With decision of October 13, 2022 (in the proceeding C-593/21, NY v. Herios Sarl) the European Court of Justice decided on the right of a sub-agent to receive the goodwill indemnity from its principal, in a case where the sub-agent, after the end of the contract with its principal, continued to represent the same customers by signing a direct agency contract with the principal of its former principal.
Facts
In 2009, the Belgian company Herios concluded a commercial agency contract with a German company, Poensgen, under which Herios had the exclusive right to sell the Poensgen’s products in Belgium, France and Luxembourg. In the context of such contractual relationship, Herios became the principal to NY and NY became its (sub)commercial agent, with the task of undertaking negotiations in relation to Poensgen’s products on the territory of the abovementioned Member States.
On 8 June 2016, Poensgen notified Herios the termination of the contract between them. Their contractual relationship ended on 31 December 2016, on expiry of a notice period of six months. By letter of 23 February 2017, Herios in turn terminated the contract with NY. In the meantime, NY became the commercial agent of Poensgen.
On 22 May 2017, Herios and Poensgen agreed inter alia on the payment of a goodwill indemnity to Herios. NY, taking the view that he was also entitled to a goodwill indemnity on account of the new customers which he acquired for Herios and in respect of which Herios was compensated by Poensgen, sued Herios for payment of a goodwill indemnity.
The question referred to the European Court of Justice
A dispute arose on NY’s right to goodwill indemnity in such circumstances and the Belgian Cour de cassation (Court of Cassation) decided to stay proceedings and to refer the following question to the Court of Justice for a preliminary ruling:
“Must Article 17(2)(a), first indent, of [Directive 86/653] be interpreted as meaning that, in a situation such as that in the present case, the goodwill indemnity payable to the main agent by reference to the number of customers brought in by the subagent does not provide “a substantial benefit” to the main agent?”
The European Court of Justice reformulated the question as follows:
“ (..) in the specific circumstances where a commercial agent has received a goodwill indemnity after the subagent that it had itself engaged became, following the cessation of the main agency contract, the commercial agent of the main principal, the question referred must be understood as asking, in essence, whether Article 17(2)(a), first and second indents, of Directive 86/653 must be interpreted as meaning that a goodwill indemnity received by the main agent in respect of the customer base brought by the subagent is capable of constituting, for the main agent, a substantial benefit where that subagent has become the main agent of the principal”
The decision of the European Court of Justice
Article 17.2, a) of the EC Directive 86/653 provides:
“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. Member States may provide for such circumstances also to include the application or otherwise of a restraint of trade clause, within the meaning of Article 20; (..)”
In other words, the commercial agent has the right to a goodwill indemnity, after termination of the agency contract, if and to the extent that he or she 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.
As correctly pointed out by the ECJ, Article 17(2)(a) must be interpreted in a manner which contributes to the protection of the commercial agent and which takes full account of the merits of the latter in carrying out the transactions assigned to him or her and cannot be interpreted in a manner which may prove to be detrimental to the commercial agent (due to the overriding mandatory character of such rule).
In this context, the concept of ‘substantial benefits’ must include all of the benefits that the principal derives from an agent’s efforts, after the termination of the contract, including the goodwill indemnity that it has received from its own principal. Making reference to the case at issue, pursuant to the Court, the relevant provision must be interpreted as meaning that the goodwill indemnity which has been paid by the principal to the main agent in respect of the customer base brought by the subagent is capable of constituting, for the main agent, a substantial benefit.
However, the ECJ then pointed out that, in order to provide the referring court with a complete answer, it is necessary also to determine whether the fact that the subagent has himself or herself become the agent of the main principal has any effect as regards his or her entitlement to receive a goodwill indemnity provided for under that provision.
In this respect, the second indent of Article 17(2)(a), which refers to the “equity” criterium must be considered. Namely, the commercial agent has the right to a goodwill indemnity if and to the extent that the payment of that indemnity is equitable, having regard to all the circumstances and, inter alia, the commissions that the commercial agent loses and which are the result of transactions with the clients that he or she brought to the principal or with whom he or she has significantly increased the volume of business.
In this respect, the ECJ – quoting the report on the application of Article 17 of Directive 86/653, presented by the Commission on 23 July 1996, (COM(96) 364 final) – concluded that, if the agent continues to meet the needs of the same clients for the same products, but for a different principal, payment of an indemnity would be unfair as the specific loss that it is intended to compensate does not exist, as the agent has not lost the benefit of his or her customer base.
Therefore, where the subagent continues his or her commercial agency business in relation to the same clients and for the same products, but in the context of a direct relationship with the main principal, who has thus replaced the main agent that had previously engaged him or her, that subagent does not suffer, a fortiori, any negative consequence from the termination of his or her commercial agency contract with that main agent.
It is therefore for the national court to assess whether the payment of the goodwill indemnity is equitable having regard to all the circumstance of the case before it.
In conclusion, the European Court of Justice affirmed the following principle:
“Article 17(2)(a) of Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents, must be interpreted as meaning that the goodwill indemnity which has been paid by the principal to the main agent in respect of the customer base brought by the subagent is capable of constituting, for the main agent, a substantial benefit.
However, the payment of a goodwill indemnity to the subagent may be regarded as not being equitable, within the meaning of that provision, where the subagent continues his or her commercial agency business in relation to the same clients and for the same products but in the context of a direct relationship with the main principal, which replaced the main agent that had previously engaged him or her.”
Silvia Bortolotti, Secretary General IDI, IDI Country Expert for Italy
