Representatives Compensation Claims (Indemnity) by a Commercial Agent
German Federal Court of Justice: Liability of a Transferring Entity Despite Termination of the Agency Agreement After Spin-Off
The German Federal Court of Justice (Bundesgerichtshof – BGH) had to decide in a case in which an agency relationship was transferred by an insurance company by means of a spin-off to another company pursuant to § 131 No. 1 in connection with § 123 Subsection 3 No. 1 German Transformation Act (Umwandlungsgesetz – UmwG) and the agency relationship was only terminated after the spin-off became effective whether liability still existed for the transferring insurance company pursuant to § 89b German Commercial Code (Handelsgesetzbuch – HGB). This was confirmed by the BGH in its ruling dated August 13, 2015 – Case No.: VII ZR 90/14.
1. Facts of the Case
The plaintiff, an insurance agent, asserted a compensation claim (indemnity) against the defendant, an insurance company, pursuant to § 89b HGB according to which an insurance agent like a commercial agent (Handelsvertreter) is entitled to a compensation claim (indemnity) upon termination of the contractual relationship.
The defendant had concluded a spin-off agreement with the subsequent third-party defendant of the plaintiff. On basis of this agreement the defendant transferred a part of its assets, namely all existing agency relationships with insurance agents in their entirety, by means of a spin-off pursuant to § 123 Subsection 3 No. 1 UmwG to the third-party defendant as the acquiring entity. The spin-off was registered with the defendant’s commercial register on December 27, 2007.
The third-party defendant (acquiring entity of the spin-off) terminated the agreement with the plaintiff to the end of December 31, 2009, and released the plaintiff from his work duties. The plaintiff rejected the termination and with reference to the effected release from work duties declared in turn the extraordinary termination of the commercial agent agreement to the third-party defendant and to the defendant shortly afterwards.
The parties were in dispute whether the defendant as the transferring entity was jointly and severally liable to pay a compensation claim (indemnity) pursuant to § 133 Subsection 1 UmwG.
2. Decision by the Previous Instances
The Regional Court (Landgericht – LG) had rejected the plaintiff’s legal action for payment of compensation (indemnity) pursuant to § 89b HGB (LG Aachen, decision dated July 19, 2013 – Case No.: 9 O 274/12). With respect to the plaintiff’s appeal the appeal court considered the plaintiff’s claim for compensation (indemnity) to be justified by the basic ruling based on its merits. The Higher Regional Court (Oberlandesgericht – OLG) allowed the appeal on a point of law with the justification that a high-court decision was absent on the question whether the compensation claim (indemnity) by a commercial agent and/or insurance agent is already created in the contractual relationship and the transferring entity of a spin-off therefore is jointly and severally liable (OLG Cologne, ruling dated March 28, 20114 – Case No.: 19 U 143/13).
3. Decision by the Federal Court of Justice
The BGH initially ascertained that the plaintiff’s justified agency relationship with the defendant had transferred to the third-party defendant by a spin-off and transfer of the defendant’s distribution network by way of universal succession upon registration of the spin-off with the commercial register pursuant to § 131 No. 1 in connection with § 123 Subsection 3 No. 1 UmwG. Excluded from the transfer by partial universal succession are generally only personal rights and duties which did not exist in the agency relationship in question. With respect to the fact that § 613 Sentence 2 German Civil Code (Bürgerliches Gesetzbuch – BGB) (according to which the claim by the entrepreneur to services by the commercial agent cannot be transferred in order to protect the commercial agent) only contains a rule of interpretation and the parties can agree otherwise in a commercial agency agreement, the rights and duties arising from the agency relationship would not constitute such personal rights and duties. A right by the plaintiff to make an objection as for employees pursuant to § 613a BGB is also excluded due to the plaintiff not being an employee.
The BGH could leave it open whether the change in contractual partner by the transfer led to the plaintiff having an extraordinary right to terminate the agency relationship because the agency relationship was possibly based on a special basis of trust. It should be stated here that the transfer to a different entity may eventually no longer reflect the interests of both parties and continuation under the changed circumstances could be unreasonable for the insurance agent so that she/he can be entitled to a right of extraordinary termination. However, such a declaration of termination by the plaintiff vis-à-vis the third-party defendant (i.e. the acquiring entity) at an appropriate time after the spin-off became effective did not exist.
The agency relationship with the plaintiff was then effectively terminated as of December 31, 2009, by the third-party defendant declaring the termination. The third-party defendant was authorized to do this based on the transfer of the agency relationship and as the new contractual partner of the agency agreement with the insurance agent pursuant to the regulations of the German Transformation Act (Umwandlungsgesetz).
The BGH clarified that pursuant to § 89b Subsection 3 No. 1 HGB the compensation claim (indemnity) was not in turn excluded by the plaintiff’s extraordinary termination. The fact that the plaintiff was released from his work duties by the third-party defendant gave him a justified reason for its termination. A justified reason exists if a situation is created by the entrepreneur’s conduct which the commercial agent can no longer accept in good faith. This was affirmed by the appeal court due to the plaintiff being released from his work duties without financial compensation and who is thus prevented until the end of the agreement from concluding other insurance contracts which would balance the loss of the agreement. The BGH did not object to this in the appeal proceeding.
The BGH then stated that the compensation claim (indemnity) pursuant to § 133 Subsection 1 UmwG was justified before the spin-off became effective. Thus, the defendant as transferring entity continues to be liable as joint and several debtor for the obligations in the agency agreement together with the third-party defendant. The claim is sufficiently justified by the fact that the legal grounds for the existence of the claim were created already before the spin-off became effective. This is the case for contractual claims when the agreement was concluded before the spin-off became effective. This also applies accordingly to the above agency agreement. In such an agreement for continuing obligations the legal grounds for the resulting individual obligations were already created in the commercial agent agreement concluded before the spin-off became effective. It is not necessary that the compensation claim (indemnity) itself already existed when the spin-off became effective. Nor is it detrimental that the compensation claim (indemnity) by the commercial agent does not come into existence in individual cases when one of the statutory preconditions is absent, for example, or one of the statutory circumstances for exclusion was fulfilled.
4. Practical Advice
The decision by the BGH confirms the previous instance and also corresponds to the prevailing opinion in legal literature that the compensation claim (indemnity) pursuant to § 89b HGB is an obligation in the sense of § 133 Subsection 1 Sentence 1 UmwG for which the transferring legal entity is liable as a joint and several debtor. It is sufficient to justify an obligation pursuant to § 133 Subsection 1 Sentence 1 UmwG if the legal grounds for the existence of the obligation were created before the spin-off became effective. It does not depend on the maturity or on the fact that all the preconditions for existence have already occurred before the spin-off became effective. It is sufficient that the agreement was concluded beforehand. This also applies to agreements for continuing obligations and therefore to commercial agent agreements. It does not depend on the fact that the other preconditions for the existence of the commercial agent’s compensation claim (indemnity) only occur after the spin-off has become effective, as in this particular case where the termination of the commercial agent agreement is only declared by the “new” principal (the acquiring insurance company) vis-à-vis the commercial agent after the spin-off is registered with the commercial register and thus only after the effective transfer of the contractual relationship to the acquiring entity. Such principles also similarly apply in the other cases of partition (de-merger – Aufspaltung, split-off – Abspaltung).
The commercial agent can therefore assert a compensation claim (indemnity) against the former principal, the transferring entity, irrespective of the fact that the termination was made by the new principal, the acquiring entity, i.e. at a time when the transferring company was no longer the commercial agent’s contractual partner. The commercial agent is not obliged to approach the acquiring entity first. The former principal is therefore still liable. The transferring entity against which the compensation claim (indemnity) was asserted has not only a claim for reimbursement in the internal relationship but also a claim to exemption against the acquiring entity, depending on the specification and allocation in the spin-off agreement. It is recommended, however, to include in the spin-off agreement regulations regarding the internal balance in case of any claims asserted towards the acquiring or transferring entity and further obligations of the main debtor, the acquiring entity, particularly the obligation to release. The transferring entity is only released from liability after a period of five years commencing when the spin-off is registered with the commercial register.
The change in contractual partner can only lead to an extraordinary termination right in a special relationship of trust. However, the BGH was able to leave precisely this aspect open due to the fact that the termination was not articulated immediately after the plaintiff transferred the agreement and the parties continued the agreement. However, the change in entrepreneur/principal caused by the reorganization (spin-off, demerger) without the occurrence of special circumstances which could justify a special relationship of trust does not constitute grounds for termination.