International contracts: the cross-border commercial agent
The Commercial Agent is an independent professional acting on behalf of the Seller, from whom he receives instructions; yet, usually, the Agent is not in charge of signing the final contract.
The Commercial Agent’s remuneration is based on commissions and the Agent is entitled to an end-of-contract allowance.
Under European law, the Agent’s right to such allowance is framed by EU Council Directive Nr. 86/653/EEC of 18 December 1986, pursuant to which choice must be made between 2 different options: payment of an indemnity amounting to 1 year’s worth of commission OR compensation for damage suffered.
▪ France has chosen compensation for damage suffered, pursuant to an act dated 1991.
At the end of the contract, if French law was chosen as the applicable law, the Agent is entitled to compensation for damage suffered and usually receives to 2 years’ worth of commission, based on the average annual commission received for the 3 previous years.
On the other hand, no compensation for damage suffered is to be paid to the Agent if it is him who initiated contract termination – save as otherwise provided for in special retirement, disability or illness regulations.
▪ Germany (1989) or Spain (1992), on the other hand, has opted for the indemnity scheme, i.e. payment of an indemnity amounting to 1 year’s worth of commission.
In the case where German law was chosen as the applicable law, the Agent is entitled to an indemnity not exceeding 1 year’s worth of commission, based on the average annual commission received for the 5 previous years.
A similar calculation method was implemented in Spain.
▪ Compensation for damage suffered also applies in the UK, unless the parties have provided for an indemnity in the contract (1993).
As a rule, the duration of the notice period is set as follows:
▪ 1 month for the 1st year,
▪ 2 months for the 2nd year,
▪ 3 months from the 3rd year on,
except in Germany, for instance, where the Agent is entitled to a 6-month notice period from the 3rd year on.
What about the Applicable law?
Regulation Rome I n°593/2008 of 17 June 2008 establishes uniform rules at the EU level for determining the law applicable to contractual obligations.
The parties may freely choose the applicable law for the contract signed between them. In the absence of a choice of law by the parties, Article 4 Paragraph 1 provides that the contract shall be governed by the law of the country where the Agent has his habitual residence.
The freedom-of-choice principle is subject to exceptions. Especially in case where, as of the date when Directive Nr. 86/653/EEC was implemented into national law, the Agent’s country deemed it necessary to provide for a specific protection (as is the case in Belgium), in accordance with a recent decision of the European Court of Justice dated 17 October 2013.
Outside the EU, the applicable legal framework is to be determined on a country-by-country basis.
If, for instance, the Agent is based in Canada while the Principal is based in France, Directive Nr. 86/653/EEC does not apply; in the opposite scenario (Agent based in France with Principal based in Canada), the Directive applies, to the benefit of the Agent.
France has signed the Hague Convention dated 14 March 1978 on international relations in the context of agency contracts.
This convention provides that, in the absence of a choice of law by the parties, the applicable law is the internal law of the State where, at the time of formation of the agency relationship, the agent has his business establishment or, if he has none, his habitual residence.
For example, in the USA, the Agent is not entitled to any indemnity, except if contract termination is not based on any “fair ground”.
Australian law does not include any end-of-contract allowance.
In China, the Agent is entitled to an indemnity if contract end is attributable to the Principal.
In India, termination is subject to a prior notice and the Agent may receive an indemnity if the contract is terminated without any reasonable ground.
The parties remain free to choose their applicable law. Therefore, it is strongly recommended to check the provisions of each potentially applicable law before making a final decision.
Once the parties have agreed on their applicable law, another major decision needs to be made, regarding dispute resolution: the contract has to specify whether any dispute which may arise is to be referred to State courts or to Arbitration courts, and the country of the jurisdiction.
This issue will be dealt with in an upcoming paper.