There have been hundreds, if not, thousands of articles written about Brexit in the last nearly four years, since the decision to withdraw from the European Union (EU). There have been extensive preparations in Government, not just in relation to negotiations with the EU but also on the part of the legislative drafters, to ensure smoothness and consistency of our laws in the transition away from the EU.
Agency law in the UK
The common law principal of agency has developed over the years through the English courts, independently of any EU membership or EU legislation which has otherwise come into effect. Whilst the UK common law principals of agency will be unaffected by Brexit, the main piece of legislation currently in force in this country affecting commercial agency are the Commercial Agents (Council Directive) Regulations 1993 (the “Regulations”). The Regulations implement the Commercial Agents Directive, which is an EU piece of legislation.
Who is a commercial agent and what are their rights?
A commercial agent (“agent”) is an individual, partnership or company that has continuing authority to negotiate or negotiate and conclude the sale or purchase of goods in the name of, and on behalf of, a “principal”. The sale or purchase of services are not covered by the Regulations.
It is helpful to set out the basic differences between an agent and a distributor. In an agency agreement:
- agents are paid commission on the sales they make, usually on a percentage basis;
- the only contract for sale of the goods is made between the principal and the end customer and the agent generally has no contractual liability to the end customer,
but in contrast a distributor is a reseller, meaning:
- under a distribution agreement, the supplier or manufacturer supplies its goods to the distributor;
- the distributor then sells the goods on to its own end customers (i.e. not those of the supplier), adding a margin to cover its own costs and profit – unless specified otherwise in the agreement, there is no commission payable;
- in purchasing and reselling the goods, the distributor contracts both with the supplier and with the distributor’s end customer, and title to the goods in question will pass to and from the distributor.
The Regulations give agents stronger rights than those implied by common law in the UK. The main rights the Regulations afford agents are:
- rights to minimum periods of notice to terminate their agreement with the principal, namely one month for the 1st year of an agreement, two months for the 2nd year and three months for the 3rd and any subsequent years); and
- a right to compensation or an indemnity on the termination of the agency agreement. This means that the principal effectively pays the agent for the increase in goodwill the agent may have generated for the principal during the course of the agreement. In a compensation calculation, the agent is therefore entitled to be compensated for the damage he suffers as a result of the termination of his relationship with his principal. This cannot be contracted out of, although the parties can expressly agree whether the agent will be entitled to compensation or an indemnity (with the compensation rule applying if the agreement is silent). Whilst this right may be lost in certain cases, for example, where the principal terminates for the agent’s serious breach, the agent terminates themselves or the agent assigns the agreement with the principal’s consent, it is still a very valuable right for agents.
What is the intention in relation to these rights after Brexit?
In accordance with European Withdrawal Act 2018 and, of course, subject to the final Brexit deal that is agreed, as the Regulations are national law, the Regulations will remain in force immediately after Brexit.
However, the Regulations do originate from an EU Directive, and there has been some commentary that the Regulations give agents too much protection, particularly in relation to the right to compensation for arranging matters, even where they are not continuing as an agent for the principal. Latest indications from the government are that it will not accept any alignment with EU laws – the government’s document “The Future Relationship with the EU – The UK’s Approach to Negotiations”, issued in February 2020 states as follows:
“Whatever happens, the Government will not negotiate any arrangement in which the UK does not have control of its own laws and political life…[and] will not agree to any obligations for our laws to be aligned with the EU’s, or for the EU’s institutions, including the Court of Justice, to have any jurisdiction in the UK.”,
As such, there may well be pressure on a (future) government to look at withdrawing or at least significantly modifying the Regulations. This is arguably only likely to occur following a formal consultation on the subject, which would allow UK principal and agency businesses the opportunity to make representations on the subject before any steps are proposed.
However, whilst the Regulations are protective for agents, it should not be ignored that there have been thousands of statutory instruments importing some element of EU law over the years. This means that it could take years post Brexit for the government to review these to consider whether and to what extent the UK would wish to retain these laws. Further, clearly the UK will continue to trade with the EU, and removing protections for UK agents may well leave such agents open to abuse by EU manufacturers, whilst leaving UK manufacturers obliged to pay in respect of the existing rights to EU-based agents. This clearly would not result in a satisfactory outcome.
What should companies do now?
Although nothing is likely to change immediately around the commercial agents’ regime, now would be a good time to check existing agency agreements to understand the key terms and any opportunities for variation at a later date, should that become desirable.
If you would like some assistance in considering the steps your business should be taking to review your agency agreements in light of such developments, please contact a member of our Commercial Team.