Commercial Agents Regulations: when does the relationship terminate?

The Commercial Agents Regulations, like any piece of legislation, can only be fully understood once its bare terms are “fleshed out” with case-law.  That process continues in the U.K., as is illustrated by the English case of Clarmoda Ltd v Zoomphase Limited [2009] EWHC 2857 (Comm), decided on 13 November 2009.

The informal nature of agency relationships poses particular challenges to those who seek to regulate this area of law.  Because agency is such a useful commercial concept, it would make no sense to burden it with formalities in relation to creation of the relationship.  This case is a useful illustration of the challenges which arise as a direct result of the informality which is characteristic of agency.  In the case there was no written contract establishing the agency relationship, and much of the crucial evidence of relations between principal and agent was oral, taking place in phone calls or meetings.  This is highly typical, especially in situations where the agency is a low-value one.  Either party can, under regulation 13(1), require the other party to provide a signed written document setting out the terms of the agency contract.  In many cases, such a document will not have been obtained before it is too late, and the parties are in dispute about the actual terms of the agency contract.    

In this case the agent sought compensation in terms of regulation 17(6).  Entitlement to either compensation or indemnity is time-limited: the agent has a year from termination to make a claim for compensation or indemnity (reg 17(9)).  Compensation is available where the agency contract is silent on this point, as was the case here where the parties had not entered into a written contract.  If the parties wish to opt for indemnity rather than compensation, they must make provision for the same in a written contract (reg 17(2)).  But if the principal/agent relationship is highly informal, it may be no easy matter to identify the date on which the relationship terminates, and on which the clock begins to tick through the one year period.  That was exactly the issue which came before Mr Justice Simon in this case.

In order to decide that the agent was in fact entitled to compensation and was not time-barred, Mr Justice Simon focussed on the definition of a commercial agent contained in reg 2(1).  An agent is only a commercial agent in terms of the regulations if he or she has “continuing authority to negotiate” on behalf of his or her principal.  The Parks v Esso Petroleum case ((2000) Eu LR 25) was referred to by Mr Justice Simon in order to understand the meaning of the word “negotiate.”  So the important question is whether the agent’s authority to negotiate has ceased.  If that is the case then the agent’s relationship may have terminated.  That is not the sole criterion by which termination will be judged, however.  The agent may carry out other work on behalf of the principal which does not involve negotiation.  That was the case here, where the agent “…was involved in dealing with customer’s concerns about their orders and confirming discrepancies in the paper-work” (para [44]).  Although not involving negotiation, these are activities which the agent was carrying out on behalf of his principal and which provided evidence that the relationship had not yet terminated. 

The lucky agent was thus able to prove that he had intimated his claim for compensation timeously.  Mr Justice Simon also indicated that there was no need for him to identify an actual date of termination: pinpointing “mid-January 2007” was sufficient (para 49(1)).   

Recently, the House of Lords case Lonsdale v Howard & Hallam ([2006] EWCA Civ 63; 2006 1 WLR 1847 (CA); [2007] UKHL 32, [2007] 1 WLR 2055, [2007] ICR 1338 (HL(E)) significantly eroded the agent’s ability to claim compensation where the principal’s business is failing at the time of termination.  This case goes some way towards redressing the balance in favour of the agent.  A principal must make the date of termination clear if he wishes later to rely on the argument that the agent’s claim is time-barred. 


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