We don’t get that many cases on agency law, but just as with the proverbial buses, you don’t get any for a while and then two arrive together.
Last month, the European Court of Justice (“ECJ”) handed down two judgments concerning the interpretation of the Commercial Agents Directive (86/653/EEC) relating to self-employed commercial agents.
In summary, the ECJ shed some light on:
- whether an indemnity received by a main agent is a substantial benefit for the purposes of assessing whether the sub-agent was itself entitled to an indemnity under Article 17(2)(a) of the Directive and whether payment of an indemnity to the sub-agent was equitable.
- the fact that there is no mandatory entitlement to commission on repeat sales under the Directive therefore making it possible for a principal and agent to contract out of this aspect of the Directive in an agency agreement.
NY v Herios (Case C-593/21)
Herios (as agent) entered into a commercial agency contract with Poensgen (as principal) to sell Poensgen’s products in certain states, and engaged NY (as sub-agent) to assist with sale negotiations. Poensgen and Herios commenced discussions with a view to NY continuing directly the commercial agency but these were unsuccessful and when the agency contract was brought to an end, Poensgen agreed on the payment of a goodwill indemnity to Herios. The sub-agency agreement between Herios and NY was also brought to an end, and immediately after, NY became the direct commercial agent of Poensgen.
NY subsequently claimed a goodwill indemnity from Herios arguing that under the Directive the indemnity paid by Poensgen to Herios was a "substantial benefit" to Herios, derived from NY's efforts, and therefore they were owed an indemnity.
The relevant law
Under Article 17(2)(a) of the Directive, a commercial agent is entitled to an indemnity if:
- they have brought the principal new customers or have significantly increased the volume of business with existing customers and the principal continues to derive substantial benefits from the business with such customers,
- the payment of this indemnity is equitable having regard to all the circumstances and, in particular, the commission lost by the commercial agent on the business transacted with such customers.
In this case, the Belgian courts asked the ECJ whether the indemnity received by a main agent (Herios) is a substantial benefit for the purposes of assessing whether the sub-agent (NY) was itself entitled to an indemnity.
What did the court decide?
The ECJ concluded that the goodwill indemnity which has been paid by the principal to the main agent in respect of the customer base brought by the sub-agent is capable of constituting, for the main agent, a substantial benefit. However, the payment of a goodwill indemnity to the sub-agent may be regarded as not being equitable, where the sub-agent continues the commercial agency business in relation to the same clients and for the same products but in the context of a direct relationship with the main principal, which replaced the main agent that had previously engaged him or her.
Rigall Arteria Management Sp z oo spk v Bank Handlowy w Warszawie S.A. (Case C‑64/21)
Rigall Arteria Management (as principal) and Bank Handlowy (as agent) entered into a series of agency contracts. The contracts provided for the agent to receive a commission only in the case where a transaction had been concluded as a direct result of the agent’s action.
The relevant law
Under Article 7(1) of the Directive, a commercial agent is entitled to commission on commercial transactions concluded during the period covered by the agency contract:
(a) where the transaction has been concluded as a result of his action; or
(b) where the transaction is concluded with a third party whom he has previously acquired as a customer for transactions of the same kind.
The Polish courts asked the ECJ if Article 7(1)(b) must be interpreted as a mandatory rule or whether commercial parties are permitted to contractually exclude the agent’s rights.
What did the court decide?
The ECJ ruled that Article 7(1)(b) is a non-mandatory rule and consequently, the parties may choose whether to include, exclude or modify the agent’s rights.
In reaching this conclusion, the ECJ reiterated that the aim of the Directive is to protect commercial agents and making the entitlement to commission under Article 7(1)(b) mandatory would not further this goal. The risk would be that principals might lower the basic commission rate or otherwise reduce agents' remuneration to compensate themselves. Such conclusion is also reinforced by the stylistic decision to use the word "or" between subsections (a) and (b), implying that the intention of this provision was to offer a choice to the parties.
Although these are EU rulings, these decisions are still applicable to the UK as the Directive was implemented in the UK with identical wording by virtue of Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053) (the “Regulations”).
These decisions serve:
- as a reminder for principals of the indemnity rights that agent and sub-agents have under the Regulations; and
- as an incentive for both parties to ensure template agency contracts are duly kept under review to ensure the scope of commissions payable is clearly defined and negotiated.