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The European Court sorts out the questions of where agents operating in several EU countries should be sued

4 Nov 2010

In answer to the ever-tricky question of where to sue the agent in the context of a modern commercial agency agreement where the agent operates in more than one EU country,  the Court in Wood Floor Solutions GmbH v Silva Trade SA set out a three-stage test to be applied in order for a claimant principal to identify the jurisdiction in which to sue an agent.

What the EU legislation says

The Brussels Regulation applies throughout the EU and establishes a uniform code on jurisdiction.  The general rule on jurisdiction is that the defendant must be sued in the courts of the member state in which he/she is domiciled, regardless of his/her nationality.

This rule can only be displaced if any of the specific provisions of the Brussels Regulation apply.  One of these specific provisions, Article 5 of the Brussels Regulation, provides that a defendant which is domiciled in a member state may be sued in another member state:

a. in matters relating to a contract, in the courts for the place of performance of the obligation in question;

b. for the purposes of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be:

- in the case of the provision of services, the place in a Member State, where, under the contract, the services were provided or should have been provided,

In practice, this provision is unhelpful because modern commercial contracts are often far more sophisticated than simply having one ‘place of performance’. 

European Court’s decision

The underlying proceedings between Wood Floor and Silva Trade related to a claim for compensation for the termination of a commercial agency contract performed in several Member States.  Wood Floor sued Silva Trade in Austria, claiming that the business was carried on exclusively from that member state.    

Silva Trade challenged this and argued that more than three quarters of Wood Floor’s turnover was generated in countries other than Austria. 

After losing in the lower court, Silva Trade appealed to the Austrian Court of Appeal.  The Court of Appeal referred various questions to the European Court. 

Question 1 – does Article 5 apply?

The European Court noted that the reason for the exception to the general rule on jurisdiction set out in Article 5 is the need for there to be a close link between the contract and the court in which the proceedings are brought.  Further, the ‘place of performance’ rule was the linking factor between all contracts, and therefore the exception in Article 5 provided some predictability for a party trying to work out which country to sue an agent in.

The European Court held that Article 5 did apply to a commercial agency contract where the agent provided services in several member states.

Question 2 – how do you determine the place of performance of the agency contract where the agent provides services in several member states?

According to the relevant case law, the place of performance of a contract is generally the place of the ‘main provision of services’. 

In a commercial agency contract, it is the agent who provides the services under the contract.  Under the Commercial Agency Directive, a commercial agent has authority to negotiate the sale or purchase of goods on behalf of the principal and, where appropriate, conclude such transactions on behalf of and in the name of that principal.  Therefore, the ‘place of performance’ under Article 5 must mean the place of the main provision of services by the agent.

In view of this, the place of the ‘main provision of services’ should be determined as follows:

  1. From the contract itself.  Under the contract, where is the agent to carry out most of his work, in particular, preparing, negotiating and potentially concluding transactions for which he has authority? 
  2. If the place of the main provision of services cannot be identified from the contract, then the relevant place is where the agent has actually carried out most of his contractual activities.  This is provided that the place where the services are mainly carried out is not contrary to the parties’ intentions. 
  3. If neither 1 nor 2 can be applied to identify the main place of performance, then the place should be identified by reference to where the agent is domiciled. 

Comment

This case provides long-awaited certainty to the difficult question of which jurisdiction applies when court proceedings need to be brought by a principal against an agent who, under his commercial agency agreement, provides services in more than one European member state.

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