On 13 October 2022, the ECJ ruled on whether, under the Commercial Agents Directive (86/653/EC) (Directive), a sub-agent was entitled to a share of the indemnity awarded to the main agent on termination of the main agent’s agreement with its principal.

Under Article 17(2)(a) of the Directive, two criteria must be satisfied before an indemnity is due to an agent on termination of the agency agreement:

• The agent has brought the principal new customers or has significantly increased business with existing customers and the principal continues to derive “substantial benefits” from business with such customers.
• The payment of an indemnity is equitable, having regard to all the circumstances, in particular, the commission lost by the commercial agent on the business transacted with such customers.

In this case Poensgen engaged Herios to sell its goods and Herios in turn engaged NY to assist it. There were two principal:agent relationships: between Poensgen and Herios and between Herios and NY. When the Poensgen:Herios relationship terminated, Poensgen paid Herios a goodwill indemnity. NY claimed, in turn, a goodwill indemnity from Herios, arguing that, under the Directive, the indemnity paid by Poensgen to Herios was a “substantial benefit” to Herios, derived from NY’s efforts, and therefore an indemnity was owed.

The ECJ held that the goodwill indemnity paid by Poensgen was a “substantial benefit” to Herios, derived from NY’s efforts. Article 17(2)(a) merely requires the principal (here Herios) to benefit from an advantage which is both significant and connected with services provided previously by the agent (here NY). The concept of “substantial benefit” covers all the benefits the principal derives from an agent’s efforts after the termination of the contract, including any goodwill indemnity it receives from its own principal. Because the Directive’s objectives include protecting commercial agents, Article 17 cannot be interpreted in a way which is detrimental to the agent.

However, the ECJ also held that payment of an indemnity to NY may be inequitable for Article 17(2)(a) purposes, because following termination NY immediately started working as a direct agent for Poensgen. It was for the national courts to assess whether NY actually suffered any negative consequence from its contract with Herios ending, given that NY may have continued to earn commission on the customers it had previously secured for Herios.

The Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053) implemented the Directive in the UK

Source: Practical Law