LEGAL UPDATE: CASE REPORT

Volvo Car Germany GmbH v
Autohof Weidensdorf GmbH
Case C-203/09.

by Thom Vaughan of E.A.D. Solicitors L.L.P.

The European Court of Justice has
found that Agents are entitled to
compensation or an indemnity even
if they commit a serious contractual
breach during their notice period.

The European Court of Justice has boldly
found that a commercial agent is entitled to
payment of an indemnity under the European
Commercial Agents Directive even if the agent
commits a breach after notice of termination
is given but before the termination becomes
effective. This is so even if the breach would
have justified immediate termination of the
contract by the principal if it had been
committed before notice of termination was
given.
As is widely known, commercial agents are
entitled to either an indemnity payment or
compensation for the loss of their agency on
termination of their agency agreement.
However, this protection is excluded where
the principal has terminated the agency
contract because of a serious contractual
breach by the commercial agent that would
justify immediate termination of the agency
contract.

In the present case the Agent entered into a
dealership agreement with V for the sale of its
vehicles. The agreement provided for a period
of two years’ notice to bring the agreement to
an end. V went ahead and served notice to
terminate the agreement in accordance with
this provision; however, during this notice
period the Agent sold V’s vehicles to a related
company at a discount.

This company resold the cars in clear breach of
the terms of the agreement and had V
discovered the breach in time they would have
been entitled to terminate the agreement with
immediate effect under German law.

The German court referred to the European
Court of Justice the question of whether the
Agent remained entitled to an indemnity
despite its contractual breach and the court
held that he was so entitled. The court pointed
out that in order for the principal’s liability to
pay compensation or indemnity to be
excluded, termination must have occurred
“because of” the commercial agent’s default.
In this case termination had occurred in
accordance with the terms of the agreement
rather than because of the Agent’s breach. The
Agent was accordingly entitled to payment of
an indemnity.

The fact that V was not aware of the breach
until after termination did not prevent the
court from interpreting Article 18 strictly,
thereby protecting the Agent in accordance
with the objectives of the legislation. From an
Agent’s point of view this is an excellent
outcome and an example of the European
Court standing up for the “downtrodden race”.
However, it must be borne in mind that this
type of breach may result in a reduced
indemnity payment because of the
requirement arising from Regulation 17 that
“the payment of this indemnity [must be]
e q u i t a b l e h av i n g r e g a r d t o a l l t h e
circumstances”.

It is unclear how this type of event will feed
into calculation of an indemnity; however, it is
unlikely to affect compensation payments.

The practical relevance of this finding is that if
a commercial agent does commit a serious
contractual breach during the notice period
then he remains entitled to payment of an
indemnity or compensation; however, if the
principal discovers the breach then the Agent’s
authority to continue acting can be removed
thereby preventing accrual of further
commissions.

It is also possible that a court may do its best to
“find against” the Agent if it is left decidedly
unimpressed by the Agent’s conduct during
the notice period; this will, of course, depend
on the nature and seriousness of the breach.

Thom Vaughan is a solicitor with
E.A.D Solicitors LLP and specialises
in commercial agency matters.

Head Office: Prospect House,
Columbus Quay, Liverpool L3 4DB
Tel: 0151 735 1000
www.eadsolicitors.co.uk

Disclaimer: This column does not contain legal advice and is for general guidance
only. Agentbase, E.A.D. Solicitors, and the writer accept no liability in connection
with the general guidance given in this column.

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