Member Article

Whilst the impact of the upcoming general election remains to be seen, the Government has recently proposed scrapping the Commercial Agents Regulations for new agency arrangements.

Background

The Commercial Agents (Council Directive) Regulations 1993 (CAR) implement the Commercial Agents Directive (86/653/EEC) (Directive). 

The Directive sought to protect and improve the position of commercial agents and to harmonise laws governing relations between commercial agents and their principals. The Government opposed the Directive when it was introduced. 

CAR represented a fundamental change in approach for agency in Great Britain when it came into force on 1 January 1994. 

Following Brexit, whilst CAR has to date continued to have effect as retained EU law (now assimilated law), there has been significant uncertainty concerning the future of CAR.

For example, in September 2022, the Government introduced a bill intended to revoke all EU-derived subordinate legislation and retained direct EU legislation (including CAR).

Whilst the Government stepped back from this position and CAR was saved from revocation at the end of 2023, subsequent legislation conferred extensive powers on the Government to restate, reproduce, revoke, replace and update certain retained EU law (now assimilated law) (including CAR).

The Government’s latest proposals

The Government has made it clear that it believes CAR imposes a burden on business and is inconsistent with the UK’s broader legislative framework (in most cases businesses should in principle have the freedom to agree contractual terms between themselves in business-to-business arrangements).

The Government has proposed:

• To bring forward legislation to prevent CAR applying to new agency arrangements after the effective date of such amending legislation and to return to the previous position before CAR was implemented (where businesses were mostly free to individually negotiate contractual terms within the context of agency and the common law principles developed by the English courts with limited statutory intervention).
• That the provisions of CAR continue to apply to existing agency arrangements entered into before the effective date of such amending legislation until they naturally end.

The Government wants to hear from interested parties and has recently launched a consultation on the future of CAR which closes on 11 July 2024.

Brief overview of CAR

Where CAR applies it automatically includes binding obligations into arrangements between a business (principal) and its commercial agents.

Some of these obligations can be excluded in carefully drafted contracts. However, many of these obligations cannot be excluded either at all, or to the detriment of an agent (for example certain obligations relating to commission and an agent’s entitlement to potentially significant mandatory payments on termination in certain circumstances).

A commercial agent for the purposes of CAR is a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of its principal or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of its principal. For example, under CAR goods may include software and negotiate has been interpreted widely (for example to deal with, manage or conduct) and so may be a low threshold.

CAR applies to introducers, marketing agents, purchasing agents and sales agents.

CAR applies to agency arrangements whether oral or in writing and whether for an indefinite, fixed or temporary period (for example appointments on a trial or probationary basis).

What should you do now if you appoint agents or other intermediaries?

Whilst the impact of the upcoming general election remains to be seen and whilst there is clearly significant uncertainty at present (for example whether the Government’s latest proposals will be adopted at all, in whole or in part, what exactly amending legislation may provide, likely timescale for implementation of any changes etc.), if the Government’s latest proposals are implemented, this would represent a fundamental change in approach for agency in Great Britain which could have a significant impact on businesses, business decisions and strategies moving forward.

Despite the current uncertainty, given this potential fundamental change careful consideration now may, for example, help mitigate mandatory payments due to agents under CAR on termination and enable you to more easily ringfence risk and migrate in the future to agency arrangements that may not be subject to CAR or such mandatory payments.

With this in mind, set out below are some examples of preliminary considerations and actions to be considered in the short term as appropriate and where possible (although as CAR may restrict or impact what may be possible you should carefully consider CAR before taking any action).

New agency arrangements

If you are looking to enter into new agency arrangements before there is greater clarity on the future of CAR then these agency arrangements may remain subject to CAR, and mandatory payments may therefore be due to your agents under CAR on termination.

Delay – if you are able to delay until there is greater clarity you may be able to enter into arrangements where CAR does not apply, and no mandatory payments may be due under CAR on termination. However, it may be some time before we get any clarity, and this approach may not be practical and may result in lost revenue in the interim.

Interim arrangements – it may be useful to consider restricting the scope of new arrangements in the short term. For example:

• Shorter initial periods, shorter fixed term contracts or shorter notice periods may give greater flexibility to terminate and enter into new potentially more favourable arrangements once there is greater clarity.
• Specified (limited) goods and/or territories may enable you to prioritise key requirements in the interim and then agree separate agreements for further goods and/or territories once there is greater clarity.
• Appointing an agent on a non-exclusive basis in the interim and then agreeing to terminate and enter into new potentially more favourable sole or exclusive arrangements once there is greater clarity.

Longer term arrangements – if you need to move forward with potentially significant medium or longer term agency arrangements before there is greater clarity it may be useful to consider fully assessing and costing the potential implications of CAR and factoring this into the business case for each arrangement.

Review templates – it may also be useful to consider reviewing standard or template agency agreements to see if these currently go further than is required under CAR (for example if these include or do not exclude binding obligations which can be excluded under CAR) or if there are any additional protections or changes that may help to navigate, manage and/or mitigate the current uncertainty.   

Existing agency arrangements

Audit – if CAR already applies there may be little you can meaningfully do to change this although it may be useful to consider auditing existing arrangements to identify in advance potential considerations and issues (for example scope of current portfolio of arrangements, duration, extensions, upcoming renewals, terminations, commissions payable (to help identify possible mandatory payments on termination), any planned or possible changes in the current portfolio, reorganisations, restructuring, consolidations, corporate acquisitions etc.).

Renewals – for upcoming renewals, many of the considerations identified above for new agency arrangements may also be relevant. For example, it may be useful to consider shorter extensions, fixed term extensions, not extending the scope of goods or territories, agreeing certain variations to the existing arrangements etc.

Terminations – whilst the Government has currently proposed that the provisions of CAR continue to apply to existing agency arrangements entered into before the effective date of any amending legislation, in its consultation the Government has specifically asked whether respondents agree with this approach. When CAR came into force it applied to all existing agency arrangements (for example where an arrangement was entered into before 1994 it was, from 1 January 1994, governed by CAR). It is therefore possible that CAR may be scrapped for all agency arrangements. It may be useful to consider legal advice before terminating existing arrangements.

Cross border arrangements

Northern Ireland – CAR applies to the activities of commercial agents in Great Britain and the Government’s latest proposals cover Great Britain only. Separate (but similar) regulations apply in Northern Ireland, and it is for the Northern Ireland Executive to decide if and how to reform such regulations.

EEA member states – the Directive currently extends to the EEA. Whilst the Directive sought to harmonise laws governing relations between commercial agents and their principals this has been of limited success and important differences may exist (for example in relation to an agent’s entitlement to mandatory payments on termination, the treatment of services etc.). This is particularly relevant given the  complexities of how agreements with English governing law can be interpreted by EEA member states and in particular whether their laws might nevertheless apply.

Other countries – increasingly rights to mandatory payments for agents on termination arise in many other countries.

It may therefore be useful to consider legal advice on how best to structure cross border arrangements (for example having separate templates, entering into separate arrangements for each country, how best to address potential differences in local law etc.).

Oral arrangements

CAR applies to oral agency arrangements. It may be useful to consider internal training, policies and procedures to support the conduct of discussions with agents and potential agents to avoid inadvertently entering into binding arrangements.

Trial or probationary periods

Where CAR applies, agents appointed for a trial or probationary period will be protected by CAR for that period. It may be useful to consider shorter, fixed term trial or probationary periods for specified (limited) goods and territories.

Services

Whilst CAR applies to goods, not services, it is not always clear what may constitute goods for these purposes (for example software, gas and electricity have all been found to be goods in certain circumstances). It may be useful to consider legal advice on whether CAR applies in a given situation.

The application of CAR to a supply of both goods and services (for example the supply and fitting of spare parts) is uncertain. It may be useful to consider legal advice on how best to structure such arrangements (for example separate commission payments or entering into separate arrangements for goods and services depending on the potential levels of risk).

Whilst the Directive also applies to goods not services, countries may have extended this to apply to both goods and services. It may be useful to consider legal advice on how best to structure cross border arrangements for services (for example having separate templates or entering into separate arrangements for each country).

Territorial and jurisdictional scope

CAR may apply in certain circumstances even where English law is not the governing law, or the activities of the agent are not in Great Britain. These considerations can often be complex, and it may be useful to consider legal advice to determine whether a particular arrangement falls within the territorial and/or jurisdictional scope of CAR.

Arrangements with distributors and other intermediaries

Currently whether CAR applies can often be a significant factor in determining if a principal chooses to appoint an agent, distributor, reseller, franchisee or other intermediary.

Given the proposed fundamental change in approach for agency in Great Britain, it may be useful to consider current requirements for your business when appointing intermediaries including goals, drivers, restrictions etc. (as these may have evolved over time). It may also be useful to consider legal advice on which models may best support these requirements (for example given the Government’s latest proposals on the future of CAR, on developments in competition law and the competition law concept of non-genuine agency etc.).

 

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