PASSING OF PROPERTY IN THE GOODS

A REMARKABLE UNDERSTANDING AND APPLICATION OF THE PROTECTIVE STANCE OF THE AGENCY REGULATIONS BY THE ENGLISH COURTS Severine Saintier. Copyright (c) 2001 Sweet and Maxwell Limited and Contributors Legislation: Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053) Council Directive 86/653 on self employed commercial agents
Subject: AGENCY Keywords: Agents; Agreements; Compensation; EC law; Termination Abstract: Background to, and scope of, 1993 Regulations implementing Directive 86/653 and decisions of English and Scottish courts on definition of commercial agents and application of termination rights.*540

Introduction Although civil and common law systems are generally portrayed as verydifferent in theory, they more often than not reach similar results in reality.However, in some areas, strong differences remain. The area of commercialagency is one of them where two sets of differences arise. First of all, thelaw of agency in common law countries such as the U.K. is of a general natureand embraces a very wide range of legal areas. [FN1] In civil law countriessuch as France, on the contrary, the rules, although general, tend to isolatetypes of agents and develop specific rules appropriate to their functions as isthe case for commercial agents. [FN2] In fact, in France, commercial agentshave been statutorily recognised and protected since 1958. [FN3] In the U.K.however, until the Directive on self-employed commercial agents [FN4] wasimplemented, commercial agents were not recognised as a separate category fromother commercial intermediaries and the traditional common law rules of agencyapplied to the relationship between commercial agents and their principals.Secondly and most importantly, French law regards commercial agents asdeserving protection.

In the U.K. principals are regarded as the weaker partyin the relationship. [FN5] In December 1986, the Council of Ministers enacted the Directive on theco-ordination of the laws of the Member States relating to self-employedcommercial agents. [FN6] The Directive aims at reinforcing the protection ofcommercial agents as well as harmonising the national laws regulating therelationship between commercial agents and their principals in Europe. TheDirective is based on the civil law assumption that commercial agents are theweaker party in the *541 relationship. [FN7] The Directive consequently closelyregulates the commercial agency relationship, providing commercial agents withrights at each stage of the contract. The U.K. implemented the Directive via the Agency Regulations 1993. [FN8]When the Agency Regulations came into force on January 1, 1994, confusion arosesince they not only created a categorisation which did not previously exist butthey also introduced a certain level of protection by way of civil lawconcepts, such as good faith and termination rights, which were alien to thetraditional common law rules of agency. [FN9] This confusion was heightened bythe lack of explanation in the Directive over such crucial notions. Theconfusion was further exacerbated by the fact that the U.K. has implemented theDirective by copying it almost word for word. This method of implementationrepresents a serious drawback since the Directive was never intended to beimplemented in such a manner. As a result, very much depended on the Englishcourts' interpretation of the Agency Regulations to clarify their scope ofapplication and ensure their efficiency in protecting commercial agents. Just over seven years after the Agency Regulations came into effect, it is agreat relief to realise that the English and Scottish courts have succeeded inboth tasks. In fact, not only have they applied the Agency Regulations withrelative ease but they also have ensured their effectiveness by emphasisingtheir civil law inspired protective stance with a remarkable understanding.Such an understanding was not expected and is very welcome since, to a certainextent, it balances out some of the drawbacks created by (almost) replicatingthe Directive. It is therefore necessary to review the decisions of the Englishand Scottish courts in relation to the two areas where most progress has beendone: the definition of commercial agents and the application of terminationrights.The definition of commercial agents: categorisation of a profession

Following the Directive, the Agency Regulations define the commercial agentin two steps. They provide a definition of the commercial agent and then theyexclude specific categories from the scope of application. The commercial agentis defined as a "self-employed intermediary who has continuing authority tonegotiate the sale or purchase of goods on behalf of another person (theprincipal) *542 or to negotiate and conclude the sale or purchase of goods onbehalf of and in the name of that principal. [FN10] This definition is ofcrucial importance since it creates a categorisation, which did not previouslyexist under the traditional English common law rules of agency. Consequently,it provides English commercial agents with a proper status and differentiatesthem from other commercial intermediaries. The definition is therefore crucialsince it helps to define the scope of application of the Agency Regulations.Yet, although the definition appears to be very comprehensive, problems arisewhich make it unclear who commercial agents are and what function theyprecisely perform as intermediaries. The scope of the definition: the function of commercial agents The firstproblem is related to the scope of the definition itself. The definitiondifferentiates between two kinds of commercial agents; those who have a limitedauthority of negotiation, and those with a wider authority to negotiate andconclude contracts on behalf of the principal.

This emphasis on the"negotiating" function of commercial agents, seems to show that this functionis central to the profession. Yet, in spite of such an emphasis, the AgencyRegulations remain silent as to what the "negotiating" function preciselyentails. The Directive, which also emphasises the "negotiating" function,[FN11] remains equally silent and therefore offers no assistance. The lack ofguidance raises a crucial problem in relation to the scope of application ofthe Agency Regulations. The seriousness of the issue is illustrated by the caseof Gary Parks v. Esso Petroleum Co. Ltd. [FN12] The facts must be considered. Between June 1993 and June 1996, Mr Parksoccupied a service station owned by Esso. Mr Parks sold the fuel as Esso'sagent and ran a shop as an independent contractor.

On May 14, 1997, Esso gavenotice of immediate termination of the Esso agreement on an alleged breach byMr Parks. Amongst other claims, which are irrelevant here, Mr Parks claimedindemnity payments following termination under the Agency Regulations. In 1998,Vice-Chancellor Scott in the High Court rejected the argument of Mr Parks thathe was the commercial agent of Esso over the sale of fuel, since thetransactions were not transactions that were normally individually negotiatedand concluded on a commercial basis as required by paragraphs 1 and 2(b) of theSchedule to the Regulations and by the Directive. [FN13] In fact, there was nonegotiation taking place between Mr Parks and the motorists who simply fuelledtheir vehicles without any real contact. Mr Parks then appealed to the Court ofAppeal, which dismissed the appeal. After carefully considering the meaning ofthe word "negotiate", the Court of Appeal decided that Mr Parks was not acommercial agent within the meaning of the Agency Regulations, since he did nothave negotiating power. To decide that Mr Parks was not a commercial agent isdangerous from a social viewpoint because it narrows down the application ofthe *543 Agency Regulations (and the Directive). [FN14] Yet, the outcome of thedecision is nevertheless right. In fact, it is clear that Mr Parks is an"agent" for the sale of fuel since he is a self-employed intermediary withcontinuing authority to conclude sales on behalf of the principal (Esso) andwas remunerated by commission. However, he is not a commercial agent within themeaning of the Agency Regulations. Although the decisions reached by both the High Court and the Court ofAppeal are right, the manner in which the decisions were reached must becommented upon. The main problem is that both Courts concentrated on whether MrParks had negotiated the transactions over the fuel once the customers werebuying it rather than concentrating on the marketing abilities of a commercialagent. Both the High Court and the Court of Appeal seem therefore to havemisunderstood the meaning of "negotiation". The High Court stated that Mr Parks had not negotiated the sale of fuelbecause the price at which motor fuel is sold is fixed by the principal. [FN15]This was an inaccurate interpretation of the word "negotiation" in relation tothe Agency Regulations. Indeed, most commercial agents cannot negotiate theprice at which they sell the goods/services of their principals. [FN16] WhetherMr Parks had the ability to fix the price or not would not have changedanything. The word "negotiation" here should have been understood more in theway the German text considers it, such as an active step towards gettingcustomers". [FN17] In fact, we have seen that the civil-law rationale wherebycommercial agents deserve protection is based on the fact that their mainfunction is to create/develop a market for the goods/services of the principal.[FN18] This certainly seems to underpin the core indemnity/compensationprovisions of article 17 of the Directive. [FN19] It is therefore clear that inorder to develop/create a market, commercial agents must actively go and lookfor clients, i.e. by advertising, going to fairs and so forth, which was notthe case for Mr Parks. Such an understanding also seems to be in line withother regulations on remuneration. [FN20] *544 The fact that Mr Parks did not "negotiate" because he did not go andlook for clients, seemed slightly better understood by the Court of Appealwhich stated that "( ... ) the definition does not require a process ofbargaining in the sense of ( ... ) haggle. But equally, it does require morethan the self-service by the customer followed by payment". [FN21]

The Court of Appeal seems to have considered that a commercial agentrequires certain skills in getting customers since Morritt L.J. stated: "in sofar as the definition indicates the need for skill or consideration Mr Parksprovided none". [FN22] Yet the understanding was not perfect since the Court ofAppeal dismissed the appeal on the ground that Mr Parks had a limiteddiscretion in the method of payment, which did not indicate any process ofnegotiation. This misunderstanding over the meaning of "negotiation" in this case seemsdifficult to understand, [FN23] especially since, at the time the AgencyRegulations came into effect, a question was raised over the meaning of thenegotiating function, in a more pertinent manner. In fact, the question was toknow whether "canvassing/introducing agents" who merely promote/market theprincipal's products and solicit orders were covered by the Agency Regulations.[FN24] The DTI remained silent on the issue, yet it seemed to be of the viewthat the courts should "give a wide interpretation to the word negotiate" inorder to allow introducing agents to have "the benefit of the Regulations".[FN25] This view seems to be confirmed by the recent case of TamarindInternational Ltd & Others v. Eastern Natural Gas (Retail) Ltd. [FN26] In thiscase, Justice Morrison held that "marketing activities of self-employedintermediaries [ ... ] were the activities of commercial agents within theconcept of the Agency Regulations". Who can be a commercial agent? In relation to the question of who commercialagents are, the Agency Regulations fail to answer two questions. First, theyfail to address the question whether commercial agents can be legal as well asnatural persons. The general feeling seems to press towards a positive answerand the question was finally cleared in the case of AMB Imballagi Plastici v.Pacflex Ltd. [FN27] In this instance, Judge Raymond Jack made clear that theAgency Regulations applied to commercial agents who act as legal entities aswell as to individual entities by stating that "the phrase 'self-employed' inregulation 2(1) and 57(1) of the Treaty of Rome has a special meaning ... akinto the term 'independent contractor' in English law". [FN28] *545 Secondly, the definition of the commercial agent fails to explain thenotion of "secondary activity".

Following the choice left in the Directive,[FN29] the U.K. has opted for the possibility to exclude commercial agentswhose activities are regarded as secondary under national laws [FN30] and thetext provides a schedule which defines which activities are regarded assecondary. [FN31] The system is however rather complex and has been criticised for being moreconcerned with the nature of the trade of the commercial agent rather thanwhether his/her activities are primary or secondary. [FN32] Moreover, asemphasised by the recent case Tamarind International Ltd v. Eastern Natural Gas(Retail) Ltd, [FN33] the notion is not common in Europe either and so there isno common reference to define the notion. The DTI offers no real help; nor doesthe Directive, which is silent on the issue. This means that, if clarificationwere necessary, the Schedule would have to be interpreted as U.K. legislation.[FN34] The matter was, however, finally settled in the case of AMB ImballagiPlastici v. Pacflex Ltd [FN35] where Judge Raymond Jack explained that theactivity was secondary "where the primary business of the agent is not hisbusiness as an agent but some other businesses". [FN36] All these cases show that the scope of application of the Agency Regulationsseems to be fairly well understood. It is now time to see how the Englishcourts have dealt with the other crucial change brought by the implementationof the Directive 86/653, that of reinforced protection via compulsorytermination rights.Termination payments: definition and application Providing commercial agents with compulsory termination payments isundoubtedly the most drastic improvement provided by the Agency Regulations.*546 The implementation of this part of the Directive has been the object ofnumerous comments, since the way the U.K. has implemented the Directive is mostpeculiar. Indeed, where Directive requested Member States to choose onetermination right between the German-based indemnity and the French-basedcompensation, [FN37] the U.K. has opted for both, leaving the choice to theparties. [FN38] However, in the absence of an agreement, compensation willapply. [FN39] The nature of these termination rights has puzzled Englishlawyers mostly because they are statutory rights and will therefore applyregardless of whether the principal has committed a breach. [FN40] They aretherefore very different from the English notion of contractual damages forloss. In fact, it seems accurate to describe termination rights as providingcommercial agents with a protection closer to that of employees. [FN41] The termination rights apply very widely since they are due even whentermination occurs as a result of the commercial agent's illness, old age andinfirmity, in which case s/he is in a state where s/he cannot be reasonablyrequired to continue his/her activities. [FN42] The right to receivecompensation or indemnity is even present in the event of the death of thecommercial agent. [FN43] Finally, the commercial agent can still be indemnifiedor compensated when s/he terminates the relationship because of circumstancesattributable to the principal. [FN44] The protection of commercial agents isfurther reinforced because the Agency Regulations also closely regulate thesituations where termination rights are lost. The right to be compensated orindemnified is only lost in three circumstances. First, when the principal hasterminated the commercial agency relationship with just cause, such as when thecommercial agent has committed a breach which is sufficiently serious tojustify immediate termination under regulation 16. [FN45] *547 Secondly, whenthe commercial agent him/herself terminates the relationship with no just causeto do so, [FN46] or assigns it, with the agreement of the principal, to a thirdparty. [FN47] And finally, if the commercial agent does not claim compensationor indemnity within one year of termination. [FN48] Despite such apparent details, two significant problems arise. First, theAgency Regulations fail to define what constitutes termination and, secondly,they remain silent over the calculation of termination payments. These twoproblems must be reviewed in turn. Termination: silence over its precise meaning The silence of the AgencyRegulations in relation to what constitutes "termination" is furtherexacerbated by an ambiguity over what is terminated between the two possibletermination rights, compensation and indemnity. It is necessary to see how theEnglish courts have overcome these two problems. Ambiguity as to what is terminated between the two termination payments Inrelation to the ambiguity over the notion of termination between the twotermination rights, it is serious since it can have considerable consequenceson the calculation of the termination rights. Regulation 17(1) stipulates thatthe commercial agent is entitled to be indemnified or compensated after the"termination of the agency contract". Regulation 17(6), however, stipulatesthat the commercial agent is entitled to receive compensation for the damagesuffered as a result of the "termination of his relations with the principal".There is an ambiguity with regard to what is terminated--the "agency contract"as per regulation 17(1) or the "relations" as per regulation 17(6). Thepotential threat is most present when the parties have entered into severalrenewable fixed-term contract. [FN49] Let us take the example of a commercial agent who has been acting for aprincipal for ten years under five contracts of two years each and theprincipal terminates the relationship before the end of the fifth contract. Ifwe apply the Agency Regulation to the letter, the choice between the two rightsis crucial with regard to the evaluation of the commercial agent's goodwill ontermination. Indeed, regulation 17(1) seems only to take into consideration thelast commercial agency contract, which seriously restricts the amount ofindemnity. Regulation 17(6) appears to take into consideration the commercialagency relationship as a whole in order to determine the amount of compensationthe commercial agent should receive. This loophole could seriously underminethe commercial agent's *548 protection, since nothing prevents the principalfrom entering into successive fixed-term contracts in order to reduce indemnitypayments. The High Court of England and Wales seems to have filled thatloophole in the case of Duncan Moore v. Piretta Ltd [FN50] where it was heldthat that the principal cannot reduce his liabilities towards his commercialagent by a succession of fixed-term contracts. [FN51] The court decided thatthe relationship as a whole should be considered in order to evaluate theamount of indemnity to pay. [FN52] This decision shows that the court has perfectly understood the protectivestance of the Agency Regulations. This is of crucial importance for theprotection of commercial agents because it will prevent unscrupulous principalsfrom trying to limit the calculation of indemnity by entering into a series offixed-term commercial agency contracts. What amounts to termination? Although the ambiguity between the two types oftermination payments has been lifted, the silence of the Agency Regulations(and the Directive) still leaves two further questions unanswered: first,whether closure of the principal's business and liquidation amount totermination, and second, if so, whether termination rights are due in suchcases. The two issues must be considered in turn. First, in relation to the issue of termination, the central question is toknow whether the actual mechanism of closure and liquidation of the principalamount to termination or not. As a matter of strict law, if the principaldismissed the commercial agent without notice or before the expiry of afixed-duration contract, then this is regarded as repudiation of the contract.Once the commercial agent accepts, s/he terminates the contract and can claimtermination rights under regulation 18(b)(i). Similarly, if the commercialagent resigns without notice, this constitutes repudiation and the contract isactually terminated by the principal who accepts the commercial agent's breach.This would be a justified summary termination under regulation 16(a) and woulddeny the commercial agent termination rights under regulation 18(a). In relation to the principal going out of business, the central question isto know whether cessation of business is a repudiation of contract. At commonlaw, this would depend on the construction of the contract. [FN53] Under theAgency Regulations, the situation is clear when the principal, on cessation ofbusiness, expressly dismisses the commercial agent. The commercial agent cantherefore claim termination rights under regulation 18(b)(i). If the principaldoes not do so, the question is whether cessation of business per se terminatesthe contract or *549 whether the principal needs to dismiss the commercialagent. In English common law, the cessation of business does not necessarilyper se terminate the contract. However, if the principal failed to satisfyorder, pay commission, and so forth, this would be regarded as repudiation.Hence, the commercial agent could accept repudiation, terminate and claimtermination payment under regulation 18(b). The question is important inrelation to the notice of commercial agent to claim termination payments.[FN54] Now that the question of the mechanism of termination has been reviewed, theissue of whether termination rights are due can be considered. In relation toliquidation of the principal's business, it has been said that, when thebusiness fails through no fault of the commercial agent, there is no reason whythe latter should suffer through reduced compensation. [FN55] However, theposition is weakened because commercial agents are unsecured creditors and, assuch, are unlikely to receive anything. The more pressing question is to know whether termination payments are dueto the commercial agent on the closure of a healthy business. On that question,looking at French and German law might be helpful, since the closure of ahealthy business is rarely accepted as a valid reason for avoidance oftermination payments in these two Member States. The case of Graham Page v. CSTLtd [FN56] dealt with the issue and held that the fact that the principalclosed down a healthy business entitled the commercial agent to claimcompensation since it was regarded as falling under termination for"circumstances attributable to the principal". [FN57] However, this case has nobinding value. [FN58] The issue of closure of business was also considered inthe Scottish case of Douglas King v. Tunnock Ltd. [FN59] At first instance, the Sheriff, after considering French law (wrongly)dismissed the appeal on the ground that the principal did not continue tobenefit from the past activities since the business was closed. [FN60] This wasquashed, however, by Lord Caplan in the inner house of the Court of Session whoshowed a remarkable understanding of the French system and awarded a total oftwo years' commission for compensation. [FN61] Lord Caplan stated thattermination had caused a loss to *550 the commercial agent, and the fact thatthe principal was not going to benefit from the business any more wasirrelevant, since the emphasis was not on the commercial agent's future lossbut on the impact of severance. This case is of crucial importance because itshows that, once again, the courts have emphasised and applied the protectivestance of the Agency Regulations. It is, however, now time to turn to the lastissue raised by copying the Directive word for word: the calculation oftermination rights. Termination rights: the calculation In relation to the German-based systemof indemnity, in spite of the lack of guidance of the Directive as to thecalculation, the English courts seem to have understood fairly quickly how thesystem works. In the only case involving indemnity, that of Duncan Moore v.Piretta Ltd, [FN62] John Mitting Q.C. stated that it was possible to look atthe relevant parts of German law "for the purpose of construing the EnglishRegulations and to use it as a guide for their application". [FN63] Problems were more serious in relation to the French system of compensation.Yet recent cases show that the English courts have started looking at how thesystem works in France. Things started to change with the case of AMB ImballagiPlastici Srl v. Pacflex Ltd [FN64] where Judge Raymond Jack indicated that, hadcompensation been awarded, it would have been made on the basis of the Frenchlegal principles. This tendency can also be seen in two recent Scottish cases:first, that of Roy v. M.R. Pearlman Ltd, [FN65] where Lord Hamilton agreed onthe necessity to look at the French rules in order to assist in determining thetermination right; secondly, in the case of King v. Tunnock, [FN66] where LordCaplan awarded the commercial agent a compensatory award of L27,144.Remarkably, such a sum was calculated by express reference to French law andrepresented two years' worth of commission. In this case, the Scottish courthas showed a remarkable understanding of the way the French system is appliedin France and the reasoning is very close to what a French court would havedone in the same situation. However, the case of Jeremy Duffen v. FRA Bo SpA [FN67] raises doubts.[FN68] The facts are complicated and must be briefly reviewed. In thisinstance, the plaintiff was appointed to act as the exclusive commercial agentfor an Italian manufacturer on August 1, 1994. The relationship was expected tolast for at lest three years. In December 1996, following the non-payment ofcommissions, the claimant *551 terminated the contract relying on clause 6.3 ofthe contract allowing him to do so. [FN69] The claimant started proceedings andclaimed a sum of L27,115.81 for unpaid commissions and payment of L100,000liquidated damages pursuant a contract clause. The Court of Appeal allowed thepayment of L31,799.11 as unpaid commission but held the liquidated damagesclause unenforceable on the ground that it was not a genuine pre-estimate ofthe loss suffered. This part of the judgment does not raise any difficulty,since it is in perfect relation with the relevant case law. [FN70] The case,however, reached the Central London County Court, where the claimant sought torecover unpaid commission, a retainer and compensation for damage sufferedrelying on the Agency Regulations. [FN71] Judge Hallgarten decided, somewhatreluctantly, that the obligation to pay the retainer survived termination.[FN72] This aspect of the decision does not raise particular problems since itis a question of construction of contract. However, the manner in which thedecision on compensation under regulation 17(6) was reached must be reviewedclosely. Judge Hallgarten had to decide, whether the commercial agent could usethe Agency Regulations to "augment his common law entitlement". JudgeHallgarten answered that "the claimant's position cannot be improved byrecourse to the regulations" [FN73] because the claimant has not shown that hehad "suffered a damages as a result of the termination of the relationship withthe defendant". [FN74] Judge Hallgarten recognises that regulation 17(6) is not"meant to duplicate what may otherwise be recoverable at common law". [FN75]Judge Hallgarten also acknowledges the previous cases that recognise theimportance of French law as the direct inspiration for compensation but addsthat "attempting to mimic what a French court would actually have done" is animpossible task for which English courts are ill-equipped. [FN76] The way Judge Hallgarten has approached the question of compensation must belooked at. Judge Hallgarten first looked at the period in relation to whichcompensation should be paid and said that it should be payable at least inrelation to the period of July 31, 1998, which was "the earliest date when theagreement might have expired". [FN77] Such an analysis seems close to what aFrench court would do. [FN78] However, after that, his analysis is wrong. Infact, Judge Hallgarten looked at the two criteria defined in regulation 17(7)and, applying them very closely, he decided that compensation would have beennominal and derisory. In relation to *552 the first criterion, [FN79] JudgeHallgarten said that it was not of much help for the claimant since "theclaimant did not introduce one new customer to the defendant and was lesssuccessful in restoring existing customers". [FN80] This statement seems toshow that Judge Hallgarten did not look to the French system to calculate thecompensation due. Such confusion emphasises the need for English courts to lookvery closely to French law since the French courts do not look at how muchbusiness was brought to the principal. Judge Hallgarten went on to say that thesecond criterion, that of regulation 17(7(b) [FN81] was of no help either sincethe retainer of L4,000 was to amortise the costs. [FN82] This is wrong sincethere is no need to mitigate or amortise the costs under the French system. YetJudge Hallgarten concluded that the right approach to evaluation ofcompensation consist simply to "look at the earnings, which might have accruedto the claimant during the period to July 31, 1998, had he remained thedefendant's agent, but without taking into account particular common lawconcepts of avoided loss, mitigation, etc." This is very close to the wayFrench courts evaluate the damage in the event of the unjustified terminationof a fixed-term contract. Although it is true that, in this case, thecommercial agent should not have received much compensation since he wasentitled to keep the retainer and therefore suffered no damage, the manner inwhich the decision was reached was not entirely accurate.Conclusion When the Agency Regulations came into force on January 1, 1994, the changesbrought were so drastic that it was feared that implementation of the Directivewould cause the death of commercial agents as a profession. Yet we have seenthat the results achieved by the English and Scottish courts are trulyremarkable. In fact, the courts have shown that they recognise commercialagents as an independent profession and know what their function is.Considering that commercial agents were an unknown legal entity under thetraditional common law rules of agency, [FN83] this is an achievement since itclarifies the scope of application of the Agency Regulations. The courts havealso shown a good understanding of the workings of the termination payments inthe light of French *553 and German laws, ensuring the efficiency of theprotection of the Agency Regulations. This is of crucial importance because,due to the lack of explanation in the Directive in relation to the calculationof the civil law based termination rights, it was feared that English lawyerswould apply them in the light of the common law principles. However, both theEnglish and the Scottish courts have played a substantive role in enhancing,through their interpretation, the protective stance of the Agency Regulations,hence securing the position of commercial agents.DR SEVERINE SAINTIER [FNa1] FN1. F. M. B. Reynolds, Reynolds and Bowstead on Agency (16th ed., Sweet and Maxwell), p. 718, para. 12.001. FN2. ibid. FN3. Decree 58/1345 of December 23, 1958, D 1959, L132. FN4. Council Directive on the co-ordination of the laws of the Member States relating to self-employment commercial agents, O.J. of 31-12-1986, No. L382/17 to 21. FN5. Principals must be protected against the potential abuse of power by their agents. FN6. O.J. of 31-12-1986, No. L382/17 to 21. FN7. The civil law rationale for protecting commercial agents is based on the fact that commercial agents are representatives whose main role is to create, develop or even maintain a customer base (goodwill) within a given territory, for manufacturers who want to expand their businesses. Commercial agents are therefore appointed to sell/purchase goods or services on behalf of their principals. Because they do not act for themselves, civil law recognises the risk that once commercial agents have created or developed the customer base, manufacturers might terminate the contract, by-pass commercial agents and deal directly with the clients, which would deny commercial agents their legitimate share of the profit. FN8. S.I. 1993, No. 3173 as amended by S.I. 1998, No. 2168, which entered into force on December 16, 1998. FN9. For an overview of the application of the notion by the English courts, see Saintier, "Good faith: commercial agents regulations" [1998] Company Lawyer 248-252. FN10. Reg. 2(1). FN11. Art. 2(1). FN12. (2000) 18 Tr.L.R. 232. FN13. [1999] 1 C.M.L.R. 454 at 478-479. FN14. There is a good social argument for affording protection to the likes of Mr Parkes as was emphasised by counsel of Mr Parks. See [1999] 1 C.M.L.R. 455 at 479, para. 86. FN15. [1999] 1 C.M.L.R. 478, para. 86. FN16. One could say that this is an essential difference between a commercial agent and a distributor. Whilst the distributor acts for him/herself and takes a financial risk, the commercial agent does not act for him/herself but does not take a financial risk. FN17. In article 84(1) of its commercial code, German law does not talk of "negotiation", but of "the negotiation of business deals". FN18. See n. 7. FN19. In Germany, indemnity is a capitalisation of the goodwill generated. In France, it represents the value of the agency as an asset for the principal. See the European Commission Report on the application of article 17, published in July 1996, Com. (96/364), p. 2. FN20. For instance in relation to commission for transactions concluded during an agency contract, reg. 7(1)(a) entitles the commercial agent to it "when transactions have been concluded as a result of his actions". Likewise, for commission on transactions concluded after the end of the agency contract, entitlement depend on the transaction being "mainly attributable to the agent's efforts during the agency" (reg. 8(a)). FN21. (2000) 18 Tr.L.R. 232 at 238f. FN22. (2000) 18 Tr.L.R. 232 at 238f & 239a. FN23. The only way this could be explained is by the fact that what seems to have been involved in this case was a retention of title clause. This might be why the court was so anxious to avoid applying the Agency Regulations. FN24. See Wessen & Lawes (Eds), "PLC Commercial contracts", Practice Manual (Legal and Commercial Publishing Ltd, 1999), Vol. 1, chapter on agency, p. 1211. FN25. See the DTI Guidance Note, published in September 1994, p. 7. It is to be noted that the Guidance note is not binding. FN26. Unreported, The Times, June 27, 2000, Morrison J., Q.B.D. FN27. (1999) 17 Tr.L.R. 557, Morritt L.J. FN28. (1999) 17 Tr.L.R. 557, Morritt L.J. FN29. Art. 2(2). FN30. Reg. 2(4). J. Scholes and N. Blane, "Agency Agreements, new protection for commercial agents", (1993) 4 PLC, p. 36 criticise the rules because it is not very clear whether this condition must be satisfied only at the start or throughout the life of the commercial agency agreement. A potential solution could be provided by the French 1991 statute which stipulates that the parties can exclude the protecting rules when the commercial agency activities are secondary (art. 15(1)) but the exclusion will be invalid if, in reality, the activities are not secondary (art. 15(2)). FN31. Reg. 2(3). FN32. These were the comments of Judge Raymond Jack in the recent case of AMB Imballagi Srl v. Pacflex Ltd, (1999) 17 Tr.L.R. 557. Judge Raymond Jack of the Bristol Mercantile Court even highlighted an inconsistency in the schedule by stating that, whilst paragraph 1 talks of "primary purpose other than set out in paragraph 2", there is no purpose in paragraph 2. See similar criticisms by the appeal Judge L.J. Waller in [1999] 2 All E.R. (Comm) 249 at 259d and 253c. FN33. Unreported, The Times, June 27, 2000, Morrison J. Q.B.D. FN34. See Kleinwort Benson Ltd v. City of Glasgow District Council [1995] C-346/93 where a submission for a ruling to the European Court of Justice for interpretation was refused. Case cited in r. Christou, "International agency, distribution and licensing agreements", FT Tax and Law, 1996, 34d ed., p. 88. FN35. (1999) 17 Tr.L.R. 557. FN36. (1999) 17 Tr.L.R. 557. FN37. Art. 17(1). FN38. Reg. 17(1). FN39. Reg. 17(2). FN40. The DTI appears not to have understood this fact since it said that having fixed-term commercial agency contracts or giving the correct period of notice would potentially reduce the level of indemnity or compensation. Similarly, the DTI adds that termination rights are not due when proper contractual notice has been given and is a matter for the courts to decide. See DTI Guidance Notes published in September 1994, p. 19. FN41. R. Christou stipulates that termination rights should be looked at almost exactly like compensation under unfair dismissal or redundancy legislation rather than as provisions which purpose is to penalise the principal for an unlawful termination. See R. Christou "International agency. Distribution and licensing agreements", FT Tax and Law, 1996, 3rd ed., p. 99. FN42. Reg. 8(b)(ii). FN43. Reg. 17(8). FN44. Reg. 18(b)(i). In the case of Graham Page v. CST Ltd [1997] 3 All E.R. 656, closing down a healthy business was regarded as coming within this regulation. This case has however no binding precedent. FN45. Reg. 18(a). This part of the Agency Regulations is of crucial importance for the protection of the commercial agent because the principal cannot deny such a right of the commercial agent in any other ways than those defined. For instance, the principal cannot terminate the contract on a trifle such as failure to visit a client and deny the termination rights of the commercial agent. This would be contrary to the good faith requirement. Compare and contrast with Wickman Ltd A.G. [1974] A.C. 235. FN46. Reg. 18(b). FN47. Reg. 18(c). There is a just cause for the commercial agent when termination occurs because of the death, age, illness or infirmity of the commercial agent. However, whilst death automatically terminates the relationship, in relation to age, illness and infirmity, the commercial agent has to prove that s/he "cannot reasonably be required to continue the activities". As per reg. 18(b)(ii). FN48. Reg. 17(9). For examples as to how the claim must be made, the recent case of Brian Hackett v. Advanced Medical Computer Systems Ltd [1999] C.L.C. 6(160) Q.B.D. FN49. J. M. Mousseron "Lisons dans le marc de cafe a propos de l'indemnisation demain de l'agent commercial" (1996) J.C.P., supp. 5, p. 28. FN50. [1999] 1 All E.R. 174. FN51. John Mitting Q.C. held "The grounds upon which the right to indemnity can be excluded do not include the expiry of the term of the agency contract or the expiry and renewal of agency contracts". [1999] 1 All E.R. 174 at 179b. FN52. For a more detailed explanation of the ruling, see S. Saintier "Termination rights of the commercial agent: evaluation of recent English cases in the light of the civil law inspired Directive" (1999) C.L., p. 152. FN53. See cases in employment law such as Marshall v. Guinle [1979] Ch. 227 and Gunton v. Richmond [1980] 3 W.L.R. 714. FN54. The commercial agent has only one year to claim termination payment (reg. 17(9)). FN55. S. Singleton Commercial Agency Agreements, Law and Practice (Butterworths, 1998), p. 78. This is also in line with France and Germany here bankruptcy of the principal still allows the commercial agent to receive termination payments. See the European Commission Report on the application of article 17, published in July 1996, Com. 96/364. FN56. [1997] 3 All E.R. 656. FN57. Reg. 18(b)(i). FN58. The central issue was not over compensation but over an interim injunction. The court only had to decide whether the commercial agent had an arguable case, e.g. that his argument as to the interpretation of the Agency Regulations had a chance of success at a trial. For a commentary of the case, see S. Saintier "New developments in Agency", [1997] J.B.L. 77-82. FN59. [2000] Eu.L.R. 531. FN60. Such a reasoning is wrong since in France, termination rights are not based on the benefits procured to the principal but the damage suffered by the commercial agent. FN61. [2000] Eu.L.R. 531. Lord Caplan looked at French law and said that since in France compensation was calculated at the moment of termination, so should he in this instance. FN62. [1999] 1 All E.R. 174. For an explanation on the ruling, see Saintier "Termination rights of the commercial agents: evaluation of recent cases in the light of the civil law inspired Directive", (1999) Company Lawyer, 152. FN63. ibid. at 177g. FN64. [1999] 2 All E.R. (Comm.) 249. FN65. [1999] 2 C.M.L.R. (3) 1155. FN66. [2000] Eu.L.R. 531. FN67. No. 1, see [1999] E.C.C. 58. The case was upheld by the Central London County Court on 21-10-1999 (case No. 2), see [2000] 1 Lloyd's Rep. 180. FN68. For a discussion of the case, see Saintier, "Termination rights of the commercial agents, evaluation of recent English cases in the light of the civil law inspired directive", (1999) Company Lawyer, pp. 151-152. FN69. For details of the contractual clause, see [2000] 1 Lloyd's Rep. 180. FN70. Otton L.J. relied on Dunlop Pneumatic Tyre Company Ltd v. New Garage & Motor Company Ltd [1915] A.C. 79 affirmed by the Privy Council in Phillips (Hong Kong) Ltd v. Attorney General of Hong Kong (1993) 61 B.L.R. 49. FN71. [2000] 1 Lloyd's Rep. 180. FN72. [2000] 1 Lloyd's Rep. 180 at 194. FN73. [2000] 1 Lloyd's Rep. 180 at 198. FN74. ibid. FN75. [2000] 1 Lloyd's Rep. 180 at 197. FN76. [2000] 1 Lloyd's Rep. 180 at 198. FN77. [2000] 1 Lloyd's Rep. 180 at 198. FN78. Although the rule of thumb for compensation is two years, the French courts, in the case of a fixed-term contract as in our present case tend to award the amount of commissions, which would have been earned for the remaining duration of the contract. FN79. Reg. 17(7)(a) stipulates that damage is deemed to have occurred when termination has deprived the commercial agent of the commission which proper performance of the agency contract would have procured for him whilst providing his principal with substantial benefits linked to the activities of the commercial agent. FN80. [2000] 1 Lloyd's Rep. 180 at 198. FN81. This criterion assesses damage on the basis that termination has not enabled the commercial agent to amortise the costs and expenses incurred during the performance of the agency contract on the advice of the principal. FN82. [2000] 1 Lloyd's Rep. 180 at 198. FN83. When the Law Commission was consulted over the first proposal by the European Commission of a directive on commercial agency, the Law Commission stated that there was no need for such a text to be implemented in the U.K. since it was unable to identify such a social group as commercial agents in England. See Law Commission, No. 84, Law of Contract, Report on the Proposal for an EEC Directive on the law relating to commercial agents, Cmnd. 6948, October 1977, London. FNa1. The Liverpool Law School, University of Liverpool.END OF DOCUMENT © 2007 Thomson/West. No Claim to Orig. US Gov. Works.