Protective Regulations
Directive on Commercial Agents
COUNCIL DIRECTIVE
of 18 December 1986
on the coordination of the laws of the Member States relating to self-employed commercial agents
(86/653/EEC)
THE COUNCIL OF THE EUROPEAN COMMUNITIES,
Having regard to the Treaty establishing the European Economic Community, and in particular Articles 57 (2) and 100 thereof,
Having regard to the proposal from the Commission (1),
Having regard to the opinion of the European Parliament (2),
Having regard to the opinion of the Economic and Social Committee (3),
Whereas the restrictions on the freedom of establishment and the freedom to provide services in respect of activities of intermediaries in commerce, industry and small craft industries were abolished by Directive 64/224/EEC
Whereas the differences in national laws concerning commercial representation substantially affect the conditions of competition and the carrying-on of that activity within the Community and are detrimental both to the protection available to commercial agents vis-à-vis their principals and to the security of commercial transactions; whereas moreover those differences are such as to inhibit substantially the conclusion and operation of commercial representation contracts where principal and commercial agent are established in different Member States;
Whereas trade in goods between Member States should be carried on under conditions which are similar to those of a single market, and this necessitates approximation of the legal systems of the Member States to the extent required for the proper functioning of the common market; whereas in this regard the rules concerning conflict of laws do not, in the matter of commercial representation, remove the inconsistencies referred to above, nor would they even if they were made uniform, and accordingly the proposed harmonization is necessary notwithstanding the existence of those rules;
Whereas in this regard the legal relationship between commercial agent and principal must be given priority;
Whereas it is appropriate to be guided by the principles of Article 117 of the Treaty and to maintain improvements already made, when harmonizing the laws of the Member States relating to commercial agents;
Whereas additional transitional periods should be allowed for certain Member States which have to make a particular effort to adapt their regulations, especially those concerning indemnity for termination of contract between the principal and the commercial agent, to the requirements of this Directive,
HAS ADOPTED THIS DIRECTIVE:
CHAPTER I
Scope
Article 1
1. The harmonization measures prescribed by this Directive shall apply to the laws, regulations and administrative provisions of the Member States governing the relations between commercial agents and their principals.
2. For the purposes of this Directive, ‘commercial agent’ shall mean a self-employed intermediary who has continuing authority to negotiate the sale or the purchase of goods on behalf of another person, hereinafter called the ‘principal’, or to negotiate and conclude such transactions on behalf of and in the name of that principal.
3. A commercial agent shall be understood within the meaning of this Directive as not including in particular:
—
a person who, in his capacity as an officer, is empowered to enter into commitments binding on a company or association,
—
a partner who is lawfully authorized to enter into commitments binding on his partners,
—
a receiver, a receiver and manager, a liquidator or a trustee in bankruptcy.
Article 2
1. This Directive shall not apply to:
—
commercial agents whose activities are unpaid,
—
commercial agents when they operate on commodity exchanges or in the commodity market, or
—
the body known as the Crown Agents for Overseas Governments and Administrations, as set up under the Crown Agents Act 1979 in the United Kingdom, or its subsidiaries.
2. Each of the Member States shall have the right to provide that the Directive shall not apply to those persons whose activities as commercial agents are considered secondary by the law of that Member State.
CHAPTER II
Rights and obligations
Article 3
1. In performing has activities a commercial agent must look after his principal’s interests and act dutifully and in good faith.
2. In particular, a commercial agent must:
(a )make proper efforts to negotiate and, where appropriate, conclude the transactions he is instructed to take care of;
(b) communicate to his principal all the necessary information available to him;
(c) comply with reasonable instructions given by his principal.
Article 4
1. In his relations with his commercial agent a principal must act dutifully and in good faith.
2. A principal must in particular:
(a)provide his commercial agent with the necessary documentation relating to the goods concerned;
(b)obtain for his commercial agent the information necessary for the performance of the agency contract, and in particular notify the commercial agent within a reasonable period once he anticipates that the volume of commercial transactions will be significantly lower than that which the commercial agent could normally have expected.
3. A principal must, in addition, inform the commercial agent within a reasonable period of his acceptance, refusal, and of any non-execution of a commercial transaction which the commercial agent has procured for the principal.
Article 5
The parties may not derogate from the provisions of Articles 3 and 4.
CHAPTER III
Remuneration
Article 6
1. In the absence of any agreement on this matter between the parties, and without prejudice to the application of the compulsory provisions of the Member States concerning the level of remuneration, a commercial agent shall be entitled to the remuneration that commercial agents appointed for the goods forming the subject of his agency contract are customarily allowed in the place where he carries on his activities. If there is no such customary practice a commercial agent shall be entitled to reasonable remuneration taking into account all the aspects of the transaction.
2. Any part of the remuneration which varies with the number or value of business transactions shall be deemed to be commission within the meaning of this Directive.
3. Articles 7 to 12 shall not apply if the commercial agent is not remunerated wholly or in part by commission.
Article 7
1. A commercial agent shall be entitled to commission on commercial transactions concluded during the period covered by the agency contract:
(a) where the transaction has been concluded as a result of his action; or
(b) where the transaction is concluded with a third party whom he has previously acquired as a customer for transactions of the same kind.
2. A commercial agent shall also be entitled to commission on transactions concluded during the period covered by the agency contract:
either where he is entrusted with a specific geographical area or group of customers,
or where he has an exclusive right to a specific geographical area or group of customers,
and where the transaction has been entered into with a customer belonging to that area or group.
Member States shall include in their legislation one of the possibilities referred to in the above two indents.
Article 8
A commercial agent shall be entitled to commission on commercial transactions concluded after the agency contract has terminated:
(a) if the transaction is mainly attributable to the commercial agent’s efforts during the period covered by the agency contract and if the transaction was entered into within a reasonable period after that contract terminated; or
(b) if, in accordance with the conditions mentioned in Article 7, the order of the third party reached the principal or the commercial agent before the agency contract terminated.
Article 9
A commercial agent shall not be entitled to the commission referred to in Article 7, if that commission is payable, pursuant to Article 8, to the previous commercial agent, unless it is equitable because of the circumstances for the commission to be shared between the commercial agents.
Article 10
1. The commission shall become due as soon as and to the extent that one of the following circumstances obtains:
(a) the principal has executed the transaction; or
(b) the principal should, according to his agreement with the third party, have executed the transaction; or
(c) the third party has executed the transaction.
2. The commission shall become due at the latest when the third party has executed his part of the transaction or should have done so if the principal had executed his part of the transaction, as he should have.
3. The commission shall be paid not later than on the last day of the month following the quarter in which it became due.
4. Agreements to derogate from paragraphs 2 and 3 to the detriment of the commercial agent shall not be permitted.
Article 11
1. The right to commission can be extinguished only if and to the extent that:
—it is established that the contract between the third party and the principal will not be executed, and
—that face is due to a reason for which the principal is not to blame.
2. Any commission which the commercial agent has already received shall be refunded if the right to it is extinguished.
3. Agreements to derogate from paragraph 1 to the detriment of the commercial agent shall not be permitted.
Article 12
1. The principal shall supply his commercial agent with a statement of the commission due, not later than the last day of the month following the quarter in which the commission has become due. This statement shall set out the main components used in calculating the amount of commission.
2. A commercial agent shall be entitled to demand that he be provided with all the information, and in particular an extract from the books, which is available to his principal and which he needs in order to check the amount of the commission due to him.
3. Agreements to derogate from paragraphs 1 and 2 to the detriment of the commercial agent shall not be permitted.
4. This Directive shall not conflict with the internal provisions of Member States which recognize the right of a commercial agent to inspect a principal’s books.
CHAPTER IV
Conclusion and termination of the agency contract
Article 13
1. Each party shall be entitled to receive from the other on request a signed written document setting out the terms of the agency contract including any terms subsequently agreed. Waiver of this right shall not be permitted.
2. Notwithstanding paragraph 1 a Member State may provide that an agency contract shall not be valid unless evidenced in writing.
Article 14
An agency contract for a fixed period which continues to be performed by both parties after that period has expired shall be deemed to be converted into an agency contract for an indefinite period.
Article 15
1. Where an agency contract is concluded for an indefinite period either party may terminate it by notice.
2. The period of notice shall be one month for the first year of the contract, two months for the second year commenced, and three months for the third year commenced and subsequent years. The parties may not agree on shorter periods of notice.
3. Member States may fix the period of notice at four months for the fourth year of the contract, five months for the fifth year and six months for the sixth and subsequent years. They may decide that the parties may not agree to shorter periods.
4. If the parties agree on longer periods than those laid down in paragraphs 2 and 3, the period of notice to be observed by the principal must not be shorter than that to be observed by the commercial agent.
5. Unless otherwise agreed by the parties, the end of the period of notice must coincide with the end of a calendar month.
6. The provisions of this Article shall apply to an agency contract for a fixed period where it is converted under Article 14 into an agency contract for an indefinite period, subject to the proviso that the earlier fixed period must be taken into account in the calculation of the period of notice.
Article 16
Nothing in this Directive shall affect the application of the law of the Member States where the latter provides for the immediate termination of the agency contract:
(a) because of the failure of one party to carry out all or part of his obligations;
(b) where exceptional circumstances arise.
Article 17
1. Member States shall take the measures necessary to ensure that the commercial agent is, after termination of the agency contract, indemnified in accordance with paragraph 2 or compensated for damage in accordance with paragraph 3.
2.
(a) The commercial agent shall be entitled to an indemnity if and to the extent that:
— he has brought the principal new customers or has significantly increased the volume of business with existing customers and the principal continues to derive substantial benefits from the business with such customers, and
— the payment of this indemnity is equitable having regard to all the circumstances and, in particular, the commission lost by the commercial agent on the business transacted with such customers. Member States may provide for such circumstances also to include the application or otherwise of a restraint of trade clause, within the meaning of Article 20;
(b) The amount of the indemnity may not exceed a figure equivalent to an indemnity for one year calculated from the commercial agent’s average annual remuneration over the preceding five years and if the contract goes back less than five years the indemnity shall be calculated on the average for the period in question;
(c) The grant of such an indemnity shall not prevent the commercial agent from seeking damages.
3. The commercial agent shall be entitled to compensation for the damage he suffers as a result of the termination of his relations with the principal.
Such damage shall be deemed to occur particularly when the termination takes place in circumstances:
— depriving the commercial agent of the commission which proper performance of the agency contract would have procured him whilst providing the principal with substantial benefits linked to the commercial agent’s activities,
— and/or which have not enabled the commercial agent to amortize the costs and expenses that he had incurred for the performance of the agency contract on the principal’s advice.
4. Entitlement to the indemnity as provided for in paragraph 2 or to compensation for damage as provided for under paragraph 3, shall also arise where the agency contract is terminated as a result of the commercial agent’s death.
5. The commercial agent shall lose his entitlement to the indemnity in the instances provided for in paragraph 2 or to compensation for damage in the instances provided for in paragraph 3, if within one year following termination of the contract he has not notified the principal that he intends pursuing his entitlement.
6. The Commission shall submit to the Council, within eight years following the date of notification of this Directive, a report on the implementation of this Article, and shall if necessary submit to it proposals for amendments.
Article 18
The indemnity or compensation referred to in Article 17 shall not be payable:
(a) where the principal has terminated the agency contract because of default attributable to the commercial agent which would justify immediate termination of the agency contract under national law;
(b) where the commercial agent has terminated the agency contract, unless such termination is justified by circumstances attributable to the principal or on grounds of age, infirmity or illness of the commercial agent in consequence of which he cannot reasonably be required to continue his activities;
(c) where, with the agreement of the principal, the commercial agent assigns his rights and duties under the agency contract to another person.
Article 19
The parties may not derogate from Articles 17 and 18 to the detriment of the commercial agent before the agency contract expires.
Article 20
1. For the purposes of this Directive, an agreement restricting the business activities of a commercial agent following termination of the agency contract is hereinafter referred to as a restraint of trade clause.
2. A restraint of trade clause shall be valid only if and to the extent that:
(a) it is concluded in writing; and
(b) it relates to the geographical area or the group of customers and the geographical area entrusted to the commercial agent and to the kind of goods covered by his agency under the contract.
3. A restraint of trade clause shall be valid for not more than two years after termination of the agency contract.
4. This Article shall not affect provisions of national law which impose other restrictions on the validity or enforceability of restraint of trade clauses or which enable the courts to reduce the obligations on the parties resulting from such an agreement.
CHAPTER V
General and final provisions
Article 21
Nothing in this Directive shall require a Member State to provide for the disclosure of information where such disclosure would be contrary to public policy.
Article 22
1. Member States shall bring into force the provisions necessary to comply with this Directive before 1 January 1990. They shall forthwith inform the Commission thereof. Such provisions shall apply at least to contracts concluded after their entry into force. They shall apply to contracts in operation by 1 January 1994 at the latest.
2. As from the notification of this Directive, Member States shall communicate to the Commission the main laws, regulations and administrative provisions which they adopt in the field governed by this Directive.
3. However, with regard to Ireland and the United Kingdom, 1 January 1990 referred to in paragraph 1 shall be replaced by 1 January 1994.
With regard to Italy, 1 January 1990 shall be replaced by 1 January 1993 in the case of the obligations deriving from Article 17.
Article 23
This Directive is addressed to the Member States.
Done at Brussels, 18 December 1986.
For the Council
The President
M. JOPLING
(1) OJ No C 13, 18. 1. 1977, p. 2; OJ No C 56, 2. 3. 1979, p. 5.
(2) OJ No C 239, 9. 10. 1978, p. 17.
(3) OJ No C 59, 8. 3. 1978, p. 31.
(4) OJ No 56, 4. 4. 1964, p. 869/64.
European Communities (Commercial Agents) Regulations, 1994.
The regulations
S.I. No. 33 of 1994.
EUROPEAN COMMUNITIES (COMMERCIAL AGENTS) REGULATIONS, 1994.
I, RUAIRÍ QUINN, Minister for Enterprise and Employment, in exercise of the powers conferred on me by section 3 of the European Communities Act, 1972 (No. 27 of 1972) for the purpose of giving effect to Council Directive 86/653/EEC of 18 December 1986*, on the co-ordination of the laws of the Member States relating to self-employed commercial agents, hereby make the following Regulations:
1. These Regulations may be cited as the European Communities (Commercial Agents) Regulations, 1994.
2. (1) In these Regulations:
“commercial agent” means a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person, hereinafter called “the principal”, or to negotiate and conclude such transactions on behalf of and in the name of the principal;
the term “commercial agent” does not include—
(a) a person who, in the capacity of an officer of a company or association, is empowered to enter into commitments binding on that company or association;
(b) a partner who is lawfully authorised to enter into commitments binding on the partners;
(c) a receiver, a receiver and manager, a liquidator or an examiner, as defined in the Companies Acts, 1963 to 1990, or a trustee in bankruptcy;
(d) a commercial agent whose activities are unpaid;
(e) a commercial agent operating on commodity exchanges or in the commodity market; or
*O.J. L382/17 of 31st December 1986.
(f) a consumer credit agent or a mail order catalogue agent for consumer goods, whose activities, pursuant to paragraph (2) of this Regulation, are considered secondary;
“the Directive” means Council Directive 86/653 EEC of 18 December 1986*.
(2) The activities of an agent of a category described in paragraph (1) (f) of this Regulation shall be presumed, unless the contrary is established, to be secondary for the purposes of these Regulations.
(3) The Directive shall, subject to these Regulations, apply to the relations between commercial agents and their principals from 1 January 1994.
4. In the application of Article 7 (2) of the Directive, a commercial agent shall be entitled to commission on commercial transactions concluded during the period covered by the agency contract only where the agent has an exclusive right to a specific geographical area or group of customers and where the transaction has been entered into with a customer belonging to that area or group.
5. The agency contract shall not be valid unless it is evidenced in writing.
GIVEN under my Official Seal, this 21st day of February 1994.
RUAIRÍ QUINN,
Minister for Enterprise and Employment.
EXPLANATORY NOTE.
These Regulations give legal effect to EU Council Directive 86/653/EEC on the Co-ordination of the LAWS of Member States relating to Self-Employed Commercial Agents. The Regulations deal with the relationship between Commercial Agents and their Principals and their respective rights and obligations. Certain categories of agent are specifically excluded.
*O.J. L382/17 of 31st December 1986.
European Communities (Commercial Agents) Regulations, 1997.
View SI Amendments
S.I. No. 31 of 1997.
The Amending Regulations
EUROPEAN COMMUNITIES (COMMERCIAL AGENTS) REGULATIONS, 1997.
I, RICHARD BRUTON, Minister for Enterprise and Employment, in exercise of the powers conferred on me by section 3 of the European Communities Act, 1972 (No. 27 of 1972), for the purpose of giving effect to Council Directive No. 86/653/EEC of 18 December 1986(*), on the co-ordination of the laws of the Member States relating to self-employed commercial agents, hereby make the following Regulations:
1. (1) These Regulations may be cited as the European Communities (Commercial Agents) Regulations, 1997.
(2) The European Communities (Commercial Agents) Regulations, 1994 ( S.I. No. 33 of 1994 ) and these Regulations shall be construed as one and may be cited together as the European Communities (Commercial Agents) Regulations, 1994 and 1997.
2. It is hereby confirmed that, pursuant to Regulation 3 of the European Communities (Commercial Agents) Regulations, 1994, a commercial agent shall, after termination of the agency agreement, be entitled to be compensated for damage in accordance with Article 17 (3) of the Directive subject, insofar as they are relevant to such compensation, to the provisions of that Article and of Articles 18, 19 and 20 of the Directive.
GIVEN under my Official Seal, this 7th day of January, 1997.
RICHARD BRUTON,
Minister for Enterprise and Employment.
*O.J. L382/17 of 31-12-1986.
EXPLANATORY NOTE.
These Regulations have been made in order to state expressly, for the avoidance of any possible doubt, what was done in the European Communities (Commercial Agents) Regulations 1994 ( S.I. No. 33 of 1994 ) regarding Article 17 of the Council Directive on Commercial Agents. The Regulations confirm that, after termination of an agency agreement, a commercial agent shall be entitled to compensation under Article 17 (3) of Council Directive No. 86/653/EEC of 18th December 1986.
Cases
Lonsdale (t/a Lonsdale Agencies) v. Howard & Hallam Ltd
[2007] UKHL 32
LORD HOFFMANN
“ It will be noticed that although the purpose of the directive is said to be the coordination of the laws of the Member States relating to self-employed commercial agents, article 17 allows Member States to choose between two different rights, one or other of which must be accorded to a commercial agent on the termination of the agency. He must be given a right to either an indemnity in accordance with article 17(2) or compensation in accordance with article 17(3). The English words “indemnity” and “compensation” are not very illuminating in marking the distinction between these two rights. They are both ways of dealing with the unfairness which it was thought might arise if the termination of the agency leaves the agent worse off and the principal better off than if the agency had continued. It appears that the right under article 17(2), which the draftsman has chosen to label “indemnity”, is derived from German law and is now contained in section 89b of the Handelsgesetzbuch. The right to “compensation” under article 17(3) is derived from French law and is now contained in article 12 of the Loi no 91-593 du 25 juin 1991 relative aux rapports entre les agents commerciaux et leurs mandants. The two systems can plainly lead to different results, so that, on this point at any rate, the extent of the coordination achieved by the directive is modest.
The United Kingdom chose both systems, in the sense that it allowed the parties to opt for an indemnity under article 17(2) but provided that in default of agreement the agent should be entitled to compensation under article 17(3): see regulation 17(2). In the present case the parties made no choice and Mr Lonsdale is therefore entitled to compensation under article 17(3).
The question in this appeal is how the compensation should be determined. But for this purpose it is necessary first to decide exactly what the agent should be compensated for. Only then can one proceed to consider how the compensation should be calculated.
On this first question the directive is explicit. The agent is entitled to be compensated for “the damage he suffers as a result of the termination of his relations with the principal.” In other words, the agent is treated as having lost something of value as a result of the termination and is entitled to compensation for this loss.
As this part of the directive is based on French law, I think that one is entitled to look at French law for guidance, or confirmation, as to what it means. Article 12 of the French law says that the agent is entitled to “une indemnité compensatrice en réparation du préjudice subi“. The French jurisprudence from which the terms of the article is derived appears to regard the agent as having had a share in the goodwill of the principal’s business which he has helped to create. The relationship between principal and agent is treated as having existed for their common benefit. They have co-operated in building up the principal’s business: the principal by providing a good product and the agent by his skill and effort in selling. The agent has thereby acquired a share in the goodwill, an asset which the principal retains after the termination of the agency and for which the agent is therefore entitled to compensation: see Saintier and Scholes, Commercial Agents and the Law (2005) at pp 175-177.
This elegant theory explains why the French courts regard the agent as, in principle, entitled to compensation. It does not, however, identify exactly what he is entitled to compensation for. One possibility might have been to value the total goodwill of the principal’s business and then to try to attribute some share to the agent. But this would in practice be a hopeless endeavour and the French courts have never tried to do it. Instead, they have settled upon compensating him for what he has lost by being deprived of his business. That is the “préjudice subi.” The French case law makes it clear that this ordinarily involves placing a value upon the right to be an agent. That means, primarily, the right to future commissions “which proper performance of the agency contract would have procured him”: see Saintier and Scholes, op.cit, pp. 187-188. In my opinion this is the right for which the directive requires the agent to be compensated.
Having thus determined that the agent is entitled to be compensated for being deprived of the benefit of the agency relationship, the next question is how that loss should be calculated. The value of the agency relationship lies in the prospect of earning commission, the agent’s expectation that “proper performance of the agency contract” will provide him with a future income stream. It is this which must be valued.
Like any other exercise in valuation, this requires one to say what could reasonably have been obtained, at the date of termination, for the rights which the agent had been enjoying. For this purpose it is obviously necessary to assume that the agency would have continued and the hypothetical purchaser would have been able properly to perform the agency contract. He must be assumed to have been able to take over the agency and (if I may be allowed the metaphor) stand in the shoes of the agent, even if, as a matter of contract, the agency was not assignable or there were in practice no dealings in such agencies: compare Inland Revenue Commissioners v Crossman [1937] AC 26. What has to be valued is the income stream which the agency would have generated.
On the other hand, as at present advised, I see no reason to make any other assumptions contrary to what was the position in the real world at the date of termination. As one is placing a present value upon future income, one must discount future earnings by an appropriate rate of interest. If the agency was by its terms or in fact unassignable, it must be assumed, as I have said, that the hypothetical purchaser would have been entitled to take it over. But there is no basis for assuming that he would then have obtained an assignable asset: compare the Crossman case. Likewise, if the market for the products in which the agent dealt was rising or declining, this would have affected what a hypothetical purchaser would have been willing to give. He would have paid fewer years’ purchase for a declining agency than for one in an expanding market. If the agent would have had to incur expense or do work in earning his commission, it cannot be assumed that the hypothetical purchaser would have earned it gross or without having to do anything.
Mr Philip Moser, who appeared for Mr Lonsdale, objected that this method of calculation was likely to produce less than he would have been awarded by a French court. And it does appear that it is common practice for French courts to value agencies at twice the average annual gross commission over the previous three years. Mr Moser said that in stipulating that agents should receive compensation under article 17(3), the directive was adopting the French practice as Community law. This, he said, was confirmed by the report on the application of article 17 (COM(96) 364 final) which the Commission, pursuant to article 17(6), had issued in 1996. It noted that a body of case law had developed in France concerning the level of compensation. By “judicial custom”, this was fixed as two years’ commission, which, they said “conforms with commercial practice”. However, the courts retained a discretion to award less when “the agent’s loss was in fact less.” The report said that in France the directive had made no difference: “pre-existing jurisprudence has continued to be applied.” In England, however, there had been difficulties of interpretation. There was, at that stage, no case law but “the parties in practice are attempting to apply common law principles”. In particular, it was difficult to see how these principles would enable the courts to reach the figure of twice gross commission which was regularly awarded by French courts. The Commission said that there was “a need for clarification” of article 17. But nothing has been done about it.
Mr Moser invited your Lordships to treat the Commission as having indorsed the French method of calculating compensation under article 17(3) as the appropriate interpretation of that article as a Community instrument. It would follow that all Member States which adopt article 17(3) would be bound to treat twice gross commission as the normal compensation for termination of an agency, subject to variation in exceptional cases in which the principal could prove that the actual loss was less or the agent could prove that it was more. If your Lordships did not accept this as the plain and obvious meaning of the directive, he submitted that the question should be referred to the Court of Justice.
My Lords, I do not accept this submission, to which I think there are at least three answers. First, the Commission report was not indorsing any method of calculation as a true reflection of Community law. That was not its function. The Commission was required by article 17(6) to report on the implementation of the Article, and, if necessary, to submit proposals for amendments. It reported on the basis of information supplied by Member States and noted that the UK position (so far as it could be ascertained in the absence of any judicial pronouncement) was different from the French. But there is no suggestion that either approach would fail to implement the directive.
Secondly, the provisions of article 17(3) which say what the agent is entitled to be compensated for are perfectly plain. It is the damage which he suffers as a result of the termination. The French domestic law, as I have pointed out, says exactly the same. Where French and English courts differ is in the method by which that damage is calculated. But the Court of Justice has made it clear that the method of calculation is a matter for each Member State to decide. In Case C-465/04 Honeyvem Informazioni Commerciali Srl v Mariella De Zotti [2006] ECR I-02879 at paragraphs 34-36 the Court of Justice said:
“34. … It must be observed that although the system established by article 17 of the Directive is mandatory and prescribes a framework…it does not give any detailed indications as regards the method of calculation of the indemnity for termination of contract.
35. The Court thus held that, within that framework, the Member States may exercise their discretion as to the choice of methods for calculating the indemnity [Case C-381/98 Ingmar GB Ltd v Eaton Leonard Technologies Inc [2000] ECR I-9305 at paragraph 21]
36. Therefore … within the framework prescribed by article 17(2) of the Directive, the Member States enjoy a margin of discretion which they may exercise…”
Thirdly, it seems that commercial agencies in France operate in market conditions which are different from those prevailing in England. It would appear that in France agencies do change hands and that it is common for the premium charged on such a transaction to be twice the gross commission. Whether the judicial practice of estimating the value of the agency at twice gross commission is based upon this fact of French economic life or whether vendors of agency businesses are able to charge such a premium because the purchaser knows that he will be able to recover that amount, either from the next purchaser or from the principal on termination of the agency, is unclear. Saintier and Scholes, op.cit, at p. 187 describe it as a “chicken-and-egg process”. There does seem to be evidence that some principals demand payment of an estimated twice gross commission in return for the grant of a commercial agency (even if they have to lend the agent the money) because they know that they will have to return this amount to the agent on termination. At any rate, whatever the origins of the practice, it would appear that twice gross commission is often the real value of an agency in France because that is what you could sell it for in the market. As the Commission significantly remarked, the French system “conforms with commercial practice”. There is no such market in England. It would therefore appear that the difference between French and English practice exists not because their respective courts are applying different rules of law but because they are operating in different markets.
Mr Moser said that the adoption of anything less favourable to commercial agents than the French method of calculation would not give effect to the purpose of the directive, which is to protect the interests of the commercial agent. No doubt this is one of its purposes: in Page v Combined Shipping and Trading Co Ltd [1997] 3 All ER 656, 660 Staughton LJ said, with more than a touch of irony, that the directive appeared to be based upon a belief that “commercial agents are a downtrodden race, and need and should be afforded protection against their principals.” But these are generalities which do not help one to decide what protection is sufficient to give effect to the policy of the directive. One may however obtain a useful cross-check by considering what an agent could obtain under a system which provided him with an indemnity, since there is no doubt that this too would satisfy the policy of the directive.
It is a condition of the indemnity that the agent should have “brought the principal new customers or…significantly increased the volume of business with existing customers” and that the principal “continues to derive substantial benefits from the business with such customers”: article 17(2)(a). It follows that in a case such as the present, in which the principal went out of business and therefore derived no benefit from the customers introduced by the agent, no indemnity will be payable: see Saintier and Scholes, op.cit, at p. 204. In addition, article 17(2)(b) limits the indemnity to one year’s commission. In the face of these provisions which will satisfy the policy of the directive, it is impossible to argue that it requires a payment of twice gross commission whether the principal has derived any benefit from the termination or not.
In my opinion, therefore, the courts of the United Kingdom would not be acting inconsistently with the directive if they were to calculate the compensation payable under article 17(3) by reference to the value of the agency on the assumption that it continued: the amount which the agent could reasonably expect to receive for the right to stand in his shoes, continue to perform the duties of the agency and receive the commission which he would have received. It remains to consider some of the English and Scottish cases in which the question has been discussed.
The decision of the Court of Session in King v Tunnock Ltd 2000 SC 424 is the only appellate case containing a full discussion of the way compensation should be calculated. Mr King sold cakes and biscuits for Tunnock Ltd. He had taken over the agency from his father in 1962. It was his full time occupation. In 1994 the company closed its bakery and terminated the agency. The evidence was that over the previous two years he had earned gross commission amounting in total to £27,144. The sheriff held that he was not entitled to compensation because the principal, having closed the business, would not enjoy any benefits from the goodwill generated by the agent. But an Extra Division of the Court of Session reversed this interlocutor and awarded compensation in the sum of £27,144.
I respectfully think that the sheriff was right. In view of the closure of the business, the agency was worth nothing. No one would have given anything for the right to earn future commission on the sales of cakes and biscuits because there would be none to be sold. Nor had the principal retained any goodwill which the agent had helped to build up. The goodwill disappeared when the business closed. The reason why the business closed is not altogether clear but Mr King’s low earnings for full time work over the previous two years suggests that it was not doing well. Even if one assumes that commission would have continued at the same rate, it is hard to see why anyone should have paid for the privilege of a full time job which earned him less than he would have been paid as a bus conductor.
I am bound to say that I do not find the reasoning of the Extra Division, delivered by Lord Caplan, at all convincing. He said that the agency had existed for many years and that it was likely that the agent had good relations with customers. That, no doubt, was true. But Lord Caplan then went on to say:
“In these circumstances we consider it likely that the pursuer would have expected and required a relatively high level of compensation to surrender his successful and long-established agency. The compensation would, of course, require to be tied to the commission he was earning. Thus this is a case where we can conclude, even on the limited information that is available, that the agent would have expected to receive a capital sum representing at least the total for the last two years of his earnings to be paid before he would voluntarily have given up his agency.”
“[He] would have expected to receive…”. I daresay he might. But would anyone have given it to him? Lord Caplan does not seem to have considered it relevant to ask. It appears that, following King v Tunnock Ltd, it is standard practice for the former agent to give evidence of what he would have expected to receive for his agency. In this case, Mr Lonsdale said in a witness statement that he had been advised by an accountant that an established method of valuation was to take the gross profits and multiply them by two and a half. For the last completed accounting year before closure his gross commission was £12,239.34 and he therefore valued the business at £30,598.35.
Mr Lonsdale at least claimed to have the support of an accountant for his valuation, although he did not call him as a witness. But the Court of Session appears to have arrived at the figure of twice gross commission without any evidence at all. Lord Caplan said that he was “reassured” that this would be standard compensation in France, but, for the reasons I have explained, the French practice is of no evidential value whatever.
King v Tunnock Ltd was considered by Judge Bowers (sitting as a High Court judge) in Barrett McKenzie v Escada (UK) Ltd [2001] EuLR 567. The judge was not attracted by the formulaic approach of the Court of Session but said (at p. 575) that the point on which he agreed with Lord Caplan was that —
“one is valuing the agency and its connections that have been established by the agent at the time at or immediately before termination, and it is really a question of compensating for the notional value of that agency in the open market ….”
I agree that this is what compensation in article 17(3) means. My only caution is that one must be careful about the word “notional”. All that is notional is the assumption that the agency was available to be bought and sold at the relevant date. What it would fetch depends upon circumstances as they existed in the real world at the time: what the earnings prospects of the agency were and what people would have been willing to pay for similar businesses at the time.
In Tigana Ltd v Decoro [2003] EuLR 189 the judge awarded the agent a sum equal to his commission less expenses over the 14 to 15 months during which the agency had subsisted. I would agree that prima facie the value of the agency should be fixed by reference to its net earnings because, as a matter of common sense, that is what will matter to the hypothetical purchaser. Furthermore, in the case of an agent who has more than one agency, the costs must be fairly attributed to each. He cannot simply say, as Mr Lonsdale did in this case, that the marginal cost of the Elmdale agency was little or nothing because he had to see the same customers and go to the same exhibitions for Wendel.
It may well be that 14 months commission adopted by the judge was a fair valuation. But he seems to have had no evidence that anyone would have paid this figure for a comparable business. Instead, he gave (at p. 221) a non-exhaustive list of 14 factors ((a) to (n)), some of them very wide ranging indeed, which he said would require consideration. The list gives no indication of the weight to be attributed to each factor.
More recently, in Smith, Bailey Palmer v Howard & Hallam Ltd [2006] EuLR 578 Judge Overend (sitting as a High Court judge) dealt with claims by other agents who had worked for the respondent in this case. He noted that the Elmdale brand had been sold to a competitor for £550,000 and that, over the three years before the sale, 42% of the sales and distribution expenses had consisted of agent’s commission. On these figures, he considered that it would be right to attribute 42% of the value of the brand to the agents. This seems to me a flawed method of calculation. First, it treats the entire value of the brand, i.e. the goodwill of the Elmdale name, as attributable to sales and marketing. No allowance is made for the possibility that some of the goodwill may have been attributable to the fact that the company made good shoes. Secondly, no allowance is made for the fact that the commission, which is treated as the measure of the proprietary interest of the agents in the assets of the company, is what the agents were actually paid for their services. On this theory, the advertising agents should have acquired an interest proportionate to what they were paid. Thirdly, the valuation is based entirely on cost rather than what anyone would actually have paid for the agency.
That brings me to the judgments in the present case. The claim was heard by Judge Harris QC in the Oxford County Court and his judgment was, if I may respectfully say so, a model of clarity and common sense. I shall extract one or two of the most important passages:
“18. If it is kept in mind that the damage for which the agent is to be compensated consists in the loss of the value or goodwill he can be said to have possessed in the agency, then it can be seen that valuation ought to be reasonably straightforward. Small businesses of all kinds are daily being bought and sold, and a major element in the composition of their price will be a valuation of goodwill.
19. But neither side put evidence before the court about how commercial goodwill is conventionally valued. Nor was I told upon what basis claims of this type are conventionally settled. There was no evidence at all about how commercially to value such assets. It is of course for the claimant, as a seeker of compensation, to prove the value of what he has lost.”
The judge then found that net commission was running at about £8,000 a year and said:
“20. …The value of that agency, the commercial value is what someone would pay for it; to acquire by assignment a business vehicle with a likely net annual income of £8,000…
22. Commonsense would indicate that few people wanting the opportunity to earn what the claimant was earning would be prepared to pay well over £20,000 for the privilege of doing so, still less would they do so in an industry in remorseless decline, and in which the likely buyers would be men of modest means…
23. Given the absence of evidence about how commercially to value goodwill, or evidence about what price in practice might have been available, the court might be thought to be justified in simply finding that the claimant has failed to prove his case…
30. This was an agency producing a modest and falling income in a steadily deteriorating environment. There is no evidence that anyone would have paid anything to buy it…I am strongly tempted to find that no damage has been established…But perhaps that conclusion, though I regard it as logical, is a little over rigorous given that the defendant has already made a payment. Doing the best I can, I find that the appropriate figure for compensation is one of £5,000.”
The Court of Appeal approved of this approach. After a thorough review of the authorities, Moore-Bick LJ quoted paragraph 18 of the judgment (see above) and said that the judge was right in his approach. I agree. Furthermore, I do not think that the judge could have been faulted if he had simply dismissed the claim.”
….
I would therefore dismiss the appeal.
McQuillan & Anor v McCormick & Ors
[2010] EWHC 1112
Judge Behrens
I am satisfied that it was expressly agreed that the agency would be subject to the 1993 Regulations. As already noted the 1993 Regulations are expressly referred to in the letter of 6th April 2006. Furthermore in March 2007 Mr McCormick said that he did not dispute that Mr and Mrs McQuillan were entitled to the protection of the 1993 Regulations.
I note that in paragraph 11-011 of Bowstead on Agency Professor Reynolds is of opinion that there is no reason why parties cannot expressly incorporate the regulations. I agree with that view and consider that is what happened here.
In those circumstances it is not strictly necessary for me to consider the interesting submissions on whether (but for the agreement) this agency would have been subject to the 1993 Regulations.
I would however have held that it was subject to the 1993 Regulations.
I would have held that Mr and Mrs McQuillan did have the necessary continuing authority to negotiate and (if necessary) conclude the sale of Pandora products on behalf of Mr McCormick. I would have placed considerable reliance on the decisions of Patten J in paragraphs 16 to 21 of his judgment in Fryer v Firth following as it did the decision of Fulford J in PJ Pipe & Valve Co Ltd v Audco India Ltd [2005] EWHC 1904.
I would have concluded that Mr and Mrs McQuillan’s activities as commercial agents were not secondary. In my view the activities fall squarely within paragraph 2 of the Schedule. The indicia in paragraphs 3(a),(b)(c) of the Schedule are satisfied. Mr Fletcher relied on paragraph 4(c) as an indication that this was a secondary activity. In fact in this case the customer normally placed the order direct to Pandora UK. Furthermore the customer’s selection of the goods will have owed something to the demonstrations and negotiations of Mr and Mrs McQuillan. In any event paragraph 4(c) is only one indicator. Overall I am satisfied that the activities were not secondary.
I would have held that Mr and Mrs McQuillan were self-employed within the meaning of the 1993 Regulations. See Bowstead paragraph 11-05 and the cases cited at footnote 53. On no view were Mr and Mrs McQuillan employees of Pandora UK.
5.3. Breach
Breach by Mr McCormick
Mr McCormick was in breach of contract in failing to pay Mr and Mrs McQuillan the commissions due after August 2007. The sums due were significant. According to the spreadsheet the commission due for the months of September 2007 to January 2008 total in excess of £89,000. None of this was paid prior to the termination. The attempts by Mr McCormick to change the dates of payment from monthly from monthly in arrear to quarterly in arrear were a unilateral attempt by him to vary the contract and of no contractual effect. He did not in fact keep to his revised terms as he did not pay commission for 5 months.
6.3. Compensation under regulation 17.
The Law
Regulation 17(6) provides:
(6) Subject … to regulation 18 below, the commercial agent shall be entitled to compensation for the damage he suffers as a result of the termination of his relations with his principal.
In the light of my findings regulation 18 has no application. Authoritative guidance on the assessment of compensation is to be found in the speech of Lord Hoffmann in Lonsdale v Howard & Hallam [2007] UKHL 32.
In paragraphs 11 and 12 Lord Hoffmann said:
11. The value of the agency relationship lies in the prospect of earning commission, the agent’s expectation that ‘proper performance of the agency contract’ will provide him with a future income stream. It is this which must be valued.
12. Like any other exercise in valuation, this requires one to say what could reasonably have been obtained, at the date of termination, for the rights which the agent had been enjoying. For this purpose it is obviously necessary to assume that the agency would have continued and the hypothetical purchaser would have been able properly to perform the agency contract.…
Lord Hoffmann gave significant other guidance in the remainder of his speech as to matters relevant to the valuation exercise. These may be summarised:
1. Future earnings must be discounted by an appropriate rate of interest.
2. If the agency was unassignable it must be assumed that the agency that is to be acquired would also be unassignable. Furthermore the hypothetical purchase of the agency does not assume that the agent gives a covenant against assignment.
3. If the market is declining or rising this will affect what the hypothetical purchaser would pay and thus the amount of compensation.
4. If the agent had to incur expenses to earn the commission it cannot be assumed that the hypothetical purchaser would have earned it gross.
5. If the principal closes the business then no compensation is payable. In the light of the closure the agency is worth nothing. No one would give anything for the right to earn future commission because there would be none to earn.
Kenny v. Ireland ROC Ltd.
[2005] IEHC 241
Mr. Justice Clarke
“4. The Case Law
4.1 The only decision of the courts in this jurisdiction which considered the meaning of the term commercial agent as defined is Cooney & Company and Another v. Murphy Brewery Sales Limited (Unreported, High Court, Costello P, 30th July, 1997). The matter that came before the court on that occasion was an application for an interlocutory injunction. The agreement between the parties in that case was described by Costello P. at p. 2 as “an agency agreement by which (the contractor) entered into arrangements for the distribution of the products, namely draught beer and lager, the products of Heineken and of Murphy Stout”. The relevant agreement came to an end in circumstances where Murphy Brewery indicated that it did not intend renewing same as of the date of expiry. In the proceedings one of the issues was as to the applicability of the Directive to the contract concerned in that, as is pointed out at p. 4 of the judgment, if the Directive applied to the contract then the three months notice which was given would be appropriate notice in accordance with the terms of the directive.
4.2 In relation to that question Costello P. said:-
“Whether or not the EEC directive applies depends on whether or not the plaintiffs are to be regarded as commercial agents within the meaning of the directive. I have no doubt but that they are. It is perfectly clear that they are commercial agents, and the error of the argument to the contrary lies in the suggestion that the word “negotiation” means in some way to bargain or hassle so as to endeavour to reach some sort of arrangement between the agent and the proposed customer in relation to the purchase by the proposed customer of the products. In my view the term commercial agent is perfectly clear. It has been interpreted by the Competition Authority as referring to the parties to an agreement such as the one that I am considering today”.
4.3 The reference to the views of the Competition Authority would appear to be a reference to the determination of the Competition Authority in relation to a proceeding under s. 4 of the Competition Act 1991 on the application of Murphy Brewery Ireland Limited (notification number CA/428/92). As is clear from that determination of the Competition Authority both of the plaintiffs in Cooney & Company were (amongst others) parties to an agreement between Murphy Brewery and its distributors whereby each distributor (including those plaintiffs) was appointed exclusive sales agent of Murphy’s draught Heineken lager and Murphy Stout within a specified territory. While the precise terms of the arrangements between the parties in Cooney & Company (which Costello P. found constituted the distributors as commercial agents within the meaning of the Directive) are not set out in great detail in the judgment, the decision of the Competition Authority specifies those arrangements more fully. A summary of the terms of the agreement is to be found at para. 5 of the decision of the Competition Authority and indicates that the following were the principal provisions of the distribution agreement:-
“The agent was made exclusive sales agents of the products in the territory outlined in a map. All enquiries received by Murphy Brewery from the territory are to be referred to the agent, and the agent may be given rights in the territory for any new draught products. The agent will not seek customers or promote products outside the territory, nor stock the products in any branch or distribution warehouse outside the territory. The agent is required to accept all orders from customers within the territory for the products; to collect the produce from Murphy’s Breweries premises at the agents expense; to collect cash payments from certain customers; to support the sale of the products in order to achieve any sales targets agreed; to keep proper books and records and allow their inspection; and not to accept orders from customers who Murphy Brewery has given notice are not to be supplied. Advertising and other expenditure must be authorised by Murphy Brewery, but the agents must spend a minimum sum each year on advertising and promotion. The agent is to be paid a fixed cash commission for each keg of the product sold. The commission is to be adjusted each year by reference to movements in transport costs calculated by reference to Consumer Price Commodity Group Indices. The agreement may not be assigned without consent. No brand or identification may be changed or defaced in any way. Title in the products is retained at all times by Murphy Brewery and the products at all times remain the property of Murphy Brewery. The agent is also authorised to accept orders and to deliver products to customers on foot of accepted orders. Murphy Brewery agrees to actively promote the products by placing at least one sales representative and one dispense service mechanic in the territory. Murphy Brewery agrees to honour all contracts for the sale of products and to deal with all after sales enquiries”.
4.4 The decision of Costello P. in Cooney & Company related to an application for an interlocutory injunction which was refused, on the basis, inter alia, that the plaintiffs in that case had failed to establish a fair question to be tried. As part of its assessment of the plaintiffs’ case it was found by the court that the arrangements were such as to render the plaintiffs as commercial agents so that the notice given was appropriate. However it should be noted that the court went on to indicate that even if it was wrong in respect of its view of the directive it would nonetheless have found that the notice given was sufficient for the purposes of common law. It would not be correct, therefore, to say that Costello P. necessarily concluded that there was not a fair issue to be tried in relation to the question of whether arrangements of the type indicated above constituted the contractor as a commercial agent within the meaning of the directive. That being said, the judgment is nonetheless in clear and unequivocal terms and I must necessarily treat it as being a determination of this Court to the effect that a contract of the type so described does constitute the contractor a commercial agent.
4.5 The term “commercial agent” within the meaning of the Directive has been the subject of some limited comment in the European Court of Justice. In Bellone v. Yokohama Spa (C215/187, 1988, ECR, section 1, 2191) in the course of his opinion Advocate General Cosmos stated (at p. 1-2201):-
“According to Article 1(2) of the Directive all that it is required for a person to be considered to a commercial agent and thus able to benefit from the protection guaranteed by the Directive, is that the three necessary and sufficient (substantive) conditions laid down therein are met namely: that he is (a) a self employed intermediary; (b) that the contractual relationship is of a continuing character; and (c) that he exercises, on behalf of and in the name of the principal, an activity which may consist either simply in being an intermediary for the sale or purchase of goods or in both acting as intermediary and concluding sales or purchases of goods”.
4.6 It is true to state that the issue in Bellone was as to the compatibility of certain articles of Italian law with the Directive. The relevant articles made the validity of all agency contracts conditional upon the agent concerned being entered in the appropriate register. For the reasons set out in the judgment of the Court of Justice it was determined that such a restriction, not being expressly authorised, would not be compatible with the Directive. It is, therefore, fair to state that the precise parameters of the arrangements which might lead to an agent being considered a commercial agent within the meaning of the Directive, and of which Advocate General Cosmos spoke, were not of central relevance to the case at hearing. It should also be noted that the court, in its judgment, simply repeated the definition of commercial agent as is found in the Directive and did not specifically adopt the formulation contained in the opinion of the Advocate General. Nonetheless, that being said, the opinion of the Advocate General is of some materiality. The fact that, in formulating the test, Advocate General Cosmos does not include the word “negotiate” does not, of course, mean that that term is not relevant to a consideration of the meaning of “commercial agent”. However it is consistent with the view (and consistent with the judgment of Costello P. in Cooney & Company), that the use of the term “negotiate” does not extend the definition of commercial agent to the extent of requiring what might be termed active negotiation or bargain by bid and counter bid. Advocate General Cosmos would appear to have been of the view than an intermediary is necessarily involved in the negotiation of the sale or purchase concerned. It is, however, also necessary to have regard to the fact that an earlier draft of the directive used a formulation such that in order to qualify as a commercial agent, such agent, should “have a continuing authority for a fixed or indeterminant time to negotiate and/or to conclude an unlimited number of commercial transactions in the name and for account of another”. It is clear, as was submitted on behalf of IROC, that this formulation (which was not ultimately adopted) would have regarded the conclusion of the transaction as being sufficient (without negotiation). In those circumstances it must be the case that the use of the term “negotiate” adds something to the overall requirement.
4.7 The United Kingdom Court of Appeal gave consideration to the meaning of the term “commercial agent” in the case of Parks v. Esso Petroleum Company Limited (2000) Eu LR 25. In that case the plaintiff occupied a service station owned by Esso pursuant to an agency agreement which would appear, in some respects, to be similar to that which Mr. Kenny had with the Irish arm of Esso. One significant difference was, however, that the agreement between the plaintiff and Esso in Parks related solely to the sale by the plaintiff of motor fuels. Mr. Parks, like Mr. Kenny, also operated a shop and a car wash but in the case of Mr. Parks, unlike Mr. Kenny, these were operated on his own account and not as agent for Esso.
4.8 In Parks a number of issues arose. However insofar as material to this case the key question was as to whether a person, such as Mr. Parks, carrying out the business of operating a petrol station in the circumstances of his case could be said to be a commercial agent. In that regard Morritt LJ had the following to say:-
“So I return to the one short point which arises on the appeal. Did Mr. Parks negotiate and conclude the sale of the petrol owned by Esso to those who attended his forecourt? I take the normal meaning of the word from the Oxford English Dictionary definition relied on by Mr. Parks. This definition does not require a process of bargaining in the sense of invitation to treat, offer, counter offer and finally acceptance, more colloquially known as a haggle. But equally it does require more than the self-service by the customer followed by payment in the shop of the price shown on the pump, which is how the system operates nowadays. In my view the motorist would be astonished to be told that when he inserted the nozzle of the pipe into the top of his petrol tank that he was “negotiating ” with the site operator. In my view it is quite plain that there is no process of negotiation involved. To revert to the Oxford English Dictionary definition Mr. Parks relied on, Mr. Parks did not “deal with, manage or conduct” the sale of petrol to his customers, for he took no part in the customers choice and self-service. Insofar as the definition indicates the need for skill or consideration Mr. Parks provided none.
Further, the provisions of the Schedule, in particular those which distinguish between sales individually negotiated and those which depend on the customers self-selection, show beyond doubt that the regulations are not intended to apply to one in the position of Mr. Parks”.
4.9 As is clear from the final paragraph of the passage quoted above the position in the United Kingdom is materially different from that in this jurisdiction. The reference to the “provisions of the Schedule” is to a schedule to the United Kingdom Regulations which prescribes the activities which are, for the purposes of United Kingdom law, regarded as secondary so that the application of the relevant United Kingdom regulations are excluded in such a case. Of particular relevance in Parks was an exclusion (on the basis of being secondary) in the following terms:-
“The activities of a person as a commercial agent are to be considered secondary where it may be reasonably be taken that the primary purpose of the arrangement with its principal is other than as set out at paragraph 2″.
Paragraph 2 then provides as follows:-
“An arrangement falls within this paragraph if:-
(a) the business of the principal is the sale, or as the case maybe purchase, of goods of particular kind; and
(b) the goods concerned are such that:-
(i) transactions are normally individually negotiated and concluded on a commercial basis”.
Paragraph 3 of the schedule then sets out various indications which ought to be taken into account in considering whether the agreement falls within para. 2. And includes, at sub-para. (c), the following:-
“Customers normally select the goods for themselves and merely place their orders through the agent”.
4.10 It is therefore clear that, as a matter of United Kingdom law, irrespective of the true definition of commercial agent simplicter, the relevant regulations do not apply to cases where the customer selects the goods and merely places an order through the agent, because such cases are regarded as secondary and are thus excluded from the regulations. It will be recalled that under Article 2.2 of the Directive member states have the right to disapply the provisions of the Directive to persons who are commercial agents but whose activities are considered secondary by the law of the member state concerned. Thus the provisions of the United Kingdom schedule are in accordance with Article 2.2. However there is no corresponding exclusion in Irish law. Notwithstanding that distinction counsel for IROC understandably place emphasis upon the fact that the Court of Appeal in Parks would appear to have come to the view that the nature of the relationship between Mr. Parks and Esso in that case was not such as brought Mr. Parks within the definition of commercial agent in the first place and were merely fortified in that view by the provisions of the schedule. It is undoubtedly correct to state that, in its terms, the judgment makes clear that the view of the Court of Appeal was to that effect.
4.11 On a different aspect of the law relevant to this case counsel for IROC has drawn attention to both Julian Smith v. Reliance Water Controls Limited (2003) EWCA CIB 1153 and Mercantile International Group plc v. Chuan Soon Huat Industrial Group Limited (a decision of the Court of Appeal (Civil Division) of the 8th March, 2002). Both cases involved a consideration of whether persons might properly be described as commercial agents. They are authority for the proposition that in the absence of a written agreement being a sham, that agreement is and remains a most important means of ascertaining the relationship between the parties. However for reasons which I will address later in this judgment (and in particular at paragraphs 8 and 15) the written terms of agreement will not always necessarily be the sole means of determining the contractual arrangements between the parties, particularly in relation to a long lasting and evolving business relationship.
5. Analysis of the Authorities
5.1 Given that the authorities appear, on one view, to point in somewhat different directions it is necessary to look in more detail at the manner in which the respective conclusions were reached.
It will be recalled that in order to qualify as a commercial agent the person concerned must meet three tests. The first two, that is to say that the agent be self employed and have a continuing authority on behalf of the principal are uncontroversial on the facts of this case or indeed in any of the other cases referred to. The contentious issue here concerns the meaning of the phrase “negotiate the sale or the purchase” and the phrase “negotiate and conclude such transactions”. Given that the word “negotiate” appears in both definitions it is upon the true meaning of that term that the real issue depends. There can be no doubt but that an agent of the type of Mr. Kenny in this case and, indeed, Mr. Parks in his case, concludes the sale of goods (and in the case of Mr. Kenny concludes the purchase of goods) on behalf of his principal. The real question is as to what more needs to be done beyond the mere conclusion of a sale or purchase for it to be said that the agent concerned has “negotiated the sale or purchase.
5.2 There appears to be common ground between the decision of Costello P. in Cooney & Company and that of the Court of Appeal in Parks to the effect that active bargaining is not required to qualify as negotiation. While the word appears in the judgment of Costello P. in Cooney & Company as “hassle” I suspect that that is a typographical error for the word “haggle” which also was used by the Court of Appeal in Parks (decided some two years later).
5.3 Both in this case and in Parks reliance was placed upon the Oxford English Dictionary definition of negotiate. I would infer that there may be some minor differences between the text relied upon in Parks and that handed into court in this case. However in substance it would appear, as common knowledge would dictate, that there are two similar but separate meanings to the word. The first does involve a form of bargaining as appears from the definition set out at item 1(a) in the current edition in the following terms:-
“To discuss a matter with a view to some compromise or settlement”.
5.4 However the second meaning, as noted by the Court of Appeal in Parks, is to the following effect:-
“To deal with, manage, or conduct (a matter affair etc requiring some skill or consideration).
5.5 As was pointed out by the Court of Appeal in Parks that definition does not require a process of bargaining in the sense of invitation to treat, offer, counter offer and finally acceptance. The court also points out that it does require more than “the self service by the customer followed by payment in the shop of the price shown on the pump”. In coming to that view the court expressed the view that a motorist would be “astonished to be told when he inserted the nozzle of the pipe into the top of his petrol tank that he was “negotiating” with the site operator”. In that view the Court of Appeal was, doubtless, correct. However it would be equally the case that the same motorist would doubtless, be astonished to be told that by the same action he was engaging in a process where there was an invitation to treat (presumably by the presence of the petrol station with prices displayed and pumps available for self service), an offer (presumably by the motorist when he places the nozzle into the top of his petrol tank and pours) and an acceptance (presumably by the fact that the station is set up so that petrol is actually delivered). It seems to me that the proper approach is to consider, as the dictionary definition relied upon by the Court of Appeal specifies, whether the person who may be said to be negotiating (in this case the operator) has to “deal with, manage or conduct” the sale or purchase concerned and in so doing to use some skill or consideration. Therefore a purely automatic process to which the person concerned brings no material expertise is not, properly, regarded as negotiation. It is also clear that the skill or consideration must be, in some manner, brought to bear on the sale or purchase.
5.6 It should be recalled that in Parks the plaintiff was only involved in the sale of motor fuel products on behalf of his principal. As pointed out above there can be no doubt but that the Court of Appeal placed at least some reliance on the fact that the regulations in the United Kingdom made clear that cases where goods were selected by customers who merely ordered through the agent, gave rise to the activity of the agent concerned being regarded as secondary and thus permissibly excluded from the operation of the directive as implemented into United Kingdom law.
5.7 The business of the purchase and sale of goods is conducted in very many different ways. In some types of business it would be commonplace for there to be significant bargaining prior to any sale being concluded. In other cases the price will be relatively fixed and the manner in which persons may secure additional sales will be by virtue of other aspects of the way in which the goods are presented to the public (such as through marketing and promotion) or by the attractiveness of the presentation of the product and the like. It does not seem to me that the precise way in which a particular type of good is typically sold should necessarily be a significant factor in determining whether a person engaged in the sale of that good on behalf of a principal is to be regarded as a commercial agent. The true test is as to whether, having regard to the manner in which the sale of the good or goods concerned is carried out (or where relevant the purchase of such goods) it is necessary for the agent to bring a material level of skill to the activity (i.e. dealing with, managing or conducting the sale or purchase concerned).
5.8 The skill that may be brought to the activity may vary depending on the way in which the good concerned is typically sold. In some cases it may well, indeed, involve a skill in bargaining. In other cases it may be a skill in marketing and promotion. In yet other cases it may well be a skill in the presentation of the product in such a way as makes it attractive to members of the public so that they will purchase more of it. In substance I cannot see any material difference between an agent who uses his skill and judgment to individually promote a product to an identified individual potential purchasers on the one hand and an agent who having regard to the nature of the product of the principal which he is involved in seeking to sell uses more general methods (but applying equal skill) to making the products attractive to the public generally and thus increase sales.
5.9 I have come to the view that there may well be a difference in the approach taken by Costello P. in Cooney & Company from that taken by the Court of Appeal in Parks. I have taken into account the fact, in particular, that the nature of the contractual arrangements under consideration by Costello P. were such that the activities of the drink distributors concerned could be characterised, on the basis of the contract as described in the Competition Authority decision, as being largely automatic. While the business of the drink distributors did involve bringing product to customers (i.e. public houses) (rather than the customers coming to them) they did so in respect of a narrowly defined range of products at prices fixed by the principal and in circumstances where there would appear to have been an express agreement that the principal was to be primarily responsible for promotion (by the employment of a sales representative) and back-up. In those circumstances it is difficult to see that the role of the distributors in Cooney & Company in relation to the sale of the products concerned was, in practice, any greater than that of Mr. Parks.
6. Conclusions on Law
6.1 While taking into account the fact that the judgment of Costello P. in Cooney and Company was at an interlocutory stage and thus, notwithstanding it’s clear wording, does not necessarily amount to a final determination, I am satisfied that to the extent that there may be differences in the approach taken by Costello P. in Cooney & Company with that taken by the Court of Appeal in Parks I should follow the reasoning in Cooney & Company. If, therefore, the decision of the Court of Appeal in Parks is to be taken as implying that it is not possible for a person to be a commercial agent while that person exercises skill in attracting customers but where the ultimate transaction is by self service and payment, I do not regard the judgment as persuasive and I would not propose to follow it.
6.2 In all the circumstances it seems to me that the test which I should apply is to ascertain whether it may be said that Mr. Kenny brought a material level of skill or consideration to conducting, managing or otherwise dealing with the sale or purchase of products on behalf of IROC. It is, of course, the case that the question of purchase did not arise in Parks because Mr. Parks would have obtained all of his motor fuels (which were the only products which he sold on behalf of Esso) directly from his principal and thus did not purchase on behalf of the principal any products.”