CJEU rules on indemnity rights after termination of agency contract during trial period 17 Oct 2018

The Court of Justice of the EU (CJEU) issued a noteworthy preliminary ruling (C-645/16) after a request by the Cour de cassation (Court of Cassation, France) re. commercial agents and the interpretation of Art. 17 of Directive 86/653/EEC on commercial agents. The basic question was whether Article 17 applies where termination of the commercial agency contract occurs during the trial period provided for in that contract.

Background

Demeures terre et tradition SARL (DTT – principal) and Comseils et mise en relations SARL (CMR- commercial agent) concluded a commercial agency contract in 2011. According to the terms of the contract a) CMR should sell 25 houses per year on behalf of DTT b) a 12 month trial period was introduced during which the contract could be terminated by either party following a written notice. After approx. 6 months DTT terminated the contract on the basis that CMR had made only one sale in five months. CMR brought an action against DTT before the tribunal de commerce d’Orléans (Commercial Court, Orleans, France) requesting payment of a compensation for the loss and damages arising from the termination of the agency contract. That court partially upheld CMR’s application. DTT appealed against that judgment. By judgment of 18 December 2014, the Cour d’appel d’Orléans (Court of Appeal, Orleans, France) set aside in part the judgment of the tribunal de commerce d’Orléans (Commercial Court, Orleans). Ruling on the appeal was brought by CMR against that judgment before the Cour de cassation (Court of Cassation, France). The judgment under appeal was based on the premise that during the trial period the agency contract had not yet been concluded.

Articles 17 and 18 of the Directive provide that:

Article 17

‘2.      (a)      The commercial agent shall be entitled to an indemnity if and to the extent that:–        he has brought the principal new customers or has significantly increased the volume of business with existing customers and the principal continues to derive substantial benefits from the business with such customers, and –        the payment of this indemnity is equitable having regard to all the circumstances and, in particular, the commission lost by the commercial agent on the business transacted with such customers. ……

3. The commercial agent shall be entitled to compensation for the damage he suffers as a result of the termination of his relations with the principal…..’

 Article 18

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

 

CJEU Judgment

The Court ruled that:

  1.  The directive makes no referral to trial period. Freedom of contract provides that the parties may agree upon such period. Therefore, trial periods are not prohibited by the Directive.
  2. To answer the question the scope, wording, context and objectives of Article 17 of Directive 86/653 must be taken into account. More specifically:

Scope

  • The termination of a contract during the trial period (which is provided for in the contract) constitutes a ‘termination of the agency contract’ , within the meaning of Article 17.
  • Relations between the agent and the principal exist as from the time of conclusion of the contract. It is irrelevant whether that contract provides for a trial period.

Wording

  • The wording of Article 17 indicates that the agent is indemnified for the services he provided to the principal considering that the principal continues to benefit from them after the termination of the contract and/or for the expenses he has incurred from the provision of the those services. Indemnity and compensation are not laid in order to penalize the termination of the contract. Consequently, “the agent cannot be denied the indemnity or compensation on the sole ground that the termination of the commercial agency contract occurred during the trial period, if the conditions set out in Article 17(2) and (3) are satisfied”.

Context

  • Article 18 of the directive provides an exhaustive list of the circumstances in which indemnity or compensation for damage is not payable. Termination of the trial period is not mentioned.
  • Article 18 must be interpreted strictly since it represents an exception to the right to indemnity and compensation.
  • Article 19 prohibits the parties derogating from Articles 17 and 18 to the detriment of the agent.

Objective

  • One of the objectives of that directive is to protect the commercial agent in his relations with the principal.
  • The interpretation that no indemnity is payable in the event of termination of the agency contract during the trial period is incompatible with the mandatory nature of the regime established by Article 17: “Such an interpretation, which effectively makes the award of redress conditional on whether or not a trial period is provided for in the commercial agency contract, without regard for the performance of the commercial agent or the costs and expenses that he has incurred, contrary to the requirements of that article, constitutes, ………., an interpretation detrimental to the commercial agent, who is denied any redress on the sole ground that the contract he has with the principal includes a trial period”.

In the light of the foregoing considerations, the Court concluded that “the answer to the question referred is that Article 17 of Directive 86/653 must be interpreted as meaning that the indemnity and compensation regimes laid down by that article, in paragraphs 2 and 3 respectively, in the event of termination of the commercial agency contract are applicable where termination occurs during the trial period provided for by the contract”.