Just when principals thought it was safe

There is often an argument between parties on termination of an agency agreement in respect of the amount of compensation or indemnity owed by a principal to an agent. Unfortunately for principals, a decision of the European Court in October 2013 has created further uncertainty for those who enter into cross-border agency agreements in the EU. 

The Unamar case involved a Belgian agent acting for a Bulgarian principal.  The agency agreement was stated to be governed by Bulgarian law.  Despite this, on termination the agent sought a goodwill indemnity and compensation under Belgian law on the basis that it had implemented the European Agents Directive but granted commercial agents additional protection. The agent argued that the provisions relating to compensation that granted additional protection were mandatory rules of Belgian national law and could not be overridden. 

The Belgian Court referred certain questions to the European Court, which decided that it is for each national court to question whether: 

1. the law of the agent’s territory (in this case Belgium) gives the agent greater protection than that under the law which is expressed to be the governing law of the agency agreement;
2. (if so) the law of the agent’s territory was, or could be, a mandatory rule of national law such that it could override the law of an EU member state (in this case Bulgaria) which had been expressly chosen by the parties; and
3. (if so) it is crucial to grant the agent the additional protection afforded under the law of the agent’s territory.

It follows that a principal may find itself faced with a claim from a terminated agent brought under the laws of the territory in which the agent acted, irrespective of there being a clause in the agreement to the contrary.  In this situation, if the answer to each of the above is “yes”, the principal may not be protected by what it thought was the certainty of expressly providing in the agency agreement for the law which is to govern the agreement.  

Tips:

• Prior to entering into any cross-border agency agreement, the principal should ascertain whether there exist mandatory rules of national law in the agent’s territory which give the agent more rights than those given under the law which is to be expressed to be the governing law of the agency agreement.
• For a principal who already has an agent acting in a key territory, the principal should take advice as to whether there exist any mandatory rules of national law in the agent’s territory before terminating the agent. 
• If there is likely to be a dispute, pre-emptive proceedings commenced in the English High Court are likely to help considerably in driving the agent to a settlement.