Where an agent cannot vary prices or other terms (for example, delivery dates) so as to obtain an order, does that mean that the agent is not a commercial agent so far as the law is concerned?
The question might seem innocent. However, it is at the heart of who or what is a commercial agent as a judgment of the European Court of Justice last month made clear.
This judgment is also important in determining for both the European Union and the UK that simply because the agent:
- acts as an introducer of customers to the principal; or
- provides a conduit or channel between principal and customer,
will not affect the agent’s status as a commercial agent in law – despite the fact that a commercial agent is defined in the Commercial Agents Regulations and the European Agents Directive as being a self- employed intermediary having continuing authority to negotiate the sale or purchase of goods.
A French company, Trendsetteuse, had acted as an agent of another French company, DCA, since 2003 in respect of DCA’s IZI-MI clothing and jewellery brand through most of France. But in 2016, DCA notified Trendsetteuse that as sales in southern France were insufficient, it was terminating the contract in respect of that part of the contractual territory. In effect, a unilateral variation by DCA.
Unsurprisingly, Trendsetteuse did not accept the situation – not least as southern France accounted for half of its turnover. It claimed compensation before the Paris Commercial Court.
DCA’s defence was straightforward – Trendsetteuse was not a commercial agent as Trendsetteuse could not change the contractual terms (in particular, the prices set by DCA) when seeking orders from customers.
Some French law and some English law
The Paris court sought a preliminary ruling from the European Court. Essentially, that was because the French Supreme Court had previously decided that as a matter of French law an agent could not be a commercial agent if the agent could not change the contractual terms, including prices, when seeking orders from customers.
It is, however, the case that in 1998 the English Court of Appeal decided that the concept of “negotiating” in the Regulations and the Directive did not require a process of bargaining in the sense of haggling as to prices or other terms. Instead, to take the definition of the Oxford English Dictionary negotiate meant to deal with or manage the relationship with customers on behalf of the principal – in essence to serve as a conduit or channel between the principal and customers.
The European Court’s judgment
The European Court drew attention to the definition of a commercial agent and its three key parts, namely –
- an agent must be independent and not an employee;
- the authority granted to the agent must be continuous and not, for example, ad hoc;
- the agent must be able to negotiate.
In respect of the ability of the agent to negotiate, the European Court drew attention to a specific obligation of a commercial agent under the Directive, namely to look after the interest of the agent’s principal.
One particular way that this is to be achieved is by the agent making proper efforts to negotiate the sales for which the agent is responsible. But, the fact that an agent does not have the right under the agency contract to vary the prices of goods when seeking orders from customers does not prevent the agent from being a commercial agent for the purposes of the Directive.
The European Court went on to express the view that if an agent which did not have authority to vary prices was to be considered as not being a commercial agent, this would be contrary to the objective of the Directive.
Put another way, to interpret “negotiate” as meaning that an agent who could not vary the prices charged for goods was not a commercial agent, would allow principals to circumvent the protection given by the Directive to agents.
Take home points
- The European Court’s judgment is clear – a principal cannot circumvent the protection given by law to agents simply by prohibiting agents from varying the prices of goods or other contractual terms when seeking orders from customers.
- Despite this, it is the case that there are certain ways in which a principal can limit – and in some cases exclude – its liability to the agent for compensation (or indemnity) under both English law, EU law and the laws of other countries.
- As many businesses look to a post-Covid-19 future – with employee costs likely to increase as furlough tails off – using commercial agents in place of employed sales representatives can provide a good way forward for many businesses.