In general terms an agent is someone who is authorised to do something on behalf of another (the principal). A commercial agent is a specific type of agent, as they have to be selling goods on behalf of the principal for the relevant law to apply. The law in this regard is contained in the Commercial Agents (Council Directive) Regulations 1993 (as amended) (the CARs). If the agent is selling services on behalf of the principal, the CARs do not apply.
The CARs came into UK law as a direct result of the UK's previous EU membership. They introduce terms into arrangements between a Principal and a commercial agent (a self-employed intermediary who has authority to negotiate the sale or purchase of goods on behalf of the principal). Many of these terms cannot be excluded, including the right to a written contract, certain provisions relating to commission and, importantly, the commercial agent's right to receive financial compensation if the arrangement is terminated in certain circumstances.
The CARs set out obligations on both the commercial agent and the principal to act ‘dutifully and in good faith’ towards one another. The parties cannot contract out of these duties.
Duties of the principal to the commercial agent
- To act in good faith in his relations with the agent.
- To provide the agent with the necessary documentation regarding the goods concerned.
- To obtain for the agent any information which the agent needs to perform the agency contract.
- To notify the agent if he/she anticipates that the volume of commercial transactions will be lower than the agent could normally have expected.
Duties of the commercial agent to the principal
- To make proper efforts to negotiate and conclude transactions.
- To communicate to the principal all the necessary information available to him.
- To comply with the principal’s reasonable instructions. e.g. supply sales reports.
- To act dutifully and in good faith.
The CARs provide for the agent’s remuneration during the agency contract in the absence of an express agreement. If there is no express agreement as to remuneration, the agent is entitled to the customary remuneration for agents dealing with the same goods in the area where the agent carries on his activities. If there is neither a specific agreement nor any customary practice, the agent is entitled to reasonable remuneration.
For commercial agents who are remunerated partly or wholly by commission, there are detailed provisions in the CARs relating to:
- The transaction on which the commission is payable.
- The time commission is payable.
- The apportionment of commission between successive agents.
- The extinction of the right to commission.
- The provision to the agent of information relating to commission.
There are also complicated rules regarding how agencies which are subject to the CARs can be terminated and what payments/indemnity/compensation the agent is or is entitled to on termination, if any. As such failure to be aware when the CARs apply can be a very expensive mistake for a Principal to make when engaging self-employed salespeople.
Restraint of trade clauses restrict the business activities of the agent after the agency contract comes to an end. Under the CARs such a clause is only valid if it is in writing and it relates to the geographical area or the group of customers or the type of goods entrusted to the agent under the agency contract and is no wider than reasonably necessary to protect the principal’s legitimate business interests.
Such clauses are only valid for a maximum of two years after termination of the agency contract and the usual common law tests of validity and enforceability apply. As such, the restraint of trade clause cannot be unreasonable.
The previous government decided that post-Brexit, the CARs should be looked at and a decision should be made as to whether they should be retained, and if so, in what form. As such a consultation was launched, and the result of this is that the CARs will remain in force without amendment.
As one might expect, the consultation itself showed that the CARs are popular with agents and less so with principals. Commercial agents generally welcome the security provided by the CARs when negotiating contracts, whereas principals argued that they limited the parties’ ability to negotiate, applied only to goods contracts, and created an unequal relationship between agents and principals, and even that they prevented termination of underperforming commercial agents.
For a more detailed analysis of the CARs please see our factsheet on COMMERCIAL AGENTS on the Hub.