Written by Steve Sidkin
11 September 97

In December 1996 the European Court of Justice made its first decision concerning the European Self-employed Agents Directive.  Its judgement was published in 1997.

Whilst concerning the entitlement of an agent to commission, the decision also has implications for retrospectivity.

In Georgios Kontogeorgas -v- Kartonpak AE a reference had been made to the ECJ by the Athens Court of First Instance.  The case concerned Mr Kontogeorgas who agreed in 1981 to act as the agent of Kartonpak in two Greek departments of Achaia and Ilia.  Kartonpak manufacture packaging materials.  In 1985 Kartonpak merged with Saint Ritis Ellas AVEE (“Saint Ritis”).

It was claimed by the plaintiff that from 1988 Kartonpak sold its products to customers in the two departments without paying commission to him.  Kartonpak did not deny that such transactions had been made.  However, it claimed that sales were made to former customers of Saint Ritis.  As such, Mr Kontogeorgas was not entitled to commission.

Following termination of the agency agreement, Mr Kontogeorgas claimed that he was entitled to the commission on sales made since 1988 in the two departments.  In response, Kartonpak pointed out that the customers concerned only had some factories in these areas.  The principal office of each customer was in another area.

The first question concerned the first alternative provision of Article 7(2) of the Directive.  This sets out the entitlement of an agent to commission when given a specific geographical area or group of customers.

The ECJ drew attention to the fact that Article 7(2) provides that an agent is to be remunerated for all transactions entered into with customers belonging to a certain area or group.  The ECJ highlighted the fact that in respect of this provision no mention was made of any need for a particular activity on the agent’s part.

It was, therefore, unsurprising that the ECJ decided that it was not necessary for there to be any action on the part of the agent in determining his entitlement to commission arising under the first alternative of Article 7(2).

The second question was concerned with the interpretation to be given to the expression “customer belonging to that area” in Article 7(2).  No indication is given in the Directive as to the criteria to be taken into account where the principal office of the customer is in a different place to that from which the business is run and the commercial activity is carried on.

On this basis the ECJ ruled that the place of the customer’s actual commercial activities is to be used in determining the meaning of the expression “customer belonging to that area” In this context it drew attention to the fact that a principal could have several agents each having a specific geographical area and working within a single member state.  As a result the ECJ considered that the place of the customer’s commercial activities should be specified in a way so as to prevent a transaction falling within the territory of two or more agents and, therefore, additional commission having to be paid.

In the case where the customer was a company, the ECJ considered that Article 7(2) had to be interpreted by reference to the place where the customer actually carries on its commercial activities and not the location of its registered office.  But where a customer carries on its commercial activities in various places (or the agent operates in several areas) other factors may be taken into account in order to determine the centre of gravity of the transaction effected.  These factors included, in particular, the place where negotiations with the agent took place, or should (in the normal course of events) have taken place, the place where the part of the customer which placed the order was located, and the place where the goods were delivered.

The logical interpretation given by the ECJ to the phrase “customer belonging to that area” is understandable.  But it would seem that Kartonpak came closer to arriving at a solution to its problem than it perhaps realised.

First, the opinion of Advocate General Cosmas shows that he broadly agreed with its interpretation.

Second, and more importantly, unlike many of the provisions of the Directive, it is open to the parties to derogate from Article 7(2), subject to local law.  But in this case they failed to do so.  Kartonpak, had it wished to do so, could have drafted an agency agreement which specified what commission Mr Kontogeorgas was to have received where orders came from customers not introduced by him.  It failed to do so.

But the point remains valid for agency agreements made under English law.  The opportunity exists for principals to exclude an agent’s entitlement to commission on transactions made with customers belonging to the agent’s territory where there has been no action by him.  Alternatively they can closely define how that expression is to be interpreted.

There is a further issue which flows insidiously from the ECJ’s judgement.  Mr Kontogeorgas’ claim related to the period from 1988.  Greece sought to implement the Directive in 1991.  The issue of retrospectivity was not commented on by the ECJ.  However, its decision is consistent with Article 22(1) of the Directive which states that provisions complying with the Directive shall apply to all contracts in existence on 1 January 1994.

The comparable language of Regulation 23 of the Commercial Agents Regulations is harder to interpret.  But the decision in Kartonpak can be said to contradict the view of those (including the DTI) who claim that the Regulations do not have retrospective effect.

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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