This case in the English courts was concerned with the matter of whether an agent’s notification to his principal was sufficient to stop the clock running on the one year limitation period following termination. Although the relevant governing law was Spanish law, lessons can be learned as to best practice on termination of an agreement by an agent in order to avoid potential disputes as to whether the notice served by the agent was sufficient.
Cerascope Ltd (“Cerascope”) acted as a commercial agent for Todagres S.A. (“Todagres”). The three year fixed term agreement between the parties (which was stated to be governed by Spanish Law) was terminated after only one year by Todagres on 10 January 2005 on the grounds that Cerascope had, allegedly failed to meet its targets.
In November 2006, Cerascope issued proceedings in the English courts seeking unpaid commission and statutory compensation. The limitation period for the claim for statutory compensation under Spanish Law is one year. Therefore, the claim would be time barred unless the limitation period had been properly “interrupted” on or before 9 January 2006.
Cerascope claimed that the limitation period had been properly interrupted as a result of two letters sent to Todagres in March 2005 and February 2006 by Cerascope’s lawyers. Todagres admitted receiving these letters but refused to accept that, as a matter of law, they were sufficient to interrupt the limitation period.
The translation of the letter of March 2005 said the following:
Our customer, Cerascope Ltd has given us the documentation relating to the Agency Contract dated 1st Jan 04 that they have agreed in writing with you, and the unilateral decision of stopping it in writing dated 10.01.05.
I understand that such decisions is not in accordance with the agreement in the mentioned contract. Neither is it to the current legality in this matter.
By this letter, I invite you to maintain friendly discussions, to arrive to an agreement in relation with such contract and the decisions taken by you.
If, after 5 days of receipt of this letter I receive no news from you, I will understand that it is not in your thoughts or mood to reach an agreement of the type I propose, so I will start immediately the judicial actions that I think I have to take in order to defending the interests that have been given to us, with the consequent increase of expenses and disturbances that all judicial actions have”.
The letter sent on 15 February 2006 repeated the terms of the letter of March 2005 and stated that if no response was received within 5 days, a legal claim would be brought against Todagres.
In September 2006, Cerascope’s English lawyers sent a formal letter before action, setting out in detail the claims which Cerascope intended to bring, including a claim for unpaid commission, compensation under Directive 86/653 and interest and costs. No response was received and proceedings were issued on 9 November 2006.
The courts ordered that the matter of whether the claim for statutory compensation was out of time should be tried as a preliminary issue.
The judge in the English courts heard evidence on the Spanish law on the interpretations of limitations in the Spanish Civil Code. After hearing this evidence, he held that in order to interrupt the running of the limitation under Spanish law other than by issuing a claim, the principal must be put on notice as to the nature of the claim. It need not be set out in detail, but the principal must at least (in a situation such as this) be informed that he is facing a claim for compensation for loss of goodwill.
The letter of March 2005 did not achieve this. The letter simply made a vague reference to ‘judicial actions to defend Cerascope’s interest. It gave no indication of what claims Cerascope intended to bring to protect its interest. There was no reference to damages for breach of contract or to statutory compensation or indemnity under the 1992 Spanish Law.
For this reason, the judge held that the claim was statute barred.
Although the English courts were, on this occasion, deciding the matter by reference to Spanish Law, the case underlines the importance of being clear in any correspondence which is intended to have legal effect. Regulation 17 of the Commercial Agents (Council Directive) Regulations 1993 (as amended) is the equivalent provision of English law, which requires an agent to notify his principal of his intention to bring a claim for statutory compensation or indemnity within 12 months of the date of termination.
Written by Sophie Albinson