Written by Steve Sidkin
11 April 99

One of the main purposes of the European Self-Employed Agents Directive was to harmonise the laws of member states of the European Union. Whilst this has been achieved to some extent, in the case of the Commercial Agents Regulations, great uncertainty exists in respect of cross-border agency arrangements.

Do the Regulations impose mandatory obligations that override the choice of law in the contract? This was the issue in Ingmar GB Limited -v- Eaton Leonard Technologies Inc.

In 1989 Ingmar became an agent for the California Corporation, Eaton. The written agreement stated that the law of California applied. When the agreement terminated in 1996, Ingmar sought to recover compensation and commission due under the Regulations.

Eaton claimed that the Regulations did not apply, relying on the express choice of the parties for Californian law. This was accepted by the trial judge. In his view the Regulations did not have extra-territorial effect. On the contrary, the Regulations only applied when the contracting parties were nationals of the member states of the European Economic Area.

Ingmar appealed on the basis that the obligations imposed by the Regulations were mandatory. They overrode the law chosen by the parties if the agent conducted activities within Great Britain.

Ingmar was partially successful. The Court of Appeal was uncertain about the trial judge’s decision. It decided to refer to the European Court of Justice the question of whether the provisions of the Directive are applicable when, given the facts of the case, the express applicable law of the contract is that of California.

At the present time it seems likely that the European Court will take up the opportunity to extend its jurisdiction and find that the Regulations do have mandatory force.

Equally, it is necessary to consider the position of an agent based outside Great Britain, where the agency agreement is subject to English law. Do the Regulations apply?

On the face of them, the answer is “no”. Instead, the Regulations state clearly that they apply in relation to the activities of agents in Great Britain.

This situation could lead to an agent outside Great Britain being deprived of the benefit of the Regulations. He cannot take advantage of local law as his agreement is subject to English law. But nor can he look to the Regulations, as he does not undertake activities in Great Britain.

This possible deprivation was at the heart of the High Court decision in Pace Airline Services v Aerotrans Luftfahrtagentur GmbH.

Ukraine International Airlines appointed Pace as its general cargo agent. Pace in turn entered into an agreement with Aerotrans. This provided for Aerotrans to operate as Pace’s cargo general sales agent throughout Germany (excluding Berlin) for the purpose of marketing cargo space on UIA flights. The agreement was stated to be subject to English law.

When the parties fell out, Pace sough to recover monies due to it under unpaid invoices. In its defence, Aerotrans claimed that it was an agent under the Regulations. This was met by Pace’s claim that the Regulations did not apply, as the agent’s activities took place in Germany.

The Court was not convinced. It criticised the guidance notes to the Regulations issued by the Department of Trade and Industry. These notes state that where an agent carries on activities outside Great Britain it is open to the parties to chose that English law applies. It is also open to them to incorporate some or all of the provisions of the Regulations. The implication is that if they do not, such provisions will not apply in respect of the agency agreement. The court found that such an approach ran counter to the purpose of the Directive. Reference was made again to agents being at a commercial disadvantage and that they are likely to be down trodden by their principals.

Accordingly the Court ordered that a question be referred to the European Court as to the application of the Directive to the German agent.

In some ways the issue that will face the European Court in answering this question is both more acute than in respect of Ingmar but at the same time almost redundant.

If the European Court finds that the Regulations do have mandatory force in respect of an agency agreement which is subject to the law of California, it could be driven to the conclusion that Aerotrans should look to German law as providing equivalent protection.

The issue of redundancy arises because on 16 December 1998 The Commercial Agents (Council Directive) (Amendment) Regulations 1998 came into effect. These provide that the Commercial Agents Regulations will apply to an agent undertaking activities in another member state of the European Economic Area if two tests are satisfied. First, the law of the other member state implementing the Directive enables the parties to agree that the agency agreement is to be governed by the law of a different member state (in this case, English law). Second, the parties have agreed that the agreement is to be governed by English law.

Pending the decisions of the European Court in Ingmar and Pace, there is a need for the parties to an agency agreement to be cautious when the agreement provides for a law which is not their own. Furthermore within the EEA this remains true even with the amending Regulations.

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