UK Government consults on the future of the Commercial Agents Regulations

The UK Government’s Department for Business and Trade (the Department) have launched a public consultation on the Commercial Agents (Council Directive) Regulations 1993 (CARs), with a view to potentially deregulating this area of law.

Background

The CARs are derived from the EU’s Commercial Agents Directive (86/653/EC). The EU Directive aimed to give enhanced legal protection to commercial agents, a group viewed as requiring additional protection in view of the (typically) disproportionate bargaining position as between principal and agent. Northern Ireland followed suit by implementing the Commercial Agents (Council Directive) Regulations (Northern Ireland) 1993 shortly thereafter.

Several of the key provisions of the CARS, such as the requirement for a minimum termination notice period and the obligation that the principal act in good faith in its dealings with the agent, apply mandatorily to the principal - agent relationship. This means that parties are unable to contract out of these. The most controversial of the mandatory provisions has undoubtedly been the principle that the agent is entitled to an indemnity or compensation from the principal on the termination of the relationship. Since the introduction of the CARs, agents, principals, and the courts have struggled to get their heads around how such a termination payment should be calculated, whether liability for such payments can be limited, and whether all of the sales procured by the agent could be said to be subject to CARs.

Why is the UK Government consulting?

The government is proposing to deregulate this area of law, stating that they believe that deregulation would simplify the legislative framework in the UK and allow business to contract more freely. It is also hoped that deregulation would reduce court time spent interpreting the CARs and considering disputes related to its provisions.

What is the Department consulting on?

The consultation questions seek to obtain general responses on the current knowledge, understanding and support for the CARs, and whether respondents support deregulation. Key questions include:

• the extent respondents understand the current impact of the CARs
• the importance of the current protections for commercial agents
• whether deregulation would increase or decrease the frequency of litigation
• the international impact of deregulation for both principals and agents

What’s next?

If the UK government proceeds with deregulation, only those agency agreements entered into after such deregulation would be impacted. The CARs would continue to apply to existing agency agreements. Post-deregulation, new agency agreements would be subject to the contract terms agreed between the parties, along with the common law principles of agency. Therefore, should the proposed deregulation go ahead, it will be vitally important that agents pay close attention to the drafting and negotiation of their agency arrangements, as they will no longer have the protections of the CARs to fall back on.

Impact on Northern Irish businesses

This consultation does not directly extend to the Northern Irish legislation. However, businesses in Northern Ireland are encouraged to participate in the consultation, particularly if they use commercial agents in England, Wales or Scotland (as CARS apply where the agent performs its activities, not where the principal is based). Further, the Department have stated that the findings of the consultation will be shared with the Northern Ireland Executive to inform policy development here (though the NI Executive will of course have control of the future direction of commercial agency in Northern Ireland).

For more information on the consultation, or advice generally relating to your business’ use of commercial agents, please contact Caroline McNally, Of Counsel, Keith Dunn, Senior Associate, or your usual Belfast Commercial & Technology contact.

Date published: 2 July 2024