A recent Court of Appeal decision has clarified the application of the Commercial Agents (Council Directive) Regulations 1993, with potentially significant implications for both agents and principals, particularly in the manufacturing and sale industries. In Sagal (Trading as Bunz UK) v Atelier Bunz GmbH [2009] EWCA Civ 700 the court expressed the view that the Regulations do not apply where the agent contracts with customers in its own name, even if the contracts are in fact made on behalf of the principal.

Where the Regulations apply, the agent receives important benefits such as the right to potentially generous payments on the termination of the agency. Such benefits generally cannot be excluded by agreement between the parties, so it is crucial to determine whether or not an agency agreement falls within the scope of the Regulations in assessing each party's potential rights and liabilities.

Decision

This case concerned the sale of jewellery under an oral agency agreement, but the decision is potentially applicable to all agency relationships including those governed by written agency agreements. The judgment confirmed that the Regulations will not apply where the agent concludes contracts with customers on its own behalf rather than on behalf of the principal.

However, the Court of Appeal went further than this and expressed the view that the Regulations will not apply where the agent concludes contracts in its own name, even if the contracts are in fact made on behalf of the principal.

Following the decision, an agency agreement is unlikely to fall within the scope of the Regulations unless either (i) the principal concludes contracts with customers directly (after the agent negotiates the contracts) or (ii) the agent, with appropriate authority from the principal, concludes contract with customers using the principal's name.

Comment

In this case, the Court of Appeal arguably reduced the question of whether the Regulations apply to a matter of form rather than substance. This may provide principals with a mechanism to remove new agency agreements from the scope of the Regulations.

The judgment has attracted some criticism for paying little attention to the commercial objectives underlying the Regulations, and may be the subject of further judicial consideration. Nevertheless, the decision is in line with the literal wording of the Regulations, and as a Court of Appeal decision will have significant persuasive effect, particularly as an earlier European Court of Justice judgment (Mavrona & Sia OE v Delta Etairia Symmetochon AE, Case C-85/03) reached a similar conclusion.

Principals and agents should now consider whether the Court of Appeal's decision means that their existing agency contracts are not in fact "commercial agency" contracts covered by the Regulations, particularly if they are considering the termination of these contracts. They will need to consider whether the agency contract provides that the agent is to contract with customers in its own name, and it might also be necessary to look at how contracts with customers are in fact concluded, for example whether it is the agent's or the principal's invoices which are used.

The decision also raises the possibility that companies entering into new agency relationships can now effectively contract out of the Regulations. By including a clause requiring the agent to contract with customers in its own name, the parties could potentially ensure that their agreement falls outside the scope of the Regulations. If this is possible, and practical, it is something which could be of great benefit to principals, and of which agents should be very wary.