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UK: Choice of Texan courts may not oust UK jurisdiction; UK Agency Regulations can apply to sale of software.

The judgment of the English High Court in Fern v Integraph provides some excellent analysis and interpretation of some difficult aspects of the UK regulations implementing the European Directive on commercial agents.

Edward MILLER - 15.10.14
Country expert - IDARB Arbitrator

1.       Jurisdiction of English Court in claim for termination payment where Texan law and jurisdiction is expressly chosen

The court considered whether the UK court would have jurisdiction to hear a claim for compensation on termination of an agency agreement under the UK regulations where the agreement included a well drafted Texas law and jurisdiction clause.  In accordance with established existing case law, the Court found that the choice of Texas law could not operate to exclude the application of the UK regulations, at least in respect of those provisions of the regulations where any agreement to the detriment of the agent is prohibited by the regulations (notably the right to a termination payment).  The question to be decided was whether the application of the UK regulations justified granting leave to the agent to pursue litigation in England, despite the existence of the Texan jurisdiction clause,  by serving proceedings on the Texan principal outside the UK.  The Court rejected arguments that this should be permitted on the basis that that the agency contract could be held to be governed by English law in so far as the right to a termination payment was concerned.  The Court held that this right did not arise as a matter of contract law at all.  The regulations did not specify that the right to a termination payment should constitute an implied term in an agency contract.  The right to a termination payment arose by virtue of the regulations themselves, not as a matter of contract.  Importantly, however, the Court identified an argument that because the right to a termination payment arose directly from the regulations themselves, the agent’s remedy lay not in contract, but in tort or delict for breach of statutory duty by the principal in failing to make the termination payment.  A claimant was permitted to pursue a case in the English courts and serve proceedings on a defendant outside the UK, where the claim is made in respect of the commission of a tort and the damage is sustained in the UK.   The Court invited counsel for the agent and principal to present argument on this point.  If, following further argument,  this line of reasoning is finally upheld, the result would be that a UK agent would always be entitled to bring a claim for a termination payment in the English courts, notwithstanding that the agency agreement is expressed to be subject to the law and jurisdiction of another country.  Given that an agreement to derogate from the right to a termination payment to the detriment of the agent is also prohibited by the regulations, even a jurisdiction clause which expressly applied to tortious as well as contractual liability might well not operate to oust the jurisdiction of the English court, at least when the non-UK court was unlikely to recognise the right to a termination payment.

 

2.       Applicability of the UK agency regulations to the sale of software

In this case, the agent was appointed to sell the principal’s software.  This was significant because the UK agency regulations apply only to agents for the sale of goods, and not to agents for the sale of services.  In this case, the software was supplied on a disk which was purchased by the customer.  Although the Court did not yet need to decide the point, (as it had not yet heard further argument on the jurisdiction point) the Court expressed the view that software supplied on a disk indeed constituted goods under the regulations.  It was no more logical to separate the software from the disk than to separate instructions from a printed manual.  

 

3.       Whether a licence constitutes a sale under the regulations       

The UK regulations apply only to goods but also only to a “sale” of goods.  The principal argued that as the software was only licenced, this did not constitute a sale, and so the regulations could not apply.  The Court again expressed a firm view on this point, even though it was not yet necessary to decide it.   The Court’s view was that a supply on a perpetual licence (as was he case here) did indeed constitute a sale under the regulations.

 

Text of the judgement

 

Edward Miller, IDI agency and distribution country expert for UK

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