The EU Commercial Agents Directive gives commercial agents certain rights and entitlements, including the right to claim goodwill compensation on termination of the agency.
Limiting the potential liability by a choice of law clause
It is well established that non-EEA producer principals cannot “contract out” of their potential liability by making the agency contract subject to the law of their own country.
However, the Directive enables the parties to agree that the law of any EEA member State will govern the contract, since every such State is assumed to have implemented the Directive. Some member States have stipulated that goodwill compensation must take the form of an “indemnity”, calculated in a specific way and subject to an overall cap, which usually results in a substantially lower award than an open-ended compensation claim. Making the contract subject to the law of an “indemnity State” has therefore been seen as a way in which principals can limit the potential liability.
Can the choice of law be overridden?
This was considered in a recent ECJ case* involving a Belgian agent for a Bulgarian principal. The agency contract was expressly made subject to Bulgarian law. The agent applied to the Belgian court, claiming compensation on termination of the agency pursuant to Belgian law. It argued that the Belgian law implementing the Directive granted agents greater protection than the Bulgarian implementing law, which only met the Directive’s minimum requirements. If the choice of Bulgarian law was upheld, therefore, the principal would have succeeded in contracting out of the mandatory protections provided by Belgian law, to the agent’s detriment.
The ECJ held that the law of a member State which had been chosen by the parties, and which met the minimum requirements of the Directive, could nevertheless be overridden by the law of the forum (the country in which the agent operated and commenced proceedings). However, whether it should be overriden was a question for the forum court, and it would only be permitted where that court:
“…. finds, on the basis of a detailed assessment, that when implementing the Directive its legislature held it to be crucial … to grant the commercial agent protection going beyond that provided for by the Directive.”
Implications in practice
Not all EEA member States have implemented the Directive in the same way. Some apply it to both agents supplying goods and agents supplying services, others limit it to the supply of goods. Some prescribe a maximum period of notice of termination of six months, others a maximum of three months. And as already noted, some – including the UK and France – prescribe open-ended, unlimited compensation on termination, rather than a capped indemnity.
This decision appears to enable a UK agent, despite having agreed that the agency contract is governed by the law of an indemnity State, to claim open-ended compensation under the UK Regulations substantially exceeding what he might recover under the indemnity approach. However, the UK Regulations provide for open-ended compensation rather than an indemnity “except where the contract otherwise provides”. The principal might argue, therefore, that the agent is confined to the indemnity remedy under the choice of law he agreed to. Alternatively, that this decision requires the UK court to carry out a detailed review of the progress of the Regulations through Parliament, to determine its legislative intentions and the effect of the relevant provisions as enacted.
So, plenty here to create uncertainty and keep the lawyers busy!