Smarter Regulation: Deregulating the Commercial Agents (Council Directive) Regulations 1993
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On 16 May 2024, the Department for Business and Trade published an open consultation for deregulating the Commercial Agents (Council Directive) Regulations 1993 ("CARs"). Within the body of the consultation, the UK Government stated that it hoped that deregulation would "simplify the law" and "free businesses to work with each other".
In the ministerial foreword, Kevin Hollinrake asserts that the Retained EU Law (Revocation and Reform) Act 2023 has provided the UK Government with an opportunity to review the regulations and determine whether they still work for businesses operating in the UK.
Commercial Agents (Council Directive) Regulations 1993
The Commercial Agents (Council Directive) Regulations (CARs) were enacted in the UK on 1 January 1994, pursuant to EU Council Directive 86/653/EEC. The regulations set out the rights and obligations between commercial agents and their principals. Under the regulations, commercial agents are defined as a self-employed intermediary who has a continuing authority to negotiate the sale or purchase of goods on behalf of another person (the principle), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal.
CARs also contain provisions dealing with remuneration (regulations 6 and 12), and the conclusion and termination of agency contracts (regulations 13 and 15). These provisions therefore provide protection to smaller businesses contracting into agreements with parties with unequal bargaining power. Notably, under the regulations commercial agents are entitled to receive a goodwill termination payment following termination by the principal. This entitlement to either an indemnity or compensation payment has long been the subject of controversy with critics claiming that the legislation does not sit easily within the UK's broader legislative framework for allowing businesses to enter contracts on their own commercial terms.
The divergence between CARs and contractual terms (agreed between businesses operating within the UK) has provided a challenging landscape for the UK courts to navigate. This has been exacerbated by the vast majority of case law within the area originating from French (compensation) and German (indemnity) judgments. Controversially, UK courts have also had to grapple with cases where there is no written contract but the criterion for CARs is satisfied. To the extent that a party falls within the definition of 'commercial agent', certain CARs requirements cannot be excluded, including the following:
|
Regulation |
Requirement |
|
3,4 |
Ensuring that both commercial agents and their principals act in good faith, communicate necessary information and comply with reasonable instructions from each other. |
|
10 |
Complying with certain provisions concerning commission. |
|
13 |
Commercial agents are entitled to receive written contractual terms. |
|
15 |
Ensuring that where contracts are set up i) without a definite term; or ii) with a definite term but are then allowed to run on beyond the original term, that a minimum notice period to terminate the contract applies (1 month per year the contract has been in force, up to a max of 3 months' notice). If a longer notice is agreed, the principal's notice cannot be shorter than the agents. |
|
17 |
Commercial agents have a right to compensation for damages suffered as a result of termination of a contract where the agent is deprived of the commission or has not enabled the agent to pay off the costs incurred when winding down the contact (the commercial agent has 1 year to pursue their entitlement). |
|
18 |
Indemnity or compensation is excluded where an agent terminates the contract themselves or an agent assigns their rights to another. |
The UK Government hopes that the deregulation will simplify the UK's legislative framework, reduce court time spent interpreting the regulations, make it easier for individuals to determine who qualifies as a commercial agent, and how much compensation should be calculated. However, the UK Government also acknowledges that deregulation will remove a protective shield from small businesses.
It is currently proposed that commercial agents in existing agreements will retain their rights under the Regulations. The proposals would also exclude Northern Ireland, and any similar decision in that jurisdiction would be a matter for the Northern Ireland Executive.
This development is worth keeping one eye on, as scope of the CARS has extended over the years (software can be a "product" and "negotiate" is interpreted widely) and some franchise business models incorporate an element of commercial agency.
Consultation and how to respond
Interested parties (such as businesses and their trade associations, commercial agents, representative bodies, trading standards and other enforcers) have been called to respond to the UK Government's consultation by 11.55pm on 1 August 2024. Following this deadline, the Regulatory Policy Committee will independently review the responses and assess the potential options before deciding whether to deregulate CARs.
Given the recent change of Government on 4 July 2024, it remains to be seen whether the new administration will continue with this process.
If you have any questions about the proposed deregulation or need any further information about responding to the consultation, please contact Gordon Drakes.
This article has been co-written by Holly Johnson.