Why the non application of the Commercial Agents Regulations can still be bad news for principals

Unsurprisingly the Commercial Agents Regulations are often viewed as the be all and end all so far as a principal’s relationship with his agent is concerned. But a recent High Court case highlights how short sighted this approach can be.

The case concerned a claim by a terminated agent which had acted for many years as a broker for a Belgian diamond wholesaler. Over the years the agency agreement had been varied. Indeed a critical variation in 1994 provided for the agent to accept a reduction in its commission. In return the agent would continue as the broker of the diamond wholesaler for as long as the wholesaler held a Sight with De Beers (‘the Commission Variation Agreement’). In other words the agency agreement would continue for as long as the diamond wholesaler was able to buy diamonds at wholesale from De Beers. 

Following a change in arrangements by De Beers, the wholesaler terminated the Commission Variation Agreement with immediate effect.

The agent claimed under the Commercial Agents Regulations and at common law. The wholesaler defended the claims.

So far as the Regulations were concerned the wholesaler’s defence was based on two limbs. 

First, that the broker did not have continuing authority to act for the wholesaler. The issue of continuing authority is a key issue in determining whether an agent is a commercial agent for the purpose of the Regulations. 

Both on the facts of the case and established law the wholesaler’s argument were unsuccessful.

Second, the wholesaler claimed that the way in which De Beers sold diamonds wholesale meant that the agent was operating on a commodity exchange or in a commodity market. This was important. Whilst this is the first reported judgement in the English courts on this point, both the Regulations and the European Agents Directive are clear – they do not apply to such an agent. 

As a result, the wholesaler’s argument was successful and the Regulations did not apply to the agent.

However, all was not lost for the agent as on the facts it was also clear that the wholesaler had given immediate notice of termination of the Commission Variation Agreement without any justification. As a result the judge had no hesitation in awarding very substantial damages to the agent for breach of contract at common law.

Take home points

  1. The Regulations apply to commercial agents concerned with the purchase or the sale of goods.
  2. Both the Directive and the Regulations contain exclusions and, as such, in some situations an agent will be excluded from statutory protection.
  3. Where an agent is wrongfully terminated, the principal can face claims under the Regulations and also for damages at common law.
  4. Evidence given at trial should be consistent with what actually happened. In this case the Belgian wholesaler’s evidence was inconsistent with what the judge found to have actually happened!
  5. Providing in the agency agreement for the giving of notice by reference to a specific period of time is likely to be better for a principal than linking the duration of the agreement to an issue over which the principle has no or only partial control. 
  6. Following on from the last 4 reported judgments concerning the Regulations, the judge decided to apply a multiplier of 5 to the agent’s net earnings when determining the amount of damages to be awarded to the agent in respect of the wrongful termination of the Commission Variation Agreement.

In essence it was as if the judge was awarding compensation under the Regulations!

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.
Stephen Sidkin
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