(Shop Based) Commercial Agent Protected even in the Absence of the Power to Negotiate the Price

In Trendsetteuse (C-828/18), the Court of Justice of the EU held that in order to be protected under the Commercial Agency Directive, it is not required that the commercial agent has the power to negotiate the price of a transaction.

Definition of commercial agent

A commercial agent is a self-employed intermediary with continuing authority to negotiate transactions on behalf of the principal, or to negotiate and conclude transactions on behalf of the principal.

An intermediary falling within the scope of this definition enjoys the (mandatory) protection of the Agency Directive (most importantly a notice period and a goodwill indemnity).

The relevant question

It was disputed whether an intermediary not having the power to negotiate the price of a transaction on behalf of the principal actually was a commercial agent enjoying the Directive’s protection.

The Discussion

Prior to the Court of Justice’s ruling, the French Cour de Cassation had held that an intermediary who did not have the power to negotiate the transaction price, did not qualify as a commercial agent. Meanwhile, English and Irish case law favoured a less strict reading of the term “negotiation” in which it was not required that an agent had the power to change the price.

In Belgium, although a majority of legal authors had favoured the broader view, part of the case law took the view that the commercial agent qualification required the power to negotiate the price.

The facts giving rise to the Court’s decision

The question arose in the context of the termination dispute between a principal and its former agent in the French courts. The principal – relying on the case law of the French Cour de Cassation – held that the agent should be denied protection of the (French law implementing the) Directive for lack of the power to change the price at which it sold clothing and jewelry on the principal’s behalf. The French court referred the issue to the Court of Justice for a preliminary ruling.

The Court of Justice’s decision

The Court has decided that in order to be qualified as a commercial agent under the Directive, it is not required that the agent has the power to change the transaction price.

The Court has relied (i) on the context in which the autonomous concept “negotiate” is used and (ii) on the purpose of the rule in which it is used.

1.The agent’s power to change the price (or other conditions of the transaction) depends on the terms of his/her agreement with the principal. The fact that the agent does not have the power to change the price may be (economically) justified (e.g. taking into account factors such as the principal’s position on the market, competitors’ prices and the principal’s business continuity).

Moreover, this does not prevent him/her from carrying out his/her principal tasks as an agent under the Directive (i.e. bringing new customers to the principal and developing transactions with existing customers). The agent may carry out this remit by means of information and advice and discussions that are of such a nature as to promote the conclusion of the sale of the goods on the principal’s behalf, without the agent having the power to alter the prices.

2.The Directive is intended to protect commercial agents. Interpreting the Directive restrictively would limit the scope of that protection, by excluding from that benefit all people who do not have the power to change the price of a transaction. This would allow the principal, to circumvent the Directive’s mandatory provisions by reserving any right to negotiate the transaction price.

Consequences – the shop/showroom based model

Whether an agent has the power to change the transaction price is no longer relevant in the context of that commercial agent’s protection under the Directive.

It is clear that the Court has interpreted the Directive’s scope broadly so as to prevent the achievement of the Directive’s objective being jeopardised. In Zako (C-452/17) the Court also broadly interpreted the definition and held that an intermediary performing his/her activities from the principal’s premises does not prevent him/her from being classified as a commercial agent under the Directive.

Both rulings seem to end the discussion as to the qualification of the shop or showroom based intermediary model. Intermediaries acting in such a situation are not necessarily excluded from the Directive’s mandatory protection.

However, some active involvement by the agent will still be required. To qualify as a commercial agent, the intermediary will have to actively convince the customer, e.g. with technical know-how, to enter into a transaction. The situation in which customers spontaneously volunteer to buy the products would in my view not be sufficient to grant the commercial agent status.