Commercial Agents; A New Beast? - Spring 2006

01 April 2006

The relationship of principal and agent is a common one in promoting sales or purchases of products. The manufacturer needs a third party to promote his goods and secure sales and so appoints an agent (often in exclusive geographic areas) to secure sales. Because of the potential for exploiting the agent’s position, since 1993 the Commercial Agents Regulations have applied to all such relationships where agents have authority to negotiate the sale or purchase of goods, or to secure and conclude the sale or purchase of goods on behalf of another.

The regulations provide for compensation or an indemnity after termination of the agency contract. But what is the position if the agent merely makes introductions and conducts discussions but does not have power to agree pricing or terms? Is such an agent within the strict terms of the Regulations? This was the case in P J Pipe & Valve Co Ltd -v- Audco India Limited. P was an agent but had limited authority only to make introductions. When A appointed an alternative agent in the United Kingdom P accepted that A had breached its fixed term contract and brought a claim for compensation under the 1993 Regulations. A argued that P was not a commercial agent. The High Court held that P was an agent. The word negotiate in regulation 2 of the 1993 Regulations had to be given a broad meaning and include those who had been engaged to develop a principal’s business even without authority to conclude specific contracts. So P was entitled to a claim for compensation or an indemnity either based on the potential loss of business or commensurate with the improvements in goodwill that its actions had generated for A’s business.

Such an interpretation is perhaps not surprising given that the 1993 Regulations derive from earlier European Union Directives and when interpreting their meaning the purpose behind the Directive has to be sought. Any interpretation must work towards that purpose. However, by so doing, many relationships, which before might not have fallen within the 1993 Regulations, may now do so.

So the moral if you are seeking to set up or end an agency (or be an agent at the end of a potential termination of your agreement) is to seek advice as to your position. You may find the animal that has been created could now be different and capable of biting back!

‹ Back

• © Furley Page LLP 2008
• | LLP
• | Terms and Conditions
• | Privacy Policy
• | Site Map
• | Accessibility