Dutch Travel Agents challenge 0% commission contracts

Not so long ago most passengers used to book through travel agencies and airlines used to pay commission to travel agencies. A commission of 9% was not all that uncommon. Unsustainable financial losses by airlines triggered the end of the commission model.

Cutting agents’ commission

By cutting agents’ commission, airlines decrease their dependence on travel agencies as a distribution channel. Reduced commissions have taken place in the United States since 1995, when first commission reductions hit North America: a cap of US$50 on return trips and US$25 on one way. Airlines on other continents followed the example. The idea is that agencies nowadays should add a service fee to the net price.

The Netherlands

This dispute between ANVR (an association of travel agents) and Lufthansa and six other Star Alliance Members was fuelled by a new agency contract that was given to the agents. The new contract very much resembeled a regular agency agreement, but the stipulations with regard to any right for commission for agents were cut out.

Geen commissie voor ANVR-agenten

So, the agent is entitled to booking flights on behalf of the principal, but airlines will no longer have any obligation to pay the agents commission for their activities. As in other jurisdictions agents were evidently unhappy, and here ANVR decided to summon Lufthansa and other Star Alliance Members before the court in a civil procedure.

ANVR substantiated the claim of the agents as follows. The new contract very much resembles the old agency agreement. It includes references to other instruments, like the IATA Passenger Sales Agency Agreement and IATA Resolution 814. Only the clauses regarding the payment of commission have been stricken out.

So the question rises if it is possible to enter into an agency agreement that does not entitle the agent a fair compensation. ANVR argued that the obligation to pay commission to the agent is an essential element of the agency agreement. The law on agency in the Netherlands contains provisions of mandatory law (Article 7:430 DCC), hence a commercial agent is entitled to a reasonable remuneration.

This is a creative line of argumentation.

Defendants pointed the court at Article 6 of EU Council Directive of 18 December 1986 on the coordination of the laws of the Member State relating to self-employed commercial agents (86/653/EEC). Under the Directive the principal is not obliged to renumerate the agent wholly or in part by commission. Defendants also uphold that the Dutch Civil Code does not make it compulsory to pay commission. So zero commission contracts are valid and binding under Dutch Law.

The decision

In a decision dated 7 March 2012 the Haarlem Sub District Court ruled against the Travel Agents. The Court ruled that a zero commission agreement is in fact not an agency agreement as defined in the Dutch Civil Code, as the essential element in the defenition – payment of a compensation to the agent – is missing. So what we have here is a general contract subject to general contract law, and not an agency agreement subject to the special provisions on commercial agency. The result thereof is that the airlines were entitled to opt for a zero commission contract.

ANVR had put forward several more arguments, but all of these arguments were swept away in the final order dated 30 May 2012 by the judge, as mere allegations based on incomplete facts and circumstances. The decision will be welcomed by the Star Alliance and probably also by other airlines. It is not known whether ANVR decided to appeal the decision or not.

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