Does an agent need to be an effective cause of the deal and can the Commercial Agents Regulations assist where a principal seeks to shut the agent out?

Recently Liverpool FC (”LFC”) scored a victory against Winlink Marketing Ltd (“WML”) when the High Court decided that WML had failed to demonstrate that it has been the effective cause of a deal struck between LFC and BetVictor. This was despite WML having earlier introduced LFC to BetVictor in accordance with an introduction agreement. The result was that WML missed out on commission of £1.125m.

The concept of an agent needing to be an effective cause in respect of a resulting transaction in order to claim commission is not new. It is a common law concept that is often at the centre of disputes between estate agents and their clients. As the court highlighted in the LFC case, if there is a dispute in respect of whether the agent needs to be the effective cause, the rules relating to implied terms and construction of contracts are key to determining the dispute.

Such a dispute can arise where the terms are silent or confused in respect of the effective cause requirement. Agents that wish to ensure that commission flows regardless of how small or large their role is in the transaction, need to ensure that the terms of the written agency agreement reflect that position.

But unlike the common law, there is an alternative to the effective cause route open to commercial agents. This is with reference to the statutory protection offered by the Commercial Agents Regulations.

For the Regulations to apply the agent needs to be a commercial agent. If we take the example of WML, LFC engaged WML to introduce LFC to potential sponsors. As such, WML was engaged in respect of services required by LFC. However, had WML been engaged by LFC in respect of goods, would the WML 1 – 2 LFC result have instead produced a 3 – 0 victory for WML? The question arises as to whether WML, an introducing agent, could be considered to be a commercial agent for the purposes of the Regulations if WML was engaged in respect of the sale of goods.

The argument that the agent was only an introducing agent (and, as such, is not entitled to compensation under the Regulations) is one which is made by a principal trying to avoid paying its agent compensation on the termination of the agency. A principal will make the argument that its agent simply facilitated introductions between the principal and customers. Accordingly, the agent falls outside the scope of the Regulations. This argument seeks to rely on the definition of a commercial agent as being someone who negotiates or negotiates and concludes the sale or purchase of goods on behalf of a principal.

However, the question of whether an agent engaged to introduce its principal to potential customers is a commercial agent was the subject of a High Court judgment in 2005.

The case involved an agent in the petrochemicals industry, where for commercial reasons, it was acknowledged that it would be highly unusual for an agent to be given authority by its principal to negotiate the sale of the goods. In contrast, agents were engaged to effect “crucial introductions” and they “played a significant role in persuading” potential contracting parties to take an interest in their principals’ goods.

Turning to the purpose of the EU Agents Directive, which gave rise to the Regulations, the court acknowledged that the protection granted to agents by the Directive was so as to give them a share in the goodwill that the agents generated for their principals. The result was that the court approached the term ‘negotiate’ in a broad sense, so as to allow for the agent to be a commercial agent for the purposes of the Regulations.

Since that judgment in 2005, this analysis of the Regulations has been confirmed in subsequent judgments.

So, if WML (an introducing agent) had been engaged by LFC in respect of the sale of goods, it would have been possible for WML to have turned to the Regulations in respect of claiming compensation if it could have argued that LFC had acted in serious breach of the introduction agreement.