Our specialist lawyers advise sales agents and principals on disputes relating to all aspects of commercial agency law. These can arise at any stage of the agency and if not resolved quickly they can sour what was previously a productive relationship between agent and principal.
We have been involved in some of the leading cases in this area, many of which involve the Commercial Agents (Council Directive) Regulations 1993.
Many disputes are resolved at an early stage and without needing to go through the Court. This helps agents and principals to avoid the anxiety, time and cost of dealing with the dispute, Court proceedings and giving evidence at trial. We are very experienced in resolving disputes through negotiation, mediation or other forms of dispute resolution.
Commercial agency disputes can involve:
- Issues and claims arising from termination of the agency contract, such as:
- Which party terminated the agency contract and whether they were entitled to do so.
- Whether the Commercial Agents (Council Directive) Regulations 1993 governed the agency contract or whether the laws of another country are applicable.
- Claims for compensation or indemnity and how these are valued.
- Claims for outstanding commission.
- Claims for payment in lieu of notice where the principal has given insufficient notice of termination.
- Issues relating to the performance of the sales agent and the options available to the principal.
- Issues relating to the conduct of the principal (including reductions in territory or removal of customers) and the options available to the sales agent.
- Issues relating to retirement of the agent.
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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.
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.
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).
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.
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.
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
It can. However, this does not prevent the agent from claiming compensation or indemnity once the fixed term expires, although a fixed term may reduce the valuation of any compensation claim.
It should also be noted that if the agency contract continues to be performed by both parties beyond expiry of the fixed term, the contract is deemed by the Regulations to be converted into an agency contract for an indefinite period.
They can, provided the changes are agreed by all the parties to the agency contract. The mechanics of this depend to some extent on whether the agency contract is written or verbal.
A written agency contract should contain a clause which sets out the process for varying (changing) the terms of the contract. This would usually require the changes to be set out clearly in a document which is signed by the principal and the agent confirming that they agree to the changes.
If the written agency contract does not specify a process for agreeing changes or the agency contract is not set out in writing, a Court would look for other evidence that the parties have agreed to change the contractual terms. That evidence could be produced in a number of different ways, including by email or other correspondence, verbally or even by the conduct of the parties (e.g. the principal seeks to impose a change, the agent does not object to that change and continues to perform their duties in accordance with that change).
The first issue for an agent to consider is whether to agree to sales targets at all. The second is likely to be how those sales targets are to be set – are they imposed by the principal, are they agreed by the parties each year, is there any consideration of previous years’ performance, is there any obligation on the principal or the parties to act reasonably in setting the sales target?
Consideration also needs to be given to the effect of failing to meet those sales targets. Such failure could put the agent in breach of contract and could potentially lead to the agency contract being terminated. However, failing to achieve a sales target does not automatically give the principal the right to terminate the agency contract – everything will depend on the circumstances. The COVID-19 pandemic is a prime example – this has resulted in a significant economic downturn and in those circumstances simply maintaining sales may involve a massive effort. Achieving sales targets that were set before the pandemic hit is likely to be impossible, despite the agent’s best efforts. The principal would need to give very careful consideration to terminating the agency contract in such circumstances and should take early legal advice on their options.
This relates to the extent of the rights granted to the agent within the territory they have been assigned:
- An exclusive agency gives the agent the exclusive right to represent the principal within the assigned territory and prevents the principal from actively seeking sales within that territory itself and from appointing other agents or distributors within that territory. However, the right to exclusivity may be limited (with the principal reserving the right to continue to supply certain customers or categories of customer in the territory without involving the agent).
- Sole rights prevent the principal from appointing another agent (and potentially distributors or other resellers) for the assigned territory. However, the principal itself is not prevented from actively seeking or negotiating direct sales to customers within the territory without involving the agent.
- A non-exclusive agency enables the principal to appoint other agents, distributors or other resellers within the agent’s assigned territory and to seek or negotiate direct sales itself to customers within the territory.