Commercial Agents: English courts restrict parties’ freedom to contract

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Arguably, the most widely relevant decision made by the English Courts in relation to the Commercial Agents (Council Directive) 1993 Regulations (“the Regulations”), during the course of 2009, is that in Accentuate Limited v Asigra Inc. This case considered the application of mandatory EU law, in circumstances where the parties had agreed that a non EU choice of law clause (Ontario) and a non EU forum (arbitration in Ontario) would govern their relationship.

Background and the relevant legislation
The Regulations have been enacted in order to give effect to mandatory EU law in the UK. Amongst other things, the Regulations entitle a self-employed commercial agent to be compensated or indemnified by its principal upon termination of the agency relationship. Regulation 19 does not allow the parties to derogate from this provision.

In Accentuate, the English claimant and the Canadian defendant had entered into an agreement for the distribution of software products. The agreement provided that Ontario law would govern the relationship and that any dispute which should arise, would be determined by arbitration in Toronto.

The agent commenced Court proceedings in England claiming compensation pursuant to the Regulations. However, a stay to the proceedings was subsequently granted pursuant to Section 9 of the Arbitration Act 1996 on the basis that the parties had agreed to resolve any disputes by way of arbitration. Arbitration was then commenced in Canada. The arbitrators determined that the Regulations did not apply in determining the rights and liabilities of the parties. Such rights and liabilities were to be determined by reference to Ontario law as set out in the agency agreement.

The agent subsequently appealed the English Court’s decision to stay the Court proceedings and the Court was required to decide whether there was a sufficiently arguable case that the agent had a claim for compensation pursuant to the Regulations and that such a claim should be decided by the English Courts.

The Regulations and the question of jurisdiction
In Ingmar GB Limited v Eaton Leonard Technologies Limited, the European Court of Justice held that a choice of law clause could not be used to evade liabilities under the Regulations and accordingly, any clause which purports to derogate from the Regulations is unenforceable. The decision in Accentuate goes further.

The Court held that the application of the Regulations was mandatory. In addition,  and going one step further than the Court in Ingmar), the Canadian jurisdiction clause and the choice of law clause rendered the arbitration clause “null and void” and “inoperative” to the extent that the arbitrators were required to determine application of the mandatory provisions of the Regulations. Accordingly, the arbitration award may have been unenforceable and the stay to the Court proceedings should not have been ordered.

Implications
The potential effect of Accentuate is somewhat surprising given that various applicable authorities require a tribunal, wherever in the world it may be sitting, to apply mandatory provisions (such as those contained in the Regulations), alongside the chosen law. However, this specific question was not decided in Accentuate, because the agent decided to pursue proceedings in England rather than seek to apply the Canadian arbitration award.

The extent of the impact of Accentuate can only be revealed following further decisions from the Courts.

However, for parties with operations in, or a connection with England and the EU, such a decision has potentially far reaching impacts upon the validity on jurisdiction clauses (ie: dealing with the location in which a dispute will be determined) and/or choice of law clauses, which provide for dispute resolution outside England. Parties are advised to be cautious when considering entering into arbitration agreements which contain non EU choice of law and jurisdiction clauses, where it is likely EU law will apply.

Cobbetts LLP has specialist teams advising on the impact of the Regulations.  We take a pro-active and commercial approach to dispute avoidance and there are a number of options that can be considered in advance of any dispute to limit liability and the prospect of claims. 

In the event of a dispute, our specialist Commercial Agents Dispute Resolution Team is on hand to protect your position. 

For further information please contact Andrew Leach, Partner

andrew.leach@cobbetts.com

Tel: 0845 404 2564 / +44 161 833 3333

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This content is for information purposes only and should not be relied upon as a substitute for legal advice. Copyright 2010 Cobbetts LLP – All rights reserved – March 2010