Can a seller of goods ever be an agent? Whilst the question is a reasonable one given the various arrangements which arise between sellers, distributors and agents, confusingly the answer from a number of reported judgments appears to be no but, no but, yes!
The starting point is the definition of who is a commercial agent which is found in the Commercial Agents Regulations. As such a commercial agent is a self-employed intermediary who has continuing authority to:
- negotiate the sale or purchase of goods on behalf of another person (the “principal”); or
- negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal.
But what does this definition mean in practice? The answer is to be found in three key cases.
The first case concerned the sale of plastic packaging materials.
In this case the courts decided that the party claiming to be a commercial agent was not. But why?
The main reason was that the relationship between the two parties consisted of a simple arrangement of sale and re-sale of goods.
Certainly the lack of a written contract between the parties made matters uncertain. Although the claimant had been prepared to do business with the defendant acting as either a distributor or an agent, the defendant chose to carry on business on the basis of the sale of goods to it by the claimant. These goods were then resold by the defendant to third party consumers. The defendant charged a mark up on the goods and determined the value of the mark up independently.
In the absence of any contractual documentation, the court decided that an arrangement by which an agent is entitled to choose its own mark up on resale of goods to customers is unlikely to constitute a relationship of commercial agency. It followed that the defendant could not be a commercial agent because it negotiated the sale and purchase of goods in its own interest. It did not act or negotiate on behalf of the principal as required by the above definition.
The most recent case of the three concerned jewellery.
In this case the courts decided again that the party claiming to be a commercial agent was not. But why?
Essentially, the facts of this case brought it under the second limb of the definition for a commercial agent. Whilst to be a commercial agent, a party must act or negotiate on behalf of the principal, this does not necessarily mean that every agent acting on behalf of a principal is a commercial agent. This is especially the case if they opt to contract with end customers in their own name.
In this case it was concluded that the claimant could not be a commercial agent because agents with the authority to contract will only be commercial agents if they have the authority to contract (and do contract) in the name of the principal as well as on their behalf. The claimant simply did not do so.
The final case concerned the sale of timber window frames.
In this case the courts decided that the party claiming to be a commercial agent was a commercial agent. So what makes this case different?
This case can be distinguished from the previous two cases. In those prior cases, the fact that there had been no contractual documentation evidencing the relationship between seller, purported ‘agent’ and end customer was key. In contrast the defining feature of this last case was that there was written and contractual evidence of the relationship between the two parties.
The written agreements between the parties used the language of agency. Critically, all contracts with the end customer named the defendant as the seller and the customer as the buyer. The claimant signed the contract on behalf of the defendant, expressly acting as their agent. The claimant therefore contracted on behalf of and in the name of the principal, in addition to acting on their behalf.
The fact that the claimant was remunerated with a mark up instead of commission on sales was not conclusive evidence which disproved commercial agency. The picture painted by the documents was clear and reflected the substance and reality of the relationship. In the absence of any argument that the documents were a sham, the courts decided that their evidential weight could not be ignored.
Take away points:
- There will be no agency where an intermediary sells or purchases goods purely in its own interest.
- A mark-up may be an indication that an arrangement is one of sale and resale instead of agency, but it does not prevent a party from being a commercial agent in the appropriate circumstances.
- A seller of goods can (but will not always) be an agent if it acts or negotiates on behalf of a principal.
- Where a party sells goods and signs contracts with the end customer in the name of and on behalf of a principal, it is likely to be an agent.