EU: Goodwill indemnity and recovery of additional damages? The European Court of Justice rules on Article 17 of the commercial agency directive.

Fabio Bortolotti | EU | 2016-01-19

Fabio Bortolotti

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The issue in dispute

Article 17 of the Directive 86/653/EEC on commercial agents provides two alternative types of remuneration due to the agent upon contract termination:

–      a goodwill indemnity for the customers brought by the agent, within a maximum amount of one year of commission, calculated on the last five years of the relationship, based on the system in force in Germany, and

–      a compensation for the damage suffered as a result of the termination, based on the system adopted in France.

The member states have been given the choice between these two alternatives. Most countries, including Belgium, have chosen the “German” system.

Although these two systems apparently have a different legal nature, one as indemnity for the clientele developed by the agent and the other as  compensation of the damage suffered by the agent upon termination, both of them aim at remu­nerating the agent for his activity during the relationship, in case of ter­mination of the contract by the principal. It is important to stress that the damage to be compensated under the “French” system is a damage arising out of the termination as such, regardless of the fact whether the termination was wrongful or not.

Since, under the “German” system the agent’s right upon termination is construed as an indemnity, the drafters of the directive felt that it was necessary to expressly state (in Article 17(2)(3) of the Directive) that, in addition to the goodwill indemnity, the agent is also entitled to the recovery of the damage suffered as a result of the contract termination.

The above provision does not specify whether it refers only to the damage arising out of an unlawful termination or if it extends also to damages arising out of the termination as such.

The Belgian law of 13 April 1995 which implements the Directive provides in Article 21, that the agent is entitled, in addition to the goodwill indemnity, to recover damages not exceeding the difference between the amount of the loss actually incurred and the amount of the indemnity.

By virtue of this provision Belgian agents can “bypass” the limit of one year com­mission fixed for the indemnity by proving the existence of further damages arising out of a lawful termination, such as non amortized investments or costs incurred for dismissal of employees, etc.

The dispute in main proceedings

Upon termination of the agency agreement with Citibank and Citilife, Mr. Quenon requested his principals to  pay a termination indemnity (for having terminated the contract without respecting a period of notice), a goodwill indemnity and, in com­pliance with Article 21 of the Belgian law, an additional compensation in order to recover the whole of the loss incurred.

The defendants contended that Article 21 of the Belgian law, as interpreted by Quenon (i.e. permitting to recover damages in the absence of any fault, simply because of the contract termination as such), would be contrary to the Directive, which would only refer to damages arising out of a wrongful act, such as, for instance the non-observance of the termination notice.

The dispute had been brought before the Commercial Court in Brussels, whose judgment had then been appealed. The Brussels Court of Appeals decided to stay proceedings and to refer to the Court of Justice, for a preliminary ruling, mainly the following questions:

 1.  Must Article 17 of the Directive 86/653 be interpreted as meaning that the national legislature is authorised to provide that, after the termination of the contract, the commercial agent has the right to an indemnity for customers of which the amount may not be greater than the amount of remuneration for one year and that, if that amount does not cover the whole of the loss actually suffered, to damages in the sum of the difference between the amount of loss actually suffered and the amount of that indemnity?

2.    More specifically, must Article 17(2)(c) of the directive be interpreted as making the award of damages additional to the indemnity for customers conditional upon the existence of a breach of contract or a non-intentional tort on the part of the principal which was the cause of the losses claimed, and upon the existence of loss distinct from that compensated for by the lump sum of the indemnity for customers?

The decision of the Court of justice

The Court of justice held that the Directive:

(1) does not preclude national legislation providing that a commercial agent is entitled, upon termination of the agency contract, both to an indemnity for customers limited to a maximum of one year’s remuneration and, if that indem­nity does not cover all of the loss actually incurred, to the award of additional damages, provided that such legislation does not result in the agent being compensated twice for the loss of commission following termination of that contract, and

(2)  that it does not make the award of damages conditional on demonstration of the existence of a fault attributable to the principal which caused the alleged harm, but does require the alleged harm to be distinct from that compensated for by the indemnity for clients.

In other words, the Court recognized that the agent’s right to recover damages in addition to the indemnity, provided in Article 17(2)(c), is not limited to damages arising out of a breach of contract or tort, but can also regard damages suffered by the agent as a mere consequence of the termination, provided it does not overlap with the indemnity.

Hence the Court confirmed the validity of the Belgian rule, which makes it possible to overcome the “ceiling” of one year of commission if the agent proves that he suffered further damages of a nature which differs from the loss covered by the goodwill indemnity (i.e. mainly commission that the agent would have earned if the contract continued).

Possible effect on other national legislations

It is important to stress that the judgment of the Court is limited to the issue whether a national legislator may recognize an additional right to damages arising out of a lawful termination, but does not state how the provisions of national law implementing Article 17(2)(c) must be interpreted.

The Court rules that the broad interpretation of the agent’s right to damages is not inconsistent with the Directive, but does not state that Article 17(2)(c) must be interpreted as a recognition of the agent’s right to claim damages suffered regard­less of a breach by the principal.

This question must be answered in accordance with the applicable national law.

However, since most countries have simply transposed literally the provision of the directive without specifying whether the damage must be a damage arising out of a breach, the answer to this question is normally left to case law.

Thus, in many countries the prevailing view is that the agent may claim, in addition to the indemnity, only damages arising out of a breach of contract, such as non-observance of the termination notice, but not other damages arising out of a lawful termination, such as non-recoverable investments made in view of the agency relationship with the principal (e.g. the establishment of a show-room) or the cost of terminating agreements with employees or sub-agents.

It remains of course to be seen if, soon or later, the interpretation of Article 17(2)(c) given by the Court shall have relapses on the interpretation of national laws implementing the directive. One cannot exclude that the position of the Court, though regarding exclusively the validity of the provision of Belgian law, yet may be invoked in order to hold that national provisions implementing the Directive on this issue – without expressly taking a position on the nature of the damage – must be interpreted as permitting a request of damages regardless of a fault by the prin­cipal.


Fabio Bortolotti, IDI country expert for Italy


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