Commercial Agents under ‘The Commercial Agents (Council Directive) Regulations 1993’ – Rules for Commercial Agents (“CAR”)

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What is a Commercial Agent?

A “Commercial Agent” is a self-employed intermediary who has continuing authority to negotiate and conclude the sale or purchase of goods on behalf of and in the name of another person (the “Principal”). However, where an agent is instructed to complete a single transaction, this does not constitute having continuing authority.

Individuals, such as an officer of a company (a director) or association are already empowered to enter into commitments binding on the business, as is a partner (who is lawfully permitted to bind his/her partners) and an insolvency practitioner. They are therefore excluded from the definition of Commercial Agent and cannot claim ‘agency status’. However, the “intermediary” does not need to be a natural person, it can be a partnership or corporate entity.

Obligations on Commercial Agent

In performing their obligations to their Principal, the agent must be obligated and, in doing so, looking after the interests of their Principal and acting in good faith:

  • Make proper efforts to negotiate and where instructed conclude the transactions;
  • Communicate to the Principal all the necessary information available to him/her; and
  • Comply with reasonable instructions of the Principal.

Obligations on Principal

In return, the Principal has obligations to provide the agent with the necessary tools, such as documentation relating to the contract and, importantly, notify the Commercial Agent if the orders are anticipated to be significantly lower than the agent could have normally expected. The Principal must advise the Commercial Agent within a reasonable period of time from either acceptance of the deal or if the deal falls through.

Any attempt by the parties to restrict or remove those obligations under the Agreement will be void.

How much and when does a Commercial Agent get paid?

The amount paid will depend on whether there is a contract or not setting out those values. If there is no written contract or it is silent on payment (but the Commercial Agent is not carrying out these activities for free), then the law states that custom and practice may apply for the goods which is subject to the agency “contract” or a reasonable remuneration taking into account the aspects of the transaction.

In terms of when payment is made, under the Commercial Agents (Council Directive) Regulations 1993 – Rules for Commercial Agents (“CAR”), a Commercial Agent should expect to be remunerated once they have executed the deal, or if the Principal executes the deal or a third party has (“due date”). A Commercial Agent is entitled to be paid “not later than on the last day of the month following the quarter in which it became due” but this does not prevent the parties agreeing a quicker method of payment.

Entitlement to Commission

Where the agent is wholly or partly remunerated by way of commission, a Commercial Agent is entitled to payment where:

  • the transaction has been concluded as a result of their action; or
  • the transaction is concluded with a third party whom they have previously acquired as a customer for transactions of the same kind; or
  • there is a geographical area or specific group of customers and that transaction took place within that geographical area or with that specific group of customers.

Expiry of an agency agreement will only come to an end provided the parties do not continue to act as though the agency agreement is continuing. For example, if an agency agreement is for a fixed period of time but the parties continue, oblivious to the fact it has come to an end, the agency agreement will convert into an indefinite period which can bring challenges when it comes to either party later seeking to walk away.

The Commercial Agency Regulations have been kicking around for some time (I was still at school pondering my life as being a backing singer for Kylie Minogue – I should be so lucky!) but I think the most important information to know about CAR is it only applies to ‘Goods’ and not to Services.

But what are “Goods”?

The Court of Appeal reversed a High Court decision that said software that is downloadable on a perpetual basis can fall within the legal definition of “goods” for the purpose of CAR. The appellant Court felt there needed to be a tangible medium to be caught by the CAR compensation / indemnification regime, which is probably a relief for most software developers/AI creators. Perhaps the High Court were trying to tell us that the CAR is becoming increasingly outdated.

The CAR derived from EU law however as a result of s2 of the European Union (Withdrawal Act) 2018, the CAR continues to apply and have full effect in the UK unless the UK Government decides to modify or repeal any of the provisions within the CAR.

If you are a Commercial Agent or indeed a Principal, and would like advice on setting up an agency agreement, or if you believe you are entitled to a compensative payment resulting from a termination then please do get in touch with the author.