Commercial Agency – comparative reflections

The Edinburgh Centre for Commercial Law was delighted to welcome Dr Severine Saintier as their most recent  speaker in their series of events.  Her paper on 2nd June focussed on the French system of compensation of commercial agents.  Directive 86/653 introduced into Europe a highly protective regime for commercial agents.  The compensation provisions contained in that Directive are inspired by French law.  Dr Saintier, as a French lawyer working as an academic at Sheffield University, is ideally placed to help us understand the meaning of the compensation provisions as applied in the UK by the Commercial Agents (Council Directive) Regulations 1993.   

It is impossible to do full justice to Dr Saintier's paper here.  Only a few aspects will be touched on.  As the House of Lords case Lonsdale v Howard & Hallam [2007] HL 32 illustrated, the rationale of the compensation provisions is not clear.  A particularly controversial point is whether a court, in valuing compensation, should look to events after termination.  Examples might include the ongoing benefit to the principal through the agent's work accruing to the principal in the future, or indeed, the financial state of the principal and the likelihood of the principal entering into insolvency.  These factors are not referred to in the defintion of compensation in the Directive, and those provisions can be contrasted with the provisions relating to indemnity in the regulations.  It should be recalled that in the UK, the legislation allows the principal and agent to opt for either indemnity or compensation as a form of payment to the agent on termination of the agent's contract.  Dr Saintier's very full analysis of the French jurisprudence suggested that at times the French courts do appear to take into account gains to the principal, and issues going beyond termination of the agency contract. 

Dr Saintier also provided us with some thoughtful reflections on Lord Hoffmann's speech in Lonsdale, and in particular his conclusion that market conditions differed significantly between France and the U.K.  In France, it seems, commercial agencies are regularly traded, allowing the commercial agent, in effect, to "sell" his agency at a premium.  This practice and the premium payable provides the courts with a point of reference for the calculation of compensation on termination of the agency contract.  The French courts (as discussed in the Scottish Inner House case of King v Tunnock 2000 SC 424) use a benchmark or guide in such situations of two year's gross commission.  By contrast, the practitioners in the audience at the event last night were not aware of a practice of regularly trading commercial agencies.  It seems that Lord Hoffmann is correct in his conclusion that practices differ in France and in the U.K.   

Dr Saintier suggested that Lord Hoffmann could, in fact, have been making a wider point when discussing the different economic and market conditions in the Member States.  Dr Saintier tentatively suggested that there may be evidence of Member States applying their own national laws on commercial agency in ways which cater to their own national economic needs.  There are examples of this taking place in the application of the definition of the activities of an agent which are "secondary."  Further empirical research on this point is required, and indeed Dr Saintier is about to embark on an empirical project to find some answers to these questions.  It should be recalled, of course, that the Directive allows a great deal of leeway in its implementation.  An example is the termination provisions themselves: in some Member States only compensation is payable, in others only indemnity, and in the UK the choice is left to the parties.  Clearly, the Directive envisaged a relatively low level of harmonisation.  It seems that now on top of the large margin of discretion allowed to Member States in the implementation of the Directive, commercial agency law may currently be used in particular Members States to address economic issues specific to that Member State.  This might lead us to question whether an acceptable level of harmonisation is being achieved.  The results of Dr Saintier's empirical project are awaited with interest.        

Another interesting issue which arose for discussion was the practice in France in terms of which the principal requires the agent to pay 2 year's gross commission on entering into the agency relationship.  That payment is, in effect, what the agent can expect to achieve on termination of the contract (remembering, of course, that the 2 year figure is a guide only: the agent may receive less depending on the circumstances at the moment of termination).  Again, Dr Saintier's empirical work may shed light on this practice.  All were agreed at the event last night that this practice seems to make compensation little more than a zero sum game. 

There is much more that could be said about this interesting paper.  It makes a significant contribution in the most important area which is to establish a rationale for compensation, and help us to understand the relationship between compensation and indemnity.  This is Dr Saintier's second visit to Edinburgh.  We now expect that her visits will provide an excellent context for some lively debate.  We look forward to welcoming her again once her further work in this practically important area has been completed.