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In its judgment of April 19, 2018, C-645/16 (ECLI:EU:C:2018:262), the Court of Justice of the European Union (CJEU) clarifies that the indemnity or compensation for damage following termination of the commercial agency contract, established in article 17 of Council Directive 86/653/EEC, apply even when the termination of the contract occurs during the trial period.
Paragraph 2 of article 17 of the directive establishes the agent’s right to an indemnity after the contract’s termination. For this right to arise, the rule requires the agent to have brought the principal new customers or to have significantly increased the volume of business with existing customers, and for the principal to continue to derive substantial benefits from the business with such customers. Paragraph 3 of that article regulates the agent’s entitlement to compensation for the damage suffered as a result of the termination of its relations with the principal.
As stated by the CJEU, these regimes “are not intended to penalize termination of the contract but to indemnify the agent for his past services from which the principal will continue to benefit beyond the termination of the contractual relationship or for the costs and expenses he has incurred in providing those services.”
To the extent that—in line with article 1—the provisions of the directive must apply from the signing of a contract whose purpose is to (i) negotiate the sale or purchase of goods, or (ii) negotiate and conclude such transactions on behalf of the principal, the CJEU states that the regimes established in article 17 must be applied irrespective of whether that contract establishes a trial period.
Likewise, the CJEU reasons that (i) termination during the trial period is not included among the cases established in article 18 of the directive (which provides an exhaustive list of the circumstances in which indemnity or compensation for damage is not payable), recalling that this article must be interpreted strictly given that it constitutes an exception to the right to indemnity or compensation for damage; and (ii) an interpretation of article 17 of the directive that results in detriment to the commercial agent cannot be accepted. Along the same lines, the CJEU argues that such an interpretation would breach article 19 of the directive, expressly prohibiting the parties from establishing exceptions to articles 17 and 18 to the detriment of the agent.
Therefore, the CJEU concludes that, provided that the requirements in article 17 are met—the contribution of new customers or the substantial development of operations with existing customers that allow the principal to continue deriving substantial benefits—the fact that the termination of the contract takes place during the trial period cannot deprive the agent of his right to indemnity for customers or compensation for damage.
In any case, the CJEU clarifies that the directive does not prohibit the inclusion of a trial period in a contract, as it does not refer to this matter, and that such a provision is within the scope of the parties’ contractual freedom.
In this case, a commercial agency contract for selling individual houses is analyzed, with provision for a 12-month trial period. The contract gave each party the right to terminate during the course of the trial period, subject to 15 days’ notice during the first month and one month’s notice after that.
Six months after the contract was signed, the principal notified the agent of its decision to terminate the contract at the end of the agreed contractual notice period. Its reasoning was that, until that date, the agent had only achieved one sale, despite the agreed annual target of 25 sales.
The agent brought an action against the principal before the Commercial Court of Orleans (France), for payment of compensation for clientele as a result of termination of the contract and for payment of damages for unlawful termination of the contract. The court partially upheld its claims.
The principal filed an appeal with the Court of Appeal of Orleans, which partially set aside the judgment, holding that (i) compensation for clientele was not payable as the contract had been terminated during the trial period; and (ii) in any case, the agent had not achieved the agreed targets, meaning that the contractual termination was not unjustified.
The agent filed an appeal with the French Court of Cassation. The French Court of Cassation recognized that the judgment of the Court of Appeal of Orleans had applied the settled case-law of the Court of Cassation under which there is no right to compensation where the contract is terminated and that Directive 86/653 does not refer to any trial period, so that it seems possible for the parties to provide for such a period in the agency contract. However, it also noted that the directive seeks to protect the agent in its relations with the principal and that, consequently, it should be interpreted in such a way as to contribute to that protection.
In those circumstances, the Court of Cassation decided to stay proceedings and refer the following pre-trial question, which, as we have seen, has been answered in the affirmative by the CJEU: “Does Article 17 of the Directive [86/653] apply where termination of the commercial agency contract occurs during the trial period provided for in that contract?”
This conclusion, however, should not affect the fact that the agency contract was terminated due to breach by the agent. Consequently, regardless of the affirmative reply from the CJEU, in this particular case, the agent’s breach excludes the right to indemnity provided for by article 18 of the Directive.
The full text of the judgment is available in this link
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