The European Court of Justice corrects German case law on the commercial agent's indemnity

Carlotta Mazzetti | EU, GERMANY | 2009-07-23

Carlotta Mazzetti

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The head note of the judgment is as follows:

 

1. 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 is to be interpreted to the effect that it is not possible automatically to limit the indemnity to which a commercial agent is entitled by the amount of commission lost as a result of the termination of the agency contract, even though the benefits which the principal continues to derive have to be given a higher monetary value.

 

2. Article 17(2)(a) of Directive 86/653 is to be interpreted to the effect that, where the principal belongs to a group of companies, benefits accruing to other companies of that group are not, in principle, deemed to be benefits accruing to the principal and, consequently, do not necessarily have to be taken into account for the purposes of calculating the amount of indemnity to which a commercial agent is entitled.

 

Headnote 1:

 

Under Council Directive 86/653/EEC of 18 December 1986, the commercial agent’s indemnity may not be limited to the amount of commission the commercial agent loses.

 

With regard to an indemnity, Council Directive 86/653/EEC of 18 December 1986 contains, inter alia, the following provisions:

‘Article 17

 

2(a) The commercial agent shall be entitled to an indemnity if and to the extent that

    1. 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
    2. the payment of such an 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.

 

…’

 

Section 89 b (1) of the German Commercial Code (Handelsgesetzbuch) contains inter alia the following provision:

 

‘Section 89 b (1) Commercial Code

The commercial agent may, after the end of the contractual relationship, require from the principal a reasonable indemnity, if and insofar as
1. the principal, even after the end of the contractual relationship, still has substantial advantages from the business relationships with new customers solicited by the commercial agent,
2 the commercial agent, as a result of the end of the contractual relationship, loses rights to commission which the commercial agent would have, if the contractual relationship were continued, from transactions entered into in the past or to be entered into in the future with the customers solicited by him, and
3. the payment of an indemnity is equitable, taking into account all the circumstances.
…’

 

Under the provisions of German law, the courts in Germany have in the past always limited any commercial agent’s indemnity to the amount in which the commercial agent ‘loses rights to commission’ as a result of the end of the agency contract. Where the German court was unable to determine that the commercial agent lost commission as a result of the end of the agency contract, the commercial agent was awarded no indemnity, irrespective of how great the advantages were that the principal had from the business relationship with relevant customers after the end of the contractual relationship.

In its decision of 26 March 2009, the European Court of Justice has now established that it is inconsistent with the Directive to make the determination of ‘rights to commission which the commercial agent loses’ the decisive criterion for the amount of an indemnity. Instead, in deciding on a commercial agent’s indemnity, it must first be considered to what extent the principal derives substantial advantages from new customers solicited by the commercial agent or the business relationship with whom has been materially extended by the commercial agent. If such substantial advantages are established, the question as to what commission the commercial agent will lose in the future is permitted to carry weight only in connection with the review as to how far the payment of an indemnity is equitable.

In individual cases, this decision greatly improves the situation of commercial agents whose indemnities are decided under German law. For example, where an agency agreement contains commission for repeat orders from customers which is much lower than the commission for the first transaction, or where the commercial agent works in a variety of areas, it may be the case that the sum of the commission lost by the commercial agent in future is relatively low, but the advantage of the principal very great. Since up to now German courts have taken the commission lost by the commercial agent as the yardstick for the assessment of the indemnity, and in weighing the principal’s advantages have often limited this to establishing that these are not lower than the lost commission, it will be necessary to develop more precise criteria than previously to calculate the principal’s advantage.

An appropriate amendment of Section 89 b of the German Commercial Code has been adopted already by the parliament; this amendment is expected to come into force in August 2009. At all events, every commercial agent who is disadvantaged by the previous practice can now rely on the judgment of the European Court of Justice. Since the question of loss of commission is particularly critical with regard to the payment of insurance agents, but Directive 86/653 governs only the legal relationships of commercial agents who are entrusted with buying or selling goods, the judgment of the European Court of Justice does not directly apply to insurance agents. The amendment of section 89 b however does not make any difference between commercial agents regarding buying or selling goods and insurance agents so that in future the calculation of the indemnity (Ausgleichsanspruch) regarding insurance agents will have to respect also the new principles.

 

 

Erwin Gärtner

 

IDI Country Expert for Germany

 

 

The text of the judgment, together with most important decisions on this subject-matter, can be found in the database of the European decisions, in the EU Section of the IDI website.

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