In October 2009, the English High Court, in the case of Accentuate Limited v Asigra Inc. went further than it ever had previously in restricting a party’s right to contract on the issues of choice of law and jurisdiction. This will have a significant impact on certain US exporters using commercial agents in the European Union. An agreement between the parties to use US State law and make the contract subject to US Arbitration will be invalid in many circumstances and an EU agent will be free to bring a claim under the Regulations in the courts of its home country.

Financial impact - compensation under the Regulations

The Commercial Agents (Council Directive) 1993 Regulations (“the Regulations”) have been enacted to give effect to EU law in the UK. Amongst other things, the Regulations entitle a commercial agent (which has been defined very widely) to be compensated or indemnified by its principal upon termination of the agency relationship. Regulation 19 of the Regulations does not allow the parties to derogate from this provision.

The Commercial Agents (Council Directive) 1993 Regulations (“the Regulations”) have been enacted to give effect to EU law in the UK. Amongst other things, the Regulations entitle a commercial agent (which has been defined very widely) to be compensated or indemnified by its principal upon termination of the agency relationship. Regulation 19 of the Regulations does not allow the parties to derogate from this provision.

This is a very wide reaching provision and even entitles the agent to compensation on a fixed term agency contract coming to the end of its natural term. If there is no written contract in which the parties opt for an indemnity rather than compensation, compensation is payable as a matter of right.

The compensation can be substantial and is assessed at the value of the agency business on the date of termination. Depending on the sector and circumstances, this can be as high as three to six times the annual commissions. Cobbetts LLP has recently dealt with a case where the agency provided USD 100 million turnover for the principal with annual commissions of USD 5 million. The agency agreement was terminated and the valuation of the agency was in the region of USD 17 million. Such a claim can clearly have a significant impact on the financial position of the principal. This can exacerbated where the principal uses a large number of agents.

 

The approach of the English courts

The last case relating to choice of law that was of particular interest to American lawyers and American exporters using agents was the case of Ingmar GB Limited v Eaton Leonard Technologies Limited. In this case, the European Court of Justice held that an American exporter using an English sales agent could not contract out of the Regulations. In Ingmar, the parties had agreed a contract subject to the law of the state of California. The European Court held that this choice of law clause was invalid and that the parties could not contract out of the compensation provisions in the Regulations. The Ingmar Case did not deal with the issue of jurisdiction and left a potential lacuna.

The Accentuate Case

The recent decision in Accentuate goes further than the Ingmar Case and deals with the issue of jurisdiction clauses. In Accentuate, a Canadian exporter of software products had a written contract with its English agent agreeing that Ontario Law applied and agreeing that any dispute be determined by Arbitration in Toronto, Ontario.

Notwithstanding the arbitration clause, the agent was able to successfully pursue a claim for compensation under the Regulations in the English courts. The reason for this approach by the English courts was that it held that the Arbitration clause was an attempt by the principal to contract out of the protection provided to the agent by the Regulations

The potential effect of Accentuate is somewhat surprising given that various applicable authorities require a tribunal, wherever in the world it may be sitting, to apply mandatory provisions (such as those contained in the Regulations), alongside the chosen law. The specific facts of Accentuate clarify the question on jurisdiction but leave other questions unanswered. An issue left unclear by this case is whether an arbitration clause which makes it clear in the contract that the Regulations will be applied by the arbitrator, remains valid.

For a detailed analysis of the Accentuate decision and other information on the Regulations and Cobbetts LLP’s specialist team please click here

The practical implications

We are receiving an increased number of cases from American exporters that are surprised by the impact of the Regulations and the associated financial consequences. This is especially so in circumstances where they believe they have expressly and effectively contracted out of such provisions.

Our experience is that a large number of American exporters have not put adequate protection in place at the time of entering into the agency contract or when dealing with the termination of it. Taking a pro-active approach and seeking specialist advice on this issue can save substantial sums in the medium and long term.