Supreme Court Opens Door for Right of Subagent to Receive Goodwill Indemnity for Customers Brought to Principal

On 26 January 2023, the Belgian Supreme Court (the Supreme Court) quashed a judgment of the Liège Court of Appeal (the Court of Appeal) finding that a subagent was not entitled to a goodwill indemnity from the main agent on the ground that the goodwill indemnity obtained by the latter from the principal was not a "substantial benefit" within the meaning of Article X.18, first subparagraph, of the Code of Economic Law (CEL). That provision transposes into Belgian law Article 17(2)(a) of Council Directive 86/653 of 18 December 1986 on the coordination of the law of the Member States relating to self-employed commercial agents (the Directive), which provides that:

"[t]he commercial agent shall be entitled to an indemnity if and to the extent that:

- 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

- the payment of this indemnity is equitable having regard to all the circumstances [...]" (emphasis added).

The Court of Appeal had reached its conclusion based on two grounds: (i) the goodwill indemnity received by the main agent is not a future benefit but an indemnity payable by operation of law; and (ii) the subagent concerned will continue to work with, and benefit from, the customer base established with the former principal.

In the case at hand, a German company (the principal) had entered into a commercial agency contract with a French company (the agent). The agent had subsequently subcontracted its contractual obligations to a subagent (the subagent). After some time, the agent and the principal had talks regarding the subagent taking over the main agency agreement, but the talks were not successful. Following the cessation of the agent's business activities, the agent's agreement with the principal was terminated, which gave rise to the payment of a goodwill indemnity to the agent. As a consequence of this termination, the sub-agency agreement was terminated as well. The subagent claimed a goodwill indemnity from the agent, which the latter refused to pay. In the meantime, the subagent had become the (direct) commercial agent of the principal.

Following the agent's refusal to pay a goodwill indemnity to the subagent, the latter initiated legal proceedings. The first instance court granted him the requested goodwill indemnity. After the Court of Appeal overturned that judgment, the subagent lodged an appeal before the Supreme Court.

The Supreme Court decided to stay the proceedings and request the Court of Justice of the European Union (CJEU) to clarify, by preliminary ruling, whether the goodwill indemnity which the agent received from the principal thanks to the efforts of the subagent constituted a "substantial benefit" within the meaning of Article 17(2)(a) of the Directive, entitling the subagent to a goodwill indemnity.

In a judgment of 13 October 2022, the CJEU confirmed that the goodwill indemnity paid to the agent for the increase in customers thanks to the efforts of the subagent qualifies as a "substantial benefit" within the meaning of the Directive. In reaching this conclusion, the CJEU considered the purpose of Article 17(2)(a) of the Directive, which is to protect the agent. A restrictive interpretation of the phrase "substantial benefit" would deprive the subagent of compensation relating to the added value that he or she brought to the agent (and the principal).

However, the CJEU continued that it should be assessed, in light of the factual circumstances of the case, whether the payment of this indemnity is equitable, which might not be the case if the subagent continues the commercial agency business with the same clients and for the same products with the same principal (CJEU, judgment of 13 October 2022 in case C-593/21, NY v Herios SARL, ECLI:EU:C:2022:784, available∂=1&cid=1964312 here).

Applying the principles set forth by the CJEU, the Supreme Court decided to quash the judgment of the Court of Appeal, which had considered that a goodwill indemnity can never constitute a substantial benefit, and to return the case for reconsideration to a differently composed chamber of the Court of Appeal. The Supreme Court did not take a stance on whether the fact that the subagent had himself become the agent of the main principal affected his right to receive a goodwill indemnity. Therefore, the Court of Appeal will have to decide on whether it is fair to grant the subagent a goodwill indemnity (despite the fact that, contrary to Article 17(2)(a) of the Directive, Article X.18, first subparagraph CEL does not include an equity-related requirement). The judgment of the Supreme Court is available here (in French)

Please click here to the full report.

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.