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Select Committee on European Legislation First
Report
SELF-EMPLOYED COMMERCIAL AGENTS |
17.1 The main purpose of Directive 86/653/EEC[35] is to harmonise the laws of Member States to facilitate cross-border commercial representation contracts and to strengthen the position of commercial agents in relation to their principals. A commercial agent is defined as "a self-employed intermediary who has continuing authority to negotiate the sale or the purchase of goods on behalf of another person ('the principal')".[36]
17.2 The Directive was adopted in 1986, and implemented in the UK on 1 January 1994 by the Commercial Agents (Council Directive) Regulations 1993[37]. It lays down complementary rights and obligations for commercial agents and principals, remuneration entitlements, and rules relating to the conclusion and termination of the agency contract.
17.3 The Commission is required to submit a report on the implementation of Article 17. This article is designed to ensure that after termination of the agency contract, the commercial agent is either indemnified or compensated by the principal.
17.4 In an Explanatory Memorandum (dated 4 October) the Department of Trade and Industry explains that
Indemnity and compensation
17.5 The provisions for indemnity are modelled on the German Commercial Code, while those for compensation are based on French law and practice. Neither precise definitions of the two terms, nor detailed methods of calculation, are included in the Directive, on the apparent assumption that the experience of the German and French courts would provide sufficient precedents.
17.6 Indemnity is intended to represent the value of the goodwill generated for the principal by the agent, which will not have been reflected in the commission received during the duration of the contract. An indemnity will therefore only be paid if the agent has brought to the principal new customers or increased business with existing customers, or if payment is otherwise equitable, having regard to all the circumstances (Article 17(2)(a)). The Directive provides for a maximum amount of indemnity, roughly equivalent to one year's remuneration (Article 17(2)(b)), but does not indicate how the sum is to be calculated. The Commission clearly regards this maximum figure as a guideline to be taken into account at the last stage of the calculation rather than at the starting point.
17.7 In contrast, the Directive does not lay down a maximum amount of compensation. Compensation is intended to reimburse the agent for the damage he suffers as a result of the termination of his relations with the principal (Article 17(3)). Damage is deemed to occur when the agent is deprived of the commission which proper performance of the agency contract would have procured him and/or when the agent was not able to amortise the costs and expenses he incurred for the performance of the agency contract on the principal's advice. Implementation in the UK 17.8 S.I. No. 3053 of 1993 reproduces much of the Directive word for word. Regulation 17 of this instrument allows the parties to provide contractually for the payment of either indemnity or compensation, but in default of a contractual provision, the commercial agent is entitled to compensation.
17.9 The UK's "elective" approach differs substantially from the strategies of the other Member States, who, with the exception of Ireland, which has yet to implement the measure, make a definitive choice between the two options. Except for France, which preferred to adapt its pre-existing compensation system, all the Member States opted for the indemnity option. Nothing in the Directive would seem to prohibit the manner in which the UK has implemented Article 17, although, as there is no legal precedent for either option in the UK, Regulation 17 may be expected to give rise to more case law than would have otherwise been necessary.
The Commission report 17.10 The Commission found that, in general, the Directive had led to an improvement in the position of agents and that there had been no significant change in the overall business practice of using commercial agents. However, with the exception of Germany and France where the principles of indemnity and compensation respectively are well established, some Member States had experienced difficulties in interpreting the two options in the absence of any clear guidance. 17.11 The report notes that, although there are, as yet, few reported court decisions on Article 17 and no available statistics, difficulties in interpretation of the Article are leading to discrepancies in the methods of calculation of awards, particularly in the case of indemnities. Despite the Commission's expectation that the large body of German case law relating to the calculation of indemnity would provide assistance to the Courts of other Member States when seeking to interpret the provisions of Article 17, there is some evidence that these other Member States are relying on their own, divergent methods of calculation. 17.12 The Commission has identified some particular problems in relation to the UK. The method of implementation has itself produced uncertainty, particularly as neither of the two options is known to the UK legal systems. This uncertainty is most conspicuous in the case of compensation, where there is a clear conflict between the judicial custom under which the system has evolved in France and in the UK legal traditions. 17.13 The French system, on which Article 17(3) is based, compensates the agent for that part of the market lost to him at the time of the termination. It goes beyond merely reimbursing the amount of commission that would have been payable during the contractual or statutory notice period or for the remainder of the fixed term of the contract. As a result, future circumstances are not taken into account, such as the principal ceasing to trade, the agent continuing to work with the same clients or developments in the market place, and the agent is not required to mitigate his losses. 17.14 Under the common law, the court will attempt to put the agent in the position he would have been in if the contract had been properly performed. Thus, termination of a contract in accordance with its terms, or at the natural end of a fixed term, does not give rise to a claim for damages. The injured party is expected to mitigate his losses and the court will have regard to future events. 17.15 The Commission envisages that this fundamental discrepancy between the French and UK rationales for compensation will cause some difficulties for the UK in the future. However, the problem stems not only from the differing traditions of the French and British courts, but also from lack of clarity in the Directive. The two different sets of circumstances under which damages are deemed to occur, cited in Article 17(3), broadly reproduce the British and French approaches and as such are difficult to reconcile with each other. 17.16 The Commission believes that Article 17 needed to be clarified, to facilitate more uniform indemnity calculations. It considers that its report provides clarification and suggests that it may be sufficient for the purpose. The report was based on responses to a questionnaire sent to organisations representing agents and principals, chambers of commerce, federations of industry and legal practitioners specialising in agency law. The authorities of Member States were also invited to contribute their views. The Government's view
17.17 The DTI comments that:
17.18 Assessing the impact of the report on the UK, the DTI says:
Conclusion
17.19 The report is of legal and political importance, but since we are told that it will have no significant impact on UK interests, we see no need to recommend it for debate. If it is decided that Article 17 needs more formal clarification, we expect to see a further document.
35. OJ No. L 382 pp.17, 31.10.86. Back 36. Article 1(2) of Directive 86/653. Although this forms the basic definition, the Directive goes on to identify a number of specific categories of persons who do not qualify as commercial agents (Article 1(3)) and a list of commercial agents to whom the Directive does not apply (Article 3). Back |
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| © Parliamentary copyright 1996 | Prepared 12th November 1996 |