Key takeaways
- New government consultation launched proposing to abolish the Commercial Agents Regulations.
- The Commercial Agents Regulations have been in force since 1 January 1994, pursuant to an EU-wide directive. They provide important statutory protection to agents, including a right to a goodwill termination payment.
- If the government proceeds with its plans, it will have a significant impact on agents operating in the UK and will put more of an onus on negotiating a written agency agreement.
- Consultation is open for responses until 11 July 2024.
Summary
On 16 May 2024 the Department for Business and Trade published the Smarter regulation: deregulating the Commercial Agents (Council Directive) Regulations 1993 consultation, which proposes to “simplify the law” in Great Britain by preventing new commercial agencies (CAs) from being created under the Commercial Agents (Council Directive) Regulations 1993 (CARs). Deregulation would mean contracts between a principal and agent would be negotiated on their own individual terms, without the current protection afforded to agents under the CARs. The government is seeking responses to test whether this reform would be welcomed or rejected by those affected.
Commercial Agents (Council Directive) Regulations 1993
The CARs were enacted in the UK to implement EU Council Directive 86/653/EEC. In summary, the CARs govern contracts entered into between an agent and principal in the context of goods. The main purpose of the CARs is to provide a minimum level of protection for agents. A number of provisions in the CARs are mandatory so the parties cannot exclude them from the contract. The CARs also apply to agency relationships where there is no written contract.
The CARs also contain provisions dealing with the timing of commission payments and minimum notice periods for termination. Perhaps the most controversial aspect of the CARs has been the right for an agent to a goodwill termination payment at the end of the relationship. The agent is entitled to either an indemnity payment or a compensation payment. Since the payment is based on models from the German (indemnity) and French (compensation) systems, the UK courts have had to grapple with concepts that are unfamiliar under common law, leading to some interesting judgments over the years.
The CARs also impose duties on the principal to:
- Act dutifully and in good faith in their relations with the agent;
- Provide the agent with the necessary documentation relating to the goods concerned;
- Obtain necessary information for the performance of the agency contract and notify the CA within a reasonable period once they anticipate that the volume of commercial transactions will be significantly lower than that which the commercial agent would normally expect; and
- Inform the CA within a reasonable period of their acceptance or refusal, or non-execution, of a commercial transaction which the CA has procured for them.
The government’s case for deregulation
The government has justified its proposal by stating that deregulation would simplify the legislative framework in the UK and allow businesses to enter into agreements more easily. The government has also stated that it was initially opposed to the Directive when it was introduced as being inconsistent with the principle of freedom of contract. The government has also argued that deregulation would reduce court time spent on interpreting the CARs and it’s ambiguities.
What this might mean for agents and principals
Although the CARs cover protection for principals, it is agents that have been the main beneficiaries of the legislation. Typically (though not always), it is the principal that is larger in size and has the stronger bargaining power. Deregulation will put more of an onus on having a well drafted and negotiated written agreement in place, which is likely to be more of a concern for agents given the imbalance in bargaining strength. The CARs have been a useful tool for agents to help correct the power imbalance between the parties.
The consultation and next steps
The proposed deregulation will not impact existing agreements, which will continue to be governed by the CARs. Deregulation will only apply to new agreements, which will fall outside the scope of the CARs. This essentially reverts the position of CAs back to that prior to 1993 for new agency agreements. Before the CARs, disputes between a principal and agent were resolved by the courts reviewing the contract and common law on agency. The proposals currently refer only to Great Britain; the Northern Ireland Executive will decide whether it too wishes to reform the regulations in this area in due course. The findings of the consultation will be shared with the Northern Ireland Executive to help inform its decision.
The government is requesting opinions on its proposals from businesses and their trade associations, commercial agents, representative bodies and consumers, and includes a prescribed set of questions which it is asking participants to respond to. The consultation will accept further comments and evidence outside of these questions.
Responses to the consultation may be disclosed; however, information provided may remain anonymous upon request (although this cannot be guaranteed). Responses will be summarised and published, together with a list of organisations that have responded, without giving any personal details.
Any views on the proposal must be submitted by 11.59pm on 11 July 2024. The Regulatory Policy Committee will independently scrutinise and assess the options before reaching a decision.
Sakil A. Suleman, IDI country expert for agency and distribution in the United Kingdom
