The Department for Business and Trade has launched a consultation on its proposal to deregulate the Commercial Agents (Council Directive) Regulations 1993 (the “CA Regulations”).

The CA Regulations are a product of the UK’s membership of the EU, although the UK opposed the directive when it was initially introduced. Brexit has provided the UK government an opportunity to review EU regulations and determine whether they are still fit for purpose within the UK’s domestic legal framework.

The government’s initial view is that the CA Regulations sit at odds with the common law framework on agency arrangements currently operating in the UK, and that deregulation of the CA Regulations would simplify the law and allow businesses to work with each other more freely.

Background to the CA Regulations

The CA Regulations regulate the terms of engagement between a business (the “Principal”) and certain types of commercial agents, intending to protect the position of commercial agents and harmonise the different domestic laws across the EU concerning commercial agency agreements.

Under the CA Regulations, a “commercial agent” is:

“…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 definition thus envisages two types of commercial agents:

• a marketing agent, with authority only to negotiate with the customer on behalf of the principal; and
•  a sales agent, who has the authority to negotiate and conclude contracts with the customer on behalf of the principal.

The CA Regulations impose important terms into a relationship between a Principal and a commercial agent, many of which cannot be contractually excluded from the relationship and some of which can be excluded only if the exclusion operates in favour of the commercial agent. This includes guaranteed compensation payments to commercial agents when a Principal terminates a contract.

From the perspective of a self-employed person who has limited access to sophisticated legal and commercial advice, the CA Regulations may provide important protections and in some cases, assist in correcting the power imbalance when negotiating with large businesses.

However, the UK’s broader legislative framework recognises that in business-to-business transactions, the parties should be free to agree to contractual terms between themselves. There are certain exceptions to this rule, such as the UK’s legislation governing unfair contract terms, but on the whole, businesses have the freedom to determine the terms of their contractual relationship with limited legislative intervention. It is therefore easy to understand the government’s suggestion that the CA Regulations are not fit for purpose in the UK.

The government’s deregulation proposal

The UK government is proposing to introduce legislation to prevent the CA Regulations from applying to newly appointed commercial agents and return to the legal position pre-1993, where agency contracts were negotiated individually within the context of the relationship.

Should the government choose to move forward with this proposition, the stipulations of the CA Regulations will continue to govern any existing agency contracts.

The goal is that deregulating will simplify the UK’s legislative framework on agency arrangements, reduce disputes and ultimately time spent in court interpreting the CA Regulations and most importantly, make it easier for businesses to contract with each other.

If you have any queries on the Commercial Agents (Council Directive) Regulations 1993 or agency relationships in general, please get in touch with a member of our Commercial Team.