By Edward Hoare
The Commercial Agents (Council Directive) Regulations 1993 (as amended) confer substantial rights on agents in Great Britain. The Regulations implement EU Directive 86/653 which aims to harmonise the laws of EU member states by providing commercial agents with a minimum level of protection and security.
This article outlines some of the key rights and protections available to agents under the Regulations.
WHAT IS A "COMMERCIAL AGENT"?
Definition
A commercial agent is defined in the Regulations as a person:-
"who is a self-employed intermediary having continuing authority to negotiate the sale or purchase of goods (but not services) on behalf of his principal or to negotiate and conclude such transactions on behalf of and in the name of his principal ..."
The Regulations apply both to companies and individuals acting as agents. Certain categories of agent are excluded including: commodity agents, unpaid agents and "secondary" agents, i.e. those who in general carry on the business of buying and selling on their own account and only act as agents to a limited extent as a subsidiary activity. The Schedule to the Regulations provides examples of activities which are considered to be secondary.
Agents who promote the sale of services are also outside the scope of the Regulations, e.g. advertising agents and insurance agents.
Jurisdiction
The Regulations apply to all agreements with commercial agents who carry on their activities in Great Britain unless the parties expressly choose the law of another EU member state as the law which is to apply to the agency contract. The Regulations will not apply to agency relationships where the activity is carried on outside the EU unless the parties otherwise agree. If the law of a non-EU country is chosen, then the Regulations are intended to override that choice of law insofar as any of the activities of the commercial agent are carried out in Great Britain.
If the agent's activities are carried on in another EU member state and the parties have not chosen English law to govern the contract, the Regulations will not apply. However, if English law is chosen to govern the contract there may be a conflict with the laws of the other member state. In such circumstances it will often be necessary to seek legal advice in the relevant member state and to refer to the relevant international convention to determine which law and/or jurisdiction applies.
DUTIES OF PRINCIPAL AND AGENT
The Regulations require the principal and agent to act in good faith towards each other and to comply with the following obligations:
The agent is required to (1) make proper efforts to negotiate and, where appropriate, conclude the transactions for which he is responsible; (2) communicate all necessary information to his principal; and (3) comply with all reasonable instructions given by his principal.
The principal is required to (1) provide all necessary documentation/information; (2) notify the agent within a reasonable period of any anticipated reduction in the agent's volume of trade below the level that the agent could normally have expected under normal circumstances; and (3) inform the agent within a reasonable period of his acceptance, refusal or failure to execute any transaction which has been negotiated, concluded or procured by the agent.
COMMISSION
Remuneration in the absence of agreement
If the agency agreement is silent as to remuneration, the Regulations require that the agent receives the "customary" amount of remuneration for his activities or, if there is no customary amount, "reasonable" remuneration.
Commission during agency
Unless the agent is remunerated in some other way, the Regulations provide that he will be entitled to commission. Commission will be payable not only on transactions concluded as a result of the agent's activities, but also (1) on transactions concluded by the principal with a third party whom the agent has previously "acquired as a customer for transactions of the same kind" and (2) transactions concluded during the period of the agency contract with a customer belonging to a specific geographical area or group of customers in respect of which the agent has an exclusive right. It is therefore possible for a principal to be liable to pay commission twice, to different agents, in relation to the same transaction.
Right to statements and information
The principal must provide the agent with a quarterly statement of all commission due showing how the commission has been calculated. The agent is also entitled to demand that he be provided with all necessary information (including extracts from the books and papers of his principal) to check the amount of commission due to him.
Time for payment
Commission will be due as soon as the principal or third party has "executed the transaction" or on the date the principal should, according to his agreement with the third party, have executed the transaction. "Execute the transaction" is not defined. However, it is suggested that it means performance of the contracts, e.g. accepting or taking delivery of the goods. It is up to the parties to agree which of these circumstances will make the commission fall due. In any event, the latest date after which payment will become due (which the parties cannot derogate from in any circumstances) is the date when the third party executes (or should have had the principal done so) his part of the transaction. Commission must be paid not later than the last day of the month following the quarter in which it became due.
The effect of the Regulations is such that the principal may be liable for commission on sales for which he has not yet been paid. However, the agent's right to commission will be extinguished (and he may have to refund commission already received) if it is established that the contract between the principal and that party will not be executed in circumstances where the principal "is not to blame".
Commission after termination
The Regulations require an agent to be paid commission following termination of the agency if a transaction is mainly attributable to the efforts of the agent during the agency contract and if the transaction was entered into within a "reasonable period" after the contract was terminated. The Regulations do not specify what constitutes a reasonable period and nor is it clear whether the requirement can be expressly excluded by agreement or not. The parties may seek to define the period in their agreement or to exclude the requirement to pay such commission in its entirety but, if disputed, the matter would ultimately be for the decision of a court.
WRITTEN STATEMENT OF TERMS
The principal and agent will be entitled to receive from the other, on request, a signed written document setting out the terms of the agency. This is a mandatory requirement of the Regulations and will be relevant to all agency relationships which have been agreed orally or the terms of which have not been fully documented.
DURATION AND TERMINATION
The Regulations provide that contracts for an indefinite period may only be terminated on minimum notice given by either party. Such notice must not be less than 1 month's notice for each year of the duration of the agreement up to a maximum of 3 months' notice for 3 years or more.
Unless otherwise agreed by the parties, the end of the period of notice must coincide with the end of a calendar month. If the parties agree on longer periods of notice than the minimum period required by the Regulations, the period to be observed by the principal must not be less than that to be observed by the agent.
If the agreement is for a fixed term it will expire automatically at the end of the term unless the parties continue to operate as if it were still in effect after the expiry of the fixed term, whereupon it will be deemed to have become a contract for an indefinite period terminable on minimum notice.
COMPENSATION OR INDEMNITY ON TERMINATION
An agent may be entitled to compensation or an indemnity on the termination of the agency agreement. It is for the two parties to choose which of these options will apply, but if the contract is silent on the point, the agent shall be entitled to be compensated rather than indemnified. It should be noted that the right to compensation or an indemnity also arises where the agency contract is terminated as a result of the death of the agent.
Compensation
An agent will be entitled to compensation on the termination of the agency agreement "for the damage he suffers as a result of the termination of his relations with his principal". The Regulations provide, in particular, that an agent will suffer damage in circumstances where (1) he is deprived of commission which proper performance of the agency agreement would have procured for him whilst providing the principal with substantial benefits limited to the activities of the agent; and/or (2) termination has resulted in the agent being unable to "amortize the costs and expenses which he has incurred in the performance of the agency contract on the advice of his principal". The Regulations do not prescribe an upper limit on the amount of compensation payable to the agent.
Indemnity
The agent shall be entitled to an indemnity if and to the extent that (1) he has brought the principal new customers or has significantly increased the volume of business with existing customers and the principal customer to derive substantial benefits from the business with such customers; and (2) the payment of this indemnity is equitable having regard to all the circumstances and, in particular, the commission lost by the commercial agent on the business transacted with such customers.
The word "indemnity" has a more limited meaning than that which it normally bears under English law. The maximum amount of the indemnity is, in any event, capped by the Regulations at an amount not exceeding one year's commission based on average remuneration over the previous years (or the period in question if the contract goes back less than five years). The Regulations also provide that the agent may claim damages (in addition to the indemnity) i.e. for a breach of the agency contract, as opposed to the compensatory damages constituting compensation under the Regulations.
Extent and Limitation of Rights
There will be no right to compensation or an indemnity if (1) the principal terminates the agency because of default attributable to the commercial agent which would justify immediate termination under any enactment or rule of law because of the failure of the agent to carry out all or part of his obligations under that contract or where exceptional circumstances arise; or (2) where the agent terminates the agency and the termination is not justified by circumstances attributable to the principal; or (3) where the agent terminates the agency where such termination is not justified on grounds of age, infirmity or illness such that he cannot reasonably be required to continue his activities; or (4) where the agent, with the consent of his principal, assigns the agency to another person.
There is a one year limitation period for claims by the agent for compensation or an indemnity.
There is uncertainty surrounding the compensation and indemnity provisions and how the amounts will be quantified, as case law is still developing in these areas. Furthermore, it is not safe to assume that a principal should always choose the indemnity option because liability is capped at a maximum limit whereas compensation is not. Each case must be looked at on its own particular merits.
RESTRAINT OF TRADE CLAUSES
The Regulations provide that any restraint of trade clause in an agency agreement will only be valid if it is in writing, relates to the geographical area or group of customers covered by the agency and to the kind of goods covered by the agency. In any event such a restraint may not last beyond 2 years after termination.
For further information contact:
Edward Hoare
Faegre & Benson LLP
7, Pilgrim Street
London EC4V 6LB
Tel: +44 (0)20 7450 4564
Fax: +44 (0)20 7450 4545
Email: EHoare@faegre.com