On February 12 of 2015 the Court of Appeal of Lithuania passed a ruling in a civil case between one of the biggest telecommunications operators in the country and another private company acting as its commercial agent (hereinafter respectively - Principal and Agent).
To provide the facts of the case briefly, in 2008 Principal and Agent entered into a contract, stipulating that Agent would conclude contracts with clients in Principal’s name and sell mobile phones and Principal would pay Agent for its services. Up until the point of legal dispute between the parties, Agent operated in a network of 19 trading venues. Year after the conclusion of the contract, Principal demanded that four most profitable trading venues should be closed due to reorganization process of Principal. Agent had ceased the provision of services in three of the four aforementioned trading venues and as a result claimed compensation from Principal in a court. The court of first instance granted compensation partially and both parties appealed the decision.
The same as in the court of first instance, in the Court of Appeal the core of the dispute was whether the contract concluded between the parties was to be classified as a commercial agency contract and, if so, whether compensation and what size thereof was due.
After examining the case, in its reasoning The Court of Appeal provided a few noteworthy interpretations of legal rules related to commercial agency. In the following part, the Court’s findings regarding qualifying characteristics of a commercial agent will be discussed firstly, and secondly, the conditions that must be met in order for the commercial agent to successfully claim compensation from the principal after the expiration of the contract will be briefly looked into.
Qualifying characteristics of a commercial agent:
Firstly, both natural and legal persons can act as commercial agents as long as they meet other necessary criteria. Par. 1 of Art. 2.152 of Civil Code of Republic of Lithuania establishes that a commercial agent shall be an independent person whose basic business activity is to continually act for payment as intermediary for a principal in conclusion of contracts or conclusion of contracts in the principal’s name and at the principal’s expense. The Court held that since the Directive 86/653/EEB (on the coordination of the laws of the Member States relating to self-employed commercial agents) and the latter provision of the Civil Code describes commercial agent respectively as “self-employed intermediary” and “independent person”, there are no restrictions placed upon legal persons to take up the activity of commercial agency.
Secondly, the criterion “basic business activity” is to be understood as encompassing not only profit, but the use of time and human resources, rent of business premises, etc. as well. The sole fact that Agent conducted other business activities as well does not diminish the fact that being intermediary for Principal complied with criteria of “basic business activity”.
Thirdly, the criterion “independent” is to be considered as plainly having separate legal personality. The Court of Appeal disagreed with arguments of Principal that Agent, while performing the contract, had to follow detailed instructions, did not have bargaining power and ability to independently make business decisions, therefore it was not independent as concept of commercial agent requires. The Court refuted these arguments, stating that from a legal perspective it is sufficient that a commercial agent is a separate subject and not a body of other legal person or acting in compliance with contract on joint activities. The Court also emphasized that all the features that Principal pointed out are, to the contrary, the features of commercial agency legal relationship.
Conditions for entitlement to compensation:
The Court of Appeal also provided some valuable insight regarding entitlement to compensation after expiration of commercial agency contract. Par. 2 of Art. 2.167 of Civil Code states that a commercial agent shall be entitled to compensation where: 1) upon the termination of the contract the principal has considerable profit from the business relations with clients who were found by the commercial agent or with who, because of the commercial agent, the amount of principal’s business has increased significantly; 2) taking into consideration all circumstances, payment of the compensation would be in line with the principle of justice.
Regarding termination of the contract, the Court held that, even though Agent acted in 19 trading venues on the basis of a single contract, the closure of three trading venues amounted to termination of the contract in the capacity of these venues. Even though Principal argued that the contract is still intact and valid and consequently no compensation is due, the Court stated that business activities in each of the 19 trading venues can be equated to separate contracts. The fact that commercial agency relation between the parties ended in three venues fully satisfies the condition of termination of the contract.
Ultimately the Court of Appeal found that the parties have indeed entered into a commercial agency contract and allowed the judgment of the court of first instance to stand.
To conclude with, this ruling of the Court of Appeal is an important piece of case-law since it sheds light on some of the main legal concepts of commercial agency and provides certainty to legal relationships between principals and commercial agents in Lithuania.
Inga Karulaityte-Kvainauskiene, IDI agency and distribution country expert for Lithuania