Commercial Agents (Council Directive) Regulations 1993
The Commercial Agents (Council Directive) Regulations 1993 (Commercial Agents Regulations) were introduced in 1993 as an E.U. directive, to be applied along with all other member states. The dominant purposes of the Commercial Agents Regulations are to provide some clarity and protection to agents during the relationship and upon termination.
It is often the case that principals are not fully aware of the Commercial Agents Regulations and their obligations/liabilities. Seeking advice once they have terminated an Agent’s contract is simply too late. It is important to seek advice at the time of entering into and/or drafting an agreement with the Agent. Failure to do so can lead to very substantial liabilities.
Commercial Agents Regulations apply to anyone who is a self employed intermediary, with continuing authority to negotiate the sale or purchase of goods on behalf of another person (the Principal) or to negotiate and conclude the sale and purchase of goods on behalf of the Principal.
If a business has contracted with an Agent, then they must understand the obligations prior to terminating such an agreement. If they do not, the Agent will be entitled to either an indemnity or compensation under Regulation 17. Generally speaking, it is in the principal’s favour to have an agreement which states that the Agent will only be entitled to an indemnity.
If there is no agreement, or there is an agreement but it is silent on this point, then the agent shall be entitled to be compensated rather than be indemnified. Often a more onerous provision for the Principle.
The indemnity amount should not exceed a figure equivalent to one year of the Commercial Agents average annual remuneration. There is no such limit on the amount of compensation and generally speaking it will be tested by the value of the business lost by the agent. This will obviously turn on the facts and be dependent on the specific circumstances and the value of each specific agency.
Compensation to Agents had previously been assessed following a decision in the French Courts, with a level of compensation being 2 years gross commission. This decision however is no longer binding and the Courts would have to determine an assessment for the loss of the Agency business, including goodwill.
If a business does not have a properly and carefully drafted Agency Agreement then it is not a simple task to assess the value of compensation due to Agents. It may be that experts will need to appointed and further expense incurred to assess the loss. It is certainly clear that there will often be a great deal of negotiation between the parties to attempt to resolve this, failing which the Courts will have to make a ruling.
Under Regulation 4, the principal’s duty is to provide the Agent with the necessary documentation relating to the goods concerned and obtain the information necessary for the proper performance of the Agency Contract, and in particular notify the Agent within a reasonable period once they anticipate that the volume of commercial transactions will be significantly lower than that which the Agent can normally have expected.
In return the Agent must look after the interest of its principal and act dutifully and in good faith. In particular, an Agent must (a) make proper efforts to negotiate, and where appropriate conclude the transaction he has instructed to take care of; (b) communicate to his principal all the necessary information available; (c) comply with reasonable instructions given by his principal.
On termination, the Agent will be entitled to compensation on any orders which can be attributed to their work during the agency. It is important for both parties that proper records are kept to avoid disputes at a later date.
It is imperative that businesses seek advice to ensure that they are properly protected and avoid unnecessary liabilities which can run into hundreds of thousands in certain circumstances.
Many thanks for this article to Ben Jones, an employment lawyer at Darlingtons, solicitors in London.
