Front and centre in the Brexit debate is the question of the UK’s trading relationship with Europe should the UK vote to leave the EU on 23 June. This leads the discussion to which related legislation may become the subject of challenge or repeal in the event of Brexit.
One piece of legislation which may find itself in the spotlight in such circumstances is the Commercial Agents (Council Directives) Regulations 1993 (the “Regulations”) which implemented the 1986 Council Directive on the Co-Ordination of the Laws of Member States Relating to Self-Employed Commercial Agents. In the UK, the Regulations are unheralded and for many they are simply unknown. However, their impact has been significant.
The Regulations exist to protect ‘commercial agents’; those individuals and businesses that are self-employed or contractors (not employed) to procure sales and/or the purchase of goods in return for which they are paid commission. To develop a successful agency requires investment. To justify the incurring of that investment requires a degree of comfort that the investment will be rewarded. The Regulations therefore serve to provide a statutory contract providing mandatory and non-mandatory terms that underpin a commercial agent/ principal relationship akin to the manner in which employment law seek to protect employees and consumer law seek to protect consumers whether or not the express terms agreed between the parties contain those terms.
The mandatory term of the Regulations which receives the greatest attention is Regulation 17. Regulation 17 provides that upon termination by a principal of an agency contract, the agent is entitled to be “indemnified…or compensated for damage”. The effect of Regulation 17 is that a principal who chooses to bring to an end the agency relationship faces an additional claim (beyond accounting for commission due and commission for a period of time after the relationship ends for sales ‘mainly attributable’ to the efforts of that agent) for the value of the business which the agent has built and the principal now benefits from.
The Directive took a long time to be implemented in the UK. Attempts to harmonise agency law across member states were taking place as long ago as the mid-1970s but with little success. A 1977 Law Commission report described the proposals as an “offense” to the basic principle of the English law of agency. The Regulations differ materially from the traditional notions of English contract law and freedom of contract. The imposition of a term (which cannot be contracted out of) providing for an additional payment for the agency value is a particularly alien notion in English law.
Unsurprisingly, the application of the Regulations (particularly Regulation 17) has presented difficulties to the English courts. It was not until 2007 (and the case of Lonsdale (t/a Lonsdale Agencies) v. Howard & Hallam Limited) that the English courts developed its own path to interpreting ‘compensation’ (being one of two alternative approaches to assessing damage under Regulation 17; the other being an ‘indemnity’ (although not an indemnity as English law practitioners would understand it)). In doing so, the English courts chose not to follow the French approach.
As such, different judicial approaches already exist in interpreting this EU derived law in different member states. In the event of Brexit and any repeal of the Regulations, self-evidently the approach to agency law will differ even more starkly across European nations. This will likely further increase the prospect of ‘forum shopping’ in deciding the governing law and jurisdiction of any cross border agency agreement.