Commercial Agency Contracts in Ireland

The Commercial Agents Directive 1986 (86/653/EEC), as implemented in Ireland by the European Communities (Commercial Agents) Regulations, 1994 and the European Communities (Commercial Agents) Regulations, 1997 (together the "Regulations") regulate commercial agency agreements in Ireland. The Regulations provide that a commercial agency agreement must be evidenced in writing.

The Regulations define a ‘commercial agent’ broadly as "a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the Principal) or to negotiate and conclude such transactions on behalf of and in the name of the Principal". A commercial agent, as a 'self-employed intermediary', includes both individual and legal entities. However, there are a number of relationships that fall outside of the definition, for example, commercial agents who are not paid for their role.

The Regulations only apply to agreements for the sale or purchase of goods and do not govern agreements for the provision of services. In addition, parties are prevented from contracting out of certain terms, unless it benefits the commercial agent to do so.

The law governing agency has been refined by the Irish courts and enforcement is carried out by the courts or, if the parties have agreed to it, through arbitration. Commercial agency agreements are also required to comply with Irish and EU competition law.

When appointing a commercial agent, principals must have regard to local advice in other EU member states as legislation transposing the Directive varies between states.

A commercial agent does not buy and sell on its own account and, in general, is not regarded as an employee of the principal at law. The principal therefore is not subject to legal requirements governing the employment relationship. This can be a useful way for companies to enter the Irish market without incurring some of the associated business costs, such as hiring staff and obtaining a business premises. However, the principal will typically be bound by the acts and omissions of the agent.

In addition to commercial agents, Irish law recognises other types of agents such as: (i) del credere agents; (ii) mercantile agents; (iii) agents acting on behalf of a company e.g. officers / directors; and (iv) partners who can act on behalf of a partnership.

Other commercial intermediaries in Ireland include:

• Distributors
  A distributor has an independent status in relation to a principal and buys and sells on its own account. The principal is therefore not responsible for the acts or omissions of the distributor.
• Dealers
  A dealer may act as a principal or an agent depending on whether the dealer trades on his own account.
• Franchisees
  A franchisee is more similar to a distributor than a commercial agent and is licensed to carry on a particular business in a particular manner. Franchisees usually operate their own business and take their own risks. Their remuneration is the profit from the franchise operation usually less an agreed percentage payment to the franchisor.
• Local Branches or Subsidiaries
  A local branch or subsidiary of a foreign supplier will generally employ its own salespersons. Foreign corporations may establish a branch in Ireland to carry on business provided certain documents are filed with the Registrar of Companies and the branch complies with certain other statutory requirements. A subsidiary company may be incorporated in Ireland and enjoy the same status as a similar Irish company with control held by the foreign parent.
• Sales Representatives
  A sales representative can be an employee of a domestic or foreign supplier. Travelling salespersons who are employees of a foreign supplier established abroad are generally not subject to any specific Irish legislation.

The Regulations provide that a commercial agency agreement must be evidenced in writing. Each party is entitled to receive a signed written document setting out the terms of the agreement from the other party. The written agreement should provide for the scope of authority of the commercial agent and set out the express rights and obligations of the parties.

The Regulations provide for certain mandatory obligations of commercial agents, including to:

• look after the principal’s interests and act dutifully and in good faith;
• make proper efforts to negotiate and, where appropriate, conclude the transactions it is instructed to take care of;
• communicate to the principal all the necessary information available to it;
• and comply with the reasonable instructions given to it by the principal.

The Regulations provide that the principal also has specific mandatory obligations, including to:

• act in good faith in relation to its commercial agent; and
• inform the commercial agent within a reasonable period of the principal’s acceptance, refusal, and any non-execution of a commercial transaction which the commercial agent has procured for the principal.

In general, the parties are otherwise free to agree the type of agency agreement they wish to enter into such as exclusive, non-exclusive or sole agency. Where the agency agreement has not provided for the nature of the relationship between the parties, it is non-exclusive.

The parties to a commercial agency agreement may choose the law they wish to govern the agreement and the parties should ensure a clause to that effect is included in the agreement, particularly where a party is outside Ireland. The chosen law will generally be given effect by the Irish courts and only overridden if it conflicts with mandatory rules or public policy.

In the absence of a choice of law clause, the agreement will generally be governed by the law most closely connected to it. The assessment of which law will govern in such circumstances will be:

• contracts entered into on or after 17 December 2009 will be governed by Regulation (EC) 593/2008 of 17 June 2008 (Rome I).
• contracts entered into prior to 17 December 2009 will be subject to the Contractual Obligations (Applicable Law) Act 1991, pursuant to which the Rome convention on the law applicable to contractual obligations (the Rome Convention) was enacted in Ireland.

Agreements falling outside the scope of Rome I or the Rome Convention will be subject to standard Irish common law principles which also generally support the parties’ right to choose the governing law of their contract and will only displace their choice in exceptional circumstances.

The advisable course of action is for the parties to include a reasonable choice of law clause that reflects the operation of the agreement in order to avoid any disputes in this regard.

The interpretation and enforcement of commercial agency agreements in Ireland is determined by the courts or by an agreed method of arbitration.

Jurisdiction

The Irish courts will respect a choice of jurisdiction clause in a commercial agency agreement to a foreign jurisdiction but will construe it strictly. The courts do so in accordance with provisions of Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I) and the provisions of the re-cast Brussels I Regulation. The new Brussels Regulation has been transposed into Irish law and applies to judgments in proceedings commenced on or after 10 January 2015.

The Irish courts can accept jurisdiction to determine a dispute where the choice of jurisdiction is not exclusive or where both parties agree to the Irish courts accepting jurisdiction. Where the defendant is not domiciled in a contracting state to Brussels I, the common law rules apply, and Irish courts may claim jurisdiction if Ireland is the most appropriate forum for the claim.

Arbitration

Ireland has adopted the UNCITRAL Model Law on International Commercial Arbitrations which expressly recognises the competence of an arbitral tribunal to rule on its own jurisdiction. Under the Model Law, an arbitration clause will be regarded as independent of the other terms of the agreement and is not dependant on the validity of the agreement.

A foreign arbitration award related to an agency agreement will be recognised by the Irish courts if the awarding country was a signatory to the New York Convention, the Geneva Convention or the Washington Convention.

An agency agreement can be terminated by operation of law, or as agreed between the parties. The parties may provide for circumstances, for example breach of contract, which will terminate the agreement.

The operation of law may result in the termination of the agreement where:

• the term has expired: parties must note that agreements governed by the Regulations will convert the agreement into an agreement for an indefinite period if the parties continue to perform the agreement;
• a party has become bankrupt;
• the agreement is for the performance of a particular role and this has been concluded;
• frustration has occurred and the performance of the agreement is not possible;
• misrepresentation by one or more of the parties and the agreement is rescinded;
• a fundamental mistake relating to the agreement is at issue and the agreement must be set aside; and
• the agreement requires an illegal act to be carried out in order to comply with the terms of the agreement.

The duration of an agency agreement may be agreed between the parties and they are usually for a fixed term. In circumstances where the term of the agreement has expired but the parties continue to perform under the agreement, the Regulations provide that the agreement shall continue for an indefinite term.

Notice

Common law principles apply to the termination of the agreement and where there is no express provision for notice in the agreement, the principles dictate that such notice must be reasonable. What is reasonable shall be determined by the circumstances of what has been agreed between the parties. Where an agency agreement is operating for an indefinite term, reasonable notice shall be determined by the amount of time the agreement has been in place. As such, the Regulations provide:

• an agreement of one year requires one month's notice;
• an agreement of two years requires two months' notice; and
• an agreement of three years or more requires three months' notice.

The notice periods set out in the Regulations are mandatory notice periods and cannot be derogated from. Where sufficient notice has not been given, the commercial agent may pursue a claim for damages.

Commission post-termination

The Directive provides that after an agency contract is terminated, the commercial agent will be entitled to commission on a transaction in the following circumstances:

• if the transaction is mainly attributable to the commercial agent's efforts during the period covered by the agency contract and if the transaction was entered into within a reasonable period after the contract terminated; or
• if the order of the third party reached the principal or the commercial agent before the contract terminated (and the agent would be entitled to commission under the Regulations).

To cover the possibility of one commercial agent immediately succeeding another and both being entitled to commission under the Regulations, the Regulations provide that the new commercial agent will not be entitled to commission unless it is equitable in the circumstances that the commission be shared.

Compensation post-termination

The commercial agent may be entitled to compensation upon termination of the agreement. Compensation is payable for damage suffered by the commercial agent as a result of the termination of the commercial agent’s relations with the principal. The principle of compensation applies in Irish law which differs from the position in the UK, where the concept of indemnity also exists.

The general approach to appropriate compensation in Ireland is typically that the level of compensation should be fixed at the global sum of the last two years’ commission, or the sum of two years’ commission calculated over the average of the last three years of the agency contract. Various factors will impact on the calculation.

Ireland did not transpose the option of termination indemnity from the Commercial Agents Directive 1986 (86/653/EEC) into the Irish Regulations and therefore it does not apply in this jurisdiction.

The Directive gave Member States the discretion to disapply the application of the Directive to "those persons whose activities are commercial agents are considered secondary by the law of that member state”. When implementing the Directive, Ireland elected to specify that only the activities of a consumer credit agent or mail order catalogue agent for consumer goods could be regarded as secondary. The Regulations thereby exclude such agents from the definition of 'Commercial Agent' in certain circumstances and created a rebuttable presumption that such agents are considered secondary. This differs from some member states where, on implementation of the Directive, this discretion was used to provide for a broader set of circumstances which may determine secondary activities.