In March 2023, the European Court of Justice (“ECJ”) was once again given the opportunity to comment on the calculation of the indemnity to which the commercial agent is entitled under Article 17(2)(a) and (b) of Directive 86/653/EEC (the “Directive”) (ECJ, Judgment of 23 March 2023 – C-574/21). The decision concerned, in particular, the question of what losses of commission must be taken into account in determining the “commission lost by the commercial agent”. The national courts had already developed conflicting case law in this respect. According to German case law, the “commission lost” was the commission which the commercial agent would have received from future transactions if the agency contract had been continued. The Czech courts rejected this understanding and calculated the indemnity taking only into account the commission lost by the commercial agent in respect of transactions already concluded prior to the termination of the agency contract.
The facts before the ECJ concerned a dispute between O2Czech Republic and a Czech commercial agent. The commercial agent procured contracts for O2Czech Republic in the Czech Republic regarding the provision of telecommunications services and the sale of mobile phones. The commercial agent received a one-off commission payment for each contract entered into by O2Czech Republic and procured by the commercial agent. Upon termination of the agency contract, the commercial agent demanded to be paid an indemnity for the customers procured by the commercial agent, in addition to the one-off commission payments contractually agreed upon for the period up until the date of termination.
The ECJ essentially had to decide on the following questions:
1. Does the indemnity have to be determined taking into account the commission which the commercial agent would have received in the event of a hypothetical continuation of the agency contract in respect of transactions which would have been concluded after the termination of that agency contract with new customers which the commercial agent brought to the principal before that termination, or with customers with whom the commercial agent significantly increased the volume of business before that termination (“hypothetical commission”)?
2. If such hypothetical commission has to be taken into account as a general rule for the purpose of the indemnity, does this also apply where one-off commission payments have been agreed?
The ECJ put the calculation basis for determining the indemnity at the beginning of its decision. Article 17(2) of the Directive provides for an examination in three stages. The aim of the first stage is to quantify the benefits accruing to the principal (Article 17(2)(a), first indent). The aim of the second stage is to check whether the amount so determined is equitable, having regard, in particular, to the “commission lost by the commercial agent” (Article 17(2)(a), second indent).Finally, in the third stage, the amount is measured against the maximum limit defined in Article 17(2)(b) of the Directive (average annual commission over the preceding five years).
Especially the first question referred for a preliminary ruling concerns fundamental issues: Does the principal have to pay an indemnity for benefits derived after the termination of the contract from business transacted with customers brought by the commercial agent? The ECJ has answered this question in the affirmative, rejecting the Czech courts’ interpretation of the law.
The ECJ has based its decision primarily on the following considerations: Article 17(2)(a), first indent, of the Directive expressly refers to “substantial benefits” which the principal “continues to derive” from business generated by the commercial agent. This means benefits that continue to exist on the part of the principal following the termination of the contract. After the agency contract has ended, the principal continues to benefit from the customers brought by the commercial agent inasmuch as the principal continues the business relations and regularly uses, or can use, those relations to transact further business. The indemnity therefore regards business transacted with the customer base after the termination of the contract in which the agent is no longer involved. The “commission lost by the commercial agent” must therefore, conversely, be the commission which the commercial agent would have received from business transacted with the customers brought by the commercial agent if the agency contract had been continued.
The second question referred for a preliminary ruling is based on the consideration of whether the benefits which the principal continues to derive after the termination of the agency contract from customers brought by the commercial agent are already fully included in the one-off commission payment, with the result that there is no scope for an additional indemnity.
However, this was not the case in the facts underlying the decision: the one-off commission constituted flat-rate remuneration for each new contract, including contracts entered into with existing customers. Thus, if the agency contract had been continued, the commercial agent could have received commission payments for transactions with customers brought by the commercial agent whose loss upon termination of the agency contract was not covered by the commission already received. Consequently, the ECJ rightly answered the second question referred for a preliminary ruling in the affirmative with regard to cases where the one-off commissions correspond to flat-rate remuneration for each new contract.
This form of one-off commission differs from the one-off commission that is granted exclusively as flat-rate remuneration for bringing a new customer – which is the German understanding of this term – and whose amount is thus independent of the further duration and development of the business relationship with that customer. In this case, no commission can be lost by the commercial agent after the termination of the agency contract for future transactions with the customer brought by the commercial agent. The ECJ has not yet ruled on the question of how such one-off commissions affect the calculation. What is clear is that the entitlement to an indemnity is not automatically excluded by an agreement on one-off commission. The entitlement to an indemnity has been designed such that the “commission lost” is only one of several factors that have to be taken into account in the check to be performed to determine whether an indemnity is equitable.
It remains to be seen whether the ECJ will be given another opportunity in the future to comment on the calculation of the indemnity in the case of one-off commission for bringing a new customer. Even though, an entitlement to an indemnity may exist even without a loss of commission, this does not change the situation that the remuneration for the benefits accruing to the principal after the termination of the agency contract is regularly already included in the one-off commission. The absence of any loss of commission ultimately means that an indemnity would not be equitable and that the relevant claim must, therefore, be reduced to zero.