Protection Offered by the 1958 Decree
Directive Offers Further Protection
European Ruling
Conclusion
According to a decision taken by the French Supreme Court on November 28 2000, a French commercial agent has no right to indemnification for damages suffered upon the termination of an agreement when the principal is established outside the European Union and the parties elected a foreign law for governing the contract.
The question was raised in relation to Article 12 of the French law of June 25 1991, which implemented European Directive 86/653/EEC of December 18 1986 dealing with the harmonization of the laws of the member states relating to self-employed commercial agents.
A French company, Allium SA, was acting as a distributor of perfume in France under a distribution agreement signed with a US company. The distribution agreement referred to New York state law. The agreement was later assigned to another French company, which terminated the contract. Consequently, the French distributor claimed for compensation before the French courts on the basis of Article 12, which provides for indemnification of a commercial agent upon termination of the agreement by the principal. The claimant held that under Article 16 of this law any clause that prohibits such compensation is null and void, and that therefore Article 12 should be considered as a mandatory rule applicable to the benefit of agents acting in France, even though New York law governed the agreement with the American principal.
This argument was rejected by the French Supreme Court, which decided that while the French law on commercial agents is mandatory in French territory, it does not contain international public policy rules.
Protection Offered by the 1958 Decree
The judge's opinion is interesting when compared with previous French decisions in relation to the rights of commercial agents after the termination of international agency agreements.
This is a controversial issue in France. Before the 1991 law implemented the EU directive, French courts usually denied commercial agents right to claim for compensation under the 1958 decree if they were located outside France, even though the French law governed the agreement, because the decree required the commercial agent to be registered in France in order to be protected on French territory. However, if the commercial agent was established in France and the principal in a foreign country, most commentators considered that the 1958 decree was not a mandatory rule in international transactions. They referred to the absence of protection in France when the agent is not registered and to the validity of arbitration clauses in international commercial agency agreements even when this provision was not admitted between French parties.
Although the protection was extended by the 1991 law, the Supreme Court's commercial chamber adopted the same view in its decision of November 28 2000.
Directive Offers Further Protection
The recent decision has been criticized as it does not take into consideration the finality of the 1991 law.
Most French commentators point out that the broader protection and the mandatory provisions should apply to all agents located in France even when their principal is established in a foreign country. They suggest a comparison with consumer protection, which is held as mandatory in French territory by the First Civil Chamber of the Supreme Court, irrespective of the law chosen by the parties to a credit consumer agreement (Cass Civ I, October 19 2000, Rev Crit DIP 2000, 29, observation P Lagarde).
Although there is no specific provision extending the 1991 law to international commercial agency agreements, commentators refer to Article 7 of the Rome Convention and to Article 16 of the Hague Convention (March 14 1978) dealing with the law applicable to agents and intermediaries, as these impose "the application of the rules of the law of the forum in a situation where they are mandatory irrespective of the law otherwise applicable to the contract". According to this view mandatory rules may only be extended to international contracts when they are adopted for the protection of public policy as opposed to the protection of private interests.
The Supreme Court's judgment contrasts sharply with a recent decision of the European Court of Justice in Ingmar GB v Eaton Leaonard Technologies Inc, dated November 9 2000.
The facts were similar to the situation involved in the French case. A commercial agent acting as an agent for an American company claimed compensation upon termination of the agreement on the basis of Regulation 17 of the UK Regulations 1993, which implemented European Directive 86/653/EEC.
The High Court denied the right to compensation by applying the laws of California. The Court of Appeal submitted a preliminary question to the European Court of Justice as to whether the law chosen by the parties could govern the contract or whether a mandatory rule was applicable under Directive 86/653/EEC.
Regarding the finality of the directive, the European Court of Justice considered that Articles 17 to 19 of the directive organized the protection of the commercial agent and were "mandatory in nature" (Recitals 20 and 21).
Moreover, the court referred to an additional motivation based on the necessity of harmonizing the laws in the member states in order to:
"eliminate restrictions on the carrying on of the activities of commercial agents, to make the conditions of competition within the Community uniform and to increase the security of commercial transactions."
It concluded that:
"the regime established in Articles 17 to 19 of the directive is thus to protect for all commercial agents, freedom of establishment and the operations of undistorted competition in the internal market. Those provisions must be observed throughout the community if those treaty objectives are to be attained".
This interpretation had been highlighted in the conclusions of the public prosecutor, Philippe Leger, based on Recital 2 of the directive.
The court decided that:
"Articles 17 and 18 of the directive, which guarantee certain rights to commercial agents after termination of agency contracts, must be applied where the commercial agent carried on his activity in a member state although the principal is established in a non-member country and a clause of the contract stipulates that the contract is governed by the law of that country." (Recital 26)
Conclusion
The differences between the European Court of Justice's decision and that of the French Supreme Court are obvious. The European Court of Justice refers to the finality of protection that the directive offers commercial agents and to the necessary harmonization of the laws between member states presented as a public policy that should guide domestic courts.
This concept may be recognized when both contracting parties are established in EU member states. However, this conviction cannot prevail when the other contracting party is established in a non-EU country, unless the protection of commercial agents is considered as mandatory by nature. Deciding otherwise would give a 'long arm' effect to European harmonization of the law, and would endanger and prevent the development of agreements between European and foreign parties.
The authority of the European Court of Justice should prevail in the courts of member states but it should not extend to foreign jurisdictions. The mandatory nature of the protection offered to a commercial agent will still be questioned in future decisions relating to indemnification upon termination of the contracts concluded with a principal established in a foreign country and governed by foreign law.
For further information on this topic please contact Philippe Blaquier-Cirelli at Jeantet et Associés by telephone (+33 1 45 05 81 85) or by fax (+33 1 45 05 82 28) or by email ([email protected]).