German Federal Court of Justice grants compensation claims to commission agents

Section 89b of the German Commercial Code, in accordance with directive 86/683/EEC, allows commercial agents to bring compensation claims for principal’s remaining business advantages and the loss of future commissions after the termination of their agency contracts. The German Federal Court of Justice (FCJ) recently held that this provision also applies to commission agents (I ZR 229/15 dated 21 July 2016).

The facts

The defendant (“Manager”) manages various bargain shops across Germany. These shops are operated by independent store operators who receive sales commissions for their services. The plaintiff (“Operator”) was one of Manager’s store operators. The store operator contract had the following conditions:

• Manager grants Operator the right to operate one of Manager’s bargain shops;
• Operator must receive Manager's prior written consent for each individual issue, and Operator may not give or receive declarations that bind Manager;
• Manager is obliged to deliver the goods to be sold in the bargain shop;
• Operator is not allowed to serve Manager’s customers on Operator’s own account;
• Operator receives a sales commission on all net sales; and
• Operator assigns all accounts receivable to Manager.

Commercial or commission agent

The FCJ concluded that the Operator was a commission agent of the Manager, not a commercial agent. A commission agent, under section 383 ff. of the Commercial Code, is an independent person who has authority to sell or buy goods in his own name for another person’s account. A commercial agent, on the other hand, acts in the principal’s name.

According to the court, the provisions of the store operator contract clearly indicated a commission contract. Operator acted on Manager’s account and did not bear any economic risk, except for his own his own risk of decreased commission income. He acted in his own name as is indicated mainly by the fact that he assigned accounts receivable against customers and was not entitled to give declarations for Manager.

The compensation claim for commission agents

The compensation claim in section 89b of the Commercial Code mentions only commercial agents. However, the FCJ has applied this provision to other persons with roles similar to commercial agents, namely to authorised dealers. The reasoning behind this is that authorised dealers also conclude contracts in their own name and on their own account. Further, often authorised dealers are also part of the principal’s distribution system and must transfer their customer base immediately after contract termination so similar obligations as with commercial agents are created.

As for the commission agent, the FCJ concluded that in the case at hand the requirements for an application of section 89b Commercial Code were met:

• the plaintiff was part of the defendant's distribution system in a way he had similar obligations as a commercial agent,
• he acted on the defendant's account
• and he had the obligation to transfer his customer base to the defendant.

Operator therefore is entitled to a compensation claim against Manager.

Comment

Compensation claims by commercial agents are an often disliked issue. They raise a lot of very detailed questions about sales figures, the market and business concerned and require a prognosis on business development and customer behaviour. They typically involve high sums and are time consuming because of their complexity. It is therefore essential for the principal to be aware of these issues before concluding contracts and allowing agents to begin developing business. Though compensation claims cannot be excluded or waived before contract termination, awareness of their existence is an important factor for contract drafting and the assessment of economic risks.

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