Commercial Agency Contracts in the European European Union

The legal framework for commercial agents in the EU is set by the Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents (here: the Directive) which is also part of the EEA Agreement (Norway, Iceland and Lichtenstein). The Directive is addressed to Member States and is intended to harmonize different national laws and grant some minimum standards in the status of commercial agents. The Court of Justice can be addressed on matters of interpretation of the Directive and its implementation by the Member States.

Therefore, commercial agency contracts are regulated by the national laws of the Member States, which have to comply with the Directive. Notwithstanding the harmonization, there are still significant differences among the regulations of commercial agents of the Member States, and sometimes similar rules are applied differently in the courts of different countries. For these reasons, it is always important to consider national peculiarities when stipulating a commercial agency contract in the EU.

Field of application

The Directive applies to the relations between commercial agents and their principals. Commercial agents are meant to be self-employed intermediaries who have continuous authority to negotiate the sale or the purchase of goods on behalf of the principal, and are remunerated for their activity. The Directive does not apply to other intermediaries like employees, individual partners, liquidators, occasional dealers, brokers or unpaid agents. It also does not apply when the activity as commercial agent is considered “secondary” to another main activity. Some Member States have extended the application of the Directive to agents who negotiate contracts for the supply of services.

Content

The Directive is intended to set minimum standards and therefore does not regulate all details of commercial agency contracts. The main areas which are addressed are the following:

• mandatory rights and obligations of the parties (communication duties, obligation to provide documentation, etc.);
• the remuneration of the agent, which may vary with the number or value of business transactions (commission) - fixed remuneration is also possible;
• mandatory rules on the right to commission during and after the contract and deadlines for payment;
• right of the parties to obtain a written signed document setting out the terms of the agreement;
• mandatory rules on minimum termination notice;
• the rights of the agent after termination of the contract: the States may choose between granting the agent an indemnity (so called “German system”) or a compensation (so called “French system”);
• rules on restraint of trade (non-compete) clauses following termination of the contract.

The major differences in the implementation among the Member States concern the rights of the agent in case of termination of the contract. In fact, even among States which have chosen the same system there are differences in the actual implementation of the measure!

The result is that the same activity may be regulated differently in different Member States, according to the law applicable to the contract.

CJEU interpreting the Directive

The Court of Justice of the EU has issued several judgments interpreting the Directive or reviewing the implementation measures of Member States.

The notion of commercial agent

According to the Court, the Directive lays down three necessary and sufficient conditions for a person (or entity) to be classified as a “commercial agent”: (i) that person must be a self-employed and independent intermediary; (ii) the contractual relation must be of a continuing character, (iii) the person must exercise an activity which consist in the negotiation or conclusion of transactions for the sale or purchase of goods. Member States cannot introduce additional conditions, as this would jeopardize the achievement of the objectives of the Directive.

Applying such principles, in the case Zako (C-452/17 of 21 November 2018) the Court has ruled that even if the agents perform their activity from the principal’s business premises, this does not prevent them from being classified as commercial agents. Also, the fact that an agent performs further activities of a different kind (like managing staff of the principal, selecting products and suppliers etc.) must not affect the agent’s status as independent intermediary, providing that the three conditions mentioned above are met.

In the recent case Trendsetteuse (C-828/18 of 4 June 2020) the Court has further ruled that “negotiating transactions” does not mean that the agent needs to have the power to change the prices of the goods which are sold on behalf of the principal: according to the Directive, the main tasks of the commercial agent include to acquire new customers and develop business for the principal and this can be done even without the power to change the prices.

The application of the Directive outside the EU

In the landmark case Ingmar (C-381/98 of 9 November 2000) the Court ruled that the right of the agent to termination indemnity or compensation set by the Directive is mandatory in nature; therefore, an agent who acted in a Member State cannot be deprived of such right even though the principal is established in a non-member country and the contract is governed by the law of that country.

On the other hand, if the commercial agent carries out activities in a non-Member State and the principal is established in a Member State, the Court ruled in the case Agro Foreign Trade (C-507/15 of 16 February 2017) that the commercial agent cannot rely on mandatory rights contained in the Directive and the parties can derogate from it, for example excluding termination indemnity or compensation.

Is it possible for the parties to a cross-border agency agreement to choose the courts of a EU member state to have jurisdiction over it?

If the parties have agreed to submit the contract to the courts of a Member State, the courts chosen by the parties have jurisdiction, provided that the clause is valid. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. The agreement shall be (a) in writing or evidenced in writing; (b) in a form established between the parties or (c) in a form according with a usage which is widely known in the particular trade or commerce concerned. Any communication by electronic means which provides a durable record of the agreement shall be equivalent to ‘writing’.

In addition, a party which is sued before the courts of a Member State - except when another court has exclusive jurisdiction - may decide to appear without contesting jurisdiction.

The above rules are established by Articles 25 and 26 of Regulation (EU) 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (so called Regulation Brussels I recast), which has direct effect in all Member States except Denmark (which has however implemented it in its national law). Regulation Brussels I recast applies to legal proceedings instituted on or after 10 January 2015 and judgments given in proceedings instituted on or after 10 January 2015.

And to submit the agreement to international arbitration?

As Regulation Brussels I recast does not apply to arbitration, this is a matter of national law. However, all Member States have adopted the New York Convention of 10 June 1958 on the recognition and enforcement of foreign arbitral awards, which also states that contracting States shall recognize an agreement in writing under which the parties undertake to submit to arbitration a controversy related to a defined legal relationship. In such cases, the court of a contracting State shall refer the parties to arbitration, unless it finds that the agreement is null and void.

The New York Arbitration Convention however does not apply exactly in the same way in all the EU: there are differences due to reservations, declarations and objections made by some of the Member States.

Which court shall have jurisdiction over a cross-border agency agreement when it does not contain a valid jurisdiction clause?

As a general rule, a party which is domiciled in a Member State shall be sued in that Member State, irrespective of their nationality.

In matters relating to a contract, a party domiciled in a Member State may also be sued in the place of performance of the obligation in question. As agency contracts are generally considered contract for the provision of services, jurisdiction is for the courts of the place where the agents provide their services.

The above rules are contained in Regulation Brussels I recast, Articles 4 and 7.

Is a judgment issued in a EU member state enforceable in other EU member states?

As a general rule, a judgment issued in a EU Member State is recognized and enforced in the other Member States without any special procedure or declaration of enforcement being required (Regulation Brussels I recast, Chapter III). The person against whom enforcement is sought may apply for refusal of enforcement. The reasons to refuse enforcement are strictly limited to listed cases, like contrast with public policy, serious breach of defence rights, contrast with an earlier judgment.

Is a judgment issued outside the EU enforceable in member states?

The enforcement of judgments issued outside the EU is subject to the national law of the State required of enforcement. Multilateral or bilateral conventions may apply.

Is an arbitral award issued in a EU member state or outside the EU enforceable in member states?

As Regulation Brussels I recast does not apply to arbitration, the enforcement of foreign arbitral awards in a Member State is a matter for national law. However, all Member States have adopted the New York Convention of 10 June 1958 on the recognition and enforcement of foreign arbitral awards (see above). Enforcement is subject to judicial review and it may be refused, among other, if the subject matter was not capable of settlement by arbitration or the award is deemed to be contrary to public policy.

Is it possible to choose the law applicable to a cross-border agency agreement?

A governing law clause contained in an agency contract is valid in the EU Member States according to Regulation (EC) 593/08 of 17 June 2008 on the law applicable to contractual obligations (so called Regulation Rome I) which is directly effective in all EU Member States except Denmark.

The principle is that a contract shall be governed by the law chosen by parties, whether or not it is the law of a Member State. The choice does not need to be expressed and it may be clearly demonstrated by the terms of the contract or the circumstances of the case. The choice may concern the entire contract or a part of it and it may change at any time.

There are some limits to the freedom of the parties: the choice of law cannot be used to avoid the application of mandatory rules of a country, when all relevant elements of the relation are located in that country. At the same time, the choice of the law of a country outside the EU cannot be used to avoid the application of mandatory rules of EU law.

Moreover, overriding mandatory provisions of the law of the State where the courts sit may prevail over the law chosen by the party. When the parties have chosen the law of a Member State implementing the Directive, however, this may be rejected only in favour of national mandatory provisions which are found to be crucial to grant the commercial agent additional protection with respect to the Directive (CJEU, UNAMAR, C-184/12 of 17 October 2013).

Which is the law applicable to a cross-border agency agreement when it does not contain a valid choice of law?

According to Regulation Rome I, if an agency contract does not contain a valid choice of law it shall be generally considered a contract for the provision of services, and therefore be governed by the law of the country where the agent has his/her habitual residence (Article 4, 1 (b)).

Do EU antitrust rules concern agency agreements?

Article 101 of the Treaty on the Functioning of European Union prohibits agreements and concerted practices which have anti-competitive effects, including vertical agreements. According to the Guidelines on Vertical Restraints issued by the EU Commission, an agency agreement will not fall within the scope of Article 101 if the agent does not bear any, or bears only insignificant, risk in relation to the contracts concluded and/or negotiated on behalf of the principal (genuine agency).

On the contrary, if the agent bears significant risk (e.g. contributing to the costs of transport of the goods, maintaining stocks of goods at its own cost or risk, undertaking product liability towards third parties, investing in sales promotion etc.) they will be treated as independent undertakings and the contract will be assessed under EU competition law as other vertical agreements.