Defining a Commercial Agent

by Andrew Leach of Cobbetts L.L.P.

Commercial agents benefit from
significant protection under the
Commercial Agency Regulations
1993 (the “Regulations”), such as
the right to claim substantial
lump sum payments on the
termination of an agency
agreement in certain
circumstances. Consequently,
both principals and agents
require clear legal advice from
specialists in this area before
entering into or terminating
such agreements.
Further, what constitutes a “commercial agent” under
the Regulations is very important and can be an area of
dispute. The starting point as to what constitutes a
“commercial agent” can be found in Regulation 2(1):
“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”. A number of elements of the
definition require closer scrutiny, and indeed, through a
number of cases, the Courts have elucidated what
Regulation 2(1) means.
WHAT IS A SELF-EMPLOYED INTERMEDIARY?
A “self-employed intermediary” includes both natural
and legal persons (Bell Electric Ltd v Aweco Appliance
Systems GmbH (2002). Thus individuals and companies
can fall within the definition. In this context, selfemployed
means, simply, that the agent is a distinct
entity from the principal. In AMB Imballaggi Plastici SRL v
PLC Flex Ltd (1999), it was held that “self-employed” in
the Regulations has a similar meaning to the term
“independent contractor”.
WHAT IS MEANT BY “CONTINUING AUTHORITY”?
Simply conducting one transaction on behalf of another
is not thought to constitute “continuing authority”.
Therefore, should an agent be instructed by a principal to
conduct a discrete transaction, the agent is unlikely to fall
within the protections of the Regulations. Commercial
agents are distinguished from those, such as brokers, who
act on a one-off basis, and who therefore do not build up
goodwill for their principal. However, the European
Court of Justice has also held that an agent would have
continuing authority under the Regulations if they were
authorised to negotiate successive extensions to a
contract.
NEGOTIATE
The meaning of “negotiate” is not defined in the
Regulations. Clearly, if agents are authorised to
negotiate terms with third parties before concluding
agreements on behalf of the principal, they will fall within
the definition. The difficulty arises in the type of agency
arrangement whereby the agent simply promotes the
principal’s goods, and refers orders to the principal, but
does not have authority to bind the principal. This type of
agent is often referred to as a ‘marketing agent’.
An agent must, in order to be deemed to ‘negotiate’, take
an active role in the process leading up to the agreement
between the third party and the principal. It is thought
that most ‘marketing agents’ will fall within the definition
of commercial agent within the Regulations, since they
will usually undertake some form of negotiation on
behalf of the principal. If the agent merely manages, he
will not fall within the definition (Elf Oil UK Limited v
Pilkington (1994)). In Parks v Esso Petroleum Co Ltd
(1999), the “agent” ran a petrol station and was paid
commission on sales. Whilst the agreement described
the petrol station operator as an agent, as a result of the
lack of active involvement in the selling process, the
agent was held not to be a commercial agent for the
purposes of the Regulations. In Esso, the Court
specifically noted that there could be “negotiations”
within the Regulations where the agent had no authority
to negotiate price.
Following the leading decision in PJ Pipe and Valve Co Ltd
v Audco India Ltd (2005) it is clear that the definition of a
commercial agent is very wide and will be satisfied if the
agent has developed the goodwill of the principal’s
business and procured business opportunities for the
principal.

GOODS NOT SERVICES
The Regulations only apply to agents that have authority
to negotiate the sale or purchase of goods (i.e.: not
services). There are a few examples of what may
constitute goods which may not be immediately
obvious. The Courts have held that gas and electricity are
goods for the purposes of the Regulations (Tamarind
International Ltd v Eastern Natural Gas (Retail) Ltd
(2000)). Software is likely to be interpreted as goods,
provided that it is supplied with hardware, rather than as
an email attachment or download (St Albans City and
District Council v International Computers Ltd (1996)).
The fact that the English Regulations cover only goods
could prove troublesome for a principal (and indeed an
agent), since in some EU countries, such as France, agents
that sell and buy services as wells as goods are deemed to
be commercial agents. This clearly has implications for
principals based in the UK who engage agents based in
EU countries. Thought should be given as to the most
appropriate choice of law and jurisdiction clauses to
govern the agreement.

Cobbetts LLP has specialist teams advising on the impact
of the Regulations. We take a pro-active and
commercial approach to dispute avoidance and there are
a number of options that can be considered in advance
of any dispute to limit liability and the prospect of claims.
In the event of a dispute, our specialist Commercial
Agents Dispute Resolution team is on hand to protect
your position.

Article written by Andrew Leach of
Cobbetts LLP, a leading law firm with
offices in Birmingham, Leeds, London
and Manchester.

Head Office:
One Colmore Square
Birmingham B4 6AJ
Tel: 0845 404 2564
www.cobbetts.com

Disclaimer: This column does not contain legal advice and is for general guidance only. Agentbase, Cobbetts LLP and the writer accept no liability in connection with the general guidance given in this column.

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