The Importance of having a choice of law clause in agency contracts

by Emma Butcher
of Clarkslegal LLP

A recent Court of Appeal
decision has highlighted
the importance of parties
to an agency contract
choosing which countries’
law will govern the
contract.
Timothy Lawler v Sandvik Mining and
Construction Mobile Crushers and Screens
Limited was originally heard by the High
Court in 2012. Mr Lawlor was an Irish citizen
who had operated as a sales agent for
Sandvik in Spain.
In 2009 his agency contract was terminated
and he claimed compensation in the English
High Court under the Commercial Agents
(Council Directive) Regulations 1993.
At the time Mr Lawlor became a sales agent
in around 1994, Sandvik was a much smaller
company. He had no written agency
agreement, and no written employment
contract in respect of his previous
employment with the company either. As
there was no agency contract containing an
express choice of law, the first question to
be determined by the court was which law
was applicable to his agency contract:
English law or Spanish law?
Where the parties have not included a
written clause in their contract stating which
law shall apply, it is possible for the court to
find that they have, nevertheless, made an
implied choice by looking at the contract as
a whole.

Mr Lawlor argued that the parties had made
an implied choice of English law. In order to
establish this, he had to demonstrate with
reasonable certainty that the parties had
chosen English law to apply, but the High
Court found that he had failed to do so. The
court therefore went on to consider with
which country the agreement was most
closely connected, and found that this was
Spain. Mr Lawlor appealed the decision on
the basis that he had demonstrated with
reasonable certainty that the parties had
made an implied choice of English law. The
Court of Appeal found that the evidence put
forward by Mr Lawlor as to what the parties’
intentions were at the time the contract was
made was vague.
The arrangement was a casual and informal
one and the parties had probably not really
considered the choice of law at all. At the
time the contract was made, Mr Lawlor was
living in Spain and Spain was to be the centre
of his activities. Accordingly, the Court
upheld the High Court’s decision that Mr
Lawlor had not demonstrated with
sufficient certainty that the parties had
intended the contract to be governed by
English law. Spanish law was to be applied.
Due to the differences in the way in which
EU Member States calculate compensation
under the Regulations or their equivalent
legislation, Mr Lawlor would have received
significantly more under English law than if
Spanish law had been applied. The case was
interesting because it was accepted by
Sandvik that as a general rule, the company
would seek to have its contracts governed
by English law, and that it would be usual for
an English principal to impose English law on
its agency contracts.

The Court also found that Mr Lawlor’s
previous employment contract had
probably been governed by English law, and
that had the parties made a choice, it would
in all likelihood have been English law.
However, it was in Sandvik’s interests for
Spanish law to apply so as to lessen their
liability to Mr Lawlor for compensation.
This decision underlines the need for parties
entering into an agency contract to put
proper written agreements into place, which
include a choice of law clause, to give them
the best protection in the event of a future
dispute.
It is also very important for any parties
whose agencies have started off on a causal
basis, like Mr Lawlor’s, to periodically review
their arrangements and ensure that they
have agreements in place which give effect
to their intentions.

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Reading RG1 3EB

Tel: 0118 958 5321
www.clarkslegal.com

Emma Butcher

Disclaimer: This column does not contain legal advice and is for general
guidance only. Agentbase, Clarkslegal LLP and the writer accept no liability
in connection with the general guidance given in this column.
Please ensure that you obtain legal advice before acting in reliance upon
anything in this article. For example, please be clear that the answers given
in this column may not cover all possible angles, aspects, relevant
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for clarification and amplification, before being relied upon

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