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CHAPTER 1

INTRODUCTION

Why were the Regulations introduced? What do they try to achieve?

The short answer to the first question is, the Regulations were introduced because an EU law (Directive) forced the UK to do so.

The short answer to the second question is, the Regulations try to achieve the purposes of the Directive agreed in Europe: to provide similar protections for commercial agents across the EU; so that principals in some EU countries (where agents had valuable rights) were not facing unfair competition from principals in other EU countries (where agents had no such rights).

History

The detailed history is not that important or interesting (except to those interested in EU politics and institutions, or the UK’s relationship with the EU). In summary:-

1. There were well-established laws in both France and Germany – and to some extent Italy – which gave to commercial agents certain rights (many of them not dissimilar to some of the rights employees have), including a monetary entitlement if the principal caused the agency contract to be terminated.
2. At the instigation of those countries – and after 10 years of consideration, consultation and delays – the EU Directive was published in 1986, requiring all Member States to enact laws providing for similar rights to be granted to agents based in those various States. Most had to do so by 1990; the UK secured an extension to 1994.
3. Where the laws of the two main countries (France and Germany) were not consistent, the Directive either squared the circle, or (in relation to the termination payments) gave other Member States the right to choose between them. The UK effectively passed on that choice to the principals and agents.
4. As may be gathered, the UK did not want to introduce the Regulations and legislated at the last possible moment (just before the deadline of the start of 1994) by simply copying out to a very great extent the EU Directive as the Regulations.

Primary features

Some of the features of the Regulations are not so different to what English law recognised in any event: the obligations of the agent to act in good faith; the right of the agent to be paid a typical rate for that industry if no rate is agreed.

However, the Regulations also create rights and obligations, which are unfamiliar to English law (some of which the principal and agent might have chosen to put into their contracts anyway), which principals and agents must adhere to (or in some cases, perhaps, must adhere to unless they specifically agree not to).

Those new mandatory rights and obligations are primarily:-

1. The principal must provide its agent with certain documents and information, including a written contract if asked (the agent too has to provide a written contract if asked by the principal – an unlikely event in practice).
2. An agent is entitled to commission on sales to customers s/he has introduced, or within his/her exclusive territory, even if s/he had nothing to do with the sale.
3. An agent is entitled to commission on post-termination sales where either the order arrives before termination, or where it arrives within a reasonable period afterwards and the agent won the order in practice.
4. An agent is entitled to commission on orders even if not fulfilled by the principal if the principal is to blame for that.
5. An agent is entitled to regular commission statements and to demand extracts from sales ledgers, etc., to check s/he is not being underpaid.
6. An agent is entitled to a minimum period of notice of termination (up to 3 months).
7. An agent is entitled to a payment on termination by the principal, or if s/he is forced to resign the agency by the principal’s failure to stick to its contractual obligations, or if s/he is retires because of age or becomes too ill to continue.

Why are the Regulations so important?

It is those new mandatory rights that make the Regulations so important; the Regulations provide a raft of protections to the agent, the most significant of which (usually) being that set out at 7 above: when the principal terminates the agreement, when the agent retires, or can no longer work because of ill health, or dies, s/he (or their estate) is automatically entitled to a termination payment (under Regulation 17), which could be substantial.

Indeed, the protectionist stance of the Regulations should be borne in mind by the principal, agent and their advisers whenever they are considering their position.

Before the Regulations came into force on 1 January 1994, the principal/agent relationship was governed by longstanding English common law principles where freedom of contract was the watchword – meaning that parties to a contract could agree whatever they wished.

This meant that a sales agent could invest 20 years and significant effort building up a principal’s brand only to see his contract terminated, leaving the principal free to walk away with the benefits created by the agent’s work with the end customer. Unless the agent could establish a breach of contract by the principal causing the agent loss, he had little remedy. This led to one Judge referring to commercial agents as “a down-trodden race… [who] need and should be afforded protection against their principals”¹.

The Regulations marked a sea change in the law relating to agency in Great Britain. A failure to properly understand the new rights, and how the court approaches them, can be costly for agents and principals. Indeed, in one case under the Regulations, the Judge said “the Regulations are dealing with concepts which are strange to English lawyers”.² As a result, this remains generally an all-too superficially understood area of law, even amongst lawyers.

The Regulations were enacted as a result of a European Directive requiring all EU Member States to adopt similar laws in relation to commercial agents.³ Before the Directive, the law of commercial agency varied across the European community; so, for example, in England agents had no statutory protection, but in Germany they were well looked after. As explained in the Directive, its purpose was to:

1. further competition in the EU’s common market;
2. harmonise the laws pertaining to commercial agents across the European Union; and
3. “ensure a minimum level of protection for commercial agents”.⁴

The Directive (mostly) achieved the second purpose (though different member states implemented the Directive in different ways). On a practical level for agents and principals today, however, the most significant purpose is the third: that is, to prevent principals from abusing their dominant position over an agent and, upon termination, to give agents appropriate recompense for the goodwill that they create for their principals. In one case on the Regulations, the Judge explained: “What the Directive is aimed at is the protection of agents by giving them a share of the goodwill which they have generated for the principal and from which the principal derives benefit after the agency agreement has been terminated…”⁵.

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