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Where Should a Principal be Sued?

Published Spring 2014

In a world of increasing globalised trade, it is often the case that a commercial agent operates in a number of different European Union countries.

This can give rise to difficult questions concerning the correct national court for an agent to bring a compensation claim against a principal. The recent case of Wood Floor Solutions Andreas Domberger GmbH -v-Silva Trade SA, examined this issue and provided guidance to help determine which country’s national court has jurisdiction to hear a commercial agency dispute, especially in circumstances where an agent operates in a number of different countries.

The basic rule is that a defendant must be sued in their local court. If the defendant is an individual this is the place where they are domiciled and if they are a corporate body it is the place where it has its registered office. There are various exceptions to the basic rule and proceedings can be brought in a different country to the defendant’s place of domicile if one of the exceptions applies. For example, if there is a breach of contract, the defendant can be sued in the country where the contractual obligations are performed.

Wood Floor was a commercial agent based in Austria and wished to pursue its principal, Silva Trade, for compensation following the termination of the commercial agency contract. Although Silva Trade is a company incorporated in Luxembourg, Wood Floor brought proceedings in Austria because it argued that it carried on its business of signing up and acquiring clients in Austria and Austria was therefore, the place where the contractual obligations were performed. Silva Trade argued that the case should not be heard in the Austrian Courts because more than three-quarters of Wood Floor’s turnover was generated in countries other than Austria and that the place of performance of thecontractual obligation could not be established. Silva Trade argued that jurisdiction had to be determined in accordance with the basic rule and that Wood Floor should have sued Silva Trade in its place of domicile, being Luxembourg.

Wood Floor was successful in the lower court and Silva Trade appealed. The Austrian Court of Appeal referred the matter to the European Court of Justice for clarification of the issues. The European Court of Justice held that where services were provided by an agent in several countries, the exception to the basic rule did still apply and the Court that had jurisdiction to hear and determine all the claims arising from the contract was the Court in whose jurisdiction the place of the main provision of services was located. The Court held that for a commercial agency contract that place was either:

  1. the place of the main provision of services by the agent as stated in the contract;
  2. in the absence of such provisions in the contract, it is the place where the agent had carried out the activities in performance of the contract; and
  3. where it could not be established on that basis, the place where the agent was domiciled.

The case provides useful guidance as to the correct jurisdiction for an agent to bring a claim for compensation pursuant to the commercial agents regulations. It has established that in most cases an agent should be able to bring proceedings in its home court rather than the local court of the defendant. This potentially will have the effect of increasing costs for a principal in defending claims for compensation from foreign based agents.

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