Mr Gailey was engaged by Environmental Waste Controls, suppliers of waste compaction and handling equipment, to procure sales of such equipment in return for commission at a rate of 50 per cent. of such sales. Approximately five years later, Environmental Waste Controls gave Mr Gailey notice of termination of the agreement with immediate effect. Mr Gailey claimed against Environmental Waste Controls for commission on contracts which he procured during the agency agreement and compensation resulting from the termination of the agreement on the basis that he was a commercial agent for the purposes of the Commercial Agents (Council Directive) Regulations (“the Regulations”).

The Outer House of the Scots Court of Session upheld Mr Gailey’s claim for commission in respect of certain contracts and dismissed Mr Gailey’s claim for commission in respect of other contracts.

In respect of his claim for compensation under the Regulations, the Court considered the issue of secondary activities. The judge highlighted the need to determine whether the primary purpose of the relationship between the parties fell within paragraph 2 of the Schedule to the Regulations. He emphasized that the notion of goodwill is fundamental to the structure of the Schedule. He considered that paragraph 2(b)(ii) of the Schedule was a requirement that goodwill should attach to the sale of the goods in question and that it was not met in this case. Paragraph 2(b)(ii) provides that procuring a transaction on one occasion is likely to lead to further transactions in those goods with that customer on future occasions, or to transactions in those goods with other customers in the same geographical area or among the same group of customers.

In view of the significance of the issue of goodwill, the Court decided that the failure of the goods in question to meet paragraph 2(b)(ii) was significant.

The judge decided that the goods were not identified with the principal (who was the distributor of the goods) but instead with the manufacturer of the goods. The fact that this factor was not met was also considered significant because he considered that paragraphs 3(a) and 3(b) of the Schedule related to the way in which a principal benefits from the goodwill that attaches to the goods.

Having applied the provisions of the Schedule to the facts of the case, the Court found that Mr Gailey’s activities as a commercial agent were to be considered secondary for the purposes of the Regulations. As such, he was not entitled to any compensation as a result of the termination of his agency agreement.

We understand that Mr Gailey took steps to appeal the decision of the Outer House but that the appeal never took place because the parties were able to settle the matter out of court

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

Written by Jane Elliot

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