Cross-jurisdictional Agency Agreements: What Governing Law Applies?

Introduction

Agency agreements can be quite complicated given that unforeseen consequences may result due to many countries having mandatorily applicable legislation in place that specifically protects commercial agents – irrespective of what is actually provided and agreed upon by the parties in an agreement. In the event of a dispute between the parties, there may in addition also be uncertainty about the governing law of the agreement.

The decision of the European Court of Justice (“ECJ”) in United Antwerp Maritime Agencies (Unamar) NV vs. Navigation Maritime Bulgare (Case C-184/12) (the “Unamar Case”) provides some guidance on these issues. Prior to taking a closer look at this case, the position of agents and agency agreements in the EU should, however, be examined somewhat more closely.

The Position in the EU

Following the implementation by each EU Member State of EU Directive 86/653/EEC on Commercial Agency (the “Directive”), every EU Member State has legislation in place that protects commercial agents. The key feature of the Directive is that, in most termination circumstances, commercial agents have a right to claim payment of (often substantial) compensation from the principal on termination of the agency relationship. Thus it is the case in Germany, for example, that an agent who / that has acquired new customers, which customers will in all likelihood keep purchasing products from the principal following termination of the agency agreement, may claim compensation from the principal equating to (a maximum of) an average annual commission payment due to that agent, calculated with reference to the preceding five calendar years. In order to protect agents, the Directive furthermore implies certain terms such as minimum notice periods for termination into agency agreements. The rules in place in the different EU Member States, however, are not identical, given that some EU Member States merely implemented the obligatory minimum level of protection required by the Directive, while others implemented legislation with higher levels of protection. In any event, it is not possible to contract out of the rules in place within the EU.

Within the EU, any agreement – including an agency agreement - will in principle be governed by the law chosen by the parties in the agreement; this is the principle of freedom of contract of the parties to a contract.

There may, however, be mandatory laws which override the law selected by the parties. This usually comes as a surprise: Imagine a situation where a principal purposely selects a governing law for an agency agreement which governing law gives no, or as little as possible, protection to a commercial agent, and this choice is later simply overruled – exposing the principal to claims notwithstanding that an attempt had been made to avoid such claims by mutually agreeing to a certain applicable governing law in writing with the agent. It is in this context that the Unamar Case provides certain helpful guidance.

The Unamar Case

In the Unamar Case, the commercial agent was based in Belgium, while its agency agreement was governed by Bulgarian law. When the agency agreement was terminated by the principal, the agent brought a claim for compensation in the Belgian courts to try to benefit from the greater protection afforded to agents under Belgian law (Belgium has implemented the Directive in a way that provides commercial agents with much more favourable conditions compared to Bulgaria, which has implemented the Directive in its most basic form only). The principal argued that Bulgarian law should apply instead, because it had been selected by the parties in the agreement.

The Belgian Supreme Court submitted the question to the ECJ, whether “the law of a Member State which meets the requirement for minimum protection laid down by [the] Directive […] and which has been chosen by the parties to a commercial agency agreement may be disregarded by the court before which the dispute has been brought, established in another Member State, in favour of the law of the forum on the ground of the mandatory nature, in the legal order of that Member State, of the rules governing the position of self-employed commercial agents.”
The ECJ held that the country whose laws gave only minimum protection could indeed be overridden by the laws of the country that gave more enhanced protection, if the country whose laws gave such enhanced protection deemed the additional protection to be crucial: The ECJ directed the Belgian Supreme Court to examine in detail whether in the course of the implementation of the Directive, the Belgian legislature had thought it to be crucial to grant the commercial agent protection going beyond that provided for by the Directive and to take into account the nature and the objective of such mandatory provisions. If so, Belgian law would apply instead of Bulgarian law.

Comment

What is clear from the Unamar Case is that the ECJ appears to favour the application of the laws of the country, which give the agent the best protection - at least in those cases in which the agent also has its registered seat in that country.

Before implementing or terminating an agency agreement, it is thus of the utmost importance - especially for principals - to verify what governing law might apply to an agreement it intends to conclude with an agent, notwithstanding the governing law the parties would like to (or do) agree on in the agreement. If this matter is not carefully considered, it may well be the case that an agent unhappy with the termination of its cross-jurisdictional agreement may challenge the governing law selected by the parties in order to try to achieve better protection – with often unexpected and unpleasant consequences for the principal.

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