Result of Semen vs Deutsche Tamoil GmbH Case - Essay Example

The ruling by the European Court of Justice (now the Court of Justice of the European Union) in the case of Semen v Deutsche Tamoil GmbH (C-348/07) means that a Principal in the UK will never choose indemnity on the termination of a commercial agency. Critically analyze the above statement In the modern society, most business relations are grounded on firm legal provisions. This is attributable to the negative implications that individuals suffer as a result of incidences such as breach of contract. In essence, they have made the business parties to undertake cautionary measures in a bid to cushion themselves against the lasting impacts of the failing business environment. Notably, the commercial law facet has equally been affected by relative implications. In this, the commercial agent gets in a business relationship with the principal. Both have distinctive roles to play and failure of one party has adverse legal implications. The legal impacts are apparent in scenarios such as Semen v Deutsche Tamoil GmbH (C-348/07)1. Undoubtedly, the ruling had direct influence on the decisions of both parties. Particularly, factors pertaining to indemnity and compensation are the most critical. It is in this regard that this paper provides an in depth evaluation of the decision of the principal regarding choice of indemnity upon termination of a commercial agency. This is done in light of the ruling of Semen v Deutsche Tamoil GmbH (C-348/07). To enhance coherence, the paper begins by reviewing the ruling of this case2. In this case, the agent needed to be paid an indemnity by the principal after the contractual relationship was terminated. The bone of contention between parties Blanc Canet v Europcar France [2005] ECC 34 and Smith v Reliance Water Controls Ltd [2003] EWCA Civ 1153; [2003] Eu LR 874 stems from the size of the indemnity that was supposed to be awarded3. In particular, it was not clear whether the methodologies employed in indemnity calculation were in line with the legal provisions4. The court as in Cooper and others v Pure Fishing (UK) Ltd [2004] EWCA 375 held that during the calculations of the indemnity to be awarded to the agent, there was dire need to factor in all the losses that the agent would encounter. Although these are wide and varied as established in Crane v Sky In-House Services Ltd [2007] EWHC 66, they are important in ensuring that justice is served and the respective indemnity is reflective of all the losses that the agent incurs5. This preposition is further supported by Claramoda Ltd v Zoomphase Ltd [2009] EWHC 2857 outcomes6. Undoubtedly, this ruling implies that the value of the indemnity would usually be higher than the expectations of the principal7. As defined in Duffen v Frabo SpA [2000] 1 Lloyds Rep 180, this is because the business relationships that the agent establishes with a host of parties are not only intricate but also numerous8. Also, this is well examined in Douglas King v T Tunnock Ltd [2000] SLT 744. Usually, these relationships seek to ease business operations as well as meet the fundamental goals of the business. In this respect, they aim at optimizing profits and enhancing sustainable growth. To attain this, the agents invest significant resources in terms of money and finances. Although worth appreciating according to Ingmar GB Ltd v Eaton Leonard Ltd [2001] EWHC 3; [2001] Eur LR 755 and Tony Vick v Vogle-Gapes Ltd [2006] EWHC 1579 is the intellectual resource that the agents employ in attaining relative goals9. For this reason, the agents would only be satisfied if all these efforts would be rewarded by the indemnity. Further, the ruling established that the principal would still benefit from the business relationships that were established by the commercial agent. Likewise, this was akin to the findings of Hacket v Advanced Medical Computer Systems Ltd [1999] CLC 160 case10. From an economic point of view, relative benefits would probably increase with time. This is because of the presumption that businesses would probably grow and expand through time. As such, returns or outputs would be more as compared to the time the contractual relationship was terminated. For this reason, Hardie Polymers Ltd v Polymerland Ltd [2001] Scot CS243 believed that it would be fair for the principal to pay an actual price for the relative benefits. Although not in the short term, the respective individual would probably benefit in the long run11. However, the relative Honeyvem Informazioni Commerciali Srl v Mariella de Zotti Case C465-04 [2006] ECRI-02789 also ruled that the benefits to be incorporated in the calculation need to be those from relationships that directly benefit the principal12. In this regard, they need not include the benefits from relationships that the agent established with the larger corporate group and which do not directly benefit the principal. The contentious issue in this case regarding indemnity pertains to the relatively more value that it would cost the principal. At this point, it is worth appreciating that the main aim of any business activity or operation is to optimize profits. In its findings, McQuillan v McCormick [2010] EWHC 1112 argues that paying a higher value for the indemnity implies that the business would suffer detrimental economic implications13. For this reason, the principals are likely to explore other options in future apart from indemnity. Arguably, the findings of Kontogeorgas v Kartonpak AE Case C-104/95 [1996] ECR 1-6643; [1997] CMLR 1093 indicate that businesses that are not well established are likely to be affected the most especially considering that their resource capacity is very low14. In the long run, relative decisions would literarily affect all businesses that are at their initial stages of establishment. Comparatively, their capital tends to be low and their growth and development trends uncertain. From this point of view, King v Tunnock [2000] IRLR 569 believed that affected individuals are unlikely to choose indemnity as their option of compensation15. Besides the indemnity costs, it is worth appreciating that the principal incurs other relative costs that also require sufficient financial resources. These according to the reviews of Lonsdale v Howard & Hallam Ltd [2007] UKHL 32 and Laboratoires Arkopharma SA v Gravier [2003] ECC 333 include damages that are incurred by the agent on various occasions as well as the legal fees that he would require to settle the case16. From this point of view, increasing the value of the indemnity implies that the costs would be more. This is likely to disadvantage the principal especially in cases where the stability and economic growth of the business is uncertain. The preceding preposition was put forth by Tony Vick v Vogle-Gapes Ltd [2006] EWHC 1579 and Page v Combined Shipping and Trading Co Ltd [1997] 3 All ER 65617. In this regard, it is worth acknowledging that the business environment has increasingly become very dynamic as well as volatile. The current economic trends and relative fluctuations have made it difficult for the corporations to predict the growth trends of their businesses. For this reason, the UK principals might find it difficult to opt for indemnity in future. Also worth mentioning are the limiting principles of loyalty and good faith that need to be upheld by the principals. As in Abbott v Condici Ltd [2005] 2 Lloyds Rep 450 and Tony Vick v Vogle-Gapes Ltd [2006] EWHC 157, all the decisions of the principal need to be grounded on the values and virtues of good faith and loyalty18. Essentially, the entire relationship between the agent and the principal should be mutually benefiting. Legally, both parties need to exhibit a high sense of loyalty and good faith. Put differently, relative activities should not be influenced by incidences of malice. At this point, it is worth noting that termination of contractual relationships is in most cases characterized by conflicts. This can be used to explain why such cases are forwarded to the legal experts for review and handling19. In this case, the guiding principles of loyalty and good faith compromise the ability of the principal to explore approaches that could be hurting to the agents20. This prevents the principal from using methodologies that are likely to lower the costs that are associated with the indemnity and the entire legal procedure. Prior review of this option by the principal can make the same to refrain from adopting the indemnity approach altogether21. In some instances, the principal decides to end the contractual relationship because the agent is non-performing. In such cases, the rewards that are gained from the business are relatively lower. Due to the agent’s poor performance, the growth of the business in this respect may also be uncertain22. In such cases, the indemnity that the principal may be required to pay may be higher than the rewards that accrue from the business. Likewise, such instances are likely to discourage the principal and make the same reluctant to pursuing the option in future. The ruling of the Semen v Deutsche Tamoil GmbH [2009] 1 Lloyd’s Rep 653 are guided by important ethical values and principles. Just as in Arcado v Haviland SA Case C-9/87 [1988] ECR 1539, the agent is legally entitled to the true value of the indemnity23. This is particularly in instances where the agent puts in immense efforts to ensure the success of the business. Guided by the principles of loyalty and good faith, the principal needs to pay the indemnity as required by the law. This would go a long way in accrediting his or her worth and credibility. Improvement of corporate image would aid in ensuring sustained economic growth and development24. In sum, the decisions of the law are guided by objectivity and sound thought. Thus although some of the UK principals might never choose the indemnity option in future, this is the most ethical approach of addressing the agent’s concerns in an effective manner. Optimal outcomes in this regard would be attained if the considerations of the principal would equally be addressed accordingly. Bibliography Abbott v Condici Ltd [2005] 2 Lloyds Rep 450 Alex Berry v (1) Laytons and (2) BG Jones [2009] EWHC 1591 Arcado v Haviland SA Case C-9/87 [1988] ECR 1539 Bailey, David. The Vienna Convention: now made in Australia, sells to the World, Law Institute Journal (1985) 198-201. Blanc Canet v Europcar France [2005] ECC 34 Burnett, Robin. Law of International Business Transactions (The Federation Press 1999) Claramoda Ltd v Zoomphase Ltd [2009] EWHC 2857 Crane v Sky In-House Services Ltd [2007] EWHC 66 Corney, Graham. Obligations and Remedies under the 1980 Vienna Sales Convention, Queensland Law Society Journal (1993) 37-58 Cooper and others v Pure Fishing (UK) Ltd [2004] EWCA 375 Douglas King v T Tunnock Ltd [2000] SLT 744; Duffen v Frabo SpA [2000] 1 Lloyds Rep 180 Evans, Annabel . Sale of Goods (Vienna Convention) Act 1987: Legal Issues (1987) 14-15. Felemegas, John. An Interpretation of Article 74 CISG by the U.S. Circuit Court of Appeals, Pace International Law Review, (2003) 91-147. Finn, Paul. The Common Law in the World: The Australian Experience, Centro di studi e ricerche di diritto comparato e straniero; saggi, conferenze e seminari (2001) 1-10 Fisher, G.E. UNCITRAL Gives International Trade law CLOUT, in 21 Australian Business Law Review (1993) Douglas, James Arbitration of the International Sale of Goods Disputes under the Vienna Convention Paper delivered at the Institute of Arbitrator and Mediators Australia National Conference (2006) 62-367 Govey, Ian and Staker, Christopher. Vienna Sales Convention takes effect in Australia next year, Australian Law News (1988) 19-21 Hacket v Advanced Medical Computer Systems Ltd [1999] CLC 160 Hardie Polymers Ltd v Polymerland Ltd [2001] Scot CS243 Honeyvem Informazioni Commerciali Srl v Mariella de Zotti Case C465-04 [2006] ECRI-02789 Ingmar GB Ltd v Eaton Leonard Ltd [2001] EWHC 3; [2001] Eur LR 755 at para 3 Keily, Troy .Good Faith and the Vienna Convention on Contracts for the International Sale of Goods (CISG), 3 Vindobona Journal of International Law and Arbitration. (1999) 15-40. Kennedy, Gerard .The Vienna Convention, An International trap for local players. The Law Institute Journal, Victoria, (1997) 47 -50 Khoury, Daniel. The Statute of Frauds revisited, Law Institute Journal (1990)22-823 Kontogeorgas v Kartonpak AE Case C-104/95 [1996] ECR 1-6643; [1997] CMLR 1093 King v Tunnock [2000] IRLR 569 Laboratoires Arkopharma SA v Gravier [2003] ECC 333 Lonsdale v Howard & Hallam Ltd [2007] UKHL 32 McKenzie v Escada (UK) Ltd [2001] ECC 50 McQuillan v McCormick [2010] EWHC 1112 Magnus, Ulrich. General Principles of UN-Sales Law, International Trade and Business Law Annual, University of  Queensland, (1997) 33-56. Mo, John. International Commercial Law (2nd Edition) (London: Butterworths 2000) Moens Gillies (ed). International Trade and Business: Law, Policy and Ethics (USA: Cavendish Publishing, 2000) Moens, Gabriel; Cohn, Lisa and Peacock, Darren. A new Approach to International Commercial Contracts: The UNIDROIT Principles and International Commercial Contracts - the Australian Experience, International Trade and Business Law Annual, University of Queensland, (2000) 219 – 254. Moore, David. The United States Parol Evidence Rule under the United Nations Convention on Contracts for the International Sale of Goods, International Trade and Business Law Annual, University of Queensland, (1997) 57-80. Moore v Piretta PTA Ltd [1999] 1 All ER 174 Nottage Luke. Who's Afraid of the Vienna Sales Convention (CISG)? A New Zealander's View from Australia and Japan (USA: Cavendish Publishing, 1999) Page v Combined Shipping and Trading Co Ltd [1997] 3 All ER 656 Rosenberg, Mark. The Vienna Convention: Uniformity in Interpretation for Gap-Filling - An Analysis and Application. Australian Business Law Review (1992) 442 – 460 Roth, Marianne and Happ, Richard. Interpretation of the CISG According to Principles of International Law, International Trade and Business Law Annual, University of Queensland, (1999) 1 -12, Sattar, Imtyaz M. The UNIDROIT Principles of International Commercial contracts and the Vienna Sales Convention: Competing or Complementing 'Lex Mercantoria'? International Trade and Business Law Annual, University of Queensland, (1999) 13 -30 Semen v Deutsche Tamoil GmbH [2009] 1 Lloyd’s Rep 653 Smith v Reliance Water Controls Ltd [2003] EWCA Civ 1153; [2003] Eu LR 874 Spagnolo, Lisa. A Glimpse Through the Kaleidoscope: Choices of Law and the CISG, Kaleidoscope Part I, (2009) 135-156 Tigana Ltd v Decoro Ltd [2003] EWHC 23 Tony Vick v Vogle-Gapes Ltd [2006] EWHC 1579 Thomson, Judith. The New Chinese Contracts Law and its Relevance for Sino-Australian Investors, 16 Journal of Contract Law (2000) 254. Van Reesch, Paul. Judicial Consistency and Article 25 of the Convention on the International Sale of Goods, The Australian Law Journal, (2003) 436. Zeller, Bruno. Is the Sale of Goods (Vienna Convention) Act the perfect tool to manage cross border legal risks faced by Australian Firms? E-Law, Murdoch University Electronic Journal of Law, (Sept. 1999) Read More