Overseas principals: governing law and jurisdiction

More and more agents act for principals based abroad. When that relationship goes wrong, two questions come first: which country’s law governs the agency agreement, and which country’s courts have the power to hear the dispute. The answers decide how much protection an agent actually has, because that protection can vary a great deal from country to country. The contributions below, from specialist commercial agency solicitors, cover both questions and the main cases behind them. Each is reproduced in full and attributed to its author.

Short answers to common questions

Do the Regulations apply if my principal is based abroad?

Yes, if you carry out the agency in Great Britain. The principal’s location does not matter; what matters is where the agent performs its activities.

Can a foreign principal avoid the Regulations by choosing another country’s law?

No. The mandatory protections, such as the termination payment, cannot be evaded by a non-UK choice-of-law clause where the agent operates in Great Britain, and the courts have held this applies to arbitration clauses too.

What is the difference between choice of law and jurisdiction?

Choice of law is which country’s law governs the contract. Jurisdiction is which country’s courts hear a dispute. They are usually the same country, but they can differ, in which case one country’s court has to apply another country’s law.

What if there is no written agreement, or no choice-of-law clause?

The applicable law and the correct forum are then decided by the rules of private international law, which are complex. A court may find an implied choice of law, or apply the law of the country with which the contract is most closely connected.

Where can I sue an overseas principal?

It depends on the agreement and the rules in force. Historically an agent could often sue in the country where it performed the agency, rather than where the principal was based, but the exact position now turns on the current cross-border rules, so take advice.

What extra hurdles apply with a US principal?

US contracts often require disputes to be heard in a named US state whose law does not recognise a termination payment. Serving English proceedings on a US principal, and later enforcing an English judgment in the US, can both be difficult, so how the agreement is drafted matters a great deal.

---

Overseas principals: governing law and jurisdiction

The overview: when the Regulations apply to an overseas principal, and how choice of law and jurisdiction work.

An increasing number of agents act for principals all over the world. This article looks the law which governs the agency agreement where the principal is overseas, and the country which has jurisdiction to determine any dispute.

Commercial Agents (Council Directive) Regulations 1993

The Commercial Agents Regulations apply to agents who sell or purchase goods in Great Britain on behalf of their principals. Regardless of the location of the principal, if the agent is carrying out its duties in Great Britain, the agent will have the protection of the Regulations.

Should a dispute arise between an agent and foreign principal, the first port of call is the commercial agency agreement. Is there a written commercial agency agreement in place? If so, does the agreement specify both jurisdiction and choice of law in the event of a dispute?

Choice of law and jurisdiction

The rules on governing law and jurisdiction are complex. If an agent has a written agency agreement with an overseas principal, it may contain a jurisdiction clause which chooses the law of another country to determine any dispute arising under the agency agreement. For example, it may say that the French Courts will have jurisdiction to hear any claims arising out of the agreement. This will mean that any claim which the agent brings against its principal must be brought in the French Courts.

There may also be a choice of law clause within a written agency agreement that specifies which country’s law will apply to any claim or dispute arising out of the agreement. For example, the written agency agreement may specify that English law should apply to any dispute. English law remains a common choice of many principals even though they may be based overseas.

Whilst it is most common to see parties choose for their agency agreement to be governed by the law of the same country which has jurisdiction (and often that is English law), it is possible for them to differ. The result of that is not ideal, since it means the court of one country applying the law of a different country. For example, a written commercial agency agreement which has a French jurisdiction clause and an English choice of law clause, would require any claim to be brought in the French Courts, but the French Courts would have to apply English law and the Regulations.

The wording of governing law and jurisdiction clauses should be considered carefully, as depending on how they have been drafted, the effect of such a clause may not be immediately clear. One example is an agency contract which stated “disputes will be judged according to EU regulations”. Such a clause could not be interpreted as a choice of law clause at all, since it was not stipulating the law of a particular country to govern the agency contract, and the contract was deemed to contain no choice of law.

Principals outside of Europe

Where an agent acts for a principal located outside of Europe, for example in the United States of America, the parties may have agreed that the law of the State in which the principal is registered will govern the contract.

However, the parties are precluded by the Regulations from contracting out of many of its key provisions, including the right to compensation or an indemnity on termination under Regulation 17. That means the mandatory aspects of the Regulations will still apply where the law of a non-EU Member State applies to the contract, provided the agent performs its activities in Great Britain. This has been confirmed by the European Court of Justice.

The High Court has also held that a Canadian arbitration and choice of law clause could not be enforced because it did not give effect to the mandatory provisions of the Regulations. As a result, the arbitration award was unenforceable.

Agents should therefore seek advice in the event of a dispute, as the agent may have rights which may not be obvious from the contract, especially if the contract provides that it is governed by the law of a non-EU member state.

What happens if I do not have a written agency agreement?

In the absence of a written agency agreement, the correct forum for the settlement of disputes will be determined by the rules of private international law. This is a very complex area which can cause uncertainty and can lead to a delay in progressing proceedings and additional costs. It is therefore important to seek professional legal advice on this topic when any dispute arises.

Suzanne Carr, Senior Associate, Dispute Resolution & Commercial Litigation, Myerson Solicitors LLP
T: 0161 941 4000 · E: Suzanne.Carr@myerson.co.uk · www.myerson.co.uk
Grosvenor House, 20 Barrington Road, Altrincham, WA14 1HB

---

The importance of having a choice of law clause in agency contracts

Why a written choice-of-law clause matters, shown by an agent who lost English-law protection because his arrangement was informal.

A recent Court of Appeal decision has highlighted the importance of parties to an agency contract choosing which countries’ law will govern the contract. Timothy Lawler v Sandvik Mining and Construction Mobile Crushers and Screens Limited was originally heard by the High Court in 2012. Mr Lawlor was an Irish citizen who had operated as a sales agent for Sandvik in Spain. In 2009 his agency contract was terminated and he claimed compensation in the English High Court under the Commercial Agents (Council Directive) Regulations 1993. At the time Mr Lawlor became a sales agent in around 1994, Sandvik was a much smaller company. He had no written agency agreement, and no written employment contract in respect of his previous employment with the company either. As there was no agency contract containing an express choice of law, the first question to be determined by the court was which law was applicable to his agency contract: English law or Spanish law? Where the parties have not included a written clause in their contract stating which law shall apply, it is possible for the court to find that they have, nevertheless, made an implied choice by looking at the contract as a whole.

Mr Lawlor argued that the parties had made an implied choice of English law. In order to establish this, he had to demonstrate with reasonable certainty that the parties had chosen English law to apply, but the High Court found that he had failed to do so. The court therefore went on to consider with which country the agreement was most closely connected, and found that this was Spain. Mr Lawlor appealed the decision on the basis that he had demonstrated with reasonable certainty that the parties had made an implied choice of English law. The Court of Appeal found that the evidence put forward by Mr Lawlor as to what the parties’ intentions were at the time the contract was made was vague. The arrangement was a casual and informal one and the parties had probably not really considered the choice of law at all. At the time the contract was made, Mr Lawlor was living in Spain and Spain was to be the centre of his activities. Accordingly, the Court upheld the High Court’s decision that Mr Lawlor had not demonstrated with sufficient certainty that the parties had intended the contract to be governed by English law. Spanish law was to be applied. Due to the differences in the way in which EU Member States calculate compensation under the Regulations or their equivalent legislation, Mr Lawlor would have received significantly more under English law than if Spanish law had been applied. The case was interesting because it was accepted by Sandvik that as a general rule, the company would seek to have its contracts governed by English law, and that it would be usual for an English principal to impose English law on its agency contracts.

The Court also found that Mr Lawlor’s previous employment contract had probably been governed by English law, and that had the parties made a choice, it would in all likelihood have been English law. However, it was in Sandvik’s interests for Spanish law to apply so as to lessen their liability to Mr Lawlor for compensation. This decision underlines the need for parties entering into an agency contract to put proper written agreements into place, which include a choice of law clause, to give them the best protection in the event of a future dispute. It is also very important for any parties whose agencies have started off on a causal basis, like Mr Lawlor’s, to periodically review their arrangements and ensure that they have agreements in place which give effect to their intentions.

Emma Butcher, Clarkslegal LLP
One Forbury Square, The Forbury, Reading RG1 3EB · Tel: 0118 958 5321 · www.clarkslegal.com

This column does not contain legal advice and is for general guidance only. Agentbase, Clarkslegal LLP and the writer accept no liability in connection with the general guidance given in this column. Please ensure that you obtain legal advice before acting in reliance upon anything in this article.

---

Where should a principal be sued?

The jurisdiction question: which country’s courts hear the claim when an agent works across several countries.

In a world of increasing globalised trade, it is often the case that a commercial agent operates in a number of different European Union countries. This can give rise to difficult questions concerning the correct national court for an agent to bring a compensation claim against a principal. The case of Wood Floor Solutions Andreas Domberger GmbH v Silva Trade SA, examined this issue and provided guidance to help determine which country’s national court has jurisdiction to hear a commercial agency dispute, especially in circumstances where an agent operates in a number of different countries.

The basic rule is that a defendant must be sued in their local court. If the defendant is an individual this is the place where they are domiciled and if they are a corporate body it is the place where it has its registered office. There are various exceptions to the basic rule and proceedings can be brought in a different country to the defendant’s place of domicile if one of the exceptions applies. For example, if there is a breach of contract (as in the case of an agent’s claim for compensation), the defendant can be sued in the country where the contractual obligations are performed.

Wood Floor (The Agent) was a commercial agent based in Austria and wished to pursue its principal, Silva Trade (The Principal), for compensation following the termination of the commercial agency contract. Although The Principal is a company incorporated in Luxembourg, The Agent brought proceedings in Austria because it argued that it carried on its business of signing up and acquiring clients in Austria and Austria was therefore, the place where the contractual obligations were performed. The Principal argued that the case should not be heard in the Austrian Courts because more than three-quarters of The Agent’s turnover was generated in countries other than Austria and that the place of performance of the contractual obligation could not be established. The Principal argued that jurisdiction had to be determined in accordance with the basic rule and that The Agent should have sued The Principal in its place of domicile, being Luxembourg.

The Agent was successful in the lower court and The Principal appealed. The Austrian Court of Appeal referred the matter to the European Court of Justice for clarification of the issues. The European Court of Justice held that where services were provided by an agent in several countries, the exception to the basic rule did still apply and the Court that had jurisdiction to hear and determine all the claims arising from the contract was the Court in whose jurisdiction the place of the main provision of services was located. The Court held that for a commercial agency contract that place was either:

• the place of the main provision of services by the agent as stated in the contract (i.e the agent’ territory if that was defined in the contract);
• in the absence of such provisions in the contract, it is the place where the agent had carried out the activities in performance of the contract; and
• where the place of performance could not be established, the courts local to where the agent was domiciled have jurisdiction.

The case provides useful guidance as to the correct jurisdiction for an agent to bring a claim for compensation pursuant to the Commercial Agents Regulations. It has established that in most cases an agent should be able to bring proceedings in its home court rather than the local court of the defendant. This potentially will have the effect of increasing costs for a principal in defending claims for compensation from foreign based agents and may assist agents in negotiating a swifter settlement to their claims.

Key jurisdiction points for UK agents

• Agents and principals are free to negotiate choice of law and jurisdiction clauses in a contract. Therefore UK agents should ensure that their preferred country’s courts are stated to have jurisdiction in the contract. In most cases it will probably be preferable for the courts of England and Wales or Scotland to have jurisdiction.
• Agents operating in Europe with principals based outside of Europe are still protected by the Regulations. Any attempt by, say, a US based principal to enforce US a law and jurisdiction clause will be overridden by the European Courts as an attempt to derogate from the Regulations.
• If jurisdiction has not been agreed in the agency contract then an agent can sue in the country where the contract is performed. In most cases, UK based agents will be operating in UK defined territories and thus would be able to sue in the UK courts.
• If it is not possible to determine in which country the contact was being performed, an agent will be able to sue in the country where the agent is domiciled and thus UK based agents will be free to sue in the UK.

By Adam Maher, Partner, Neil Myerson LLP · adammaher@neilmyerson.co.uk
Neil Myerson LLP are experts in Commercial Agents law and have a wealth of experience advising with regard to both international and domestic arrangements relating to commercial agents, including pursuing claims for compensation.
The Cottages, Regent Road, Altrincham, Cheshire WA14 1RX · 0161 941 4000 · www.neilmyerson.co.uk

This column does not contain legal advice and is for general guidance only. Agentbase, Neil Myerson LLP and the writer accept no liability in connection with the general guidance given in this column.

---

Commercial Agents Regulations cannot be avoided by choosing non-EU law and arbitration

The principle that mandatory protection cannot be sidestepped by choosing non-EU law, or by an arbitration clause.

The case of Accentuate v Asigra has demonstrated an important point concerning the Commercial Agents (Council Directive) Regulations 1993.

In the case, the High Court determined that it had authority to hear a claim for compensation under the regulations even though the claim in question stemmed from an agreement which was subject to Canadian law and arbitration. The case of Ingmar v Eaton Leonard technologies had already established that the regulations could not be avoided simply by the choice of a non-EU law.

In that case, the agent operated in the UK on behalf of a California-based principle, and California law had been used to govern the contract. The European Court of Justice, however, found that the mandatory provisions of EU law put in place by the regulations could not be evaded “by the simple expedient of a choice-of-law clause”.

In the case against Accentuate, the High Court determined that the previous ruling meant that it had to give effect to the regulations, even if both parties had contractually agreed to use a different system. The Court found that this must apply equally to an arbitration clause as it had to the choice of law clause in the prior case.

Where the regulations are found to apply, the agent concerned gains important benefits, such as the right to a potentially substantial payment when the agency is terminated.

Generally, these benefits can not be avoided by an agreement between the agent and the principal. This new judgement means that they also cannot be evaded by a choice of non-EU law and arbitration.

Ashby Cohen Solicitors Ltd
18 Hanover Street, London W1S 1YN · Tel: 0207 408 1338 · Email: info@ashbycohen.co.uk · www.ashbycohen.co.uk

This column does not contain legal advice and is for general guidance only. Agentbase, Ashby Cohen and the writer accept no liability in connection with the general guidance given in this column.

---

Law applicable to agency agreements reconsidered

A harder case: even a validly chosen EU member state’s law can sometimes be overridden by more protective local rules.

A recent decision of the European Court of Justice (United Antwerp Maritime Agencies (Unamar) NV v Navigation Maritime Bulgare) has cast doubt on the law which will be applicable to commercial agency agreements where the parties are located in separate EU member states. This has potentially significant implications for the freedom of principals and agents to choose the law which will apply to their agreements, in circumstances where some EU member states grant greater protection to agents than others.

The courts of all EU member states must apply the same rules in order to determine the law which will be applicable to a contract. Generally, where the parties have made an express choice of law in the contract, the courts will apply that law, but in relation to commercial agency agreements, the EU Commercial Agency Directive (the Directive) provides that the parties cannot evade the protection afforded to agents by the Directive by choosing the law of a non-EU member state. This was confirmed in the case of Ingmar GB Ltd v Eaton Leonard Technologies Inc, where the parties to a commercial agency agreement had chosen the law of California (where the principal was based) to apply. The European Court of Justice (ECJ) found that as the agent was based within the EU, the commercial agency law of the country in which the agent carried out his business (England) would apply, notwithstanding that the agency agreement was governed by the law of a non-EU member state.

In this case, though, both parties were located within the EU. The claimant agent was United Antwerp Maritime Agencies NV (Unamar), a company located in Belgium. The defendant principal, Navigation Maritime Bulgare (NMB), was located in Bulgaria, and the agency agreement was stated to be governed by Bulgarian law. NMB terminated the agreement and Unamar brought a claim in the Belgian courts seeking compensation.

EU member states can choose exactly how they will implement the provisions of EU Directives into their national law. This means that whilst roughly the same laws apply in each member state in relation to commercial agents, there are some important differences. In particular, member states are free to grant agents greater protection than that required by the Directive, leading to some countries having more favourable compensation regimes than others. In this case, Bulgarian law offered the agent the minimum protection only required by the Directive, whereas Belgian law gave the agent greater protection and its application would have led to Unamar receiving more compensation. Unamar therefore argued that Belgian law should apply, notwithstanding that the contract provided for Bulgarian law to apply, and the Belgian courts referred the matter to the ECJ.

In coming to its decision, the ECJ had to consider the provisions of the Rome Convention, which determines the governing law of contracts entered into before December 2009. (For contracts entered into after that date, the Rome II Regulation applies, but the relevant principles are the same). The Convention provides that rules of the country where the claim is brought can apply if they are deemed to be mandatory, irrespective of the law applicable to the contract.

A mandatory rule is one where it is considered that there are overriding public policy reasons for why it should apply. Generally, the ECJ will interpret this strictly. However, the Belgian courts had previously decided that the provisions of Belgian commercial agency law were mandatory. They asked the ECJ to clarify whether this meant they could therefore disregard Bulgarian law and apply their own rules, which gave the agent greater protection.

The ECJ decided that Bulgarian law could be overridden by Belgian law, but only if the Belgian parliament had considered, when it was implementing the Directive, that it was crucial to grant agents additional protection going beyond that required by the Directive. This would be for the Belgian courts to determine, and the case will now be remitted to them.

The case is significant as it demonstrates that even where the law of an EU member state, which has perfectly validly implemented the Directive, has been chosen by the parties to apply, this choice has the potential to be overridden. We will await the decision of the Belgian court with interest.

Emma Butcher, Clarkslegal LLP
One Forbury Square, The Forbury, Reading RG1 3EB · Tel: 0118 958 5321 · www.clarkslegal.com

This column does not contain legal advice and is for general guidance only. Agentbase, Clarkslegal LLP and the writer accept no liability in connection with the general guidance given in this column. Please ensure that you obtain legal advice before acting in reliance upon anything in this article.

---

US principals and UK agents: a not so special relationship

The practical hurdles with a US principal: jurisdictional gateways, service, and enforcing a judgment abroad.

In an increasingly International world, UK agents are finding themselves being appointed agents in the UK for foreign principals. If the agent in the UK is retained to promote the sale of goods in the UK then the agent will have the benefit of the Commercial Agents (Council Directive) Regulations 1993 (“the Agency Regulations”). In particular the agent will have the right to receive a termination payment on the agency coming to an end, even where the agency contract terminates at the end of its fixed term.

Many principals are US corporations seeking to expand their business in the UK via agents. The agency contracts put forward by US principals almost invariably provide that the laws of a specified US State should have exclusive jurisdiction to hear any dispute and that the laws of that State should apply. The concept of an agent being entitled to a termination payment on an agency contract coming to an end is not recognised in the US whereas the Agency Regulations are a product of European law intended to give protection to commercial agents; they provide that the right of a commercial agent to claim a termination payment cannot be overridden by agreement between the parties. So where does the UK commercial agent stand as regards making a claim under the Agency Regulations?

Having a claim and pursuing a claim in the courts are two different things. It is not enough just to issue proceedings in England, those proceedings have to be served on the US defendant. A UK agent needs the permission of an English court to serve court proceedings issued in England on a principal in the US. In order to obtain that permission, the claim must fall within one of the “jurisdictional gateways” listed in the procedural rules to be followed when conducting proceedings in the English court system.

In the case of Fern Computer Consultancy Limited v. Intergraph Cadworx & Analysis Solutions a commercial agent brought a claim in England against a Texas principal under the Agency Regulations. The agency contract provided that the courts in Texas should have exclusive jurisdiction and that Texas law should govern. The English court held that the claim under the Agency Regulations did not come within any of the “jurisdictional gateways” and refused to grant permission to serve the English proceedings on the Texas principal. This meant that the Texas principal had managed to escape having to make a termination payment under the Agency Regulations by reason of having an agency contract which required that the proceedings making that claim had to be brought in Texas and where the Texas court would not recognise the right of an agent to receive a termination payment. The English court was unhappy with the result and indicated that if the proceedings were to be framed as a claim that the failure to pay the termination payment provided for by the Regulations was a breach of statutory duty then the claim would pass one of the “jurisdictional gateways” listed in the procedural rules and permission would be given for the English proceedings to be served on the Texas principal in Texas. This would then open up a way for the English court, when it heard the case, to award a termination payment to the agent under the Agency Regulations (notwithstanding that the agency contract provided that the Texas courts had exclusive jurisdiction and that Texas law applied).

The agent in Fern was also claiming for unpaid commission but because this was a claim under the agency contract (in other words a contractual claim and not one under the Regulations) it fell squarely within the exclusive jurisdiction of the Texas courts which the agency contract provided for and accordingly the unpaid commission claim would have to be pursued in those Texas courts.

Having obtained a judgment in the English Court, this would leave the agent with the problem of having to enforce that English judgment against the US principal in the US. Having a judgment and enforcing a judgment are again two different things. If the US principal does not pay, an agent who has obtained a judgment in the English Court against his former principal has the task of enforcing that judgment against the principal in the US. Although there is a longstanding trading and commercial relationship between the two countries, there is no treaty or convention in force between the UK and the US on reciprocal recognition and enforcement of judgments. Enforcement of foreign court judgments is mainly a matter for each State to rule upon, rather than involving Federal law. The laws and procedures of each State vary. Some States require only that the English judgment be recorded at the Court to trigger that State’s enforcement procedures whilst others require the holder of the English judgment to start a new action setting out how the English judgment came about and how it complies with that State’s rules for the recognition and enforcement of foreign judgments.

The advice for an agent about to enter into an agency with a US principal where the agency contract provides that the courts of a specific US State are to hear any dispute and are to apply the laws of that State to that dispute, is for the agency contract to spell out that upon termination the agent will be paid a sum ascertained by reference to a formula, e.g. a sum equal to the commission earned by the agent in the last 12 months of the agency or whatever formula the parties agree upon. Non-payment according to the formula will be a breach of contract and the agent should be able to obtain judgment in the US court for the formula sum without too much difficulty, or at least the formula approach should facilitate an out of court settlement being reached fairly quickly before the legal costs mount up. Unlike in the case of Fern, he will not have to go to the trouble and expense of issuing proceedings in England putting forward a claim under the Regulations and obtaining permission to serve those UK proceedings on the US principal before having his substantive case heard before the English Court. Moreover, enforcement of that judgment should be straightforward as it would be given by the courts of the State where the principal can be expected to have assets to satisfy it.

© Paul Samuel, Ashby Cohen Solicitors Ltd
Tel: 020 7408 1338 · Email: paul@ashbycohen.co.uk