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Commercial Agency Law.


Our specialist lawyers are experts in this area and advise agents and principals on all aspects of commercial agency law, covering the full life cycle of an agency contract.

This includes negotiating and drafting agency contracts at the outset of the relationship, advising on rights and remedies as issues crop up during the life of the agency contract and dealing with any issues and claims which may arise from the termination of the agency contract.

Do you think you need legal help with a commercial agency law matter?

Call the corporate & commercial team to discuss your options

Telephone: +44 (0)203 906 2525

or email: piers@fletcherday.co.uk

Our philosophy is to provide our clients with pragmatic, commercial and cost-effective advice to help them achieve their objectives, build and maintain successful relationships and avoid costly and stressful disputes. While we have acted in several of the leading cases in this area, we have also helped many of our clients to settle claims amicably without the need for court proceedings.

We represent clients across a wide range of sectors including:

  • clothing, footwear, bridal wear and fashion;
  • furniture and other homeware;
  • flooring, bathroom, kitchen, heating and lighting products;
  • medical devices and PPE products;
  • electrical goods;
  • the automotive industry;
  • toys, gifts and greetings cards;
  • jewellery; and
  • cosmetics.

Areas of practice

We advise agents and principals on all aspects of commercial agency law, including whether the Commercial Agents (Council Directive) Regulations 1993 apply to the agency contract and the effect they might have. We cover the full life cycle of an agency contract:

At the outset of the agency agreeing the terms of the agency contact

We can advise on the key terms that should be included in the agency contract, help you to negotiate those terms and draft the agency contract to meet the specific needs and circumstances of the agent and principal.

During the agency making changes to the agency contract

As circumstances change, we can help you to negotiate and draft variations to the agency contract so that they are legally effective. These changes might relate to the agent’s territory or the customers to be serviced by the agent, the commission rates payable or the products that the agent is authorised to sell.

Rights and obligations under the agency contract

Even if the agency contract is not set out in writing, there will be one in place. We can advise you on your specific rights and obligations under that agency contract, including those which may be added to the agency contract by the Commercial Agents (Council Directive) Regulations 1993. This advice can often help agents and principals to resolve performance or conduct related issues quickly and avoid full blown disputes.

Dealing with changes to the parties

We can advise on what needs to be done if the agent wants to change their method of operation from sole trader to limited company, or if the principal is bought out or wants to restructure their group of companies.

We can help you to ensure that such events do not adversely affect the agency contract.

Termination of an agency contract

When termination of an agency contract is being considered, by an agent or by a principal, we can advise on whether the Commercial Agents (Council Directive) Regulations 1993 apply to the agency contract, whether rights to terminate have been triggered and how strong those rights are. This can involve assessing the performance of the agent, the conduct of the principal or whether the agent wishes to retire. It is important to get these decisions right because they can be very costly if you get them wrong.

Claims that can arise following termination of an agency contract

Depending on whether the Commercial Agents (Council Directive) Regulations 1993 apply to the agency contract, various claims can potentially arise from termination, including claims for unpaid or pipeline commission, claims arising from insufficient notice being given by the principal and claims for compensation or indemnity under Regulation 17.

We can help you to navigate safely through these difficult areas.

Dealing with disputes

We can assist you at any stage of a dispute, from the very early stages of discussion, through to starting the Court process and on to trial if necessary. The vast majority of disputes can be resolved without having to go to Court and we are highly skilled at helping our clients to negotiate amicable settlements in a cost effective manner. The earlier we are involved, the more effective we can be.

For those disputes that cannot be settled, we are very experienced in taking or defending commercial agency claims to a successful outcome through the Court process. We have close links with barristers who specialise in this area and forensic accountants who can provide expert assistance on the valuation of compensation claims.

“Fletcher Day’s excellent practice provides good quality, realistic and sensible advice, with particular expertise in the casual dining and retail sectors.”

– The Legal 500, 2019

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    FAQs
    Why are the regulations important and when do they apply?

    The Regulations set out various rights and obligations for both principals and agents, which are incorporated into (i.e. form part of) the agency contract. Many of those rights and obligations cannot be overridden or excluded by a written agency contract (unless they operate in the agent’s favour).

    The Regulations apply where:

    • The agent fulfils the definition of ‘commercial agent’  (see question 2); and
    • Generally, where the agent conducts their activities in Great Britain (or where the parties have agreed that the Regulations will apply to the agency contract); and
    • None of the exclusions set out in the Schedule to the Regulations apply (i.e. where the commercial agency activities are considered to be a secondary element of the agent’s role); and

    None of the exceptions specified in Regulation 2 apply.

    Who is a commercial agent under the regulations?

    The definition of ‘commercial agent’ in the Regulations 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 to negotiate and conclude such transactions on behalf of and in the name of that principal’.

    The definition is not as complicated or as difficult for an agent to fulfil as you might think. For example:

    • ‘Self-employed intermediary’ includes an individual who is self-employed (i.e. not an employee), or a partnership or a limited company.
    • ‘Continuing authority’ basically means that the agent’s authority is not limited to a single transaction;
    • ‘Negotiate’ is not defined in the Regulations but has been given a wide meaning by the Courts. This point has often been challenged (unsuccessfully) by principals, who argue that the agent did not have authority to negotiate the sale or purchase of their goods because the agent did not deal with customers in relation to prices or the terms of sale. However, the Courts have found that ‘negotiate’ includes agents whose role is to get third parties interested in the principal’s products, suggest possible prices subject to confirmation by the principal and to encourage the third party to place an order at those prices;
    • ‘Goods’ are not defined by the Regulations either. In many situations the difference between goods (which do fall within the Regulations) and services (which do not) is obvious. However, there are some areas of uncertainty, particularly in relation to computer software. This issue is currently before the Supreme Court, which decided to refer the question to the Court of Justice of the European Union. We will update this page when that decision has been made.

    A distributor could not fall within the definition of ‘commercial agent’. An agent would either negotiate the sale on behalf the principal or would negotiate and conclude the sale on behalf of and in the name of the principal. In both situations, the customer would enter into a sales contract with the principal. In contrast, a distributor would take legal title to the goods from the principal and would then sell them on its own account to the customer.

     

    Can an agency contract exclude or contract out of the regulations?

    It is not possible to exclude or contract out of the Regulations as a whole, but it is possible to exclude or contract out of some individual Regulations. However, there are some Regulations which specifically state that they cannot be excluded by the agency contract or cannot be varied in the agency contract to the detriment of the agent. Any attempts to do so render the clause void (i.e. it has no effect).

    Do the regulations apply where the agent is purchasing goods, rather than selling them?

    In principle, yes, although we may need to analyse the particular circumstances of the agent and check that none of the exclusions in the Regulations apply.

    Do the regulations apply to sub-agents?

    The position on this is not clear, as it has not been properly addressed by the Courts. The sub-agent’s contractual relationship will usually be with the main agent, rather than the principal. It is highly unusual for the sub-agent to have a direct contract with the principal.

    The Regulations may apply to the main agent’s contract with the principal but are unlikely to apply to the contract between the main agent and the sub-agent (for example the sub-agent would not be selling the main agent’s goods and the main agent would not be a party to the contract with the customer).

    The Courts have suggested that a sub-agent could claim a contribution from the main agent bringing a claim against the principal but did not explain how this might work in practice. Much would depend on what the contract between the main agent and sub-agent says, but it is difficult to see how that would operate.

    What are the important terms in a sales agency contract?

    We would recommend that both principals and agents pay careful attention to the following issues in a sales agency contract:

    • What products is the agent authorised to promote and/or sell? Is it the principal’s full portfolio or a limited subset of products?
    • What territory has been assigned to the agent?
    • Is the agent appointed as an exclusive, sole or non-exclusive agent (see question 10) and is the principal able to appoint other intermediaries or sell directly in the agent’s assigned territory?
    • The obligations on the agent – how onerous are they? Certain obligations are incorporated into the agency contract by the Regulations, including duties to:
      • look after the interests of the principal;
      • act dutifully and in good faith;
      • make proper efforts to negotiate and conclude transactions;
      • communicate to the principal all necessary information that is available to the agent;
      • comply with reasonable instructions given by the principal.
    • The obligations on the principal – how onerous are they? Again, certain obligations are incorporated into the agency contract by the Regulations, including duties to:
      • act dutifully and in good faith in the principal’s relations with the agent;
      • provide the agent with the necessary documentation relating to the goods covered by the agency contract;
      • obtain for the agent the information necessary for the agent to perform the agency contract;
      • notify the agent within a reasonable period once the principal anticipates that sales volumes will be significantly lower than the agent could normally have expected;
      • inform the agent within a reasonable period of the principal accepting, refusing or not executing a commercial transaction procured by the agent.
    • How is the agent to be remunerated – is this via commission and/or retainer? What sales result in commission payments to the agent and when do those commission payments become due?
    • Is the agent required to meet minimum sales targets? What happens if the agent fails to meet those targets? (see question 9)
    • In what circumstances can the agency contract be terminated?
    • What are the consequences of termination (e.g. do compensation or indemnity apply under the Regulations)?
    • What law applies to the agency contract and which country’s Courts can decide any dispute about the contract? This clause can be particularly important if the agent and principal are based in different countries (see question 33).