Orr Litchfield
Solicitors and Business Lawyers
Solicitors and Business Lawyers
The Commercial Agents (Council Directive) Regulations 1993 (the ‘Regulations’) were implemented into British law on 1st January 1994 (a separate set of regulations was made for Northern Ireland). The objective of the EU Agents Directive was to harmonise the national laws of the EU member states to help facilitate internal EU trade but also aimed to address the imbalance that can exist between commercial agents – often smaller, less well-resourced companies and individuals – and principals – often larger commercial entities.
The Regulations currently apply to both written and oral agency agreements as well as temporary, indefinite or fixed term agreements.
• Regulation 2(1) provides the definition of an agent: 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."
• Regulation 3 places obligations on agents to act in good faith, protect the principal's interests, negotiate and (if applicable) conclude transactions, communicate necessary information and comply with reasonable instructions.
• Regulation 4 requires that principals must provide necessary documentation, inform agents about expected transaction volumes and notify them of transaction outcomes.
• Regulations 6-12 govern how an agent’s commission should be calculated and when it should be paid.
• Regulation 15 contains rules around the termination of the commercial agency agreements, including minimum notice periods.'
• Regulations 17 and 18 provide that commercial agents have the right to "compensation" or an "indemnity" on termination of the agency agreement in certain circumstances – this is the case even where there has been no wrongdoing on the part of the principal.
The above provisions cannot be contracted out of or modified either at all or modified only to a limited extent, for example, minimum notice periods for termination and compulsory payments following termination.
An agent’s right to compensation or an indemnity on termination is an area which gives rise to many disputes between principals and commercial agents. Compensation is the default rule unless the parties have expressly agreed to the alternative indemnity rule, the latter often considered to be more favourable from a principal’s point of view, as it is capped (whereas compensation is not).
In October 2023, the Government’s Department for Business and Trade launched a review under the theme of reducing business burdens post-Brexit. There was ensuing confusion around the aims of the review, i.e. was it to review the way regulators regulate or to review the regulations themselves? The potential for deregulation sparked considerable debate and alarm in the commercial sector.
According to the Government’s response, those who responded to the consultation largely divided into two camps: commercial agents, who valued the protections that the Regulations afforded them; and principals, some of whom viewed them as a bureaucratic constraint upon their ability to negotiate alternative terms with commercial agents.
On 14 February 2025, the UK Government announced its decision to maintain the Commercial Agents (Council Directive) Regulations 1993, citing that they work well for commercial agents, providing important protections particularly when they are negotiating with larger principals. Whilst it noted the concerns voiced by some principals about the Regulations limiting their ability to negotiate freely with their commercial agents, it reported that there was not sufficient evidence to suggest this was a major issue.
The decision overall provided relief for the commercial sector in ensuring continuity and stability in the legal framework governing the relationship between principals and commercial agents.'
Those dealing with agents will be aware that the Regulations are advantageous to agents in providing certain statutory entitlements if there should be sudden or unjustified contract terminations and consequential loss of commissions.
What is perhaps less known is the benefits to principals. Some principals may have been disappointed at the Government’s announcement on 14 February 2025, however there are certain protections awarded to them too.
Regulation 3, for example, provides specific protections that help principals manage their commercial relationships effectively and, if necessary, terminate agency agreements. Further, the Regulations facilitate certainty in contractual relationships which can reduce the need for extensive negotiations and thereby reduce costs.
Deregulation could have increased contractual risks and lead to demands from agents for either higher commission or contractual compensation or both.
The Government’s decision means that UK companies can appoint agents within the EU and request that their agency agreements are governed by English law – and for disputes to be determined by the English courts – without this being challenged by the national courts of EU member states. Conversely, UK agents can request from their EU principals to have their agency agreements governed by English law, again with disputes determined by the English courts. The latter also benefits EU companies by ensuring consistent laws for their agents within the EU.
If you are a principal who is considering terminating or changing a commercial agency contract, you should seek legal advice prior to taking any such step, in particular on compensation upon termination. Your legal advisor can help you to effectively manage your commercial agency relationships, minimise liability, avoid breaching the Regulations and avoid potential disputes that may arise under the Regulations.
If you would like more information about any aspect of agency or commercial contract law or would like to discuss a potential or existing agency contract or commercial contract law matter, please email us at enquiries@orrlitchfield.com, complete an Enquiry Form or call us.
