This case highlights the importance of making sure that your activities are properly that of an agent or principle, if that is your intention.
Mr Sagal entered into an agreement with Bunz whereby Mr Sagal would procure sales of Bunz jewellery in the UK. There was never a written agreement between the parties but it was agreed that the sales process would occur as follows:
- Mr Sagal would take orders from UK customers and fax them to Bunz in Germany.
- Bunz would then deliver the jewellery to Mr Sagal and invoice him at 20% less than its wholesale price.
- Mr Sagal would deliver the jewellery to the customers and invoice them with his own “Bunz UK” invoice, which included about a 30% mark up on Bunz Germany’s invoice price.
- Mr Sagal’s customers had 30 days to pay him, whilst Bunz Germany’s invoices were payable in 60 days (thus affording Mr Sagal a very comfortable cash flow position).
When the relationship came to and end in 2005 Mr Sagal sought compensation under the Commercial Agents (Council Directive) Regulations 1993 (the “Regulations”).
Bunz argued that Mr Sagal was not a commercial agent within the definition of the Regulations and therefore was not entitled to make any claims under the Regulations. Bunz was successful with this argument in the court of first instance but Mr Sagal appealed.
In deciding whether Mr Sagal was or was not a commercial agent, the Court of Appeal looked very closely at how the business was conducted in practice. It looked firstly at the transaction process, as described above, and in particular the fact that Sagal sent documents to his UK customers in his own name (“Bunz UK”).
The Court also considered a number of other factors which made the position less clear, for example:
- Bunz provided Sagal with a “sample lines” which it insured at its own cost
- Mr Sagal never held any stock of his own
- Mr Sagal never deviated from a fixed mark up of about 30% on Bunz prices
- Bunz always dealt with returns and repairs
Having weighed up all the evidence the Court decided that Mr Sagal was not a commercial agent. It reached this conclusion primarily on the basis that, assessing all of the facts as a whole, it could not be said that he had authority to negotiate or contract on behalf on Bunz, which is a clear requirement under the definition of a commercial agent in Regulation 1(2).
What can we learn from this?
1. Pay close attention to how you operate and make sure it complies with the requirements of agent or principle (if that is the intention). Although there was a great deal of conflicting evidence, a major factor against Mr Sagal was that he did not contract with his UK customers in the name of Bunz Germany but in his own name.
2. Be sure to enter into a written agreement at the outset. This dispute was made a lot more difficult and costly for both parties because there was never a written agreement to refer to. As a result, considerable time and money had to be spent on working out what the terms of the (oral) agreement were. This led to uncertainty all round and eventually a lengthy trial. It is possible that the absence of a clear written agreement was the cause of the dispute in the first place as each party had a different understanding of the legal nature of their activities.
3. The line between agent and independent party is sometimes blurred and difficult to determine. Given that Sagal always followed a fixed mark up on Bunz prices, it seems all he had to do was change the way some of his paperwork was done (which would have made no difference to him commercially or in terms of what he had to do day to day in securing orders) and he would probably have been treated as a commercial agent and thus entitled to a substantial payout on termination.
Case summary by Rod Dykins, a senior Associate in the Agentlaw team