Goods & Services What’s the difference? An update..

by Andrew Leach of DWF LLP

The Commercial Agents Regulations apply only to agents selling “goods” and not services – so what is the difference?

This question is important as an agent deemed to be selling a principal’s services will not be protected by the Regulations. This means that they could lose the right to compensation or an indemnity payment on termination, which can often be substantial. With the increasing use of information technology (particularly the downloading of information technology /software from the internet), the distinction between goods and services has become blurred. Suppose an agent sells a principal’s software, but that software is sold on a CD. Is that agent selling goods or services (or both)? This issue was considered in the recent case of Fern Computer Consultancy Ltd v Intergraph Cadworx & Analysis Solutions Inc [2014] EWHC 2908 (Ch).

In that case, the agent sold the principal’s software on CDs, together with an electronic software lock that fitted into a USB port. The Judge concluded that:-

“where software is supplied on CDs there is a real prospect of success in arguing that that is the supply of goods. Where that supply is accompanied by a physical dongle and documentation then the argument is even stronger.”

Whilst the point has not been concluded definitively (the Judge in Fern did not have to answer the question, but had to assess whether such an argument had real prospects), his comments will give comfort to agents who sell software in this way. However, agents and principals who provide customers with licences should take heed of the decision in Fern for another reason, as it questioned whether providing a licence to a customer qualified as a sale of goods. If there is no sale of goods, the Regulations will not apply. In sectors such as software, where licence agreements are common, this issue could be fundamentally important. In Fern the Judge said that it was his view that it was arguable that “sale” and “purchase” in the Regulations would be capable of applying to a transaction based on a licence. That said, he did not give a definitive view on the point and suggested that this question may need to be answered by the European Court of Justice, and thereby made an uncertain area less certain still.

Finally, principals and agents operating across borders need to bear in mind that in some EU countries, such as France, agents that sell and buy services as well as goods are deemed to be commercial agents and therefore have protection. This clearly has implications for principals based in the UK who engage agents based in EU countries and highlights the importance of carefully considering the legal terms of any agency agreement at the outset. DWF LLP has specialist teams advising on the impact of the Commercial Agents Regulations. Our experts take a pragmatic, commercial approach designed around the needs of your business and can advise on all aspects of the principal-agent relationship, from drafting contracts to protecting your position in the event of a dispute.

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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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