A recent decision in the Court of Appeal emphasised that to come within the definition of a “commercial agent” within the Commercial Agents (Council Directive) Regulations the agent has to act on behalf of the principal and not on his own behalf.

The case of Sagal (Trading as Bunz UK) and Atelier Bunz GmbH involved the sale in the UK by Mr Sagal of jewellery manufactured by Bunz in Germany. The important features of the way the business was done was that Mr Sagal would take orders from the UK customers and fax these to Bunz in Germany, Bunz would deliver the order to the UK customer and invoice Mr Sagal and Mr Sagal would invoice the UK customer in his name, requesting payment to him, Mr Sagal. Mr Sagal would receive a 20% discount on Bunz’s wholesale price and would thus pay 80% of that price to Bunz.

Under the Regulations, agents are entitled to potentially significant payments on the termination of the agency agreement, so determining when the Regulations apply is crucially important.

On the facts, the Court ruled that the agent was not covered by the Regulations. However, in its judgment the Court went further, expressing the view that the Regulations will not apply when an agent concludes contracts under its own name, even if the contracts could otherwise be said to be made on behalf of the principal.

The Court held that the Regulations only applied when the principal’s name appeared on the face of the contract made with the customer. An agency agreement now seems unlikely to fall within the scope of the Regulations unless either:

• The principal concludes contracts in the name of the principal directly with customers, after the agent has negotiated them or
• The agent has authority from the principal to conclude contracts with customers using the principal’s name.

Principals and agents should consider their current documentation and the way they do business and determine whether or not the agent is a “commercial agent” in the light of the Sagal decision. The decision also raises the possibility that principals who are about to enter into a new agency agreement might effectively opt out of the Regulations by requiring the agent to conclude contracts with customers in the agent’s own name.

Technorati Tags: Commercial Agency, Employment Law