European Union: Court Of Justice Of European Union Clarifies Conditions Under Which Commercial Agent's Right To Commission Can Be Extinguished

On 17 May 2017, the Court of Justice of the European Union ("ECJ") ruled on a request for a preliminary ruling from the Slovak Dunajskŕ Streda District Court (the "District Court") regarding the interpretation of Council Directive 86/653/EEC of 18 December 1987 on the coordination of the laws of the Member States relating to self-employed commercial agents (the "Directive") (ECJ, 17 May 2017, Case C-48/16, ERGO Poist'ovňa a.s. v. Al~beta Barlíkovŕ).

The dispute at issue related to the reimbursement of commissions of a financial agent to her principal, a company operating in the insurance sector. The contract between the principal and the financial agent stipulated that the agent would receive a commission for each insurance contract concluded. However, pursuant to the contract, any non-payment of premiums by the customer would result in a forfeiture of the commission or a proportional reduction of such commission. Certain customers stopped paying their premiums indicating that they had lost confidence in the principal because the company had treated them inappropriately. Consequently, the insurance contracts were terminated early and the financial agent's right to commission was extinguished. The financial agent claimed that the termination of the insurance contracts was the fault of the principal and therefore refused to reimburse the commissions received. The principal then brought an action against the financial agent before the District Court.

The District Court considered that the agreement between the principal and the agent qualified as a contract for commercial agency relating to the sale of insurance services. Although the Directive only applies to agency contracts for the sale or purchase of goods, the District Court found that it nonetheless had to take the provisions of the Directive into account, in particular Article 11, since the Slovak implementing provisions of the Directive seek to ensure an identical treatment of agency contracts relating to goods and those relating to services. Article 11(1) of the Directive provides that the right to commission is extinguished "if and to the extent that it is established that the contract between the third party and the principal will not be executed, and that fact is due to a reason for which the principal is not to blame". Article 11(2) of the Directive further states that the agent must refund any commission it has already received if the right to that commission is lost, and Article 11(3) specifies that agency contracts cannot derogate from Article 11(1) "to the detriment of the commercial agent".

Uncertain as to how to apply Article 11 of the Directive to the agency contract at issue, the District Court decided to stay the proceedings and to refer a number of questions to the ECJ for a preliminary ruling.

The ECJ started its analysis by assessing whether the right to commission can be extinguished only in cases of complete non-execution of the contract between the principal and the third party or also in cases of partial non-execution (e.g., non-compliance with the duration envisaged by that contract). While many language versions of Article 11(1) of the Directive provide that the right to commission will be extinguished "if and to the extent that" the contract will not be executed, the Czech, Latvian and Slovak language versions do not contain any such wording. According to settled case-law, in case of divergences, the provision must be interpreted by reference to the purpose and general scheme of the rules of which it forms part. As the legislator's intention was to ensure that commissions become due as the execution of the contract progresses, the ECJ concluded that Article 11(1) of the Directive must be interpreted as also covering cases of partial non-execution.

Second, the ECJ was asked to rule on the scope of the reimbursement requirement of Article 11(2) of the Directive in case of partial non-execution of the contract between the principal and the third party. The ECJ analysed under which circumstances a contractual clause imposing the reimbursement of part of the agent's commission constitutes a derogation "to the detriment of the commercial agent" for the purposes of Article 11(3) of the Directive. The ECJ held that the reimbursement is consistent with the Directive as long as: (i) the obligation to refund is strictly proportionate to the extent to which the contract has not been executed; and (ii) that non-execution is not due to a reason for which the principal is to blame.

Finally, the ECJ examined whether the concept of "a reason for which the principal is to blame" as used in Article 11(1) of the Directive relates only to the legal reasons that led directly to the termination of the contract between the principal and the third party (in the case at hand the non-payment of the premiums by the customers) or whether that concept covers all legal and factual circumstances for which the principal is to blame and which are the cause of the non-execution of that contract (in the case at hand the allegedly inappropriate treatment of the customers by the principal). Since the Directive seeks to protect the commercial agent in his relationship with the principal and to avoid any possible abuses by the principal, the ECJ came down in favour of considering all legal and factual circumstances attributable to the principal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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