Module One: Commercial Agents Overview

Estimated reading time: 20 minutes

Module one covers what a commercial agent is and is not, remuneration, Commercial agents regulation and the impact of Brexit, basic duties, commission, conclusion and termination as covered through regulations 2-16 of the Commercial Agents Regulations 1993.

Law of Commercial Agency

We now move on to looking at the law of commercial agency in more detail and here, the most important piece of legislation to have regard to and which we will work through is the Commercial Agents Regulations 1993.  We’ll refer to these as the Regulations throughout.

Regulation 2(1): What is a Commercial Agent?
“A self–employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the “principal”) or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal…”
Regulation 2(1): What is a Commercial Agent?
In accordance with Regulation 2(1) of the Regulations, a commercial agent is defined as a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (known as the “principal”) or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal. I’ll now break that down in more detail:
Regulation 2(1): What is a Commercial Agent?
1. This is a self-employed intermediary and therefore does not include anyone who is employed by the principal (e.g. directors or sales staff) and also does not include insolvency practitioners who may be appointed to sell off certain goods in a distressed situation.
Regulation 2(1): What is a Commercial Agent?
2. Secondly this is someone who has continuing authority and therefore someone who acts an agent in relation to a one off transaction, will not be considered to be a commercial agent for the purposes of the Regulations. practitioners who may be appointed to sell off certain goods in a distressed situation.
Regulation 2(1): What is a Commercial Agent?
3. Note that the agent may be a sales or a purchasing agent so do not fall into the trap of believing that commercial agents are only those who sell goods on your behalf.
Regulation 2(1): What is a Commercial Agent?
4. The Regulations will only apply where the agent is connected with goods and therefore activity connected with the sale or purchase of services falls outside of the remit.
Regulation 2(1): What is a Commercial Agent?
5. Finally, note that as referred to earlier, the sale or purchase of the goods is on behalf of and in the name of the principal and therefore the agent does not make the sale in its own name or right.

Meaning? Raoul Safal v Atelier Bunz GmbH

So what does this mean?  Let’s take a look at some initial case law which has interpreted Regulation 2(1) and provided us with legal precedent in this area.

Remuneration Structure is not Determinative

Another key case is Invicta UK v International Brands Limited where Invicta had been engaged by International Brands to get its wines listed with major retailers and wholesalers. 

 

Claim:

When International Brands terminated the agency contract, Invicta brought a claim under the Regulations for compensation.

Claim

International Brands claimed that Invicta was not a commercial agent, as defined by the Regulations, and Invicta did not have authority to negotiate on its behalf. International Brands asked the Court to assess whether Invicta had authority to negotiate at the time the agency agreement was made.

Ruling:

The Court held that whilst an assessment of whether an agent is a commercial agent within the meaning of the Regulations must focus on the beginning of the relationship, the Court should also look at how the agency operated in practice.

Ruling:

  • The Court concluded that an agent is a commercial agent if transactions were concluded as a result of that agent’s action, including transactions between the principal and the agent’s previously acquired customers and it is not necessary for the agent to negotiate the terms of the transaction.
  • The Court also held that the continuing authority does not have to be exercised; it simply needs to exist and not be withdrawn.

    • Conclusion:

    Invicta UK v International Brands Ltd – wine, retainer commission

    Conclusion:

    In this case, Invicta was engaged to sell goods on behalf of International Brands, and could not do so without authority.

    What About Software?

    Brexit

    We now briefly touch upon the implications of Brexit given that the Regulations are EU law and given that at the time of writing, we still find ourselves within the transition period and no clear details as to the type of Brexit that the United Kingdom is set to experience.  

    What a Commercial Agent is Not

    We now refer back to the Regulations and having established what a commercial agent is, we will now look in more detail at what or who is not a commercial agent.  As mentioned briefly, this does not include a Partner in a Partnership, director or office in the case of a company or LLP or insolvency practitioner in the case of any business.

    Basic Duties:

    Regulations 3, 4 and 5 of the Regulations, deal with the duties of the agent, the principal and the fact that these duties cannot be derogated from respectively.

    Regulations 3-5:
    • Duties of the Agent The duties are common sense in nature, requiring amongst other things, the parties to act in good faith to one another and provide each other with the information that is reasonably required to perform their duties. However, their generic nature means that we would recommend supplementing these duties with contractual terms, making it easier to take action against the agent should he breach those contractual terms for example.
    • Duties of the Principal
    Basic Duties
    • No Derogation
    • Breach of Duties: Breach of the duties is not necessarily a repudiatory breach (Crocs Europe BV v Anderson & another – croc of s### message).
    Crocs Europe BV v Anderson & others
    The importance of this is highlighted when you consider what happened in the case of Crocs Europe BV v Anderson & others. Here, Anderson (the agent) was fed up with some of the poor service levels and supply times of Crocs and posted a derogatory statement on an online message-board amongst other Crocs agents:
    • Crocs became aware of this and claimed that the comments constituted a repudiation of the agency agreement. Crocs therefore disposed of the services of Anderson as an agent.
    Crocs Europe BV v Anderson & others
    • However, Anderson successfully argued that the post was made on a private message-board, amongst only other agents who were of the same view and that there was therefore no damage to the goodwill or reputation of Crocs, such that no duties were breached.
    • Ultimately, the Court held that it was a one off-incident that had not involved bad faith. Given the language used in the message and its derogatory nature, this can be seen as quite harsh on the part of Crocs as it would not be expected that it would want someone holding the views of Anderson to be representing its brand.
    Basic Duties
    • Vital contract terms
    • Barnett Fashion Agency ltd v Nigel Hall Menswear Ltd: Selling rival products: In contrast, the case of Barnett Fashion Agency v Nigel Hall Menswear was an example of the successful removal of an agent for a breach of duty. Here the agent was dismissed for selling rival brand products in its store and a claim for illegitimate termination of the agent’s appointment was dismissed on these grounds. This is just one of three bases on which the agent failed with its claim in this case and we’ll revisit for the other two later on in the session.
    Parties cannot contract out of their duties:
    Whilst we recommend that businesses implement bespoke contracts to bolster the duties and obligations on the agent, thus enabling them to remove them from post more easily, these contracts cannot be used to contract out of the duties set forth by the Regulations.

    Commission

    Conclusion & Termination

    We now move on to looking at the circumstances surrounding termination of the agency relationship and Regulations 13 – 16.

    Module One: Knowledge Test

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