Are commercial agents selling services protected under English law?
Written by Jane Elliot29 April 10
It may come as a surprise to learn that the Commercial Agents Regulations do not cover all agency agreements. They apply only to agreements where the agent is a “commercial agent”. A commercial agent is defined as:
“a self-employed intermediary who has continuing authority to negotiate the sale and purchase of goods on behalf of another person (“the principal”), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal”
The definition of a commercial agent refers to the sale of “goods” and not the sale of services. This means that an agent who sells services is not entitled to the substantial rights and protections contained in the Regulations.
However, the Regulations do not define goods. In 1994 the then Department of Trade and Industry published a set of guidance notes to the Regulations. These notes, which do not have legal authority, state that the term “goods” should be interpreted in accordance with the EC Treaty and suggest that the definition contained in the Sale of Goods Act 1979 might offer a reasonable guide.
However, the EC Treaty does not provide a definition of goods. Instead, services are defined as being concerned with those matters which are not governed by the Treaty provisions relating to the free movement of goods! Further, the statutory definition of “goods” for the purposes of the Sale of Goods Act does not extend to services.
The Pace Airlines decision
The issue of what are “goods” for the purposes of the Regulations was considered in a decision of the English High Court in 1998. Ukraine International Airlines (“UIA”) had appointed Pace Airline Services as its general cargo agent. Pace appointed a German company, Aerotrans, as its sub-agent in Germany to market cargo space on UIA flights on Pace's behalf.
When the parties fell out, Pace sought to recover monies due to it under unpaid invoices. In its defence, Aerotrans claimed that it was an agent under the Regulations and so was entitled to compensation on termination. Pace asserted that the Regulations did not apply, on the basis that (amongst other things) the sale of cargo space was not the sale “goods” within the meaning of the Regulations.
The judgment given in the High Court referred to the need to interpret “goods” in accordance with the EC Treaty. However, the issue was not progressed from this point. What is clear from the judgment was that the Court was not convinced that the sale of cargo space could not be goods for the purpose of the Regulations. Accordingly the judge referred a number of questions to the European Court of Justice. (However, the case did not proceed further as the parties are understood to have settled the matter out of court.)
Although the High Court did not rule on the issue, the judge took the view that “goods” in the Regulations should be interpreted widely and that the definition may be wide enough to encompass the sale of cargo space.
Products which are particularly difficult to classify
Certain products are particularly difficult to classify as either “goods” or “services.” For example, the sale of software products has divided opinion on this issue. For the purposes of the Sale of Goods Act, it has been established that:
• when software is sold with the medium on which it is stored (for example, where a program is delivered on a disk), the transaction is a sale of “goods”; and
• when the medium is not included in the sale of software (for example, where the supplier loads the program onto the customer's computer from a medium retained by the supplier), the transaction is a supply of services.
It would seem to follow that where software is purchased over the internet and downloaded straight into the recipient computer's memory (instead of being sent to the customer on a disk) that the transaction is a supply of services rather than a sale of goods.
An agent involved in the promotion and sale of software products should therefore look closely at the means by which the product is sold to customers. If it is to be concluded that the sale of software constitutes a supply of services, then the agent will be unable to enjoy the rights and protections granted to agents by the Regulations.
Similarly, determining whether or not the sale of gas and electricity products is a sale of goods has caused controversy. The most recent case to consider this issue in the context of the Regulations involved the Court ruling on the sale of electricity. The Court looked at the previous cases on this question and found that there was no persuasive authority to follow. However, it concluded that electricity was more closely analogous to goods than to services.
Following on from this, it is possible that gas could more easily be classified as goods than electricity. This is because, unlike electricity, gas can be captured, stored and transported from one location to another, in pipes or airtight containers.
The position elsewhere within the European Union
It should be noted that in a number of other member states of the European Union, the national commercial agency laws equivalent to the Regulations apply to agents involved in the sale of both goods and services.
Mixed agencies
The Regulations exclude certain categories of persons from the definition of commercial agent. These include a person whose activities as a commercial agent are to be considered “secondary.” This means that an agent whose activities as a commercial agent are to be considered to be secondary cannot claim the benefit of the Regulations. This is the case even though some of the agent's activities constitute those of commercial agency for the purposes of the Regulations.
Given that only agents involved in the sale of goods are commercial agents for the purposes of the Regulations, agents who sell both goods and services should take care. For example, an agent appointed for the promotion and sale of, say, washing machines is clearly involved in the sale of goods. If the same agent is also appointed to promote and sell certain ‘after sales’ services (for example, installation and repair services) in respect of the washing machines, the agent risks losing the protection of the Regulations because he will be involved in the sale of both goods and services. If the part of the agency dealing with the sale of goods can be considered secondary, then the agent will lose the protection of the Regulations in respect of the entire agency.
Agents involved in ‘mixed’ agencies, such as the one mentioned above, would be well advised to enter into two separate written agency agreements; one in respect of the goods and the other in respect of the services. Proceeding in this way will assist the agent to argue that the Regulations apply to the agency agreement which relates to the sale of goods and makes it more difficult for the principal to make out a secondary activities defence. The agent’s position would be further strengthened if each agency agreement were to be entered into and performed by a separate entity (for example, two sister companies) set up by the agent.
© Fox Williams LLP 2010