Appointing an agent who then goes on to appoint one or more sub-agents is fairly common. But despite this, less certain is the application of the Commercial Agents Regulations; both to agents and sub-agents.
What is the uncertainty for agents?
Whether the sub-agents are appointed to cover a group of customers or a territory, the starting point is to determine the appointment of the agent. A commercial agent is defined as a self-employed intermediary having continuing authority to negotiate the sale or purchase of goods.
But one of the exceptions to when an agent is not a commercial agent for the purpose of the Regulations is when the activities of the agent are “secondary activities” as defined by the Regulations.
It is, therefore, possible to envisage a situation where an agent is appointed to recruit and manage a number of sub-agents. In effect, the agent creates a salesforce for the principal. But in this situation, there is an argument to say that as the agent’s primary activity is the recruitment and management of a salesforce, the Regulations do not apply.
This situation can be contrasted with the situation where the principal appoints the agent to obtain orders on behalf of the principal; in essence, giving the agent continuing authority to negotiate the sale of goods as mentioned above. If the agent chooses to do so by recruiting a number of sub-agents, it would be a hard judge who decided that the agent was not a commercial agent and, therefore, that the Regulations did not apply.
The only reported English court judgment to date does not make the situation clearer. In its judgment, the Court of Appeal decided that an agent concerned with managing a number of sub-agents could have a claim against the principal under the Regulations.
What is the uncertainty for sub-agents?
Before the Court of Appeal judgment, the High Court had considered the position of the sub-agents in this case. The High Court decided that sub-agents could claim compensation against the principal (not the agent) under the Regulations.
Unsurprisingly the principal appealed to the Court of Appeal and claimed that for the Regulations to apply there would need to be a direct contractual link between principal and sub-agents.
The Court of Appeal agreed with the principal. However, it was clear from the Court of Appeal’s judgment that the thought that the sub-agents would be unable to benefit from the Regulations concerned the Court of Appeal. As a result, the Court of Appeal expressed the view that the sub-agents should be entitled to a share of what was obtained by the agent by way of compensation (or indemnity) from the principal.
So, what is to be done?
From the principal’s perspective, the scope of the appointment of the agent may provide the principal with an escape route from a claim for compensation or indemnity under the Regulations where the appointment of sub-agents is anticipated.
However, from the agent’s perspective, it follows that the reverse is also the case. Careful wording of the scope of the appointment may result in the agent being able to claim compensation (or indemnity) under the Regulations. From the perspective of a sub-agent, meanwhile, a sub-agent may be able to claim a share of the compensation (or indemnity) recovered by the agent.
Alternatively, it might be argued that there was an implied trust between agent and sub-agent and that the agent holds the compensation (or indemnity) (or at least part of it) on trust for the sub-agent.
© 2019 Fox Williams LLP
Stephen Sidkin is a partner at Fox Williams LLP
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