Written by Steve Sidkin
1 November 99

It is possible to compare the Commercial Agents Regulations to Gruyère. Despite the fact that the Regulations closely track the European Self-employed Agents Directive that they implement, many holes remain as to how the Regulations are to be interpreted.

The fact that this is down to the vague, general language of the Directive is incontestable. The fact that the DTI chose simply to ignore the opportunity to close the holes is beyond pity.

In recent months, however, some of the holes have started to be closed as a result of decisions in the English courts and amending Regulations made shortly before last Christmas. The holes in question are the geographical extent of the Regulations, the application of the Regulations to sub-contractors and as to what are “goods”.

In a situation where an agent acts for an American furniture company, will the Regulations apply? Although the industry was in fact different, this was the issue before the Court of Appeal last Summer where an agency contract provided for it to be governed by Californian law. As this law is not especially agent-friendly, this would have left the terminated agent without the protection given by the Regulations. It called into question the ability of principals to avoid the Regulations by choosing a law of a country or state situated outside the European Economic Area.

The Court of Appeal had its doubts. It referred the case to the European Court of Justice and whichever way it decides is bound to have an impact.

A few months later there was another case. The English general cargo agent of Ukraine International Airlines had an agreement with a German company under which it was to market cargo space on UIA flights as the English company’s general cargo sales agent throughout Germany (other than Berlin). Accordingly the German company would act as the sub-agent of the English agent.

Following termination a dispute arose.

The English company claimed it was owed £155,000 by way of unpaid invoices. The German company’s defence was that as a sub-agent it was protected by the Regulations. It claimed compensation in excess of £53,000.

Before this case it had been the situation that the Regulations governed the relations between principals and agents and applied in relation to the activities of agents in Great Britain. As such an agent in, for example, France under an agreement subject to English law would not be protected by the Regulations. Nor would he have the benefit of French law as English law governed the agreement.

This particular hole has been closed in two ways. First, by this case as again the English court referred it to the European Court of Justice. Second, with the coming into effect of amending Regulations just before Christmas 1998. As a result the Commercial Agents Regulations will apply to an agent outside Britain but within the European Economic Area if English law is chosen by the parties and this is permitted by the country where the agent performs the agency agreement.

Two further questions were referred in this case. Each in its own way is worthy of note.

The first concerned the objective of the sub-agent’s activities. This was to sell freight or cargo space. But in order to be an agent under the Regulations it is necessary that orders be obtained for the sale or purchase of goods. How can it be the case that freight or cargo space can be goods when what is being provided is a service?

The second question was as to the agent’s status. Can it be the case that the Regulations cover sub-agency agreements? Again it seems difficult as to how this can be insofar as the Regulations requires the agent to act on behalf of the principal in respect of the sale or purchase of goods. But in a sub-agency situation the agent (standing in the position of principle to the sub-agent’s agent) does not own the goods. As such whatever action is taken by the sub-agent should be insufficient for the purpose of the Regulations.

If the European Court of Justice should decide that freight or cargo space can be goods or that the European Directive applies to sub-agents or both, the implications will be extremely far-reaching. Either way this piece of Gruyère will not taste the same again.

This briefing note is for general information. For advice in applying this general information to your specific circumstances, please contact Stephen Sidkin or any member of the Fox Williams’ agentlaw team.(www.agentlaw.co.uk)

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