The European Court favours the country whose laws give the agent the best protection.
Agency agreements can be very complicated as many countries have legislation in place which protects commercial agents. In the event of a dispute, there may also be uncertainty about which country’s laws apply to the agreement. This makes the position even more complicated. A recent decision of the European Court gives guidance on this issue.
Which countries have legislation in place that protects commercial agents?
Every country in the EU has legislation protecting commercial agents. The key feature of the EU legislation is that commercial agents have a right to claim a payment on termination of the agency relationship. The payment is claimed from the agent’s principal and will be due in most termination circumstances. The amount claimed can be quite significant. The EU legislation also implies certain terms into the agency contract, such as minimum notice periods for termination.
However, these rules are not identical in each EU member state. Some EU countries merely implemented the minimum level of protection required by the EU (Minimum Protection). Other member states implemented legislation with a higher level of protection (Enhanced Protection).
In addition, some (but not all) countries outside of the EU have legislation in place which protects commercial agents. This legislation differs from country to country.
Can I avoid these rules?
You cannot contract out of the rules in place within the EU.
Some people try to choose a governing law for the agency agreement which gives no protection, or less protection, to the commercial agent. However, this choice of law may be overruled.
How does a court decide which country’s laws apply to the contract?
Within the EU, the contract will be governed by the law chosen by the parties in the contract, unless there are mandatory laws which override the law selected by the parties. For example, there was a case where the agency contract was governed by the laws of California. However, the agent sought to apply the laws of England in order to benefit from the protection granted by the English agency legislation. In that case, the European Court agreed that the English agency legislation was of mandatory application and would overrule the choice of Californian law.
What happened in the most recent case?
In United Antwerp Maritime Agencies (Unamar) NV v Navigation Maritime Bulgare, the commercial agent was based in Belgium, but its agency contract was governed by Bulgarian law.
The agency legislation in Belgium gave the agent better protection than the rules in Bulgaria. The agency agreement was terminated, and the agent brought a claim for compensation in the Belgian courts to try to benefit from greater protection under Belgian law. The principal argued that Bulgarian law should apply instead, because it had been selected by the parties in the contract.
What did the European Court say?
It decided that the country whose laws gave only Minimum Protection could be overridden by the laws of the country which gave Enhanced Protection, if the country whose laws gave Enhanced Protection deemed that the additional protection was crucial.
Therefore the Belgian courts must decide whether Belgium’s legislature deemed the Enhanced Protection to be essential. If so, Belgian law would apply instead of Bulgarian law.
Many agency agreements are cross-jurisdiction. Clearly there can be some uncertainty as to which law will apply to the contract. This is particularly the case as the agent may challenge the governing law selected by the parties in order to try to achieve better protection.
Before implementing or terminating an agency agreement, consider taking legal advice to check whether the agency legislation described above applies and which governing law is likely to apply to the contract.