Written by Steve Sidkin
1 March 01

The European Commission’s Report published three years ago examined the application of Article 17 of the European Self-Employed Agents Directive (86/653/EEC).

Article 17 requires member states to take measures necessary to ensure that a commercial agent is, after termination of the agency contract, indemnified or compensated. Of the fifteen member states of the European Union, twelve opted for the giving of an indemnity. The United Kingdom was one of the three that did not. Instead Regulation 17 of the Commercial Agents (Council Directive) Regulations 1993 (as amended) provides for the giving of an indemnity or the payment of compensation, depending on the agency contract.

But the Regulations fail to set out how compensation is to be calculated. As the Commission’s Report pointed out, this has lead to uncertainty. Unsurprisingly therefore the Report implied that principles of French law should be followed for as the Report stated, “It is important that the Directive is uniformly interpreted and leads to predictable and clear results”.

The principal problem with the Report is that it only considered the application of Article 17. How other articles have been and should be applied, remains unanswered.

This is of importance for the UK, given the application by the Department of Trade and Industry of the copy out technique to the drafting of the Regulations. The difficulties that this has caused was vividly demonstrated in the recent judgement of Lord Hamilton in an interlocutory hearing in Roy v M R Pearlman Limited (10 March 1999, unreported).

In June 1983 the parties entered into an agency agreement providing for the giving by either of six months’ notice. Fourteen years later the principal gave immediate notice of termination and stated its preparedness to pay three months’ commission based on the average of the previous twelve months. Whether this was a payment in lieu of notice or a payment of compensation was unstated. In response the agent pointed out that the offer of three months’ commission did not comply with the contractual notice period.

The agent issued proceedings. In respect of the failure to give proper notice the agent claimed that termination of the contract had been accepted as from the expiry of six months after the date of the principal’s letter. As such the agency contract had continued in full effect until 30 December 1997. Accordingly the agent claimed an amount equal to six months’ contractual notice based on his immediately preceding commission payments. In addition reference was made to Regulation 7 of the Regulations. Somewhat confusingly the agent also claimed the same amount by way of post-termination commission under Regulation 8.

The agent’s claims did not find favour with Lord Hamilton. He pointed out that Regulation 15(2) does not specify the agent’s rights and remedies if the principal fails to give any or shorter notice than is lawful. In particular, it does not provide that in such a situation the agency contract is to be treated as continuing until the expiry of the due period.

In the absence of a decision of a court within the European Union on this point, Lord Hamilton held that the court must apply domestic principles in determining the appropriate rights and remedies of the agent. He referred to British Fuels v. Baxendale where in respect of TUPE it was held that regulations made in furtherance of a Directive do not, at least in ordinary circumstance, wholly displace the rules of domestic law in the relative field. Drawing on Lord Slynn’s decision in that case, Lord Hamilton decided that the consequential rights and remedies arising on purported termination without due notice of an agency contract are, so far as not inconsistent with the Regulations, not displaced.

The formulation of Mr Roy’s claim for failure to give proper notice seemed misconceived. However, Lord Hamilton indicated that an agent would have a common law right to damages for the principal’s failure to give proper notice.

The application made by Lord Hamilton of British Fuels v. Baxendale is understandable. However, it still rests uneasily with the way in which the agent’s third claim for compensation was treated. Lord Hamilton remarked that it appeared that the agent proposed to invoke the practice of the French courts as an aid to establishing the appropriate amount of compensation. In doing so the agent relied on the Commission’s Report. Lord Hamilton considered this point by reference to Judge Mitting QC’s decision in Moore v Piretta PTA Limited:

“Consistent with the purpose of achieving harmony between member states, it is in my judgment permissible to look into the law and practice of the country in which the relevant right …originated….; and to do so for the purpose of construing the English Regulations and to use them as a guide to their application.”

In this respect, it would seem that progress of a sort has been made. Moore resulted in the application of German principles to the calculation of an indemnity for a terminated agent. Although Judge Mitting misapplied the German principles, the overall principle has been established. So too would it seem as a result of Lord Hamilton’s opinion in Roy with regard to the issue of compensation. There should now be no question that French principles are to be applied, after uncertain references to them in the earlier decisions of King v T Tunnock Limited and AMB Imballaggi v Pacflex.

But the manner in which the overall principle it is to be applied remains to be determined. In this respect Lord Hamilton’s opinion can be expected to provide further debate. This is because the principal argued that if French legal principles were to be applied there was a need for expert evidence. Lord Hamilton robustly dismissed this argument. He compared the determination of an issue in accordance with French law from the undertaking of a comparative law exercise. Expert evidence was required for the former, but he was not prepared for it to be considered in respect of the latter. In his opinion a comparative law exercise only needed consideration to be given to the longer experience of the French courts in this area. Accordingly the Scots courts were able to consider French legal principles without expert evidence.

This briefing note is for general information. For advice in applying this general information to your specific circumstances, please contact Stephen Sidkin or any member of the Fox Williams’ agentlaw team.(www.agentlaw.co.uk)

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