High Court: Commercial Agents Regulations could not override contractual choice of law

In its judgment, the court said that a party to a contract governed by Texas law could not bring a claim for breach of contract based on failure to pay monies due under certain mandatory provisions of the Commercial Agents (Council Directive) Regulations. The contractor, Fern Computer Consultancy, potentially had grounds to bring a claim for statutory breach of duty but not breach of contract, the judge said.

The judge gave Fern permission to amend its claim so that it could fully argue this point. However litigation expert Richard Dickman of Pinsent Masons, the law firm behind Out-Law.com, said that in different circumstances an agent could lose the protection of the regulations altogether.

"Despite the regulations having mandatory effect, the principal in this case has so far been able to avoid the potential obligation to pay compensation or an indemnity by reason of the Texas jurisdiction and choice of law clause," he said.

"The effect of the regulations is not to override the parties' choice of law but simply to provide for an additional basis for making a claim. However, unless the agent can bring the claim in England by satisfying another jurisdictional 'gateway', it may be precluded from bringing the claim altogether," he said.

The regulations apply in relation to the activities of commercial agents in the UK, and implement an EU directive that is designed to regulate the relationship between commercial agents and their principals. Amongst other mandatory provisions, the directive gives agents the right to compensation or an indemnity when the agency relationship is terminated. In addition, the regulations cannot be derogated from.

Fern acted as the UK agent for Intergraph, a Texas-based software company, selling or licensing its products, which were usually provided in the form of a CD and accompanying dongle. When Intergraph terminated the contract, Fern brought a claim in England for compensation as provided for under the regulations and obtained permission to serve that claim on its former principal 'out of the jurisdiction', in Texas. In order to do so, it had to show that its case fell within one of the 'gateways' set out in part 6 of the Civil Procedure Rules (CPR), and show that it had a good arguable case.

The first CPR 'gateway' considered by the judge was Fern's contention that the contract was governed by English law due to the application of the regulations and, in particular, the fact that they could not be derogated from. Intergraph disagreed, on the straightforward point that the case was governed by Texas law by agreement of the parties.

Mr Justice Mann said that there was "no doubt" that the contract was governed by Texas law "at a literal level". However, he agreed that English law governed "the obligation that was created by the regulations". The problem was that that obligation was not somehow implied into the contract, but was a standalone obligation. This was not enough to bring the dispute within the jurisdictional gateway, he said.

"For the purposes of that gateway a claim does not itself have to sound in contract," he said. "It has to be a claim 'in respect of' a contract, and in my view a claim under the regulations would fall within that description. However, the contract in question has to be one governed by English law, and the contract in the present case is not so governed. Applying the gateway in this way there would seem to be no way in which Fern can pass through it."

"The regulations do not render the choice of law clause otiose. English law does not somehow infect the express contractual terms so as to nullify the choice of law clause. The effect of English law, to be applied by the English courts, is confined to the English law regulations, which bind the parties so far as their subject matter is concerned, because derogating from some of them is forbidden. So far as any provision of Texas law would otherwise override them then to that extent the proper law of the contract does not have full effect, but it can otherwise apply," he said.

Similarly, the sums due were payable under the regulations but not a breach of contract, because the contract was not governed by English law, he said. He said that his conclusion was "not a comfortable one" as "the regulations are plainly intended to have effect", but said that permission to serve out could not be granted on the grounds argued by Fern.

"[Fern] did not advance the possibility that the wrong in question in this case was a tort, not a contractually based matter," he said. "A claim to serve out can be made in respect of a tort where, inter alia, damage is sustained within the jurisdiction."

"There remains, in my view, a real point to be considered here. It may be that in this point lies the answer (or part of it) to the anomaly that I have suggested above might otherwise arise in relation to claims under the regulations in some cases of parties domiciled out of the EU," he said.