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Accentuate Limited v Asigra Inc _ A case of goods v services and the effect of a foreign arbitration claim on the agent

29 Apr 2010

Although the Commercial Agents Regulations have been in force for over 16 years, many important issues remain to be resolved.  Among these issues are:

1. What are “goods”?  This is important as the Regulations define a commercial agent as a self-employed intermediary having continuing authority to negotiate the sale or purchase of goods. 

2. Is it possible to contract out of the Regulations by providing in an agreement for disputes to be determined by arbitration outside of the EU? 

Both issues lie at the heart of the recent High Court decision in Accentuate Limited v Asigra Inc. 

Under the terms of a Master Reseller Agreement (“MRA”), Asigra appointed Accentuate as its distributor to distribute Asigra’s software and related hardware.  The MRA provided that the agreement was to be governed by the laws of Ontario and for disputes to be settled by arbitration in Toronto. 

After disputes arose, Asigra commenced arbitration proceedings in Toronto.  In order to try and protect its position, Accentuate submitted to arbitration but argued that its claim for compensation under the Regulations fell outside of the arbitration provision in the MRA.  Whilst it was clear that Asigra had invoked arbitration in order to evade a claim for compensation under the Regulations, the position taken by Accentuate was rejected by the arbitral tribunal.  As a result, Accentuate commenced proceedings in the English courts in order to claim compensation under the Regulations.  However, in order that it could proceed with its claim, it was necessary for Accentuate to obtain the permission of the court to serve the court papers on Asigra in Canada.  When permission was granted, Asigra obtained a court order to set aside this permission.  Unsurprisingly, Accentuate appealed this order. 

As a result, the English High Court had to consider whether or not to permit Accentuate to serve Asigra outside of England and Wales.  This in turn required the court to consider whether Accentuate was a commercial agent for the purpose of the Regulations. 

It has for some time been thought that a distinction can be drawn between hardware and software and, possibly, software in the form of a CD-Rom as opposed to software downloaded from the internet.  In this case, the court was satisfied that Asigra supplied software.  However, it was equally satisfied that the related hardware constituted “goods” for the purpose of the Regulations. 

This part of the judgment is open to criticism.  As the judge himself stated, “The hardware…is to be provided to the end user only after the end user has become a party…to the software licence agreement.”  Accordingly:

• there was no “sale” of the hardware by Asigra to the licensee;
• the supply of the hardware only occurred after the end user had entered into the licence agreement; and
• whilst the supply of hardware was critical to Accentuate’s case, the judge found that the supply of the hardware was a subsidiary part of the subject matter of the MRA.

As such, the fact that the judge decided that the substantive obligation on Accentuate was to find end users who would enter into licence agreements with Asigra, was an unsupported finding which had a material bearing on the court’s decision.  However, for the purpose of obtaining permission to serve Asigra outside the jurisdiction, it was necessary only for Accentuate to satisfy the court that it had a real prospect of success on the merits of its claims. 

In 2000, the European Court of Justice had decided that a principal established in a non-EU country cannot evade the provisions of the European Self-Employed Agents Directive (and, in turn, the Commercial Agents Regulations) by the simple expedient of a choice of law clause. 

As such, it was relatively straightforward for Accentuate to argue that the arbitration provision in the MRA had the practical effect of depriving Accentuate of the possibility of compensation and therefore fell foul of the mandatory nature of the Directive (and, in turn, the Regulations).  This was so although the earlier European Court decision had been concerned with a choice of law clause whilst in its case, Accentuate was faced by a choice of Ontario law and a foreign arbitration clause. 

In arguing its position, Accentuate was on much firmer ground than in seeking to claim that it was a commercial agent for the purpose of the Regulations and, unsurprisingly, the court agreed. 

Despite the significant criticisms which can be levelled at the judgment, it is likely that agents on the borderline of coming within the definition of a commercial agent for the purpose of the Regulations will be heartened by the decision.  The same is true for those agents who fear that by submission to overseas arbitration they have deprived themselves of a right to compensation (or indemnity) under the Regulations, although this part of the court’s decision was more expected.

Overall, given the somewhat inventive nature of the judge’s reasoning, the decision highlights the importance for principals to draft their agreements carefully if they are to try and limit the statutory entitlements of their agents. 


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