When is an Agent a Commercial Agent?

When is an agent a commercial agent? This is a question
principals often ask themselves when agents bring claims for
post-termination payments under the Commercial Agents
(Council Directive) Regulations 1993 (“the Regulations”).

As is commonly known, under the
Regulations, commercial agents
are usually entitled to payments
(which can be substantial) upon
termination of their agency
contracts, and principals have few
weapons in their armoury to
defeat such a claim.
However, when faced with a claim under the
Regulations, a principal’s first potential line of defence
is Regulation 2(1), which sets out the definition of a
commercial agent. If an agent does not meet that
definition, it has no claim under the Regulations.
Regulation 2(1) provides:
“commercial agent” means 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.
In an effort to give agents the benefit of the
Regulations, the Courts have interpreted this definition
widely, as the purpose of the Regulations is to protect
commercial agents. As a result of two notable cases
(Parks v Esso and PJ Pipe & Valve v Audco India),
principals can rarely show that an agent falls outside the
definition of “commercial agent” set out in the
Regulations and it would only be in exceptional
circumstances that such a defence would be likely to
succeed.
As a result, it is unusual to see a principal running this
defence all the way to trial, as International Brands
Limited, a trader in wine, did in the case Invicta UK v
International Brands Limited [2013] EWHC 1564 (QB).

FACTS OF THE INVICTA CASE
Invicta had been engaged by International Brands to
get its wines listed with major retailers and wholesalers.
Invicta did so very successfully. When International
Brands terminated the agency contract, Invicta
brought a claim under the Regulations for notice pay
and compensation.
International Brands defended the claim primarily on
the basis that Invicta was not a commercial agent
within the meaning set out in the Regulations, and
argued that Invicta did not have continuing authority
to negotiate on its behalf. International Brands argued
that the Court should assess whether the agent had
continuing authority to negotiate at the time the
agency agreement was made.
THE DECISION IN INVICTA
The Court gave this argument short shrift, holding that
the Regulations had to be interpreted by the Court to
give effect to their purpose, which is to protect
commercial agents.
The Court held that whilst an assessment of whether
the agent is a commercial agent within the meaning of
the Regulations must focus on the inception of the
relationship, the Court should also look at how the
agency actually operated.
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. As a result, an agent will be a commercial
agent where his activities extend to procuring
transactions and acquiring customers for repeat
orders. It is not necessary for the agent to negotiate
the terms of the transaction; it is enough, in the words
of the Judge, “that the agent gets business in for the
principal”.

Furthermore, Regulation 2(1) provides that an agent
must have continuing authority. The Court held that
this authority does not have to be exercised; it simply
needs to exist and not be withdrawn. The Court held
that Invicta was engaged to sell goods on behalf of
International Brands, and clearly could not do so
without authority. Again the position is interpreted so
as to protect the agent.
Finally, International Brands also appear to have sought
to defend the claim on the basis that Invicta’s activities
were “secondary” and not the primary purpose of the
relationship, as the Regulations do not apply to agents
whose activities on behalf of a particular principal are
“secondary”.
Whilst the question of when an agent’s activities are
“secondary” is complex, the judgment in this case does
not explore this issue; rather, the Judge concluded that
it was clear that the Regulations applied to Invicta’s
claim.
It should be noted that International Brands is seeking
permission to appeal this decision.
CONCLUSION
The lesson arising from this case is that defending a
claim to trial on the basis that an agent falls outside the
Regulations is risky, as the Courts will usually strive to
ensure that agents are protected by the Regulations.
Very careful analysis of the legal and factual position
must be undertaken by both a principal and an agent at
the outset of the claim to try to avoid unnecessary legal
costs in the long term.

DWF LLP has specialist teams advising on the impact of the
Commercial Agents Regulations, including cross-jurisdictional
issues. Our experts can advise on all aspects of the principalagent
relationship, from drafting contracts, helping to manage
the ongoing relationship and protecting your position in the
event of a dispute.

Andrew Leach – Partner
andrew.leach@dwf.co.uk
0845 404 2564/07968 237 414
Ben Griffin – Solicitor
ben.griffin@dwf.co.uk

0845 404 2249

www.dwf.co.uk

Disclaimer: This column does not contain legal advice and is for general guidance only. Agentbase, DWF LLP and the writer accept no liability in connection with the general guidance given in this column. Please ensure that you obtain legal advice before acting in reliance upon anything in this article. For example, please be clear that the answers given in this column may not cover all possible angles, aspects, relevant considerations and/or points of law and so that all or any information which is given above needs in every instance to be referred for legal advice for clarification and amplification, before being relied upon.

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