The European Agents Directive provides many rights and protections for commercial agents. One such right is the entitlement of an agent on termination to indemnity unless the agency agreement has been terminated as a result of breach by the agent.
In Marchon Germany v Yvonne Karaszkiewicz, Marchon was a German wholesaler of spectacle frames marketing a range of frames of different models, brands, and collections to opticians. Ms Karaszkiewicz was a commercial agent for Marchon in Germany.
She was given responsibility by Marchon for the sale of frames of two brands. The principal also gave Ms Karaszkiewicz a list of opticians with whom it was already doing business but not for the two brands which it had given to her.
The agency was terminated. The agent claimed an indemnity under the relevant provisions of German law.
It is the case that under English, German, and EU law that in order to be entitled to indemnity, it is necessary that the agent has:
- brought the principal new customers; or
- significantly increased the volume of business with existing customers.
Ms Karaszkiewicz’s claim for indemnity eventually led the German Federal Court of Justice to refer a question for a preliminary ruling to the European Court. The question was whether “new customers” could be customers from whom the agent takes orders for new brands being customers who already have a relationship with the principal for other brands.
The European Court found that in differentiating between new and existing customers the wording of the Directive might suggest that only customers with whom the principal has no business relations are to be treated as “new customers”. However, the European Court was not convinced that this was the case.
In particular, the European Court stated that in relation to the goods for which the agent was responsible that it is necessary to determine whether a customer is new or existing. For example, did the sale of the goods in question require particular negotiating efforts and sales strategy by the agent resulting in specific business relations? With reference to this, the European Court decided that the fact that Ms Karaszkiewicz had been given two of a number of brands of Marchon in a situation where Marchon already had business relations with the same customers for other brands did not prevent such customers being “new customers” in respect of the brands carried by Ms Karaszkiewicz.
Marchon also argued that account should be taken of the fact that it is easier for an agent to take orders for new brands from customers already doing business for other brands with the principal. The Court of Justice accepted this possibility. However, it ruled that the issue was one for national courts to determine and that they should do so by applying the principle of equity which is part and parcel of determining whether or not an agent is entitled to indemnity under the Directive.
Take home points
- The basis on which a principal appoints an agent is critical.
- If a principal appoints an agent for part of the principal’s goods, the principal may find that on termination the indemnity payable to the agent reflects sales made to customers whom the principal had regarded as existing customers because of sales of other goods made previously by the principal to the same customers.
- As such, the European Court’s decision spells out that principals need to guard against the position of sales made by an agent for part of the principal’s goods to existing customers nevertheless resulting in such customers being treated as new customers when calculating the indemnity payable to the agent on termination.
- Overall, the European Court’s decision in this case reinforces the need to review agency agreements in order to determine how best to minimise the indemnity payable to agents on termination of the agency agreement.