2018-04-13 The Supreme Court of Lithuania issued a ruling explaining some important issues regarding commercial representation:
- regarding the criterion of the main activity in relations of commercial representation
- regarding the recognition of a commercial representation contract as unlawful and award of a fine
Regarding the criterion of the main activity in relations of commercial representation
Article 2 (2) of the directive regulates, that each member state has the right to foresee that this directive does not apply to those, whose activities of the commercial agents are considered as non-primary under the law of that member state.
An issue arose during the hearing, which of the plaintiff’s commercial activities – mediation or trade – shall be considered as primary. The court, for the permanent nature of the representative’s activity in those cases, when the agent is carrying out other activity, besides mediation, which is basically similar or analogical to the activity, forwhich commercial representation contract was concluded, indicated, that circumstances, such as form of company’s activity, size, corporate group structure or other circumstances should not be absoluted.In such cases, it is assessed whether the company has established a communication network in the relevant field. Such network indicates, that mediation is not an occasional area of activity for the company, it works in this area deliberately, systematically, constantly. Also, it is necessary to evaluate the areas of activity for which representation agreements have been concluded, they also indicate the consistent pursuit and specialization of mediation activity.
Subjective criteria also must be evaluated – representative’s work experience in the relevant field, this experience is proved by the presence of agreements made with other entities, the duration and continuity of the activity in the relevant field.
Regarding the recognition of a commercial representation contract as unlawful and award of a fine
One of the plaintiff’s claims is to declare the termination of contract unlawful. Regarding this this claim of the plaintiff the court noted, that satisfaction of this requirement would, in essence, mean that the contract would remain valid.
The legal relationship between the parties to the commercial representation contract is based on mutual trust, loyalty, cooperation, exchanging commercially valuable and sensitive information etc. Contracts of this kind, in those cases when one of the parties no longer wants to continue cooperation, their further cooperation could become very complicated, because essential preconditions and grounds for cooperation no longer exist. In this case, if the court decides that the contract shall remain executed, both parties of the contract would be forced to work with the subject , the trust for which has been lost, and as already mentioned, trust is one of the essential features of such relationship. Therefore, in this kind of situations, which occurred in the present case, the priority should normally be given to compensation of the damages, instead of the restoring of parties to the terminated contractual relationship.
The court stated that, by awarding the plaintiff from the defendandthe total amount of compensation claimed by her, the damage would be appropriately repaid to the plaintiff because of the expiry (termination) of the contract, and the contract should not be renewed, although the termination of the contract was recognized as unlawful.
Inga Karulaityte-Kvainauskiene, IDI Country Expert for agency & distribution in Lithuania