Sub-Agents Left Out in the Cold

by Paul Samuel
Director, Ashby Cohen Solicitors

An agent who is a
commercial agent within
the meaning of The Agents
(Council Directive)
Regulations 1993 (“the
Regulations”) has an
independence which an
employee does not have.
Unless his agency contract
expressly prohibits this, the
agent can delegate his
duties to sub-agents.

Many principals do prohibit the agent from appointing
sub-agents as the sub-agent is one removed from the
principal with the result that the principal is one
removed from the customer. However, there are
numerous agency agreements which do not contain
any such prohibition.
What happens when the main agent retires or just
wants to give up the main agency or the principal
terminates the main agency because of some default
on the part of the main agent which justifies the
principal bringing it to an end? Where does that leave
the sub-agent? Depending on the circumstances in
which the main agency ends, the main agent may be
able to bring a claim for compensation / indemnity
against the principal, but can the sub-agent?
The Regulations do not make any mention at all of subagents
and the argument goes that if the Regulations
had intended to cover the position of sub-agents, they
would have expressly mentioned them.
The Government’s guidance notes issued when the
Regulations were introduced stated, in reply to the
question “are sub-agency agreements covered by the
Regulations?”, that :
“Whilst the position is not clear, the Regulations are, in
principle, capable of covering sub-agency agreements”

Nevertheless, a case called Light and Others v Ty Europe
Ltd decided in 2003 in the Court of Appeal is authority
that the sub-agents would be unable to bring a claim
against the principal.
Briefly, the Court of Appeal case involved a principal
who manufactured cuddly toys, a main agent who was
paid a commission of 15% and sub-agents of the main
agent who were paid a commission of 10%. The main
agency was for a fixed period and came to an end. The
main agent ceased trading and had no assets and
dropped out of the picture. The sub-agents brought
claims for compensation under the Regulations against
the principal. The High Court agreed that the subagents
could bring a compensation claim against the
principal. However, the principal appealed and the
Court of Appeal reversed that decision.
The Court of Appeal held that the sub-agents were
commercial agents of the principal within the meaning
of the Regulations, but went on to rule that that was not
enough. A further question had to be asked. This was
whether there had to be a contract between the subagent
and the principal for the Regulations to apply.
The principal in that case said that the wording of the
Regulations made it clear that a contract was required
whereas the case for the sub-agents was that no such
contract was required. The Court of Appeal held that a
sub-agent of the principal who has no contract with
that principal has no right to claim under the
Regulations against that principal when the sub-agency
ends. The Court of Appeal declined to refer the
question to the European Court of Justice, commenting
that the Regulations are clear and that there was no
need to make a referral.
Thus a sub-agent would have to challenge a unanimous
Court of Appeal decision if he wanted to bring a claim
against the principal
The next question is whether the sub-agents could
bring a claim against the main agent.
The Court of Appeal case which decided that there had
to be a contract between the sub-agent and the
principal for the Regulations to apply also, in passing,
touched upon the question of whether the sub-agents
could bring a claim against the main agent. The Court
of Appeal commented “the claimants were probably
not [the main agent’s] commercial agents because they
were not selling on its behalf, but I can see no reason
why as [the main agent’s ] agents they should not have
been able to establish a stake in [the main agent’s]
compensation claim.

Whether they could have compelled [the main agent]
to make such a claim is more problematical, but a
combination of commercial pressure and resourceful
lawyers might have done the trick”.
This was only a passing comment in the case by the
Court of Appeal, which was not asked to decide if the
sub-agents could bring a claim under the Regulations
as against the main agent (presumably because in that
case the main agent had ceased trading and had no
assets). The argument against the sub-agents being
able to bring a claim under the Regulations against the
main agent is picked up in the above quoted passing
comment from the Court of Appeal that ” the claimants
were probably not the main agent’s commercial agents
because they were not selling on its behalf”.
In other words, as between the main agent and the
sub-agents, the main agent does not own the goods
which are of course owned by the principal and the
sub-agents negotiated the sale of the goods on behalf
of the principal and not on behalf of the main agent. If
this argument were upheld, it would mean that a subagent
would be left without a claim against either the
principal or the sub-agent.
As indicated by the comment which the Court of
Appeal made, the courts are likely to try to construe the
Regulations so as to give the sub-agents “a stake” in the
sum which the principal pays over to the main agent.
This pre-supposes that the principal makes a payment
to the main agent and even if he does, the sub-agent in
practice will have to have strong nerves and deep
pockets to try to establish his “stake”.

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

Disclaimer: This column does not contain legal advice and is for general guidance only.
Agentbase, Ashby Cohen 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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