Written by Steve Sidkin
1 May 98

It is now more than 4 years since the Commercial Agents Regulations came into force. Since that time few cases have reached the British courts. Indeed, up until the end of 1996 none had been satisfactory decided.

The same cannot be said of a decision last year of the European Court of Justice concerning the entitlement of an agent to commission under the European Self-Employed Agents Directive. It also has implications for restrospectivity.

In Kontogeorgas v Kartonpak 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 areas of Greece. Kartonpak manufacture packaging materials. In 1985 Kartonpak merged with St Ritis Ellas.

Mr Kontogeorgas claimed 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 the sales were to former customers of St Ritis. As such Mr Kontogeorgas was not entitled to a commission.

Following termination of the agency agreement, Mr Kontogeorgas claimed that he was entitled to approximately £5,500 of 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 place of business of each customer was in another area.

The claim made by Mr Kontogeorgas concerned the provision in the Directive which sets out an agent’s entitlement to commission in respect of sales made to a customer belong to a specific area. How was this expression to be interpreted?

The ECJ considered whether such an expression would include a customer whose principal place of business was located in a different place from the place where business and trading activities were carried on. With reference to this the European Commission had commented that the place where the commercial activity was actually carried on was decisive, in the absence of any agreement to the contrary between the parties.

Some difficulty was caused to the ECJ by the fact that the provision in the Directive does not indicate the criteria to be taken into account where the principal place of business of the customer is different to that from which the business is run and the commercial activity carried on. The ECJ also pointed out that the Directive emphasizes the actual commercial relationships between the agent and the customers, such as they appear in a real economic context.

In view of this the ECJ ruled that the place of the customers’ actual commercial activities must be used in determining the meaning of the expression “customer belonging to that area”. In particular the ECJ 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 an agency agreement in a way which prevented a transaction falling within the territory of two or more agents. This would avoid additional commission having to be paid!

In the case where the customer was a company, the ECJ considered that the provision had to be interpreted by reference to the place where the customer actually carries on its commercial activities. On the other hand 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 of the agent took place or should (in the normal course of events) have taken place, the place where the goods were delivered and the place where the part of the customer which placed the order was located.

In this respect the ECJ gave a logical interpretation which was correct on the facts. However, Kartonpak came closer to arriving at a solution to its problem than perhaps it realized.

Unlike many of the provisions of the Directive, it is open to the parties to derogate from the relevant provision subject to local law. 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.

But the point remains valid for an agency agreement made under English law. The opportunity exists for a principal 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 the agent. Alternatively the agreement can closely define how the expression is to be interpreted.

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

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

Meanwhile early summer 1997 saw a further case involving the Regulations come before the English courts. In Hunter v Zenith Windows the plaintiff was originally a sales agent in double glazing. Three years after becoming a sales agent, he became an area sales agent. He was responsible for recruiting, supervising and training sales agents for the effective marketing and selling of Zenith’s products. As such he managed an area covered by several sales agents. But, he did not directly undertake representative activities himself.

This was the nub of the case as the Regulations do not apply to those agents “whose activities as agents are to be considered secondary”.

Surprisingly the judge considered that substantially the whole of the plaintiff’s time was given over to representative activities. In doing this the judge made it clear that he considered that “in appropriate circumstances” an agent has to be able to act through servants or agents. It was his decision that many national agents in fact do so.

Given the definition of a commercial agent in the Regulations, this is a strange decision. If it should be followed, it will have implications for those companies which have area sales agents.

But despite arriving at this decision, the judge gave judgment against the plaintiff. The reason for this is that one of the tests of whether an agent is a commercial agent under the Regulations is that a transaction procured by him on one occasion is likely to lead to further transactions in those goods with the same customers on future occasions. The judge accepted that this could possibly be the case in the long term, but for double glazing products it was unlikely to be so in the short term.

In arriving at this decision the judge ignored other equally valid tests which would have been likely to have resulted in judgment for the plaintiff.

Accordingly, the court arrived at the right decision for the wrong reason. Perhaps it is a case of one step forward ……

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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