Commercial Agents Regulations: Potential changes to UK agency relationships
Tuesday 28th May 2024
On 16 May the Department for Business and Trade announced that it is consulting on the deregulation of the Commercial Agents (Council Directive) Regulations 2003 (CARs), which are part of the EU legal framework, and for the time being are retained in UK law.
The CARs govern the relationship between ‘commercial agents’ and their ‘principal’. That legislation defines each party as follows:
‘a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the “principal”), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal.’
The current legislation imposes certain terms on the parties to an agency agreement, whether they are written in the contract or not. This includes an obligation on a principal to make a termination payment to an agent when the agency relationship ends, as well as certain protections for principals, including obligations on an agent to look after the interests of the principal and act dutifully in good faith towards them, and to make ‘proper efforts’ to negotiate and conclude transactions. Some rights under the CARs can be overwritten by a contract, but the above examples cannot.
The general aim of the CARs is to provide consistent protection for commercial agents. However, the current Government’s view is that agency agreements should work in the same way as other commercial contracts formed under English law, where the parties are free to set their own contractual terms. This, in their view, would simplify the UK’s legislative framework, reduce Court time spent on interpreting the CARs, and make it simpler for businesses to contract with each other.
Key takeaways for businesses
Whilst this proposed change is at consultation stage only, principals and commercial agents should each be aware of the proposed changes, particularly if organisations are considering switching from a distribution to an agency model or vice versa. Should the CARs be deregulated, they will still apply to existing agreements, but cease to apply for new agreements (although it is unclear whether they will continue to apply to the renewal of existing agreements). As such, any key protections which either party wishes to rely on going forwards, should be included in the express contractual terms, on the basis that additional protections or terms may not be implied into the contract should the law change as proposed.
Find out more by speaking to our commercial contracts experts on this matter.
