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02 November 2009
The Italian courts are increasingly required to consider disputes under agency agreements between a principal from a non-EU state and an Italian agent operating within the Italian territory.
This update considers two issues that arise under an agency agreement that includes a choice of law and forum-shopping clause whereby the agreement is governed by the laws of a foreign state and disputes arising therefrom are to be remitted to a foreign court.
First, is an Italian agent entitled to claim against the principal for payment of indemnities pursuant to Italian law?
Second, on termination of the agreement, is the agent entitled to bring legal proceedings against the principal to claim payment of a termination indemnity before an Italian court, notwithstanding the choice of law and jurisdiction?
Law 218/1995 determines whether parties to contracts under foreign law and subject to foreign jurisdiction are obliged to comply with Italian law and Italian rules of jurisdiction, notwithstanding other choices of law and jurisdiction that they have made.
According to Article 57 of the law, the Rome Convention applies to determine the law governing contractual relationships in the event of conflicts of law. Article 3(3) of the convention provides that:
"The fact that the parties have chosen a foreign law, whether or not accompanied by the choice of a foreign tribunal, shall not, where all the other elements relevant to the situation at the time of the choice are connected with one country only, prejudice the application of rules of the law of that country which cannot be derogated from by contract, hereinafter called 'mandatory rules'."
Articles 7(1) and (2) state that:
"When applying under this convention the law of a country, effect may be given to the mandatory rules of the law of another country with which the situation has a close connection, if and insofar as, under the law of the latter country, those rules must be applied whatever the law applicable to the contract. In considering whether to give effect to these mandatory rules, regard shall be had to their nature and purpose and to the consequences of their application or non-application. Nothing in this convention shall restrict the application of the rules of the law of the forum in a situation where they are mandatory irrespective of the law otherwise applicable to the contract."
Mandatory rules cannot be amended or derogated from by contract. They apply notwithstanding the choice of law made by a party to the contract.
Some provisions of Italian law on agency contracts are expressly identified as mandatory rules that may be modified only in the interests and to the benefit of the agent, the intention being to protect the agent's rights in its relationship with the principal. In particular, the provisions on indemnities due to an agent upon termination of an agency agreement are considered mandatory.
Taking into account Italian case law and the opinions of legal experts on the enforceability of Italian mandatory rules under the convention, it could be argued that the mandatory provisions on indemnities can apply to an agency contract regulated by a law other than Italian law in the case of an Italian agent operating in the Italian territory, provided that the provisions of the contract, as well as the foreign law that governs it, do not make the same provision in favour of the agent.
Article 1751 of the Civil Code suggests that such provisions can be amended only in the interests and to the benefit of the agent. It states that a commercial agent must be indemnified by the principal upon termination of the agency agreement if: (i) the agent has attracted new customers or has significantly increased the volume of business with existing customers, and the principal continues to derive substantial benefits from the business with such customers; and (ii) payment of the termination indemnity is fair in the circumstances, particularly in view of the commission lost by the commercial agent on the business transacted with such customers.
The termination indemnity may not exceed the average yearly commission in the five years(1) before termination.
Payment of the termination indemnity does not prevent the commercial agent from seeking further damages (eg, if the principal terminates the agreement shortly after having induced the commercial agent to make substantial investments).
Article 1751 is mandatory, but only to the agent's benefit. Thus, the parties may only increase the scope of the agent's rights and may not, for example, add further conditions for payment of the termination indemnity. Article 1751 does not provide a formula or criterion for calculating the amount of the indemnity; rather, it simply indicates the maximum amount payable to the commercial agent. In the event of disagreement, the amount to be paid is determined by the court in consideration of the full circumstances of the case.
Furthermore, other provisions of Italian agency law may be deemed to have the same mandatory status and may become relevant if an Italian judge is asked to rule on the applicability of Italian agency law to an agency contract that is subject to foreign law under the convention. For example, it could be argued that the judge should take into account the provision of Italian law on mandatory terms of a termination notice. Articles 1750(2), (3) and (4) of the code state that if an agency agreement has no fixed term, either party may withdraw by giving the other party notice within a certain period - one month for each year that the agreement has been in force, up to a maximum of six months. The parties may only increase the length of this statutory notice period.
Choice of Jurisdiction
Article 3 of the law states that Italian jurisdiction exists:
Pursuant to Article 4(2), parties to an agreement may agree to depart from these rules and choose to refer their disputes to a foreign jurisdiction, provided that such choice is made in writing and the disputes remitted to the competence of the foreign judge concern rights that can be modified and freely determined by the parties.
The indemnity rights that Article 1751 grants an agent in the event of the termination of an agency agreement cannot be modified to the detriment of the agent's interests; therefore, such rights do not fall under Article 4(2). Therefore, even if the parties have chosen a foreign jurisdiction, disputes arising between the agent and the principal fall under Italian jurisdiction. The provisions of the code concerning an agent's right to indemnity following termination of the agreement are deemed mandatory; therefore, the rules above will apply regardless of the choice of law made by the parties.
Notwithstanding that the agency agreement is governed by the laws of a foreign state according to the choice of law made by the parties, an Italian agent is entitled to claim against the principal for payment of the indemnities provided for in Article 1751. Notwithstanding a forum-shopping provision contained in the agreement, the agent is entitled to bring an action before an Italian judge to claim payment of a termination indemnity.
For further information on this topic please contact Barbara Corsetti or Federica Peres at Portolano Colella Cavallo Studio Legale by telephone (+39 066 976 541), fax (+39 066 976 544) or email (email@example.com or firstname.lastname@example.org).
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