Distribution through Commission Agents — Indemnity in the End!

Companies can sell their products worldwide directly – through branches, subsidiaries or e-commerce – or indirectly – through agents, distributors, franchisees or commission agents.

The German Federal Court of Justice now ruled for the first time that commission agents may also claim indemnity at terminination of their contract (decision of 21 July 2016, ref. no. I ZR 229/15).

What are Commission Agents?

Commission agents are self-employed business persons who are constantly entrusted with the task of concluding transactions in their own name for the account of another company, i.e. the supplier. They differ from distributors insofar as distributors buy and sell products on their own behalf and consequently bear distribution risks themselves (for details, see the Legalmondo post on Distribution Agreements in Germany and the Legalmondo post on “German” Distributor Indemnity – How to avoid it).

What is new for Commission Agents?

The Federal Court of Justice has clarified that – as is settled case law for distributors – also Commission Agents can claim indemnity at termination if two analogy requirements are met, namely if the commission agent

• (i) is integrated into the supplier’s sales organization like a commercial agent; and
• (ii) has to provide the customer data to the supplier so that the supplier continues to derive substantial benefits from the business with such customers after termination of the contract.

With regard to the second requirement (provision of customer data), the Federal Court points out that the prerequisite is – as a general rule – fulfilled because statutory law obliges the commission agent to provide the customer data (sec. 384 para. 2 German Commercial Code). As a result, the customers “belong” to the supplier by law, without any specific contractual obligation.

If distribution concerns “anonymous mass business” (i.e. where customers pay cash and the sales intermediary does not know customer names because of any CRM measures), it may be impossible for the commission agent to provide respective customer data. In such case, it shall according to the Federal Court suffice if the commission agent provides data «on the sale process per se» – so that the supplier can estimate which type of goods is in demand where (quite different from the requirements regarding distribution of high-quality products such as cars, fashion or electronics).

Can the parties contract out?

Yes, the obligation to provide customer data can be contracted out. Nevertheless, indemnity claims can currently not 100% safely excluded by doing so because the Federal Court leaves explicitly open whether commission agents may also claim indemnity if the supplier has the mere factual chance to use the customer data. Hence, to be on the safe side, one has to exclude also the chance to use the data (see “Practical information” below).

What about franchisees?

As regards franchisees as sales intermediaries, the Federal Court confirms that mere factual continuity of the customer base does not suffice to result into an indemnity claim (thus confirming the decision against the franchisee of the traditional bakery chain “Kamps” of 5 February 2015, ref. no. VII ZR 315/13).

Practical tips 

The provisions protecting self-employed commercial agents may apply analogously to commission agents.

As regards existing agreements under German law: if the two analogy requirements are met, indemnity claims at termination are quite likely.

As regards future agreements under German law:

• In general, the claim for indemnity can likely be avoided by excluding the commission agent’s obligation to provide the customer data. Such exclusion should, however, be clearly formulated. Alternatively – or, to be on the safe side, additionally –, the supplier may oblige himself to block and or delete the customer data at terminaton of the contract with the commission agent.
• Alternatively, the right to indemnity can be avoided by choosing another law and jurisdiction (taking into account the risk that the “German” indemnity claim might nevertheless be applied by as overriding mandatory provision in the sense of Article 9 of the Rome I Regulation).
• Finally, if the commission agent acts outside the European Economic Area, the indemnity claim can be excluded by a simple waiver (according to analogue application of sec. 92c German Commercial Code).