avoid that, which is a good thing.
Katerina Linos (22:44):
EU law seems to be saying EU federal law, EU law will set mandatory provisions below which you can’t go. I wonder whether new federal law or US Supreme Court interpretations of preemption doctrines are working in that direction or in the opposite direction. I’m particularly curious about what is and is not arbitrable. It seems like under EU law, a lot of categories of people can’t waive their rights to litigation. If I’m an employee or a consumer and my counterparty puts in a mandatory arbitration clause, that won’t be enforced. Is that right?
Claude Ferry (23:25):
You won’t be enforced in France either. Under labor law, it is clear. There is a case law, which is very clear. When a French court has jurisdiction, you may not have an arbitration clause. You may not even have a foreign forum clause. Concerning consumer law, any provision by which the consumer will accept to go before a given forum or to go to arbitration is considered as unfair terms and deemed unwritten.
Andrew Bradt (24:02):
That’s the opposite in the United States. What Claude actually describes is a fairly accurate statement of what American law would have been, I would say prior to the 1960s, but since the 1970s, the Supreme Court has determined that the Federal Arbitration Act is like a tidal wave that wipes out everything in its path. So even if individual states were to want to make certain agreements not arbitrable, what the Supreme Court has said, by and large with some smallish exceptions, is that the Federal Arbitration Act will require the contracts to arbitrate be enforced.
Bill Dodge (24:38):
To add to that, we’re now moving into a topic that’s a little different from choice of law, but very related to it, which is choice of forum. A contract can also specify what disputes will be resolved and that could be in a particular jurisdiction’s court or it could be by arbitration. And very frequently, the two are related to each other because different forums may be more or less likely to respect the party’s choice of law. And if there isn’t a choice of law, they may apply different choice of law rules to decide what the governing law is. So you have to think about these issues together, not independently.
Katerina Linos (25:18):
Thank you so much. I want to ask you some questions about the evolution of both bodies of law. First, I’ll just repeat what I learned from the talk just to make sure I’m getting it right and then ask you about the future of EU, US, and perhaps international law on these issues. The way I understood Claude’s talk is to say we had certain principles, predictability, certainty. We put them in national law. We put them in EU rules. We’re improving upon them constantly, so now we have very clear EU rules that apply to all 27 member states and are both fair and predictable. The way I understood Andrew to say is that used to be the US approach in the ’30s. There were many, many challenges from the 1930s to the 1950s and we’ve seen a lot of development since the 1970s.
One thrust was more flexibility and this took the form of more flexibility to the judges for individual disputes, a lot of deference to what the parties had put into their agreement with some disregard as to whether there was big asymmetry and power at the time of the drafting. Is that a fair summary?
Andrew Bradt (26:42):
In a sense, both stories have led us to roughly the same substantive solutions. The main difference, it seems to me, is that what the EU has done is codify those solutions with the set of increasingly detailed and policy-driven rules. Whereas in the United States, we have very little statutory codification of choice of law rules. Instead, we have adopted approach that prioritizes federalism by leaving it to each state to decide what their choice of law rules will be and then requiring those rules to be applied in federal courts in cases involving state law. And so the result has been that in many states, I would say that the results that the Rome conventions would lead to are similar to the results that would be reached by and large by American modern approaches. But we do still have roughly a quarter of our states that adhere to the old first Restatement territorial rules. Unlike the EU, we’ve made a decision that that’s acceptable despite that it creates opportunities for forum shopping.
Katerina Linos (28:04):
Great. So maybe I’ll ask you to speak once more about the First Restatement and the Second Restatement, and then I’ll turn to Bill so that he can discuss the possibility of a third statement.
Bill Dodge (28:15):
Can I make one point first? I just want to emphasize something that Andrew said, which I think is a huge difference between the United States and Europe, which is the question of unification. Europe has decided to unify choice of law rules for all of the member states of the European Union. The United States has made precisely the opposite decision. We haven’t even unified it within the United States because choice of law is a question of state law and even federal courts are required to follow state law. In general, US courts reach similar conclusions, but they often don’t because there are outliers and the situation in the United States is very confused as a result and very unpredictable and would likely horrify folks from the European Union.
Andrew Bradt (29:05):
I’ve certainly had many European students in my conflicts class express that horror about that aspect of the American system, but also many other aspects of the American system. So it’s not the only possibility there, but Bill is absolutely right. We have made a decision in the United States to tolerate a cacophony among our members or our states, whereas the EU has made precisely the opposite decision. I think Bill would agree with me that Congress, if it wanted to impose nationwide choice of law rules, it would have the power to do so, but it hasn’t and I predict won’t. So with respect to your question about the Restatements, the territorial rules that we inherited at the beginning of the country were basically followed, although sometimes in the breach by the US states up until the First Restatement was published in 1935. Really, by the time the First Restatement gets published, criticism of the rigid wooden nature of the old territorial rules, and the recognition that courts were often either ignoring them or unable to follow them, was really at a fever pitch.
The First Restatement comes along in 1935, but in many ways, it’s almost dead on arrival. Then what you have is a long period in the middle part of the 20th century of criticism and experimentation with other approaches and the recognition by the American Law Institute that the First Restatement was really no longer a restatement. It was archaic by that point. The problem with the Second Restatement is that it too is a cacophony, in the sense that it tries to have everything but the kitchen sink in it to appease everybody who has something to say about choice of law. So even though the Second Restatement is by far the dominant approach in the US states, it’s also the one that is, quite frankly, open to the easiest criticism because there’s so much in it that a judge could consider that it has a little bit of a choose-your-own-adventure quality for any judge trying to decide between different states’ laws.
I think the SecondRrestatement is a worthy target of criticism even if you look at the case law. In most regularly recurring patterns of cases, you’re likely able to predict the result more often than not.
Bill Dodge (31:39):
The Third Restatement is in the process of being drafted. It was launched in 2015, but it’s still ongoing. If the criticism of the First Restatement was that it was too rigid and the criticism of the Second Restatement was that it was too unpredictable or manipulable, then the Third Restatement is trying to find a middle course, if you will, and maybe I can use contract conflicts as an example. What it tries to do is start with the rules that are going to resolve most of the cases and then have a more general and unpredictable rule at the end for cases that aren’t resolved by any of the earlier rules. It starts with choice of law clauses and their enforceability and interpretation because many, many contracts have choice of law clauses. So that’s going to take care of a lot of cases. Then it has rules for a few specific kinds of contracts.
So for services contracts, the Third Restatement proposes to have the law of the place where the service is rendered governed. There are rules that turn on just a few contacts. So if the place of the negotiation and the place of the making of the contract are the same, that that law should govern if none of the earlier rules cover the case. And that finally at the very end, the contract section have a rule that something like the Second Restatement’s most significant relationship test to cover the small number of cases that won’t have been caught earlier. But the idea is that these other rules are more rule-like, if I may. They’re more predictable, and they’re going to resolve most of the cases leaving only a few for the less predictable everything-but-the-kitchen-sink approach.
Andrew Bradt (33:40):
Two reactions to that. One is that the great hope of rules of any kind, whether they’re codified as a statutory way or as part of a restatement, is what Bill just described, that the rules will govern most cases and there’ll only be a few unusual cases that create problems. Indeed, that’s going to be the case regardless of whether you have rules or not because hard cases are always going to be hard and anytime that there’s a case that doesn’t seem to fit the rule, there’s going to be a temptation to ignore the rule and come up with a better result. But the question always is, will the rules accomplish that goal or will the rules, by their necessity, have to be flexible enough to accommodate new fact patterns? And if those new fact patterns arise with some regularity, then the rules are not going to achieve the goal of predictability that they set out for themselves.
Katerina Linos (34:43):
When I chat with Europeans, they seem to consider that they have a great system. It needs tweaking but not major change, and instead, the big effort should be in creating international conventions that harmonize rules globally. Bill, this is of course a question for you and maybe for you as well, Claude. There’s this ambition: We’ll have a couple of conventions already and we’ll write new conventions because harmonization works. I don’t think Americans are optimistic about the approach of these conventions, but of course, they participate in their negotiation. Am I characterizing this fairly?
Claude Ferry (35:20):
The European Union regulation are not criticized. They are considered as satisfactory. There is just need some time to build some case law to say exactly if a given rule is overriding mandatory rule or not. There are some hesitation and sometime, the French Court of Cassation is puzzling. This one is. This one is not. So it will take time before we know. So far, this is where the uncertainty is. For the rest, it’s considered satisfactory because it has tempered the blind aspect of the original rules that they were in bill in the First Restatement or they were, let’s say, until the mid-50s in France, in Europe I would say, because we realized that finally, we get the same evolution.
Bill Dodge (36:16):
There have been some efforts, conclude conventions that will govern particularly choice of forum clauses of one kind or another. In the area of arbitration, there’s a dominant convention called the New York Convention that deals with arbitration clauses and the enforcement of arbitral awards, and it’s very, very widely adopted, maybe 160 countries. There is a Hague Convention on choice of court agreements that is supposed to do the same things for choice of court clauses and I believe it has gone into effect. The European Union is party to it and a few other jurisdictions – Mexico, I think, Singapore. The United States has signed it, but has not yet managed to ratify it. We’re approaching almost 15 years since the United States signed it. There may be another push to ratify it coming up at some point soon, but it’s a difficult issue in part because of American federalism.
Because this is a treaty, it’s concluded on the national level, but traditionally, things like the enforcement of choice of court clauses and particularly the enforcement of judgments, which this also deals with, have been the province of the states and the states therefore want a role in implementing it. The federal government feels nervous about letting states implement our treaty commitments. I’m not aware that there have been efforts to try to harmonize choice of law clauses or choice of law principles generally by treaty, but that may just be my own ignorance speaking.
Andrew Bradt (37:54):
Something that Bill said and that Claude said is really important, which is both with respect to the European Union but also with respect to American choice of law rules, is the realization that choice of law rules are not purely procedural. They’re deeply substantive because what choice of law rules do is advance a particular policy. When you’re choosing law, you’re choosing a policy. I think the difference is that in the EU rules, there is an agreed upon policy underlying many of them. Whereas in the American states, the disagreements are allowed to far outweigh the agreements, to the point that respect for individual state’s prerogatives in choice of law is a barrier to harmonization.
Katerina Linos (38:49):
For my final question, let me give you each one magic wand, or if you want, two. And with your magic wand, you can change the most frustrating aspect of US law or EU law. What would you like to do?
Claude Ferry (39:05):
There’s nothing that frustrates me under a UE law concerning international contracts. What is frustrating is that we need time before we know if this overriding mandatory rule is really an overriding mandatory rule, and what is its scope? For example, for commercial agent, it’s clear. You know that on the 27 member states, even if you have a contract with a New York company and let’s say a Luxembourg commercial agent, and you choose the law of New York and the law of New York said there is no compensation when the contract is terminated, you allow the compensation because it’s an overriding mandatory rule, and if the contract is performed in Luxembourg, since this overriding mandatory rule has a European origin, you find it in the 27 states. So just a question of time, I think.
Andrew Bradt (40:04):
Well, I think of myself as a rather enthusiastic adopter of governmental interest analysis and I would like to see more US states adopt that specifically rather than use the Second Restatement, which I really do believe is, if not a failure in the real world in terms of adoption, I think it’s a failure conceptually. If I had a smaller magic wand, maybe, I’d like to see us have less solicitude for choice of forum and choice of law provisions in boilerplate consumer contracts. I think we’ve gone too far down the road of accepting those provisions. I’d like to see us do something more like what the Rome rules do.
Bill Dodge (40:50):
I would second Andrew’s solicitude for weaker parties. I think one of the advantages of the European approach is that they have carved out special protective rules for consumers, employees, others who need the protection. That has really not been the US approach in either conflicts or in substantive contract law. I think that’s a problem. I might disagree with Andrew on the form, on the right approach, to choice of law rules. I’m a person who likes rules and likes their predictability. I am in favor of the approach that the Restatement Third is trying to take by settling on more predictable rules when those rules are already being widely followed and leaving the more open-ended discretion for the really hard cases that can’t be fit within something more predictable.
Katerina Linos (41:49):
Thank you all so much. Do you want to add anything?
Claude Ferry (41:53):
Herma Hill Kay used to be the dean of Berkeley. In 2001 in the Willamette Law Review, she was saying it’s too early for a Restatement because we need to build cases that will make the predictability. The government interest analysis finally is like the overriding mandatory rules except the overriding mandatory rules is a tiny domain while government interest is the principle. So it will take decades before we know exactly when such policies and conflicts with other policy what does generally the states’ courts decide. So at the end of the day, but might be the end of the century, we will have everything, flexibility and predictability. It’s ambitious, in fact.
Bill Dodge (42:43):
I might just say, in response to that, governmental interest analysis has been around for about 60 years or so. So if we haven’t gotten the rules right at this point, how long should we wait?
Andrew Bradt (42:57):
Perhaps I’ll take a middle ground. I’m not so sure that the American system is as unpredictable as it is often made out to be. I think that it is both true that we have a set of recurring patterns that have led to relatively predictable results. I also think it’s the case that we may be overstating the ability of rules that codify those patterns to add any more certainty to the system than already exists. And I guess of the three of us, I’m the most pessimistic about ex ante rules really carving off a discreet domain of the hard cases any more so than exists in the status quo. But perhaps I’ll be proven wrong and that will be good for everybody.
Katerina Linos (43:50):
Thank you so much for joining us for this episode of Borderlines. I hope it’s now clear why Conflicts is a technical field with huge stakes – why, for instance, American firms but not European firms can easily use governing law clauses to circumvent local labor and consumer protections. If you want to hear more, turn to Bill Dodge’s Transnational Litigation Blog. The link is in the show notes and you can find other up-to-the-moment updates there too.