By any other name

Lawyers advising agents or principals on the application of the Commercial Agents (Council Directive) Regulations 1993 will be aware of the need to keep up to date with case law in this area. Although the regulations have been in force since the mid-1990s, they are regularly being interpreted by the courts.

In general terms, the regulations provide protection for most agents who have been appointed to negotiate or conclude the sale or purchase of goods on behalf of a principal. The regulations imply specific terms to a contract between a commercial agent and a principal that cannot be contracted out of and are particularly notorious for their compensation provisions on termination. Whenever a client is appointing an agent to sell or market goods in the UK (or elsewhere in Europe) or a client is being appointed as an agent, the impact of the regulations or any similar regulations in Europe should be considered.

Two recent cases build on earlier case law decisions concerning who is and is not a commercial agent and highlight the limits of the regulations and also their potential breadth.

In the recent case of Raoul Sagal (t/a Bunz UK) v Atelier Bunz [2009], the Court of Appeal looked at whether Sagal was a commercial agent under the regulations and should be afforded protection under the regulations. The case centred on whether a commercial agent who contracted in his own name and not the principal's name could ever be a commercial agent under the regulations.

The facts of the case were significant. Sagal had a jewellery business and supplied jewellery designed and manufactured by Atelier Bunz to customers in the UK. Sagal did not hold Bunz stock but placed an order with Bunz when he had one from a customer. He bought from Bunz at a 20% discount to its wholesale prices and sent his own invoice to UK customers in his own trading name. He also pursued customers for non-payment in his own trading name.

Bunz argued that Sagal contracted with his customers directly and not on behalf of Bunz, so was not a commercial agent under the regulations (indeed he was not an 'agent' at all). The Court of Appeal agreed. They held that commercial agents that had authority to conclude contracts for goods for a principal were only commercial agents if they had authority to conclude such contracts in the principal's name.

Lessons learnt

Although parties may refer to a relationship as one of agency, and some aspects of it may have some agency characteristics (eg lack of risk on the part of the agent), the courts will look at the substance of the transactions taking place. If the so-called agent is in reality contracting on its own account, in its own name, it will be treated as an independent re-seller, outside the scope of the regulations. This may be helpful to a principal as far as the regulations are concerned, but will also mean that it will not normally be legitimate to put further controls on the agent's dealings with customers - notably any attempting to control pricing. It is therefore important to be clear what the commercial objectives are before deciding to try and fall outside of the regulations.

The decision in the Sagal case can be contrasted with the decision in Nigel Fryer Joinery Services & Nigel Fryer v Ian Firth Hardware [2008] which also looked at whether an agent was a commercial agent under the regulations. The case focused on whether Fryer (the agent) had authority to negotiate because he always had to go back to the principal's head office to confirm every aspect of a sale such as the price before a contract was concluded. Despite Ian Firth Hardware's arguments, the court decided that he did have authority to negotiate and was afforded protection under the regulations.

The decision confirms that the courts will often seek to apply the regulations and protect the position of agents, even when their role is very limited - particularly where there is no negotiation in the commercial sense. Although principals can increase the level of an agent's role to circumvent the regulations (i.e. by getting agents to contract in the agents name), they are unlikely to have such success and circumvent the regulations by reducing an agent's role. Even if agents are mere introducers, simply locating end customers for a principal to negotiate and contract with, it may be safer for lawyers to assume that they have authority to negotiate and fall within the regulations.

Overall, the decisions in these two cases confirm that lawyers must think carefully about the possible application of the regulations even where the agent does not have an obvious negotiating or contracting role. Lawyers should consider the implications of the regulations when advising clients on marketing and referral arrangements which may not obviously appear to be designated as sales agencies.

Beverley Whittaker is a partner and Victoria Pope is an associate in the commercial department at Stevens and Bolton.