When can the Commercial Agents Regulations be applied and what are the implications?

Lessons from the recent judgement in Green Deal Marketing Southern Limited (“GDM”) v Economy Energy Trading Limited (“EE”). 

In previous issues of agentlaw news, we have discussed certain parts of the recent judgment in Green Deal Marketing Southern Limited (“GDM”) v Economy Energy Trading Limited (“EE”).

Having decided that the heads of terms agreed between the parties formed the new contract governing the parties’ relationship (see here) and that the termination by EE of the contract amounted to a repudiatory breach which GDM could accept (see here), the judge then went on to decide whether the Commercial Agents Regulations applied to the relationship.

In a situation where the principal is facing a claim for compensation under the Regulations, it is understandable that the principal should seek to try to argue that the Regulations do not apply to the relationship – and this is what EE tried to do.

For the Regulations to apply to the relationship between principal and agent there must be a continuing authority for the commercial agent to negotiate the sale or purchase of goods on behalf of the principal. However, the Regulations do not apply to agents whose activities in relation to the goods are secondary to the purpose of the relationship between the agent and principal.

First, EE tried to argue that electricity was not “goods” for the purposes of the Regulations – this was a bad argument. The case law that electricity is goods for the purpose of the Regulations is well established. The judge’s most recent example of when electricity was considered goods for the purposes of the Regulations was in the Court of Appeal decision of Computer Associates Ltd v The Software Incubator Limited (see here) which confirmed that gas and electricity were both goods.

EE then went on to try and exclude the Regulations by arguing that GDM’s activities in selling the electricity were secondary to the purpose of the relationship between agent and principal – again this looked to be a difficult argument to pursue given the facts.

The judge concluded that GDM’s activities in selling the electricity was not secondary to the purpose of the relationship due to the wide interpretation of the meaning of “negotiate” under the Regulations. The judge decided that under the Regulations an agent could be “negotiating” the sale of electricity, even if the agent did not have the ability to change the pricing of the electricity or change the terms of the contract with the consumer. Instead the judge decided that GDM had been “negotiating” the sale of the electricity by persuading consumers to switch to the principal’s services and place an order at the prices set by the principal. Again, the judge noted that this decision was supported by existing case law.

Having decided that the Regulations applied to the relationship between the parties the judge had to decide whether GDM was entitled to compensation for termination of the contract.

The purpose of compensation is to ensure that the commercial agent is compensated for the damage he suffers as a result of the termination of his relations with his principal. The damage which is considered is the deprivation of commission which the proper performance of the contract would have procured for the agent or the ability for the agent to recoup costs and expenses incurred in the performance of the contract on the advice of the principal.

The judge decided that GDM was entitled to compensation under the Regulations as the termination was attributable to EE’s renunciation of its obligations under the contract.

However, the judge did note that had he decided differently that EE was entitled to end the contract due to the breach by GDM (see here), then he may have come to a different conclusion. 

This is because, following an earlier decision of the European Court, the court relied on the principle that the exception to compensation being payable under the Regulations should be interpreted strictly, as it had been intended that there be a direct causal link between the default attributable to the agent and the principal’s decision to terminate the contract which would result in depriving the agent of the compensation.

Had the judge considered that the principal had terminated the contract “because of” the default by GDM for mis-selling then compensation would have been excluded by the Regulations because there was a link between GDM’s mis-selling, the consequences of which were the attraction of Ofgem’s attention leading to the termination of the contract by EE.

Take home points?

  1. “Negotiating” the sale of goods can entail facilitating customers to making a purchase, even if the agent cannot change the terms of the sales contract.
  2. For compensation to be excluded under the Regulations when a contract is terminated the principal must have terminated the contract because of an act by the agent.
  3. Compensation will not be excluded if the principal terminated the contract prior to knowing about the agent’s breach of contract or terminated for a reason other than a direct response to the breach of the contract by the agent.
Stephen Sidkin
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Imogen Bull
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