LEEDS DISTRICT REGISTRY
Before:
HIS HONOUR JUDGE BEHRENS
B E T W E E N:
CERASCOPE LIMITED
Claimant
AND
TODAGRES S.A
Defendant
JUDGMENT
Introduction
This is the trial of a preliminary issue ordered by consent on 23rd October 2007. Cerascope Limited (“Cerascope”) acted as a commercial agent for Todagres S.A (“Todagres”). The agreement was terminated by Todagres in January 2005. In November 2006 Cerascope issued proceedings in this court seeking unpaid commission and statutory compensation. It is common ground that the contract is governed by Spanish Law. It is common ground that the limitation period for the statutory claim is one year. Accordingly the claim for statutory compensation is statute barred unless the limitation period has been extended, or “interrupted” to adopt the verb used by the Spanish lawyers.
Cerascope contend that the limitation period has been interrupted as a result of 2 letters that were sent by their Spanish lawyers to Todagres in March 2005 and February 2006. Todagres admit that they have received the letters but deny that, as a matter of Spanish law, the letters were effective to interrupt the running of the limitation period.
The wording of the letters is similar. Todagres concede that if the March 2005 letter was effective to interrupt the limitation period it was further interrupted by the letter of February 2006.
Thus, the preliminary issue requires the Court to determine whether the March 2005 letter was effective under Spanish law to interrupt the running of the limitation period.
Representation
Cerascope was represented by Andrew McGee instructed by Gordons of Leeds. Todagres was represented by Stuart Hornett instructed by Thomas Eggar of Newbury. Both Counsel produced full and clear skeleton arguments.
I was provided with electronic copies of a large number of the documents in the case including English translations of the Spanish authorities relied on. That has made the preparation of this judgment significantly easier.
I am grateful to all concerned for the considerable assistance given to me in this unusual piece of litigation.
Witnesses
The only witnesses to give evidence before me were Lorenzo Barrero for Cerascope and Luis Divar for the Defendant. Both were Spanish Lawyers. Their task was to assist me in making findings of fact as to the relevant Spanish law relevant to the issues that I have to determine.
Lorenzo Barrero is a fully qualified banister-at-law in Spain and, as such, a Member of the College of Lawyers of Madrid. He qualified in Spain in 1968 (Faculty of Law, University of Madrid). He is also a solicitor of the Supreme Court of England and Wales. He was admitted in 1982. Since 1974, he has been working in the UK, mainly dealing with Spanish Law matters and during this time he has dealt with numerous transactions in Spain for English clients. In cross-examination he agreed that he did not practice regularly as an advocate in the Spanish courts.
Luis Divar graduated from law at the Complutense University in Madrid (1992). He dedicated six years to preparing for the judiciary and attended several post-graduate courses on legal practice (2001) and finances (2003).
Mr. Divar has been a Member of the Lawyers' Association of Madrid since 2000, has prepared publications for prestigious Spanish and international legal publications and is a professor at the Master in International Legal Practice offered by IEB-ISDE. He has been a Member of the IABA since 2006.
As an attorney, Mr. Divar has broad experience in all types of litigation and court and arbitration proceedings at a national and international level, particularly in matters of a civil, commercial and criminal nature.
According to Phipson on Evidence (16th ed at 33-57) the function of these expert witnesses is as follows:
To inform the court of the relevant contents of the foreign law identifying statutes or other legislation and explaining where necessary the foreign courts approach to their construction
To identify judgments or other authorities explaining what status they have as sources of the foreign law; and
Where there is no authority directly in point to assist the English judge in making a finding as to what the foreign court’s ruling would be if the issue was to arise there.
The Agreed Facts
For the purpose of the preliminary issue the parties have helpfully agreed the relevant facts.
On 1st January 2004 Cerascope entered into an agency contract with Todagres who were tile manufacturers in Spain. Under the terms of the contract Cerascope agreed to act as Todagres’ agents in specified territories for a fixed term of 3 years. The Agency Contract is governed by Spanish Law.
On 10th January 2005 Todagres terminated the Agency Contract. Todagres contend that Cerascope failed to meet its targets and that they were entitled to terminate under clause 12 of the contract. There is a dispute as to whether Todagres was justified in terminating the contract. It is however agreed that if Todagres were not entitled to terminate the letter of 10th January 2005 was a breach of contract. It is thus agreed that time for limitation purposes begins to run on that date.
On 2nd March 2005 Cerascope’s Spanish lawyers sent Todagres a letter in Spanish. That letter has been translated:
Dear Sirs
Our customer, Cerascope Ltd has given us the documentation relating to the Agency Contract dated 1st Jan 04 that they have agreed in writing with you, and the unilateral decision of stopping it in writing dated 10.01.05.
I understand that such decisions is not in accordance with the agreement in the mentioned contract. Neither is it to the current legality in this matter.
By this letter, I invite you to maintain friendly discussions, to arrive to an agreement in relation with such contract and the decisions taken by you.
If after 5 days of receipt of this letter I receive no news from you, I will understand that it is not in your thoughts or mood to reach an agreement of the type I propose, so I will start immediately the judicial actions that I think I have to take in order to defend the interests that have been given to us, with the consequent increase of expenses and disturbances that all judicial actions have.
On 15th February 2006 Cerascope’s Spanish lawyers sent another letter to Todagres. It set out the text of the letter of 2nd March 2005 in full. It continued (in translation):
Up to the moment the subject has not been resolved. Again within the scale of 5 days I will wait for your answer, to arrive to an agreement. After this time I will start judicial action correspondence.
On 11th September 2006 Cerascope’s English solicitors wrote a formal letter before action to Todagres. The letter set out the details of a claim for unpaid commission, compensation under Directive 86/653 and interest (totalling €50,990.26) plus costs. Proceedings were threatened if payment was not received by 1st October 2006. The letter attached the two letters from the Spanish lawyers. No payment was forthcoming.
On 9th November 2006 Cerascope commenced these proceedings claiming €79,886.57 in respect of unpaid commission and compensation under Directive 86/653.
The Preliminary Issue
The preliminary issue is defined in paragraph 6 of an order made on 23rd October 2007:
Whether the Claimant has lost its right to compensation under Article 17(3) of Directive EC Commercial Agents Directive 86/653 EEC by virtue of its failure to notify the Defendant of a claim within 1 year of the termination of the said agency contract under Article 17(5) and specifically
On the agreed basis that Spanish Law applies:
Is the letter dated 2nd March 2005 from the Claimant’s Spanish lawyers adequate for the purpose of putting the Defendant on notice of a claim under Article 17(5) of the Directive EC Commercial Agents Directive 86/653/ EEC?
Do the letters dated 2nd March 2005 and 15th February 2006 from the Claimant’s Spanish lawyers interrupt and extend the Spanish limitation period under the Spanish Civil Code and applicable case law?
In fact (though nothing turns on it) the definition of the preliminary issue is inaccurate because it refers to the provision of the Directive rather than the relevant provision of Spanish law made under it.
Article 17(5) of the Directive provides:
“17(5) The commercial agent shall lose his entitlement to the indemnity … or compensation … if within one year following the termination of the contract he has not notified the principal that he intends pursuing his entitlement.”
Member States were left to implement the Directive as they saw fit. In England and Wales, this was done through the Commercial Agents (Council Directive) Regulations 1993. In Spain, the Directive was implemented by Law 12/1992 of 27 May 1992 on Agency Contracts (“the 1992 Law”). It is this law which directly applies to the present claim. The equivalent of Article 17(5) in the 1992 Law is Article 31.
The two experts have translated this in slightly different ways:
“31. Action to a claim compensation for goodwill or for damages shall extinguish one year from the termination of the contract”
(per Mr Divar at p.155)
“31. The action to claim the indemnity for clients or the compensation for damages shall lapse after one year following the termination of the contract”
(per Mr Barrero at p.76)
“31. The action to claim compensation for clientele or compensation for damages will be statute –barred one after the termination of the contract”
(per Mr Barrero at p.85)
In addition to the 1992 Law, other sources of Spanish law must be applied. The two potentially relevant Codes are the Spanish Civil Code of 1889 and the Spanish Code of Commerce 1885.
Although Mr Barrero suggests that there may be some doubt over which Code applies (para.6.4) both experts in fact conclude that the Civil Code is applicable. This contains a specific provision, Article 1973, which permits a limitation period to be “interrupted” in one of three ways: court action, an extrajudicial claim and an act of acknowledgement of debt.
Again, the experts have translated Article 1973 in slightly different ways:
“The limitation of action shall be interrupted by the performance of the same before the courts, by out of court action taken by the creditor and by any other act of acknowledgment of debt”
(per Mr Divar at p.155)
“The limitation of actions is interrupted by taking one out before the Courts, by an out of court claim by the creditor or any acknowledgment of the debt by the debtor”
(per Mr Barrero at p.108)
There is common ground between the experts, therefore, that the one year limitation period found in Article 31 of the 1992 Law can in theory be interrupted by an “out of court claim” made by the Claimant against the Defendant.
To my mind there is no significant difference in these translations. Both experts agree that a claim for compensation under Article 31 of the 1992 Law is time barred after 1 year. Both experts agree that the limitation period can be interrupted under Article 1973 of the Civil Code by an out of court claim. The crucial question for the Court is whether the letter of 2nd March 2005 is sufficient to constitute an out of court claim within the meaning of Article 1973 of the Civil Code.
Spanish Authorities
Sources of Spanish Law
According to Mr Barrero
The Spanish Civil Code of 24 July 1889, as amended, has the Napoleonic Code as its direct inspiration. Article Number 1 sets out the general sources of Law as being Law, custom and the general principles of Law. These sources are ranked in that order. The Code states that case Law, i.e. reiterated decisions of the Supreme Court of Spain in interpreting and applying the Law, custom and general principles of Law, shall complement the above mentioned sources. "Reiterated" means more than one decision upon similar facts and reaching the same conclusion. Consequently, judicial decisions are not a source of law as such. They merely serve to interpret and complement the law.
When he gave evidence Mr Barrero explained that there are three tiers of decisions in Spain – Provincial Courts of First Instance, Provincial Courts of Appeal and the Supreme Court. Considerably more weight is given to decisions of the Supreme Court than to those of first instance. If decisions of the Supreme Court are not followed there is likely to be a successful appeal.
Restrictive approach to limitation
According to Mr Barrero the Spanish Courts adopt a restrictive approach to limitation. I was shown a number of authorities that justify this conclusion. Amongst them was the Judgment of Supreme Court of Justice (Civil Court) of November 6, 1987 (Footnote: 1). That case involved a claim for personal injuries following a road traffic accident. Under Spanish law those claims have a short limitation period but one which can be interrupted. The translation of that decision includes the following:
“while admitting the prevailing social interest coursing through the legislation over the use and circulation of motor vehicles, which leads to effective and secure compensation for the damaged party. The conclusion is reached that one should not prejudice the victim with a technically excessive application of the right funded on a rigorous interpretation of the limitation period which, as a figure not founded in intrinsic justice, deserves restrictive treatment. For that reason, it is essential to assess the animus (“the rational soul”) of the victim: the passage of the period should be interrupted when his / her sufficiently will to protect his / her interests becomes clear.”
These authorities led Mr Barrero to submit in his report:
It seems therefore that in order to trigger the application of paragraph 2 of Article 1973 of the Spanish Civil Code, it is necessary to have a notification of the exercise of the relevant rights with the following elements present:
It must refer to the proposed exercise of a right
It must be addressed to the proposed Defendant
It must be made within the statutory period
It must be evidenced in an acceptable way
Mr Barrero submitted that the letter of 2nd March 2005 had all the necessary elements and was thus sufficient to interrupt the limitation period.
Particularity of the claim
Mr Divar did not really challenge the approach of the Spanish Courts and accepted the principle of a restrictive approach to questions of limitation. However he cited a recent Supreme Court decision where the Court has emphasised the need for a formal claim. The decision is dated February 6th 2007 and is referred to as 136/2007 of the Supreme Court.
There was some dispute between the parties of the translation of the judgment. The version provided on behalf of Todagres contained the following:
This Court has found several times that art 1973 of the Civil Code does not stand for an strict interpretation of what must be understood as extra judicial claim on what regards the interruption of the termination and, therefore in the sentence of November 2nd 2005 (RJ 2005, 7619 it was pointed out that our Civil Code in the mentioned art 1973 “does not require any concrete way to file an extra judicial claim as a means to interrupt the prescription and therefore all of them shall be held lawful in order to do so”. It can be said that the above-mentioned issue may present a problem regarding the evidence of fact; that is about the existence of the claim and its date, but not a formal problem. This is the spirit of the judgment found in this court dated on December 6th 1968 (RJ 1968, 5746 (Judgment of the High Court dated November 16th 1998 (sec 1998, 8827). In addition, this court has found in other occasions that the termination /prescription of actions as a means to limit the late exercise of rights to safeguard the juridical safety is not a tenet based on the law itself, and shall therefore be interpreted in a restrictive way (judgment of November 2nd 2005, among others)
Nevertheless, the above mentioned case law does not mean that any communication in which the aim to preserve the right is not clear enough shall be held as an extra judicial claim and therefore interrupt the prescription .The court shall not interrupt the termination of the action when there is a lack of fact in this sense. (Judgment of February 22nd 1991[RJ 1991, 1588]. In judgment found December 6th 1969 it was pointed out that in order to account for what stands in art 1973 of the Civil Code the will of the creditor shall be clearly stated by means of a fact in which he expressly seeks from the debtor the fulfilment of an obligation . It shall not be considered enough the mere manifestation of the existence of a right without the addition of a formal claim addressed to the debtor. From several judgments found in this court, the need to clearly state the will to preserve the right can be drawn (e.g. Judgment of March 10th 1983 sec 1983, 1469 and April 18th 1989 (sect 1989, 3084).
A similar point is made in one of the cases cited by Mr Barrero - 0000622 / 2003 – Provincial Court of Palma
“…the action or claim to generate the interruption to the limitation period must refer precisely to the right covered by the limitation so only the limitation period for the right demanded can be interrupted (Judgements of Supreme Court of Justice of 03/05/1972, 08/03/1975 and 16/11/1985).”
In his opinion Mr Divar does not consider that the letter of 2nd March 2005 was sufficiently precise to interrupt the running of the limitation period. At pages 5 and 6 of his opinion he puts the matter thus:
In its letter of 2 March 2005 Cerascope Ltd. was very vague when indicating that: "... by way of this letter we call upon you to maintain amicable conversations with a view to reaching an agreement in relation to the said contract and the termination you have made of the same".
Based on the literal interpretation of the letter it may be legally upheld, and is sustained by several earlier court judgments, that the agent, Cerascope Ltd., by failing to claim any compensation whatsoever for goodwill, or to determine the necessary criteria for the quantification of the compensation, maintained a voluntary silence in respect of this action, which allows one to assume and defend
In this regard established case law has stressed that, in order for interruption of the limitation of action to be produced in this manner, there must be a sufficiently revealed "intention of the creditor" to require compliance by the debtor with the obligation, the mere external expression of the existence of the right not sufficing where the volitional act of true claim does not exist.
… Existing legal precedents consider that the filing of court claims do not interrupt the extinguishment of the limitation for action when this right of action is not specifically exercised therein. Hence, all the more reason why, as in the case we are dealing with, a simple letter such as that sent by Cerascope Ltd on 2 March 2005, in which it does not exercise its right of action or make a specific claim for compensation for goodwill, may never serve to interrupt the term for limitation of action.
The Letter
I have set out a translation of the letter of 2nd March above. It may be analysed in the following way:
The first paragraph refers to the Agency Contract and to the decision to cancel it on 10th January 2005.
The second paragraph is an allegation that the termination was a breach of contract.
The third paragraph is an invitation to enter into ADR in order to reach a settlement in relation to the breach of contract.
The fourth paragraph gives a time limit of 5 days from the receipt of the letter to enter into mediation. After that the letter threatens
so I will start immediately the judicial actions that I think I have to take in order to defend the interests that have been given to us,
It is to be noted that the letter gives no indication of what proceedings that Cerascope intends to take to defend its interests. There is no reference to damages for breach of contract; there is no reference to statutory compensation or indemnity under the 1992 Law. There is, as Mr Divar points out, simply a vague reference to judicial actions to defend Cerascope’s interests.
As Mr Hornett pointed out there may be many different claims open to Cerascope not all of which had the same limitation period. He pointed out the claim for loss of goodwill was a statutory claim wholly different from the claim for commission. Equally he suggested it might have been open to Cerascope to seek to persuade the Court that the agency still persisted. In those circumstances he submitted that the letter was not sufficient to interrupt the limitation period.
Conclusion
I agree with the submissions of Mr Hornett. I find as a fact that in order to interrupt the running of the limitation period under Spanish Law by extra judicial act it is necessary that the extra judicial act relied on puts the Defendant on notice of the nature of the claim which is sought to be interrupted. It may not need to be set out in detail but the Defendant must at least (in a situation such as this) be informed that he is facing a claim for compensation for loss of goodwill.
In my view the letter of 2nd March 2005 failed to make clear that a claim for statutory compensation or indemnity under the 1992 law was being made. It follows that the limitation period specified in Article 31 of the 1992 law was not interrupted and the claim for compensation under the 1992 law is statute barred.