How does Brexit affect the commercial sales agents regulations?

Ever since the 2016 referendum, agents and principals have asked the same question: would Brexit sweep away the Commercial Agents Regulations, and with them the right to a payment on termination? For years the answer was uncertain. It is not any more.

Brexit and Agency Law: The Latest

August 2018: with the draft Withdrawal Agreement in place, a first confident prediction that the Regulations would survive.

Over 2 years have passed since the UK’s choice at the Referendum of 23 June 2016 to leave the EU. Although progress can seem frustratingly slow, much has actually happened in the interim, though significant uncertainty remains. However, it is possible at this stage to make some predictions regarding the effect of Brexit on the Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”).

Progress to date

In March 2018, the UK and the EU agreed the draft European Withdrawal Agreement. This confirmed the UK’s leave date from the EU of 30 March 2019 and agreed a transition period until 31 December 2020. In addition, the UK Government passed the EU Withdrawal Bill (or the “Great Repeal Bill”) which has the effect of converting all EU Legislation into EU law following Brexit.

The proposed transitional arrangements therefore ensure the Regulations will remain untouched until at least 31 December 2020, and will remain in place beyond this date for an indefinite period until the UK Government acts to repeal or alter existing legislation and thus diverge from the EU’s laws.

Earlier this month Theresa May’s cabinet agreed the Chequers Proposal (further detailed in a subsequent White Paper) setting out the UK government’s proposals for an ongoing trading relationship with the EU, post Brexit. (It should be noted that at the time of writing this article, Mr Davis and Mr Johnson have just resigned from the cabinet and so the proposals within this White Paper look particularly shaky).

The proposed trading arrangements are somewhat more conciliatory to the EU than many perhaps expected and propose a full legal alignment with the EU on laws relating to the trade in goods and agricultural products. As the Regulations apply only to the sale of goods it can be assumed that if a deal along these lines is achieved with the EU then the Regulations will remain untouched. The passage of this proposal is somewhat uncertain given that it appears to have irritated both Remainers and Brexiters equally (and it can probably best be described as a “medium-soft” Brexit as opposed to hard Brexit).

The Regulations in the event of a “hard Brexit”

Even if regulatory alignment cannot be achieved with the EU and a “hard Brexit” or “no deal” Brexit is the outcome, there will be no immediate divergence from EU law given terms of the EU Withdrawal Bill.

The Regulations are a statutory instrument that implements the EU Directive into UK law. It should be noted that in the ten year period between 1994 and 2014, some 4,283 statutory instruments importing an element of EU law were passed by the UK Government. The Regulations are just one of thousands that will need to be analysed by the UK Government’s lawyers over the coming years post Brexit and I suspect that if there is a “bonfire of red tape” the Regulations will be a long way down the list.

Any assessment of the Regulations is likely to be many years down the line and even then will be subject to a lengthy consultation period with the opportunity given to interested parties to make representations to the Government.

Upon analysis, even in the case of a “no deal” Brexit, I suspect that all but the most ideological law-makers will concede that albeit the origin of the Regulations is foreign, there would be nothing to gain and much to lose from doing away with them.

The fact is that the European equivalents of the Regulations are never going to disappear. With ever-increasing trade between countries many UK agents are retained by European manufacturers often as an (initially) cheap and risk-free way of breaking into UK markets, just as UK manufacturers utilise EU-based agents.

There is no point in the UK Government unilaterally removing protections for UK agents, leaving them open to abuse by EU manufacturers, whilst at the same time leaving our manufacturers liable to pay large sums in compensation upon termination to EU-based agents. The only outcome would be a net transfer of wealth from the UK to the EU with the UK unilaterally removing a trade barrier and the EU not.

Given all of the above, and despite all the current uncertainty, I am prepared to stick my neck out, the Regulations are here to stay.

Adam Maher, Partner, Dispute Resolution & Commercial Litigation, Myerson Solicitors LLP
Adam.Maher@myerson.co.uk
0161 941 4000
www.myerson.co.uk

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Agency: the opportunities presented by Brexit

October 2019: a different angle, why Brexit itself does not let either party simply walk away from an agency agreement.

Could there be opportunities for principals and sales agents alike as a result of the UK leaving the EU, as is expected, on 31 October 2019 without a withdrawal agreement being in place?

The question may seem counter-intuitive. But where a principal is looking to exit a sales agent, Brexit could well turn out to provide an opportunity to do so. However, the same may also be the case for the commission only sales agent which is acting for the principal!

Why is this important?

Agency agreements exist (as do all contracts) to regulate the relationship between two parties in respect of a particular issue.

But unlike other commercial contracts, the law of many countries provides specific protection for sales agents in the event of termination an agency agreement.

As a result, if the principal gave notice to the sales agent in accordance with the terms of the agency agreement, a claim for compensation can be compounded by a claim for the other statutory rights that the commercial sales agent may enjoy. For example, under EU law a sales agent may on termination of the agency agreement be entitled to claim:

• damages for failure to give proper notice; and
• commission earned but unpaid at the time of termination; and
• commission which would have been earned had the agency agreement continued by reference to the orders which reached the principal after termination as a result of the efforts made by the sales agent before termination; and
• commission on orders which have been accepted but not fulfilled by the principal where the reason for nonfulfillment is a reason for which the principal is responsible.

Why then the possibility of Brexit opportunities?

Many sales agency agreements will contain force majeure clauses. The literal meaning of force majeure is an unforeseen circumstance that prevents the fulfilment of a contract.

So far, so good. But:

• experience shows that many force majeure clauses are poorly drafted in terms of when they operate and what are the consequences of the occurrence of an event of force majeure.
• can it really be said that the occurrence of a hard Brexit and its consequences is an unforeseen event?

It has also been recently argued by the European Medicines Agency that the consequences of the UK leaving the EU meant that a lease of its offices had been frustrated, resulting in the EMA not being liable for its continuing lease obligations. However, this argument was rejected by the English High Court.

The upshot of this is that as the sales agency agreement cannot as a matter of English law be ended as a result of Brexit occurring, then it must be the case that both parties are required to continue to perform it.

As a result, it will not be possible for the sales agent to claim that it has been unable to do this or that as a result of Brexit. Non-performance is likely to provide an opportunity for the termination of the agreement.

Following on from this, the principal should consider the provisions in its agreement that deal with the sales agent’s performance obligations. Non-performance of a particular obligation may provide the opportunity to claim that the sales agent has committed a breach so allowing the agreement to be terminated for cause, and putting the principal in the position where they can avoid a claim for compensation!

Be careful what you wish for

Given that such an agreement cannot be ended on the basis that Brexit has resulted in the agreement being frustrated or that Brexit amounts to an event of force majeure, it is the case that the sales agent can look to the principal to continue to perform their contractual obligations.

It will not be enough for the principal to claim Brexit this or Brexit that. Non-performance of the agreement by them may enable the sales agent to claim breach so resulting in a claim for compensation and other entitlements.

And finally

It is possible that the sales agency agreement will be governed by law other than English law. Indeed, in the case of agreements where one party is in the EU and there is no express reference to the law of a particular company, EU law will determine which country’s law (that of principal or agent) will apply.

This is important as the laws of many member states of the EU may take a different view as to the effect of Brexit, so resulting in termination of sales agency agreement or a claim for damages by the sales agent in any event.

Stephen Sidkin is a partner at Fox Williams LLP (www.agentlaw.co.uk; www.foxwilliams.com)
© 2019 Fox Williams LLP

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How does Brexit affect the commercial sales agents regulations?

November 2020: as the transition period drew to a close, confirmation that the Regulations would carry over into UK law.

While Covid-19 dominates the headlines at the moment, none of us have forgotten that the UK left the European Union on 31 January 2020. Since then, here hasn’t really been much of a change because we are now in a transition period while the UK and the EU try to agree a trade deal to cover their future relationship. During this transition period EU law continues to apply in the UK in pretty much the same way as it always has.

However, the transition period is due to end on 31 December 2020 and, one way or another, things will change on that date. Over the course of the UK’s membership of the EU, a significant body of law originating from the EU has been developed. This includes the Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”), which impact on many sales agency contracts. Many of our clients, both principals and commercial sales agents, have been keen to understand what will happen to the Regulations after 31 December 2020, will they still apply? The short answer is that they will.

A lot of attention has, quite rightly, been focussed on whether or not a trade deal can be reached and the effect that either outcome will have on businesses in the UK. At this point in time, it is difficult to see which way things will go. If a trade deal is agreed, this is likely to result in the ongoing effectiveness of the Regulations, particularly if agreement is reached on regulatory matters and / or the so called “level playing field” (ie that businesses in the UK and the EU are subject to a set of common rules or standards).

However, even if no trade deal is reached the Regulations would continue to have effect after 31 December 2020. The reason for this is the European Union (Withdrawal) Act 2018, which specifies that any EU derived law that is in effect before ‘exit day’ (ie 31 December 2020) will continue to have effect after exit day. That would include the Regulations.

The Regulations could be amended or repealed in the future, but only Parliament could do this. Frankly, it looks like Parliament is going to have its hands full after 31 December 2020 and it seems highly likely that the Regulations would be fairly low on the list of priorities. We can therefore fairly safely assume that the Regulations will remain in place for the foreseeable future.

Kevin Manship, Legal Director, Blake Morgan Solicitors LLP
One Central Square, Cardiff, CF10 1FS
Email: kevin.manship@blakemorgan.co.uk
Direct Tel: 029 2068 6126
www.blakemorgan.co.uk

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The Commercial Agents Regulations in a post-Brexit world

January 2021: the detailed technical position once the UK had left, including cross-border and choice-of-law points.

Do the Commercial Agents Regulations 1993 have a future in Great Britain after IP completion day?

Yes. The Commercial Agents Regulations 1993, SI 1993/3053, are EU-derived domestic legislation made under section 2(2) of the European Communities Act 1972. Section 2 of the European Union (Withdrawal) Act 2018 (as amended by section 25 of the European Union (Withdrawal Agreement) Act 2020) provides that EU-derived domestic legislation, as it has effect in domestic law immediately before IP completion day, continues to have effect in domestic law on and after IP completion day as retained EU law.

As such, the Commercial Agents Regulations 1993 will continue to apply after the end of the Brexit transition period, unless and until the UK Parliament decides to modify or repeal them. Is there any real change in the way that commercial sales agents will be treated in UK and EEA territories following IP completion day?

For commercial sales agents whose agreements are governed by English law, there will not be any significant change in the short term. If the UK Parliament decides to modify or repeal the Commercial Agents Regulations 1993 in the future, then this could affect how sales agents whose agreements are governed by English law will be treated. Similarly, this will be the case if the Commercial Agents Regulations 1993 change by operation of case law.

In addition, for as long as the Commercial Agents Regulations 1993 remain unchanged, in any commercial sales agency disputes which are heard by courts in Great Britain after IP completion day, most British courts will be bound by principles laid down by, and any decisions of, the Court of Justice, as they had effect in EU law immediately before IP completion day (retained EU case law). The courts which may depart from retained EU case law are the higher courts in Great Britain, including the Supreme Court, the Scottish High Court of Justiciary in certain circumstances, and the Court of Appeal and equivalent courts across the UK. These higher courts must, in deciding whether to depart from any retained EU case law, apply the same test as they would apply in deciding whether to depart from their own case law (or, in the case of the Court of Appeal and equivalent courts, they must apply the same test as is used by the Supreme Court).

Finally, British courts will not be bound by any Court of Justice decisions made on or after IP completion day, although they may ‘have regard to’ such decisions so far as they are relevant to the matter before the court. This means that there will be uncertainty for sales agents and principals which want to rely on Court of Justice decisions made after IP completion day as to the extent to which the relevant British court will have regard to such decisions.

What law will apply to agents appointed in respect of both UK and EEA territories? The substantive rules of Rome I and the Rome Convention will continue to apply in all parts of the UK after IP completion day, with appropriate changes made by the Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc) (UK Exit) Regulations 2019, SI 2019/834, which will come into force on 31 December 2020.

Consequently, it is to be expected that:

• UK courts will still uphold governing law clauses (subject to the application of mandatory rules) providing for the choice of law other than the law of one of the UK countries; and
• the courts of EU Member States will uphold governing law clauses providing for a choice of law of:
  • England and Wales, or
  • Scotland in accordance with Rome I

Where, prior to IP completion day, agreements with agents in EEA countries were agreed to be subject to the law of England [and] Wales or Scotland, will the courts apply the Commercial Agents Regulations 1993 to such appointment (under regulation 1(3))?

Will these agreements be upheld after IP completion day? For commercial agency agreements entered into prior to IP competition day, our expectation is that courts of Member States will apply the Commercial Agents Regulations 1993 on the basis that when the parties entered into the agreement, England, Wales and Scotland were all part of an EU Member State.

However, if the Commercial Agents Regulations 1993 are amended by the UK Parliament to weaken the protections given to agents, or if interpretation of the Commercial Agents Regulations 1993 by British courts results in considerable divergence from the case law of the Court of Justice, we can foresee commercial agents in EEA countries with agreements subject to the law of England and Wales or Scotland seeking to rely on mandatory laws of their home countries, where it suits them to do so.

After IP completion day, can agents operating in EEA countries exclude the application of the relevant implementing legislation of Council Directive 86/653/EEC (the EU Commercial Agents Directive) applying to their appointment by agreeing that their agency appointment is subject to the law of England [and] Wales or Scotland? This will depend upon the extent to which the relevant Member State law implementing the EU Commercial Agents Directive which would otherwise apply to their appointment is mandatory.

We can foresee there being uncertainty in this area, and EEA-based agents may be wary of agreeing to their agreements being governed by the laws of England, Wales and Scotland. Is there any benefit to the UK in revoking the Commercial Agents Regulations 1993? In our view, while UK principals might foresee advantages if the Commercial Agents Regulations 1993 were revoked, any loss of protections for agents is likely to result in agents demanding contractual protections equivalent to those which they previously had under the Commercial Agent Regulations 1993, or alternatively demanding higher commission rates to compensate for increased risk.

How likely are amendments to the Commercial Agents Regulations 1993, and what are these likely to be? We consider that amendments to the Commercial Agents Regulations 1993 are very unlikely in the short term. If the UK government was minded in the medium to long term to amend the Commercial Agents Regulations 1993 to make them less favourable to agents, we expect agents to respond by demanding contractual protections in their agreements.

This analysis was first published on Lexis®PSL and can be found on www.lexisnexis.com (subscription required).

Steve Sidkins, Head of Commerce and Technology, Fox Williams LLP, Solicitors
10 Finsbury Square, London, EC2A 1AF
Tel: 020 7615 2505
www.foxwilliams.com

Disclaimer: This article does not contain legal advice and is for general guidance only. AgentBase, the firm of solicitors and the writer accept no liability in connection with the general guidance given. Please ensure that you obtain legal advice before acting in reliance upon anything in the article. For example please be clear that the information and views given in this column may not cover all possible angles, aspects, relevant considerations and/or points of law and so that all or any information which is given above needs in every instance to be referred for legal advice for clarification and amplification, before being relied upon.

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Commercial Agency Update: Implications of the Retained EU Law (Revocation and Reform) Act 2023

April 2024: what the Retained EU Law Act 2023 actually changed, and what it left intact.

In May 2023, the UK Government changed its plan to revoke all EU-derived laws, which would have included the Commercial Agents (Council Directive) Regulations 1993 (the Regulations). The Retained EU Law Bill prescribed a targeted list of 600 pieces of legislation to be revoked which did not include the Regulations.

This was welcome news for commercial agents who rely on the protections provided by the Regulations, which are derived from the EU Commercial Agents Directive (the Directive).

The Bill has since attained Royal Assent and the Retained EU Law (Revocation and Reform) Act 2023 (the Act) came into effect on 31 December 2023.

While the Act does not revoke or amend the Regulations, it may impact future decisions of the English Courts concerning the entitlements of commercial agents.

What impact will the Act have?

The Act changes how retained EU law, such as the Regulations, will be treated going forwards:

• Retained EU law no longer has supremacy over UK law. This means that the English courts are no longer bound to follow judgments of the Court of Justice of the European Union.
• General principles of EU law are no longer binding on the English courts.

How will this specifically impact the Regulations?

From 31 December 2023, the English Courts will not be required to follow decisions of the EU when interpreting and applying the Regulations, although in practice they may still choose to do so.

The UK government will have additional powers to amend the Regulations on a fast-track basis if they wish.

In practice and over time, a disparity between how the English courts and the EU courts interpret and apply legislation which implements the Directive is likely to develop, although it is not yet clear how significant this disparity will be.

In time, we may see significant differences in how the English Courts interpret and apply the Regulations now that they are no longer bound to follow EU decisions. However, the small number of cases heard and reported by the courts in this area means it is likely to be significant time before we see any differences in the English court’s application of commercial agency law.

What is the likelihood the Regulations will be subject to further change?

It was anticipated that the Regulations would be impacted or even revoked by the Act, and the U-turn made by the Government in respect of the Regulations was welcome news for agents.

Whilst the Government will be able to enact changes to the Regulations with greater ease now that the Act is in place, it remains to be seen what amendments, if any, will be made to the Regulations in due course.

It is unlikely that any amendments to the UK legislation will be made in the short term since legislative changes are subject to Parliamentary scrutiny and given the volume of retained EU law to be considered, the Regulations are unlikely to be high on the Government’s list of priorities.

Myerson will continue to report on any significant changes in this area.

It will remain important for principals and agents to understand which law governs their agency agreement. If the agreement remains silent, issues of applicable law and jurisdiction can arise, particularly where the principal and agent are not based in the same country.

Suzanne Carr is a Partner at Myerson Solicitors LLP
Grosvenor House, 20 Barrington Road, Altrincham, WA14 1HB
Tel: 0161 941 4000
www.myerson.co.uk
Suzanne.Carr@myerson.co.uk

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The Commercial Agents Regulations are here to stay! Good or Bad News for Agents and Principals?

March 2025: the resolution, a Government consultation concludes the Regulations will be kept.

The Commercial Agents Regulations were under threat as part of the proposed bonfire of EU laws following Brexit in 2016. The jury has been out for over 8 years, but finally a decision has been made, to keep them! But is this good news or bad for sales agents and their principals?

Giles Bright from Hamlins explains:

The Commercial Agents Regulations are being retained.

The Commercial Agents (Council Directive) Regulations 1993 (‘the Regulations’) have provided British commercial agents with significant legal protections for more than 30 years. The Regulations, which originate from EU law, have been enshrined in UK domestic legislation, to ensure that agents working on behalf of principals have clear rights in areas such as termination, compensation and contract enforcement.

Why are the Regulations important?

The Regulations provide the following key protections:

• Compensation or an indemnity payable on termination of an agency contract, even if there is no stated contractual entitlement or if the contract purports to exclude such an entitlement.
• Minimum notice periods when ending agreements.
• Protection against unfair contract terms, ensuring agents are treated fairly.
• Guidelines on agent remuneration in relation to the payment of commission and unfair adjustment of commission rates.
• Additional terms which are automatically implied into the contract and cannot be excluded.

Why was the consultation launched?

In 2023, the Government introduced the Retained EU Law (Revocation and Reform) Act, which gave ministers much greater powers to replace, or revoke, retained EU laws. This was seen as an opportunity to re-evaluate whether the retained EU laws in place were still necessary and effective.

As part of the consultation, the Government spoke to commercial agents and principals from a range of small and large businesses, across different industry sectors, as well as to lawyers, academics and other relevant informed individuals. About 70% of those who responded to the consultation were commercial agents, and around 8% of respondents were principals.

The consultation considered the following factors:

• To what extent respondents understand the impact of the Regulations.
• How important are the protections provided by the Regulations.
• Whether deregulating would reduce or increase the ability for agents and principals to contract.
• Whether deregulating would reduce or increase disputes between agents and principals.

The consultation revealed there is a clear polarisation of views between agents and principals.

Why were agents and principals concerned?

The prospect of potential revocation of the Regulations raised serious concerns for agents and their businesses, who believed they would face a return to greater legal uncertainty and weaker financial protections.

Most agents voicing their views to the Government Consultation said they considered the Regulations provided a clear framework which afforded them important protection, particularly in relation to written terms of engagement, certainty as to remuneration and the payment of compensation or indemnity on termination.

By contrast, the consultation showed principals viewed the Regulations as being heavily weighted against them in favour of agents. Most principals interviewed believed the Regulations create an unequal relationship that make it difficult to negotiate fair terms at commencement, in turn making it difficult to terminate for breach and/or which give the agent a right to compensation or an indemnity on termination that is difficult to avoid.

What the decision to maintain the Regulations means

The decision by the Government to keep the Regulations in place is welcome news for commercial agents. In our view, deregulation would have had a profound impact on the industry.

The Regulations provide a predictable legal framework, certainty and legal recourse in relation to the unjustified contract termination and the consequential loss of commission. Further, and while often overlooked, the Regulations offer protection for principals in statutory rights going beyond the common law. They afford certainty in contractual relationships.

This, in practice, often reduces the need for extensive negotiations on commencement of agency or in relation to the payment of compensation or an indemnity on termination. In our experience, this often reduces the scope for dispute and the need for protracted legal involvement. If the Regulations had been revoked, this would have resulted in a changing landscape with higher commissions and/or contractual compensation on termination demanded by commercial agents leading to increased costs for businesses. Deregulation would have led to increased legal uncertainty, resulting in longer, more protracted and costly legal disputes.

Ultimately, while there were some voices for reform, there was not a big enough appetite for wholesale changes to be warranted. The result, maintaining the Regulations affords both agents and principals certainty and a balanced playing field.

What happens next?

Whether businesses are for or against the Regulations, they must continue to reflect the requirements of the Regulations in their commercial agency contracts. Principals and agents should take legal advice to make sure they understand the requirements and consequences of the Regulations and are compliant. Some businesses have been waiting for the outcome of the Government Consultation to decide their route to market and may now move forward. They should consult with lawyers now.

Hamlins’ Commercial Disputes team has extensive expertise on the Regulations, acting for both agents and principals in drafting agency and other related agreements and settlement agreements, together with managing agency/principal relationships if relations deteriorate and/or in pursuing or defending claims if agency agreements are terminated. Giles Bright (formerly at Bankside Commercial) and the team have been involved in several high-profile reported cases in this area.

We seek to obtain the best outcome possible for every client, no matter how big or small the issue may be. If you would like a conversation to find out how we might help you, please get in touch.

Giles Bright
Giles.Bright@hamlins.com
+44 (0)20 3755 6097 | +44 (0)7852 346997