UK: Recent decision of the English High Court on commercial agency.

Silvia BORTOLOTTI | UK | 2005-10-25


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Regulation 2 provides that, in order to fall within the Regulations, the agent must have continuing authority to negotiate the sale or purchase of goods on behalf of the principal. This definition has been taken from the EU Directive, according to which: ‘a commercial agent must (..) make proper efforts to negotiate and, where appropriate, conclude the transactions he is instructed to take care of’.

In the present case, the judge was asked to establish whether an agent not having the authority to bargain on behalf of the principal nor to vary prices or terms when negotiating with the client was nevertheless to be considered as commercial agent for the purpose of the Regulations.

The Court started analysing the general purpose of the EU Directive, that is essentially to compensate the agent with a goodwill indemnity where he has been engaged to develop goodwill in the principal’s business and stated that, on that basis, the question of whether the agent actually participated in discussions on price or commercial terms had less relevance than whether the agent was retained to develop goodwill in his principal’s business.

Furthermore he analysed the Report of the Law Commissioners, the Guidance Notes issued by the English Department of Trade and Industry and the English case law on the interpretation of the term “negotiate” and came to the conclusion that courts should avoid a limited or restricted interpretation of the word “negotiate” that would exclude agents who have been engaged to develop the principal’s business and who successfully generated goodwill for the manufacturer, to the latter’s benefit after the agency terminated. Making reference to the specific case at issue, the Court stated that the agent acted as a commercial agent for the purposes of the Regulations, notwithstanding its lack of authority to bargain agreement on commercial terms or prices.

This judgement is interesting considering that in most countries, which implemented the EU Directive, the agent has only the authority to negotiate (without having the authority to conclude the relevant contracts) and hardly he is ever entitled to vary prices or terms when negotiating with clients. His function is to negotiate in the sense of promoting business and, in case, bargain on behalf of the principal, but always within the terms and conditions fixed by the principal. Therefore, the principle established in this judgement confirms the actual practice developed in this field in other European countries.


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