Goods or Services under the Regulations?

by Paul Samuel
Director, Ashby Cohen Solicitors, London

The 1993 Regulations
apply to agencies which
involve the sale of goods.
They do not apply to an agency which consists of the
supply of services. If the agency is not concerned with
the sale of goods the Regulations will not apply so that
the agent selling the services (the classic examples are
travel agents and insurance agents) has no protection
under the Regulations.
The surprising thing is that there is no definition of
goods in either the Regulations or in the European
Directive that gave rise to the Regulations.
This leaves the question of whether the agent is dealing
with goods or services. In one reported case it was
conceded, without argument that the supply of gas and
/or electricity to consumers was the sale of goods for
the purposes of the Regulations.
Even if not protected by the Regulations, an agent
would have claims under the general law such as an
entitlement (where no notice period is specified) to a
reasonable period of notice of termination.

We now live in a digital age
with such things as music and
film being downloaded from
the internet via a stream of
zeros and ones which can be
read by computer and
converted back to music and
film for the consumer enjoy.

Computer software is the bedrock of the digital age and
English law has had to grapple with how to classify
computer software. There is in fact little case law on the
subject but what there is suggests that if software is
supplied on a physical medium such as a CD or DVD it
will be regarded as a sale of goods but if that very same
software is supplied by downloading it from the
internet it is not a sale of goods because nothing
tangible is supplied.
The case law is from the 1990s and the distinction has
been much criticised by commentators. In the context
of European law, the European Court of Justice has
defined goods as “products which can be valued in
money and which are capable as such of forming the
subject of commercial transactions”. If a case came
before the English courts today, it is thought that there
is a good argument that the way content is delivered
should not be a deciding factor as to whether an agent
selling that content, is dealing in goods for the purposes
of the Regulations.
An agent is not covered by the Regulations if his
activities in marketing the principal’s goods are
“secondary”. Schedule 2 to the Regulations sets out
tests for when an agent’s activities are secondary. The
wording of the schedule is difficult to follow – the Court
of Appeal has described the schedule as poorly worded
unclear and unhelpful! Nevertheless, what is clear is
that if a person acts as a commercial agent and sells
services and the agency activities in developing a
market for the principal’s goods are secondary, then
that person will not acquire the benefit of the
Regulations.
The question arises where an agent is selling both goods
and services. In a case in 2007 an agent brought a claim
for compensation under the Regulations against the
satellite television broadcaster, Sky. His agency
comprised both the sale of satellite equipment which
were goods and the sale of subscriptions to view
various Sky channels using the satellite equipment,
which were services.

The Court did not in fact go into a detailed analysis of
Schedule 2 (because the schedule only referred to the
tests as being indicative so that the tests did not
determine the question one way or another). Instead
the Court held that in deciding whether the agent’s
activities were secondary, the sale of the goods by the
agent must generate goodwill for the principal which
the Court described as “ the attractive force which
brings in repeat custom either from the same customer
or from others”. The Court accepted Sky’s argument
that repeat custom was generated not by the sale of the
satellite equipment (goods) but by the sale of the
subscriptions (services). Thus the agent’s
compensation claim failed in its entirety.
An agent who sells goods and who also provides presales
consultancy or after sales services for the principal
might be best advised to have 2 contracts with the
principal – one for the agency relating to the sale of the
goods to which the Regulations would apply and
another separate contract for the provision of the
services where the Regulations would not apply. In this
way he would hopefully avoid losing out altogether if
the principal successfully argued that the agent’s
activities were secondary.

Article written by Paul Samuel of Ashby Cohen
LLP, a leading law firm operating in all areas of
employment law, partnership law and in
matters arising out of the Commercial Agents
(Council Directive) Regulations 1993.

Ashby Cohen Solicitors Ltd
18 Hanover Street
London W1S 1YN
Tel: 0207 408 1338
Email: info@ashbycohen.co.uk
www.ashbycohen.co.uk

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

 

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