Written by Steve Sidkin
1 November 00

When an agency agreement is terminated the parties to it will want to know if the Commercial Agents Regulations 1993 apply. This involves examining whether the agent is a commercial agent. In order to come within the Regulations, the agent must have “continuing authority to negotiate”.

It is likely that following a recent decision of the Scots Court of Session a wide interpretation will be given to “negotiate”. This is despite the fact that the Court of Session noted that it had not been argued whether the appellant was a commercial agent!

But the effect of giving a wide meaning to “negotiate” is likely simply to lead to the question of whether the agent’s activities were secondary for the purpose of the Regulations. The reason for this is that the Regulations do not apply to a person whose activities as a commercial agent are to be considered secondary. Unfortunately if activities are to be considered secondary is determined by the provisions of the schedule to the Regulations.

In drafting the Regulations, the Department of Trade and Industry adopted the copy-out technique. As a result the substantive provisions of the Regulations follow almost word for word the English language version of the European Self-employed Agents Directive which they implement. But in respect of the issue of “secondary activities” the DTI was forced to abandon the copy-out technique as the Directive provides no guidance on this issue. The result is that the schedule contains provisions which seem at odds with their purpose. It is no wonder that confusion abounds.

The most recent attempt to resolve this issue came in an English High Court case a few months ago. The claimants in this case had been appointed by the defendant to try and persuade existing British Gas customers to sign up with the defendant gas supplier for their future requirements for natural gas. In response to claims brought following their termination, the defendant argued that the claimants’ activities had been “secondary”. As such, they were not entitled to the rights and protections given by the Regulations.

If the defendant was to succeed it had to show that the goods (gas) sold by it were not goods of a particular kind. Furthermore, it was necessary that the transactions concerning its goods were not individually negotiated and concluded on a commercial basis. In addition the defendant would have to show that if an agent procured a transaction on one occasion that it was unlikely to lead to further transactions in the same 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.

The defendant failed to satisfy these requirements. The Court pointed to the branding and marketing of the gas which was such as to make it goods of a particular kind. The Court also decided that procuring a transaction on one occasion was likely to lead to further transactions with other customers. However, there was no express judgment given on the question of whether the gas was such that contracts were normally individually negotiated and concluded on a commercial basis. On the other hand there was a statement that the agent was involved in “selling” the gas offered by the defendant.

The Schedule to the Regulations is organised in such a way that certain indications determine whether an agent’s activities are to be considered secondary. To his credit, the judge considered on an individual basis each of the indications. This led him to conclude that the activities in question were not secondary.

Unfortunately the fact that the judge concluded that there was no easily recognisable way of measuring whether activities are secondary does not help resolve the problems caused by the Schedule. In the view of the judge, the contrast was simply between agents who are covered and those who are not. Indeed it was clear to him that what Parliament had done was to ask the Court to inquire into the primary purpose of the agency agreement. That purpose is to be judged by reference to certain criteria set out in the schedule.

In view of the uncertainties contained in the language of such criteria, this is an unsatisfactory judgment. It was an approach criticised (although accepted given the language of the Regulations) a few months previously by the Court of Appeal in another case. The Court of Appeal pointed out that the Schedule seemed to contemplate an assessment of the agent’s arrangement with a particular principal. However, it pointed out that this was probably unintentional by reference to the guidance notes issued in September 1994 by the DTI. These guidance notes made it clear that the comparison to be made is between the agent’s activities as a commercial agent and his other activities and not his relationship with the principal. For the Court of Appeal, therefore, the correct assessment should be one of the activities of the agent as “a commercial agent” as compared with his other activities. Put another way, it should not be the objective of the Regulations that consideration is given to the relationship between the agent and the particular principal. As the Court of Appeal put it, “the right answer must be to clarify the matter as soon as possible.”

Unfortunately the DTI has no plans at present to clarity the matter. As such the recent decision of the High Court represents a step made backwards.

Whether this will lead principals to consider the desirability of using agents remains to be seen. There are alternatives in the form of employees and distributors, although there are disadvantages attaching to both. As such, for some suppliers, agents may still be the best route forward. But this should be on the basis that care is taken when engaging as well as terminating agents so as to reduce the rights and protections given to agents by the Regulations.

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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