Where there's a [lack of good] will, there's a way?

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Despite its age, the Commercial Agents Directive 86/653/EEC (as amended) continues to present problems.  There has been a steady stream of decisions from the Court of Justice of the European Union on the meaning of its provisions dealing with the agents’ rights in connection with the termination of agency.

The most recent decision is Case C‑203/09 Volvo Car Germany GmbH v Autohof Weidensdorf GmbH, handed down by the Court of First Instance on 28 October 2010. In this case a motor dealer’s agency agreement was properly terminated by Volvo giving two years’ notice. However, during the notice period the dealer breached the terms of the dealership agreement. Volvo only became aware of the breach after the termination of the dealership. As the breach would have entitled Volvo to terminate the dealership immediately, had it known, Volvo refused to pay the dealer’s claim for a goodwill indemnity, being the form of compensation under the applicable law that the dealer was entitled to upon termination or expiry of the agreement under Article 17 of the Commercial Agents Directive (the UK is unique in allowing either form of compensation under Article 17 to be used in commercial agents agreements). Volvo claimed that as it had grounds to terminate the dealership agreement, it could rely on the exemption from the right to pay the Article 17 indemnity or compensation at Article 18(a) of the Commercial Agents Directive.

Article 18 of the Directive states:

The indemnity or compensation referred to in Article 17 shall not be payable:

(a)  where the principal has terminated the agency contract because of default attributable to the commercial agent which would justify immediate termination of the agency contract under national law;

(b)  where the commercial agent has terminated the agency contract, unless such termination is justified by circumstances attributable to the principal or on grounds of age, infirmity or illness of the commercial agent in consequence of which he cannot reasonably be required to continue his activities; and

(c)  where, with the agreement of the principal, the commercial agent assigns his rights and duties under the agency contract to another person.

Although the case reached the Court of Justice in Luxembourg, the decision turned upon the words “because of”.  The Court of First Instance determined that the wording “because of” meant that there had to be a direct causal link between the breach by the agent and the principal’s decision to terminate the agency in order to extinguish the agent’s right to an indemnity or compensation.  Any provision in the Directive restricting an agent’s right to termination had to be interpreted narrowly against the principal.

So, did the German dealer get away with its breach?  It would appear so, as clearly the termination of the agency was not linked to the breach.  However, the Court did hint that in calculating the indemnity to which the agent was entitled, the German Bundesgerichtshof that made the reference to the Court of Justice could perhaps rely on the qualification to the right set out in Article 17.  Article 17(2)(b) of the Directive states:

[the commercial agent shall be entitled to an indemnity if and to the extent that] the payment of this indemnity is equitable having regard to all the circumstances

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Perhaps a more straightforward case is Gledhill v Bentley Designs (UK) Limited [2010] EWHC B8 (Mercantile), where the agent, Stephen Gledhill, let fly at the managing director of the principal, Bentley Designs (UK) Limited.  In a voicemail message to the MD’s personal mobile phone, the agent made it clear where he stood, saying of the MD:

I think you are an absolute shit, I really do. You are a despicable, horrible little excuse for a human being.

The agent did attempt an apology by letter, but this was clearly an exercise in self-justification rather than an expression of true remorse.  If you are going to make an apology, it does not help to include statements like:

I do feel however that there was a fair degree of justification in my actions when looking at the circumstances from my perspective.

It may not be too much of a surprise to learn that the Mercantile Court had no trouble in finding that the implied reciprocal term in an agency, similar to an employment contract, that neither would “without reasonable and proper cause, conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee” (Mahmud v BCC [1997 ICR 621), had been breached by the agent.  The breach was deemed serious enough, or in the words of Judge Simon Brown QC, “was a course of conduct calculated, or at least very likely, to destroy or seriously damage the relationship of confidence and trust”, to warrant immediate termination of the agency by the principal.  This meant, of course, that the agent lost any right to an indemnity or compensation.  This might otherwise have been relatively substantial, given that the agency was profitable, earning the agent around £85,000 pa in commission.

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When is an agent a "commercial agent"?

Sometimes we have sympathy with the commercially-minded view that lawyers are a waste of money.  The recent example of money apparently being wasted on legal fees is the Court of Appeal case of Sagal (trading as Bunz UK) -v- Atelier Bunz GmbH.

The case involved a UK sole trader in the jewellery business, who traded using part of the name of his German supplier, Atelier Bunz.  Despite the fact that orders were separately received and invoiced by Bunz UK to customers, and by Bunz GmbH to Bunz UK, with each invoice being subject to the invoicing company’s terms and conditions, Mr Sagal claimed that he was in fact a commercial agent. As a commercial agent, he would have been entitled to compensation upon termination of any agency under the Commercial Agents Directive 86/653/EEC, implemented in the UK by the Commercial Agents (Council Directive) Regulations 1993. The basis of his claim was that he had authority to negotiate sale of jewellery on behalf of Bunz GmbH and that his prices, being a fixed mark-up from Bunz GmbH’s prices, meant that he had no discretion over pricing and in effect received a commission of a fixed percentage of Bunz GmbH’s prices.

Our subjective view that this claim was fruitless, and thus a waste of court and legal fees, is based upon the clear wording of regulation 2(1) of the 1993 Regulations, which defines a commercial agent as:

a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the “principal”) or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal.

We would have had great difficulty in matching the facts to this definition to believe there was merit in the claim.  As the Court of Appeal subsequently found, as Mr Sagal did not have the authority to contract in the name of Bunz GmbH as well as on its behalf, he was not a commercial agent.  He did not contract in the name of the principal and his retail prices were not in fact fixed by Bunz GmbH.

This case should be a warning to agents who work for undisclosed principals, a situation that it not uncommon under English law as it has certain VAT advantages.  These agents will not, on the face of Regulation 2(1), be commercial agents.