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Law applicable to agency agreements reconsidered

20 December 2013 #Dispute Resolution


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.

Clarkslegal, specialist Dispute Resolution lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Dispute Resolution matter please contact Clarkslegal's dispute resolution team by email at disputeresolution@clarkslegal.com by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.

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Emma Butcher

Emma Butcher
Senior Solicitor

E: ebutcher@clarkslegal.com
T: 0118 953 3932
M: 07799 212 511

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