News & Insights

Are we near the end of the Commercial Agents Regulations?

The Department for Business and Trade (DBT) recently launched a consultation on ‘smarter regulation’, with a view to bringing to an end the protection given to commercial agents under the Commercial Agents (Council Directive) Regulations 1993 (Regulations).

Although the outcome of the upcoming General Election may foil the DBT’s plans, the proposals raise important questions about the future of commercial agents.

The Regulations regulate agency relationships where the agent is engaged for the sale/purchase of goods (not services) on behalf of a principal and certain criteria are met.

The Regulations protect the agent in a number of ways which go beyond the protections provided by the common law. In particular, the principal is required to do the following:

  1. Act in good faith to the agent.
  2. Provide the agent with a statement of the contract terms if the agent asks for them (e.g. where a written agreement has not been entered into by the parties).
  3. Provide documentation and information which the agent needs to perform its duties.
  4. Tell the agent whether or not it is proceeding with the transactions which the agent brings to the principal (so that the agent knows which deals it will earn commission on).
  5. Inform the agent if the principal breaches a contract which the agent helped to secure (again because this might impact the agent’s entitlement to commission).
  6. Warn the agent about possible reductions in demand for the principal’s products in the agent’s territory.
  7. Not impose on the agent a post-termination restriction which goes beyond the agent’s territory and/or lasts for more than 2 years.

There are also various rules in the Regulations about the commission to be paid by the principal to the agent and, perhaps the most well-known of all, the Regulations entitle agents to a generous payment from the principal when the relationship comes to an end for commercial, rather than default, reasons.

There are two types of termination payment – compensation or indemnity – and although disputes can arise about which payment should be made and how it should be calculated, the fact that any such payment has to be made can be very off-putting to suppliers/manufacturers. Parties cannot contract out of the Regulations, so we often see clients opting to appoint resellers rather than agents in order to side-step the complications created by the Regulations and the risk of termination payments.

The DBT’s consultation explains that back in 1993 the UK government was in fact against the European directive on which the Regulations were based, and that it was never intended that they would sit on the statute book indefinitely. The DBT says that deregulation in this area would remove ‘regulations that do not fit easily into our legal framework, removing confusion for business and the courts in interpreting them’. The DBT points out that regulations taking precedence over contractual terms is quite unusual in UK business-to-business transactions and, as a result, the Regulations can lead to confusion for those who may not be aware of them or are not sure whether or not they apply to them.

Although the Regulations would likely still apply to principal-agent relationships entered into before they are scrapped, the proposed change in law raises a number of interesting questions – such as how those agents who would otherwise have benefited from protection would fare, whether the Regulations will be replaced by any simplified (watered down?) protection, and whether agency will become a more popular channel for getting products to the UK market.

We await with interest the new government’s approach to this issue but in the meantime the consultation serves as a reminder of the care that needs to be taken when appointing commercial agents and negotiating their contracts.

If you have any questions about how the Commercial Agents Regulations might impact your business and what protective steps you could take, please contact FSP’s Commercial & Technology/IP team.