Commercial Agents and Commodities

Many agents buy and sell commodities – but are they protected by the Commercial Agents Regulations?

The Commercial Agents (Council Directive) Regulations 1993 (the “Regulations“) usually entitle agents to what can be substantial payments on termination of their contracts.

But the Regulations do not apply to “commercial agents when they operate on commodity exchanges or in the commodity market“.

Until recently, this issue had not been before the Courts.

However, the Court of Appeal has, in a case in which DWF acted for the successful claimant, provided guidance on when a commercial agent may be operating on a commodity exchange or in the commodity market.

In W Nagel (a firm) v Pluczenik Diamond Company NV, the agent (Nagel) worked as the principal’s (Pluczenik’s) broker, assisting it to purchase diamonds from De Beers. The purchases were made at so-called “Sights”, which were organised sales which could only be attended by purchasers accredited by De Beers as a “Sightholder”.

When Pluczenik terminated its contract with Nagel, Nagel brought various claims, including a claim for damages for breach of contract and for compensation under the Regulations.

In the High Court proceedings, the majority of Nagel’s claims succeeded and it was awarded very substantial damages. However, the Judge found that purchases of diamonds made at Sights were made “on commodity exchanges or in the commodity market” and therefore the Regulations did not apply.

Pluczenik appealed the Judge’s findings that Nagel was entitled to damages, and Nagel cross-appealed the Judge’s finding that the Regulations did not apply.

The Court of Appeal: (1) rejected Pluczenik’s appeal and upheld the damages awarded to Nagel; and (2) disagreed with the Judge’s findings on the commodities point and agreed with Nagel’s case that the Regulations did apply.

In doing so the Court of Appeal clarified the commodities exception in the Regulations and held that:

  • the relevant question is not whether the goods were sold as a commodity but whether they were sold on a “commodity exchange” or in “the commodity market”;
  • an essential feature of a commodity exchange is that the commodities (or rights to buy and sell commodities) which are traded on the exchange can be freely bought and sold among the participants; and
  • the commodity market encompasses any general trading in commodities that takes place in the open market.

The Court of Appeal concluded that the Sights would not be understood by commercial people as a commodity exchange nor would sales made by De Beers at such Sights be understood as trading in the commodity market.

This guidance will assist parties in future in determining whether the commodities exception applies and is therefore welcome.

Pluczenik sought permission to appeal to the Supreme Court but its application was rejected.

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DWF has specialist teams advising on the impact of the Regulations.  For specialist, commercial and pragmatic advice, please contact Andy Leach on 07968 237 414 or Ben Griffin on 03333 203 147 / 07712 356 402.

 

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