1. Introduction

Commercial agency agreements are the simplest and probably the most popular means of organizing the distribution of goods and services in foreign countries.

Although there are still many legal systems without specific rules on agency, there is a trend, particularly in Europe, towards the statutory regulation of commercial agency contracts, so as to lay down mandatory rules protecting the commercial agent, considered to be the 'weaker' party.

The resulting situation is a diversity of national rules, which is not particularly suited to the needs of international trade, better served by internationally uniform rules. Although within the European Union, there has been an effort at harmonization via Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents (hereafter the 'European Directive'), which has been implemented in all EU Member States and certain other European countries,1 substantial differences subsist, even between countries that have complied with the European Directive. 2 A good example is the indemnity/compensation due upon termination of an agency contract. In some countries, which apply the goodwill indemnity based on the 'German model' contained in Article 17(2) of the Directive, this cannot exceed one year's commission, whereas in other countries, which incorporate the 'compensation for damage' deriving from French law contained in Article 17(3) of the Directive, it may amount to two years' commission or more.

The main purpose of this article is to serve as a commentary on the awards relating to commercial agency agreements published in these pages. However, in order to give a broader overview of arbitral case law on commercial agency agreements, consideration has also been given to other ICC awards published elsewhere.

All the cases considered are listed in an annex giving information on the parties and the law applied, together with publication details.

2. The agreements covered

This article refers mainly to typical commercial agency agreements, i.e. agreements where a principal (normally a manufacturer and/or supplier of goods, sometimes a [Page49:] supplier of services) appoints an agent to promote the sale of his products (or services) 3 in a given territory on a continuing basis. The agent acts as an intermediary, promoting and negotiating business with third parties (customers). His activity culminates in the conclusion of contracts between the principal and the third parties. 4

Most of the cases studied in this article refer to agents engaged to promote sales to an indefinite number of potential customers on an ongoing basis. However, a few awards refer to less typical situations, mentioned hereafter.

2.1 Intermediaries on the fringes of commercial agency

There are a number of borderline cases where the intermediary is not a strictly typical commercial agent.

One case in point is no. 8177, concerning the promotion of a gas pipeline construction contract in a South-East Asian country. Here, the agent was more akin to an occasional intermediary, as the situation involved the promotion of a single contract with a specific third party (the project owner). Indeed, the arbitrators, considering French law to be applicable, did not refer to the rules on commercial agents, 5 but to more general rules on contracts. 6

A further untypical case (no. 8147) concerned an agent entrusted with the promotion of maintenance services to a single customer (an airline operator). Here, the agent's task was actually to negotiate, on a continuing basis, a series of maintenance contracts with the airline operator. Applying French law, the arbitral tribunal referred to Decree no. 58-1345 of 23 December 1958 on commercial agents and to the Law of 25 June 19917 (held to be inapplicable to this case, as the contract was terminated before it entered into force, but regarded by the arbitrators as evidencing trade usages).

A third case worth mentioning - no. 9301 - concerned a rather peculiar agreement whereby the agent performed certain transportation services for the principal (acceptance and home delivery of certain parcels on behalf of principal or end-users), but also took certain action (e.g. customs clearance) on behalf of the principal and received (at least partial) remuneration based on turnover. After a detailed examination of the obligations assumed by the agent, the arbitrator decided that the agreement was to be considered as an agency contract governed by the 13 April 1995 Belgian Act on commercial agency agreements.

2.2 Agency-distribution agreements

An untypical situation of a different kind is found in so-called 'mixed' agency-distribution agreements. A party is appointed as a distributor to market the manufacturer's products as a buyer-reseller, but may sometimes act as an intermediary promoting contracts to be concluded directly between the manufacturer and the customer, for which he receives payment of a commission. In such cases it may be questioned whether the agreement as a whole, or at least the part devoted to the mere promotion of contracts, can be qualified as commercial agency.

One such case (no. 8056) concerned a contract which was clearly construed as a [Page50:] distribution agreement, but where all the business had actually been carried out by the distributor acting as an intermediary. According to the contract, the distributor should have acted as a buyer-reseller (albeit with the possibility of direct sales by the manufacturer to customers by way of exception), but his activity had in fact been confined to negotiating contracts to be concluded by the principal with the final customer. The arbitral tribunal decided that, since the distributor performed the activity of an agent, the rules on commercial agency (in this particular case the French Decree of 23 December 1958) were to apply.

In case 9635, although the parties had called their contract an 'agency agreement', 8 the agent/distributor had the option between purchasing the contractual products for resale (with a 30% discount) or negotiating contracts for direct sale by the principal (with a 10% commission). The activity of intermediary had been much less than that of buyer-reseller. The arbitral tribunal decided to consider the agreement as an agency contract and applied French commercial agency law (Law no. 91-593 of 25 June 1991). However, it did so only to the activity of intermediary, since it calculated the indemnity on the sole basis of the commission paid to the agent (without considering the turnover made by the latter as distributor).

Finally, mention should be made of case no. 8817, where the arbitrator decided to apply the rules on commercial agency to a genuine distributorship contract, arguing - without any further explanation - that a distributor has the rights and duties of a commercial agent. This led the arbitrator to apply the European Directive, considering its provisions to be common to the countries of both agent and the principal (Spain and Denmark), and to award the agent a goodwill indemnity amounting to one year's commission.

3. The arbitrability of the dispute

Some countries have rules reserving disputes between agents and principals to the exclusive jurisdiction of their national courts. This raises the question of the arbitrability of such disputes and whether arbitrators should in such circumstances decline their own jurisdiction in favour of that of the courts.

This issue was examined in case no. 8420 concerning a contract between an Italian principal and a Syrian agent. The agent initiated the arbitration in Switzerland pursuant to the arbitration clause contained in the contract, but the principal argued that, since disputes between principals and agents acting as individuals fall under the exclusive jurisdiction of the Italian labour courts, the dispute fell outside the jurisdiction of an arbitral tribunal. However, the arbitral tribunal upheld its jurisdiction, on the basis of the following reasoning.

Firstly, the arbitrators considered whether arbitrability was to be decided according to the lex arbitri (here, Swiss law, since the arbitral tribunal had its seat in Geneva) or according to the lex causae (Italian law). They opted for the former and referred to Chapter 12 of the Swiss Code on Private International Law (PILA) and particularly to Article 177, according to which 'any dispute of financial interest may be the subject-matter of an arbitration'.

The arbitral tribunal concluded that the dispute was thus arbitrable, unless disregard of [Page51:] the mandatory jurisdiction of the Italian labour courts could be considered to be a violation of public policy as set out in Article 190(2)(e) PILA. In order for this to be the case, such jurisdiction needed to be, in the words of Article 190(2)(e) PILA, one of the 'fundamental principles of law which are to be applied regardless of the connection of the dispute to any specific country'. The tribunal decided this was not so.

The arbitrators also noted that the purpose of the Italian rule was to protect the agent, and that in the case in question it was precisely the agent who had initiated the arbitral proceedings, whereas the objection over arbitrability was made by the principal.

A similar question arose in a dispute between a Lebanese agent and a French principal. 9 Here, too, the principal objected to the arbitrability of the dispute, arguing that the matter fell under the exclusive jurisdiction of the Lebanese courts by virtue of a Lebanese statute providing that: '. . . despite any agreement to the contrary, the courts where the commercial representative carries on his activity have jurisdiction over any dispute arising from the commercial representation agreement'. 10 The arbitrator (sitting in Paris) upheld his jurisdiction, deciding that the separability principle entitled him to consider valid an arbitration agreement that violated neither mandatory rules of French law nor principles of international public order. He also took into account that it was the principal who had invoked a rule aimed at protecting the agent, whereas the agent, as claimant, had chosen to submit the dispute to arbitration.

4. The applicable law

The problem of determining the applicable law arises in principle in any international agency agreement and therefore represents a preliminary question to be dealt with in all disputes relating to such contracts. In this section we shall consider the main issues arising in this connection.

4.1 Lex mercatoria or national laws?

There are two basic approaches to the question of applicable law. Alongside the traditional approach, which is to determine the domestic law governing the contract, there is the school of lex mercatoria, advocating that international contracts may be submitted directly to a system of transnational rules (general principles of law, etc.).

In relation to commercial agency agreements, the lex mercatoria approach has been followed on only one occasion, the famous Norsolor case of 1979. 11 This case concerned an agency contract between a French principal and a Turkish agent, which had been terminated by the principal in conformity with the notice required under the contract. The agent claimed an indemnity for termination to which he was entitled under French law but not under Turkish law. The arbitrators decided to apply neither of these laws but rather general principles of law:

Faced with the difficulty of choosing a national law, for the application of which there were forceful reasons, the tribunal considered that, given that the contract was international, any binding reference to a specific legislation - be it Turkish or French - should be disregarded and international lex mercatoria applied. [Page52:]

The arbitral tribunal applied the principle of good faith embodied in lex mercatoria ('good faith which should govern the formation and the performance of contracts') and awarded the agent compensation (réparation du préjudice) corresponding to approximately three years' commission.

It is interesting to note that this would appear to be the only instance in which the lex mercatoria theory was actually applied to a commercial agency agreement. In one other case (no. 6500), where the principal requested the application of lex mercatoria rather than the domestic law applicable pursuant to conflict of laws rules, the arbitrators decided to apply the law of the agent's country (Lebanese law), leaving lex mercatoria to fill possible gaps in the domestic law. 12

4.2 Choice of the applicable law by the parties

In several cases the parties made an express choice of the applicable law in the contract itself, 13 or at a later stage in the arbitral procedure. 14 It is interesting to note that the law chosen in the contract is usually the law of the principal's country15 (barring a few exceptions where the agent was able to impose his own law16 or the law of a third country17 ).

Normally, the parties choose a single legal system as the governing law. However, in rare cases, different parts of the contract may be submitted to different laws. Thus, a contract between a French principal and an Italian agent18 was subject to French law, except for the agent's del credere obligation, which was subject to Italian law.

When the indications given by the parties as to the applicable law are unclear or contradictory, the arbitrators will have to decide if the choice of law clause is effective and, if so, determine its actual meaning.

In case 8117 the choice of law clause referred to 'the Laws of the International Chamber of Commerce Paris'. This could have been interpreted as a choice of lex mercatoria or general principles of law, but the arbitrator decided that the clause did not amount to a valid indication of the applicable law and consequently determined the governing law on the basis of the rules of private international law applicable in the absence of choice by the parties.

In case 9032 the contract made reference to both 'European law' and Spanish law. On the one hand, the governing law clause stated:

The present contract shall be interpreted in conformity with European legislation.

The arbitration clause, however, stated:

The commercial agent and the principal submit themselves to international arbitration of the International Chamber of Commerce, in accordance with the Directive of the Council of the European Communities of 18 December 1986 and the Law of 27 May 1992 on Spanish agency contracts.

The sole arbitrator interpreted the two clauses as expressing the parties' intention to submit the contract to the European Directive as implemented in Spain by the Law of 27 May 1992. According to the arbitrator, the parties did not choose Spanish law as the law governing the contract as a whole, but as the law applicable merely to matters [Page53:] dealt with in the Directive. Thus any matter not covered by the European Directive remained outside the choice of law clause and was governed by the law determined by the application of conflict of laws rules (here, French law). Furthermore, the Spanish rules on agency were applicable only insofar as they were consistent with the Directive. 19

This complicated reasoning led the arbitrator to apply French law in order to determine the date on which interest began to run - an issue not regulated by the Spanish law on commercial agency.

In yet another a case, 20 the arbitrators considered the behaviour of the parties during the arbitral procedure as expressing a choice of law. The agent had made a request for payment of commission (sommation de payer) expressly referring to Article 1153 of the French Civil Code. Thereafter, in its Reply and Answer to the Counter-Claim filed during the arbitral proceedings, the principal observed that the agent treated the agreement as being subject to French law and stated that it shared such view. Since the agent did not react to this statement within a reasonable time, arguing only later that French law was not applicable, the arbitrators held that the parties had made an explicit choice of French law.

4.3 Choice of the applicable law with the exclusion of mandatory rules protecting the agent

In some cases the parties submit the contract to a particular national law, but in so doing exclude the application of certain mandatory rules of such law. 21

In case 8161 a German agent convinced the principal to accept German law as their express choice, whilst also including in their contract a provision to the effect that no compensation would be due in the event of termination. The principal argued that it had accepted the choice of German law in the belief that the clause excluding the agent's right to compensation would be valid. The arbitrator decided that since German law was applicable and did not allow parties contractually to exclude the payment of an indemnity for termination, goodwill compensation was due.

In two further cases (8251 and 8711), both involving Austrian principals, there was contractual provision for the application of Austrian law, excluding mandatory rules regarding domestic agents. In one case, the arbitral tribunal decided that the parties could not, at one and the same time, choose a national law and exclude certain mandatory provisions it contained, all the more so as Austrian law makes no distinction between rules applicable to domestic agents and those applicable to foreign agents. The choice of Austrian law implied the application of all Austrian rules on agency, including mandatory rules, notably those relating to indemnification upon termination. In the second case, concerning a similar clause, the arbitral tribunal likewise decided that, once the parties had chosen Austrian law, they were prevented from excluding its mandatory rules. However, it went on to add that, supposing the choice of law clause were to be interpreted as referring only to the non-mandatory rules of Austrian law, matters covered by mandatory rules would be subject to the law determined pursuant to conflict of laws rules. This would have been Italian law in the case at hand. On the question of indemnification for termination, Italian law appeared to be equivalent to Austrian law. 22 Hence, the arbitral tribunal awarded the indemnity on the basis of Austrian law. [Page54:]

4.4 Determination of the applicable law in the absence of choice by the parties

In the numerous cases where the parties made no express choice of the applicable law - the Norsolor23 case excepted - the arbitrators always determined the applicable law on the basis of conflict of laws rules.

The approach they adopt is generally rather flexible and consists in the simultaneous application of more than one system of conflict of laws, or the application of 'general principles' of private international law common to several legal systems. An example of the former is case 4996. After ascertaining that the conflict of laws rules of the two countries involved led to contradictory results, the arbitral tribunal decided to apply the most appropriate rule, by referring namely to the place of performance and to the domicile of the party required to effect the characteristic performance. In case 2886 the arbitrator came to the rather surprising conclusion that the laws of both parties should be applied together. 24

In most other cases, 25 instead of referring to a specific system of private international law, arbitrators applied general principles of private international law (i.e. those prevailing in most legal systems). In so doing, they paid particular attention to place of performance, characteristic performance and the closest connection, which led to application of the law of the agent's country.

However, there are also exceptions. In case 8113 the arbitrators decided to apply the conflict of laws rules of the country most closely connected with the contract, i.e. the law of the agent's country (Syria). Since Syrian conflict of laws rules referred to the place of conclusion of the contract, the arbitrators applied the law of the principal's country (France), which is where the contract had been concluded.

Despite the last case mentioned, the general tendency is clearly towards the application of the law of the agent's country, in line with the prevailing principles of private international law.

4.5 The European Directive as applicable law

In two cases the European Directive on self-employed agents was deemed to be the applicable law.

In one of these, as previously discussed, 26 the parties expressly referred to the Directive and to the Spanish law based upon it. In answer to an objection from one of the parties that a directive cannot directly apply to relations between individuals, the tribunal stated:

. . . private parties are free to choose a European Community directive as law or as the law encompassing their contractual relationship.

The arbitral tribunal decided that the Spanish commercial agency statute would apply, but only insofar as it agreed with the Directive. If not, the Directive would prevail.

In the other case - no. 8817 - failing an express choice of law by the parties, the [Page55:] arbitrator simply applied the European Directive (as opposed to a national law), apparently disregarding conflict of laws rules:

. . . it is natural to apply the provisions on commercial agents that exist in both countries to the [present] contractual relationship. These provisions, common to Denmark and Spain, are those of the 'Council of the European Communities Directive, dated 18 December 1986, on the coordination of the laws of the Member States relating to self-employed commercial agents'.

5. Rights and obligations of the parties under the agency agreement

The arbitral awards studied deal with various aspects of the relationship between principal and agent. We will first examine the principal's obligations, and particularly the problems concerning the payment of commission (§§ 5.1 and 5.2) and thereafter the agent's obligations (§ 5.3)

5.1 The principal's obligation to pay commission

The main obligation of the principal is to remunerate the agent for his activity. Such remuneration will normally be a commission calculated as a percentage of the value of the contracts made through the agent's direct or indirect intervention.

One issue which arises in this respect regards the agent's right to receive a commission on business made within the scope of his contract but not directly promoted by him.

In case 8117, where the contract stated that commission was due on 'all sales' in a given territory, the arbitrator found that the parties intended that the agent should be remunerated on any business made in the territory, whether or not actually promoted by the agent, and consequently rejected the principal's objection that a particular contract (on which it had refused to pay commission) had been concluded without the agent's intervention.

It is interesting to consider when the agent's right to commission comes into being. Reflecting general practice, most contracts state that commission becomes due only after the customer (third party) has paid. 27 This may give rise to practical problems, particularly if the principal refuses to inform the agent whether the third party has actually paid. In case 8672 there was evidence that sales had been concluded and that the agent had sent invoices for its commission, but the principal never answered. The arbitrator decided that, in the absence of any contradictory evidence from the principal, it could be assumed that all customers had paid, and therefore awarded the commission claimed by the agent. In case 8117 there was no doubt that the third party had paid, but the date of payment was unknown. In order to determine the date on which interest would begin to run, the arbitrator assumed that the principal was in receipt of payment at the time the agent requested (in vain) that the commission be paid. [Page56:]

Further problems arise when the principal has actually been paid by the third party (customer), but such payment has not been made according to the terms of the contract (e.g. delayed payment, or payment obtained after a court action). As a general rule, the fact that the third party has paid late does not affect the agent's right to commission; it merely means such right will accrue later. In case 8147, where the contract said that the agent was entitled to commission only if the sums due by the customer were 'duly and fully paid up', the principal argued that the agent was not entitled to commission in the event of delayed payment. However, the arbitrator decided that the clause simply meant that payment was not due until the third party had paid the full amount, adding that the interpretation proposed by the principal would be unreasonable since it would deprive an agent who had successfully performed his obligations of his remuneration. In the same case the arbitrator also rejected the principal's argument that the agent forfeited his right to commission if the third party paid as a result of judicial proceedings brought by the principal.

The situation is different when customer payments are covered by insurance. In one such case - 8463 - the arbitrator decided that the agent was not entitled to commission where the third party's debt had been paid by an insurance company. On the other hand, commission is due if the third party itself paid the principal, following the intervention of the insurance company. Likewise, the arbitrator affirmed that sums retained by the principal in light of the agent's del credere obligation had to be returned to the agent once the customer had paid.

Similar problems may also arise at the end of the agency contract. In case 8147 the principal refused to pay commission on deals secured when the agency agreement was in force but paid for after it had terminated. The arbitrator decided that the time of payment was irrelevant, once it was established that the contract with the third party had been entered into before the agency agreement came to an end.

Sometimes the contract provides for the agent to be paid a fixed (monthly or yearly) amount and a commission based on sales made. In such instances it may be unclear if the fixed sum is to be considered as a guaranteed minimum or as an advance on future earnings. The question arose in case 8593, where the agent was entitled under the contract to a 'draw on commission' of £5,000 per month (£60,000 per year). The annual commission based on actual business done turned out to be lower than the amounts received monthly. While the agent considered the monthly payments as a guaranteed minimum, the principal contended they were merely an advance and that a refund was required if the actual annual commission fell short of £60,000. The arbitrator took the second of these two views, stating that the agent was not entitled to retain the difference between £60,000 and the annual commission he had actually earned.

A final case should be mentioned - 8177 - in which the arbitral tribunal based its decision on a principle apparently existing in French case law28 according to which the commission may be reduced by the courts if it appears unreasonably high. After considering the circumstances of a rather unusual agency contract relating to a single project, the arbitrators reduced the amount of the commission, considering it to be excessive in relation to the agent's actual involvement. [Page57:]

5.2 Other obligations of the principal

Several cases concern the duties incumbent on the principal in order for the agent to be able to promote business.

For instance, it was held in case 9032 that a principal that delayed in providing an agent with a collection of products for presentation to potential customers owed the agent damages for profits lost as a result of such delay.

A more difficult question is whether the principal's pricing policy should be adapted to the market where the agent is to introduce the products. Although arbitrators generally tend not to interfere with the principal's freedom to fix prices, in one case -8056 - where the principal had given the agent reason to believe that his prices would be adapted to the local market and failed to do so, the arbitral tribunal took this into account when determining the damages awarded upon termination of the contract.

Another interesting issue is the agent's exclusivity. In most cases, a matter of such importance is expressly regulated in the contract. Failing this, however, and if no solution is provided by the applicable law, the common intention of the parties needs to be sought and attention given to the manner in which they have applied the agreement. 29

In any event, non-exclusivity does not give the principal unlimited freedom to engage in activities that compete with those of the agent. A parallel activity pursued by a principal with the intention of creating confusion between it and its agent (by giving its subsidiary the same name as the agent's company) was held to be a breach of contract (notably flouting the duty to act in good faith) and justified termination of the contract by the agent. 30 A principal's decision to give ten months' notice of termination of a non-exclusive agency agreement and at the same time to inform customers of the forthcoming termination was considered detrimental to the agent's image and called for compensation. 31

5.3 The agent's obligations

The main obligations of the agent are to promote business for the principal and, more generally, to look after the principal's interests in the territory entrusted to him and refrain from promoting rival products.

As regards promotion, it has been decided that the agent's activity is not limited to acquiring business, but also implies a duty to support the principal during the performance of the contract. 32

As for the agent's duty to assist the principal in obtaining payment from third parties, it has been held that, unless the contract expressly states that the agent must obtain payment from the customer, there is no such obligation and the agent is not responsible for ensuring payment by customers. 33

In the cases studied, no particular problems arose from the agent's obligation not to deal with rival products during the contract. A claim that the agent had violated such obligation was made by the principal in case 9301 after the contract had terminated, but was considered unfounded. [Page58:]

6. Term and termination of the contract

Termination is the main source of problems in connection with commercial agency agreements. This is not surprising: parties tend to overcome conflicts that occur during the life of the contract and it is generally at the end of their relationship that issues of major importance arise.

6.1 Indefinite or fixed-term contracts

Agency contracts may be made for a fixed or unfixed term.

In the former case, the contract should in principle expire when the set term arrives. If the parties continue to perform the contract after it has expired, it changes into a contract for an indefinite period. 34 This is illustrated in case 8056, where the arbitral tribunal found that continued performance of the agency contract led to a new unfixed-term contract containing the same clauses as the previous one.

The situation is somewhat different if, as often happens, 35 the contract contains a clause stating that it is automatically renewed for further fixed periods of time, unless a party gives notice to the contrary. Automatic renewal generally causes a contract to be renewed for successive terms without changing it into a contract for an indefinite term. However, this view is not shared in all legal systems. 36

6.2 Termination of the contract

A contract for an unfixed term may be terminated at any moment provided appropriate notice is given. The required length of notice is usually stated in the contract itself.

The question arises as to whether notice becomes effective when sent or received. In one case - 9086 - where notice had been sent within the time specified but reached the other party after the required date, the arbitrator decided it had not been given in time.

It is a common principle in most legal systems that contracts for an unfixed term may be terminated without observing a period of notice - and contracts for a fixed term terminated before their expiry date - if there are important reasons justifying earlier termination. However, if the reasons given by the terminating party are fallacious or insufficiently serious to justify early termination, such termination is unlawful. In such cases it may be necessary to decide whether the termination was effective and thus interrupted the contractual relationship, or whether it had no effect, leaving the contract in force. 37 In none of the cases studied was the second view taken: this is in keeping with international trading practice, where the lawfulness or unlawfulness of notice of termination tends to be considered only for the purpose of awarding damages.

When calculating damages, reference will be made to the loss incurred due to early termination of the contract. This may include investments made on the assumption that the contract would last for a certain period. Damages usually cover both direct loss38 and lost profit, normally corresponding to the commission the agent would have earned during the time the contract should have remained in force. 39[Page59:]

There is sometimes a difference of opinion between the parties as to whether their contract has come to an end by virtue of a tacit agreement. In case 8587, for example, the parties to an agency agreement subsequently entered into a distribution agreement, without expressly stating whether the new agreement was to replace the old one. When, a short time later, the principal terminated the distribution contract and the agent claimed a goodwill indemnity under the agency agreement, the principal objected that the agency contract had expired by common agreement between the parties and that the agent had thus forfeited his right to an indemnity. The arbitrator decided, on the contrary, that the agency agreement continued to exist until such time as the principal terminated the distribution agreement. On this basis, he awarded the agent compensation for termination.

7. The goodwill indemnity

A further and more important reason for determining whether a contract has been terminated for justifiable reasons is the agent's entitlement to a goodwill indemnity or similar compensation in the event of termination (or non renewal40). Most laws - particularly in the wake of the European Directive - recognize such right if the contract has been terminated by the principal for reasons other than serious breach on the part of the agent, 41 or by the agent on account of illness, retirement, etc. or for reasons for which the principal is responsible.

The rules on indemnity are mandatory: if the applicable law provides for an indemnity, contractual clauses excluding it will be considered to be invalid. 42

A distinction should be made between, on the one hand, goodwill indemnity - whether construed as an 'indemnity' as in Article 17(2) of the European Directive (which follows the German approach), or as compensation for damage as in Article 17(3) of the European Directive (which follows the French approach) - and, on the other hand, damages awarded because termination has been caused by a breach of contract. If a contract has been terminated unlawfully (e.g. without due notice or justification for early termination), then theoretically the agent will be entitled to claim damages (for unlawful early termination) and a goodwill indemnity (for the termination as such). 43 The distinction is less clear under French law, where the termination indemnity is construed as compensation for damage (réparation du préjudice), although it does not depend on whether or not the termination was lawful. In this context arbitrators tend not to distinguish between damages for unlawful early termination and the réparation du préjudice due for the termination as such. 44[Page60:]

No transnational principles have been expressed by arbitrators with regard to the conditions under which a goodwill indemnity is granted or how it is calculated. 45 Wherever an indemnity was awarded in the cases studied, it was on the basis of a specific national law and thus upon the specific rules46 of each domestic legal system.

The following statutes were applied to calculate indemnities in the awards studied:

- the Austrian Law of 24 June 1921, 47

- the Austrian Law of 11 February 1993, 48

- the Belgian Law of 13 April 1995, 49

- the French Decree of 23 December 1958, 50

- the French Law of 25 June 1991, 51

- the German law (§ 89b of the Commercial Code), 52

- the English 'Commercial Agents (Council Directive) Regulations 1993', 53

- the Spanish Law of 27 May 1992. 54

It should finally be mentioned that the goodwill indemnity applied in Europe is not the only means of protecting agents at the end of contracts. In case 7543, concerning a contract between a German principal and a US agent, the arbitral tribunal applied a Michigan statute, 55 under which a principal who intentionally fails to pay the commissions due at the end of the contract must pay his agent twice the amount of such commissions.

1
E.g. in Norway (due to obligations undertaken in the framework of the European Economic Area) and Hungary (with a view to future entry into the European Union).

2
This is due to the fact that on many issues the Directive leaves Member States free to choose between differing solutions. Furthermore, nothing prevents Member States from enacting rules that are more favourable to the agent than those of the Directive.

3
The agent may sometimes be entrusted with the promotion of contracts for the purchase of goods. A buying agent of this kind (operating in Italy for a US company) is found in case 8168.

4
In international trade the common contractual practice is to charge the agent with merely negotiating contracts, not concluding contracts on behalf of the principal. Thus, his usual role is to collect orders (contract proposals) and to transmit them to the principal, who in theory is free to accept or to refuse them. Cases do exist in international trade where an agent is given the authority to conclude contracts on behalf of a principal, but they are rather exceptional.

5
Such as the Decree of 23 December 1958 and the Law of 25 June 1991.

6
In particular, a rule permitting arbitrators to reduce the contractually agreed commission: see infra § 5.1.

7
The Law of 25 June 1991 substantially replaced the Decree of 1958.

8
In accordance with the common practice in certain countries of using the term 'agency' also for distribution contracts.

9
See partial award of September 1995 in case 8195.

10
Decree no. 34 of 5 August 1967, as modified by Decree no. 9639 of 6 February 1975.

11
Case no. 3131.

12
The arbitral tribunal stated that 'even if Lebanese law is applicable, lex mercatoria may still be used when applying Lebanese law, or to the extent that Lebanese law is silent'.

13
See e.g. cases 4265, 6283, 7453, 8251, 8420, 8463, 8587, 8711, 9301.

14
See e.g. cases 8056, 8147, 8177, 8593, 9086.

15
This is probably due to the fact that it is the principal who is chiefly interested in making an express choice, as the law of the agent will otherwise normally apply (see infra § 4.4).

16
Cases 6283, 7453, 8161.

17
Case 5080.

18
Case 8463.

19
However the arbitrator did not in fact find any inconsistencies between the Directive and Spanish law.

20
See preliminary award on the applicable law in case 8177.

21
This type of approach may have been influenced by a provision in German commercial law (Handelsgesetzbuch § 92) allowing exceptions to the mandatory rules of such law if the agent performs his activity outside Germany (as per text in force before the Law of 23 October 1989 introducing the modifications necessary to make German law conform to the 1986 Directive), or outside the European Community (as per new text implementing the European Directive).

22
Both countries having implemented Article 17(2) of the European Directive.

23
See supra § 4.1.

24
However, the extract from the award is limited to this statement of principle, and we do not know how the arbitrator actually managed to apply two legal systems at the same time.

25
See e.g. cases 8195 and 8672.

26
See supra, § 4.2.

27
The prevailing statutory principle is that the commission becomes due when the principal performs his obligations towards the third party (i.e. normally when he delivers the goods): see Article 10 of the European Directive. However, this rule is not mandatory and most legal systems allow the parties to postpone the moment when the commission becomes due until the price has been paid by the customer. The arbitral awards examined confirm that this is indeed what happens in practice.

28
Although not easily detectable by a foreign party, considering that its existence is not mentioned in the commonly available literature on commercial agency contracts in France.

29
See e.g. case 6283.

30
See case 6283. Here, Belgian law was applied, which at the time did not contain specific rules on contracts with self-employed agents.

31
Case 8168. In fact, since the contract was non-exclusive, the principal could immediately begin to work with another agent and the information given to the customers that the contract with the first agent was terminated (although with effect 10 months later) actually prevented the agent from continuing its activity for the principal during the period of notice.

32
Case 8177. This principle is obvious with respect to 'typical' commercial agents, who have a general duty to protect the principal's interests. However, it was open to discussion in the case mentioned here, as the agent had been entrusted with the promotion of a single project and was thus closer to being an occasional intermediary.

33
Case 8147. In fact the arbitrators found that, although not obliged to do so, the agent had taken substantial steps in support of the principal for the purpose of obtaining payment.

34
This principle, contained in Article 14 of the European Directive ('An agency contract for a fixed period which continues to be performed by both parties after that period has expired shall be deemed to be converted into an agency contract for an indefinite period.'), is found in most domestic legislations.

35
See e.g. cases 8463, 8587, 9032, 9086, 9635.

36
The alternative view is that a fixed-term contract with an automatic renewal clause would similarly become an unfixed-term contract if not terminated at its first anniversary date. In case 9086 the arbitrator followed this interpretation when applying Article 11 of the French Law of 25 June 1991, which implements Article 14 of the European Directive.

37
Certain domestic systems, like Germany, prefer this second alternative.

38
See e.g. case 6283, where the costs of setting up a depot and purchasing vehicles were not considered as recoverable damage (because they could be used for purposes other than the performance of the terminated agency contract), whereas part of the general overheads were accepted.

39
See e.g. case 9301, where the indemnification for unjustified early termination was based on the average commission for the preceding year. Since the agent was entitled to four months' notice, the arbitrator calculated the indemnification as equivalent to four times the average monthly commission for the preceding year.

40
See e.g. case 9635 in the context of the French Law of 25 June 1991.

41
In the European Directive such reasons are defined as 'default attributable to the commercial agent which would justify immediate termination of the agency contract under national law'. In the national laws implementing the Directive similar definitions are used: serious misconduct by the commercial agent (Article 13 of the the French Law of 25 June 1991), serious default attributable to the agent (Article 19 of the Belgian Law of 1995), a breach of such importance that the relationship cannot continue (Article 1751 of the Italian Civil Code). In cases 9086 and 9635, the principal terminated the contract without making reference to any breach of contract, but later claimed that termination was justified by the agent's serious misconduct, or faute grave (French law being applicable in both cases), and that the agent was therefore not entitled to an indemnity. In both cases, the arbitrators took the view that if the reasons given by the principal were as important as later claimed, they would have been mentioned when the contract was terminated. As this was not the case, they were held to be irrelevant - a decision borne out by the arbitrators' examination of the merits, which showed that the breaches in question did not amount to a faute grave. It may happen that the reasons given by the principal are important enough to justify early termination, but not serious enough to deprive the agent of his indemnity. In case 8463, the arbitrator decided that a dramatic decrease in turnover justified premature termination but that it did not amount to a contractual breach of such seriousness as to deprive the agent of his indemnity.

42
See e.g. case 9635 and the awards examined under § 4.3 supra.

43
See e.g. case 8817 where the agent was awarded 'one year of profit' for early termination (the contractual notice period was one year) and 'one year of fees' as goodwill indemnity according to Article 17(2)(b) of the European Directive.

44
See e.g. case 8056, where the arbitral tribunal made an overall assessment of 'the harm suffered by the claimant'. See also case 8587, where, in addition to the termination indemnity (indemnité de résiliation), the arbitrator awarded further damages for termination of a long-lasting contractual relationship ('the harm . . . caused by breaking off longstanding business relations based on trust and having jointly built up a market share'). It should be noted that such further damages are not caused by wrongful termination as normally understood (i.e. without respecting the contractual or legal period of notice), but are simply based on the fact that the contract has lawfully come to an end.

45
In fact, the only case based on lex mercatoria (and on the principle of good faith) is the Norsolor case, see supra § 4.1.

46
These rules vary from country to country on some important aspects. Under Belgian and Spanish law, the agent is in certain circumstances entitled to an additional indemnity, which makes it possible to exceed the maximùum amount of one year's commission, whereas in countries that have adopted the 'German' indemnity no such possibility is foreseen.

47
Case 8251. Here, the law in force before the implementation of the European Directive was applied: the arbitral tribunal awarded 20% of maximum amount of 3/12ths of the annual commission.

48
Case 8711. Here, the maximum amount of one year's commission was awarded.

49
Case 9301. Here, the arbitrator awarded the indemnity under Article 19 of the Belgian Law, but refused to grant the complementary indemnity under Article 21.

50
Case 8056.

51
Case 8463 (where the arbitrator decided not to apply the common French rule, according to which the indemnity should correspond to 2/3rds of the commission paid during the last three years, but a lower amount in light of the particular circumstances of the case); case 8587 (two years' commission); case 9086 (two years' commission); case 9635 (one year's commission - instead of three years, as claimed by the agent - in order to take into consideration a certain lack of cooperation by the agent).

52
Case 8161. Here, the arbitrator determined the indemnity according to the principles developed by German case law. Since this resulted in an amount exceeding the average yearly commission based on the last five years, he awarded such average yearly commission.

53
Case 8593. Here, the arbitrator awarded the compensation of damage provided under section 17(6) of the Commercial Agents Regulations and fixed the amount at nine months of commission and twelve months of lease payments by the agent.

54
Case 9032 (one year's commission).

55
Act 600.2961, which entered into force on 29 June 1992. The arbitrator held this statute to be not punitive but compensatory.