Overseas Principals: Governing Law and Jurisdiction

An increasing number of agents act for principals all over the world. This article looks at the law which governs the agency agreement where the principal is overseas and the country which has jurisdiction to determine any dispute.

Commercial Agents (Council Directive) Regulations 1993

The Commercial Agents Regulations apply to agents who sell or purchase goods in Great Britain on behalf of their principals. Regardless of the location of the principal, if the agent is carrying out its duties in Great Britain, the agent will have the protection of the Regulations.

Should a dispute arise between an agent and a foreign principal, the first port of call is the commercial agency agreement. Is there a written commercial agency agreement in place? If so, does the agreement specify both jurisdiction and choice of law in the event of a dispute?

Choice of law and jurisdiction

The rules on governing law and jurisdiction are complex. If an agent has a written agency agreement with an overseas principal, it may contain a jurisdiction clause that chooses the law of another country to determine any dispute arising under the agency agreement. For example, it may say that the French Courts will have jurisdiction to hear any claims arising out of the agreement. This will mean that any claim that the agent brings against its principal must be brought in the French Courts.

There may also be a choice of law clause within a written agency agreement that specifies which country’s law will apply to any claim or dispute arising out of the agreement.  For example, the written agency agreement may specify that English law should apply to any dispute. English law remains a common choice of many principals even though they may be based overseas.

Whilst it is most common to see parties choose for their agency agreement to be governed by the law of the same country which has jurisdiction (and often that is English law), it is possible for them to differ. The result of that is not ideal, since it means the court of one country applying the law of a different country. For example, a written commercial agency agreement that has a French jurisdiction clause and an English choice of law clause would require any claim to be brought in the French Courts, but the French Courts would have to apply English law and the Regulations.

The wording of governing law and jurisdiction clauses should be considered carefully, as depending on how they have been drafted, the effect of such a clause may not be immediately clear. One example is an agency contract that stated: “disputes will be judged according to EU regulations”. Such a clause could not be interpreted as a choice of law clause at all, since it was not stipulating the law of a particular country to govern the agency contract, and the contract was deemed to contain no choice of law.

Principals outside of Europe

Where an agent acts for a principal located outside of Europe, for example, in the United States of America, the parties may have agreed that the law of the State in which the principal is registered will govern the contract.

However, the parties are precluded by the Regulations from contracting out of many of its key provisions, including the right to compensation or an indemnity on termination under Regulation 17. That means the mandatory aspects of the Regulations will still apply where the law of a non-EU Member State applies to the contract, provided the agent performs its activities in Great Britain. This has been confirmed by the European Court of Justice.

The High Court has also held that a Canadian arbitration and choice of law clause could not be enforced because it did not give effect to the mandatory provisions of the Regulations. As a result, the arbitration award was unenforceable.  

Agents should therefore seek advice in the event of a dispute, as the agent may have rights that may not be obvious from the contract, especially if the contract provides that it is governed by the law of a non-EU member state.

What happens if I do not have a written agency agreement?

In the absence of a written agency agreement, the correct forum for the settlement of disputes will be determined by the rules of private international law. This is a very complex area that can cause uncertainty and can lead to a delay in progressing proceedings and additional costs. It is therefore important to seek professional legal advice on this topic when any dispute arises.

Here to help

If you have any more questions or would like more information regarding overseas principles,  you can contact our Commercial Agency Team below.