This case concerns an appeal by Ty Europe Limited (“Ty”) from a High Court decision of Judge McGonigal concerning the status of sub-agents. The questions which arose were whether a sub-agent of a principal, who has no contractual relationship with the principal, has a right to compensation against the principal. The second question was whether an agency contract for a fixed term “terminates” at the end of the term so as to give the agent a right to compensation. Judge McGonigal answered both of these questions in the affirmative and found that the claimants were Ty’s agents within the meaning of the Regulations and were, accordingly entitled to compensation.

Ty designed and manufactured cuddly toys. Ty entered into a selling rights agreement with Swallow Corporation Sales Ltd (“Swallow”) having become dissatisfied with its previous distributor. Pursuant to the agreement with Swallow, Swallow sold Ty products on commission and was required to promote and sell the products on terms and conditions and at prices established by Ty. Ty had an absolute right to decline or cancel orders.

Some of the claimants worked for Ty UK Limited, a company partly owned by Mr Swallow, as self- employed sales agents under contracts which could be terminated on notice. With effect from 1 June 1997, those claimants entered into sales agency contracts with Swallow. Those agreements were then superseded by ones which took effect from 1 June 1998. Each of the claimants entered into one or other of those agreements which were on similar terms. The earlier agreement provided that it was to remain in effect until Swallow ceased to be the sole agent and the later agreement provided that it was to remain in effect until 31 May 2000.

The sales agency agreements recited that Swallow was the sole authorised agent of Ty for the sale of its products. The agent was to make every reasonable effort to promote and sell the products in his territory and on terms and conditions and at prices established by Swallow. Commission was payable at the rate of 10%.

The Court of Appeal held that the sub-agents were not entitled to claim compensation under Regulation 8 as the Regulations only applied to a commercial agent who was contractually bound to the principal. It was held that the substantial rights and obligations laid down in the Regulations were only intended for those in a contractual relationship. The Regulations assumed the necessity for a contract and it was clear that, to obtain the benefit of the protection of the Regulations, the commercial agent must be entitled to remuneration for his services from the principal. For that purpose there must be a direct legal contractual relationship between the principal and the commercial agent. In the present case there existed no such legal relationship between the claimants and Ty and therefore the claimants were not entitled to compensation under 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 members of the Fox Williams’ agentlaw team. (www.agentlaw.co.uk).

Written by Sarah Pooley

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